African Rainbow Minerals - Modikwa Mine

Nornickel not going to back off

While the protracted dispute between Russia’s Norilsk Nickel (Nornickel) and the Botswana government over the commitment made by the Botswana state-owned company BCL in 2014 to purchase Norilsk’s African assets, is still to be resolved, the message from Nornickel is short, simple and clear-cut: “We are not going to back off!”

Not only has the dispute – which is developing into one of the most unsavoury disagreements over mining assets yet seen in the Southern African region – jeopardised at least 5 000 mineworkers and their families’ future, but also business in Selebi Phikwe, which has for all intents and purposes come to a grinding halt, and Francistown, which is becoming a ghost town.

Most importantly, it has severely damaged Botswana’s reputation as one of the most investment-friendly countries on the African continent.

The dispute emanates from Nornickel, the world’s largest refined nickel and palladium producer, selling its African assets (Norilsk’s 85%-owned Tati Nickel operation east of Francistown, as well as Nornickel’s 50% share in South Africa’s Nkomati nickel mine in the Barberton area), to BCL in October 2014.

BCL’s motivation for concluding the deal was the clear synergies between its operations centered on the town of Selebi-Phikwe, which include an underground nickel/copper mine and the smelter (neither now functioning), and Norilsk’s operations at Tati Nickel and Nkomati.

Almost four years later, Nornickel has yet to reach conclusion on this deal after BCL was placed into provisional liquidation in 2016. Nornickel maintains that the Botswana government, the ultimate owner of BCL, has deliberately walked away from the 2014 deal. Nornickel this week emphasised that it will continue with the litigation over the Nkomati and Tati facilities to recover around US$277 million debt by BCL, which had failed to make a payment under the share purchase agreement and was subsequently put into liquidated by the Botswana Government.

Commenting on the turn of events since the transaction was agreed in 2014, Michael Marriott, CEO of Nornickel Africa, said the deal appeared to be proceeding according to plan until the second half of 2016. “Prior to its being put into liquidation in October 2016, BCL had already taken occupation of the Tati Nickel mine and, at least for a period, continued mining and processing operations as normal. In August 2016, the final approvals necessary for the agreement to become unconditional were received from the Department of Mineral Resources (DMR) in South Africa and we were confident that the sale process had effectively been concluded.”

In September 2016, Nornickel asked for payment from BCL, citing the terms of the Sales and Purchase Agreement (SPA), but this was not forthcoming. The government of Botswana subsequently applied to the Botswana High Court, after which BCL’s entities were put into provisional liquidation. Since BCL’s liquidator had refused to confirm that he accepted Nornickel’s right to be paid, Nornickel in November 2016 submitted a Request for Arbitration to the London Court of International Arbitration (LCIA) to determine its claims under the SPA.

Towards the end of 2017, Nornickel also filed application with Botswana courts seeking permission to commence and prosecute arbitration in the LCIA in respect of its claim. Nornickel filed a reckless trading claim against, inter-alia, the government, seeking to declare government responsible for the liabilities of BCL entities to Norilsk.

The court heard the permission application in April this year and handed judgment on 21 June 2018. Although the LCIA was the contractually agreed forum for resolving disputes under the SPA, this was necessary because both Botswana and UK laws prevent further steps being taken against a company in liquidation without such permission from the court.

Marriott says having made the Permission Application in December 2016, it then took the Botswana court over 16 months to consider this very straight-forward matter.  “We are now left with a deeply unsatisfactory judgment which has denied us the ability to resolve this dispute through impartial, international arbitration, despite our right to do so under our contract with BCL. Nornickel is disappointed by the Botswana court’s ruling and dismayed by the Botswana’s authorities’ disdain for investors’ rights.”

Marriott believes Nornickel’s application should have been straightforward and uncontroversial. “It is our view that Nornickel has been treated unfairly and contrary to established legal principles.  We will therefore not abandon our legal action against the Botswana Government and will use every avenue available to recover the debt.”

To further compound the whole saga, former Minister of Mineral Resources, Green Technology and Energy Security of Botswana, Sadique Kebonang, in March 2018 claimed that “Botswana had paid $45-million to Norilsk Nickel” for the settlement of dispute regarding the cancellation of the sale of the Nkomati mine that belongs to Botswana state company BCL. However, despite the official declaration, no payments of the Botswana government have yet been received by “Norilsk Nickel”.

Marriott says the entire saga has been extremely distasteful for Norilsk, which invested in Botswana because it regarded the country as a sound mining jurisdiction. “Botswana has long been regarded as one of Africa’s most desirable mining destination. “I fear, however, that this reputation, based on Nornickel’s experience over the past few years, is very much at risk. The Botswana government’s actions are bad for the economy, bad for investment and bad for the people of the country.”