Mwana regains BNC assets

HARARE - Mwana Africa Plc (Mwana) is set to regain $47,3 million it had written off on Bindura Nickel Corporation (BNC)’s non-current assets over viability concerns of the Zimbabwe-based unit, an investment intelligence firm said.

“It seems increasingly likely that Mwana will be obliged to review the value of its holding in BNC,” Edison Investment Research (Edison) said.

Last year, Mwana wrote the balance sheet value of its holding down to zero when BNC’s Trojan Mine was pursuing its original, relatively low-grade mine schedule.

At the time, BNC had not signed off its accounts and was cash-flow negative. The cash flow model that resulted in the impairment of BNC’s assets in the Mwana accounts included the discount rate, budgeted production plans and the London Metal Exchange future nickel prices.

The model cash flow sought to establish the viability of BNC operations in the wake of the drastic fall in global nickel prices in view of funding requirements at BNC’s re-opened Trojan Mine.

Shortly after Mwana’s write-down, however, BNC approved its revised selective massive orebody mining campaign and signed off its own accounts without any impairment at all.

“As a result...the $43,7 million impairment that Mwana made in the 2013 financial year will now be substantially reversed,” said Edison.

In its short-term and long-term forecast revisions, Edison predicted that Mwana Africa’s profit after tax will rise from $231 000 in 2013 to $10 million this year before surging to $37,7 million next year.

“Self-evidently, there is no effect on either the valuation or underlying earnings per share (EPS) in the 2014 financial year as a result of any impairment reversal although, on the basis of the reported measure of EPS, Mwana is now trading on a current year P/E multiple of around one.

“In addition to the impairment reversal, we have also updated our current quarter nickel head-grade forecast at Trojan from 1,73 percent to 1,67 percent (subsequent to a recent site visit) and our quarterly gold price forecast, which has resulted in a decline in forecast normalised EPS for the current period from 0,67 cents to 0,60 cents.

“Of more significance, however, we have been able to revise our financial model to incorporate the results of the Massive Orebody mining campaign, which have recently been released,” said the investment firm.

Edison noted that this involves mining 7,871 kilo tonnes (kt) over the life of Trojan’s operations at an average grade of 1,09 percent Nickel compared to 8,154kt at 0,95 percent Nickel previously, with a mass pull of 9,7 percent and an improved nickel recovery of 82,38 percent to produce 70,499 tonnes of Nickel in concentrate.

As a consequence, Edison’s EPS forecast for the year 2015 has increased from 1,23 cents to 2,17 cents.

Comments (2)

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