Sunday 28 May 2017

Norilsk Nickel sues Botswana’s government over mine stake

Norilsk Nickel sues Botswana’s government over mine stake
(Financial Times 04/28/17)
Norilsk Nickel sues Botswana’s government over mine stake

Russia group wants to reclaim $270m after state-backed company failed to complete deal.

Norilsk Nickel, the Russian miner, is suing Botswana’s government to recover more than $270m after a state-backed mining company walked away from a deal to buy its stake in a South African mine last year.

Notice of the lawsuit was served on Thursday in Gaborone, Botswana’s capital, according to two people briefed on the matter.

Norilsk agreed to sell operations including its 50 per cent stake in South Africa’s Nkomati mine to BCL Group, which is owned by Botswana’s government, for $337m in 2014, later reducing its price to $271m. But BCL filed for liquidation in October last year just before the transaction was due to be completed, on the grounds that it was unable to afford the purchase price.

Investors are likely to watch Norilsk’s litigation closely as Botswana has been regarded as the best-rated country for mine investments in Africa, a region where international mining companies often have to weigh the risks of uncertain policies and expropriation of assets.

“Botswana has a reputation as one of the safest and best places to invest in the whole of Africa and it has earned the strongest credit rating on the continent on that basis,” said Michael Marriott, the chief executive of Norilsk’s Africa operations.

“The way that the government of Botswana has acted over BCL brings the validity of that reputation into question. The negative ramifications could be felt across the economy of the whole country,” he added.

A survey by the Fraser Institute, a Canadian think-tank, this year rated Botswana as the top mining investment destination in Africa, and 12th of 104 governments globally for the stability of its policies. The country ranked behind only Western Australia on regulatory certainty.

Best known for its diamond wealth, Botswana has been trying to diversify its economy, including directing BCL to invest in nickel and copper assets to feed smelters that are among the largest in the world. The Nkomati mine, the other half of which is owned by South Africa’s African Rainbow Minerals, is Africa’s biggest primary nickel producer.

The two people briefed on the lawsuit said that Norilsk was expected to allege that, despite approval of the Nkomati deal at the highest levels of the government, Botswana was aware of BCL’s financial condition and knew that it was unable to complete the deal without state funds.

“Why did BCL enter into the transaction knowing it couldn’t afford the purchase price?” one lawyer familiar with the case said.

The government did not immediately respond to the lawsuit but said last year that BCL was liquidated because it had struggled with low commodity prices.

Norilsk sued BCL itself in December last year, to recover the $271m, including proceedings in London. Botswanan media have since reported that Middle Eastern investors have been in negotiations with BCL’s liquidators to buy the company.

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