Norilsk Nickel sues Botswana government over failed nickel mine transaction

May 1, 2017

Norilsk Nickel announced that it is suing Botswana’s government for more than $270 million after failing to recover funds from state-backed BCL Group over that groups failure to complete its purchase of Norilsk’s stake in the Nkomati Mine.

Norilsk contends that BCL Group walked away from its $271 million agreement to purchase a 50 percent stake in the mine. In 2014, BCL agreed to buy the stake for $337 million but later reduced that price to $271 million. The Financial Times reported that BCL 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.

Botswana has been regarded as the most stable place in Africa for mine investments.

“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.

The country has been trying to diversify away from diamonds, part of that was to direct 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 $271 million, 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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