Nickel miner BNC has issued a profit warning advising investors that profit for the half year will be significantly lower compared to the prior year. The miner said profit for the half year period to 30 September, will be 193% lower compared to the same period last year.

The company said based on preliminary assessment of the financials, it is expecting to record a net loss after tax against a positive profit performance forecast earlier forecasted. BNC is facing a number of production related challenges largely arising from capitalization and transitioning of the mining model from low volume, high grade strategy.

The transitioning, which is anticipated to yield higher cashflows and profitability, has gone behind schedule largely due to delay in the delivery of new underground mining mobile equipment which is pivotal in the realization of the new mining plan.  

The new mining plan was first mooted in 2020 before implementation in 2021. The value proposition was that the plan favoured the geological and operational set up of Trojan Mine, which meant that the gain arising from volumes would far outweigh the loss in ore grade.

However, the challenges in implementation pertained to the ability of the company to capitalize its production processes. the delays in the delivery of equipment cited in the cautionary statement, also speaks to the deficiency in prudential management, given that the challenges in the global supply chain, cited, had long been with us as early as February 2020.

In the full year 2022 results review BNC MD said the company had begun the process of acquiring new underground mobile mining equipment to alleviate the low equipment availabilities. He however warned of long delivery lead times due to the high world-wide demand for minerals as well as disruptions to supply chains caused by both COVID-19 and the Russia-Ukraine conflict.

The company took a decision to hire the required equipment in order to fill the gap while awaiting delivery of the equipment ordered. Based on the profit warning, it is likely that the strategy to hire the equipment failed to materialize resulting in the unforeseen losses, now anticipated.

The right approach would have been to address the disparities in performance from the contingency plan other than to simply highlight a known problem which management had already resolved to solve through hiring third party equipment.

The company also reported that it experienced a breakdown in the Subvertical Rock Winder which hoists ore from underground for further processing at the Concentrator plant.

The underlying value of the BNC asset (mines) is immense by measure and under value by market. However, to unlock this value BNC will have to address matters of capitalization and cashflows. The company needs to modernize its process and enhance cashflows through prudential planning.

There is confirmed availability of huff low grade disseminated resource of approximately 8,33 million tonnes, with an average ore grade of 0.86% at Trojan Nickel Mine.

What this shows is that that the geological study discovered presence of a significant portion of untapped and previously unknown ore reserves and that this ore is not so much of low value given that the average of 0,86% is not far from the high value ore grade levels of about 0,9%. Essentially the disparity in ore grade is easily overrun by volumes if the new plan is to consummate.