Hwange expects profitability

Published: 02 July 2014

HWANGE Colliery Company Ltd, the country's largest coal miner, expects to turn profitable upon commissioning of new equipment before year-end, an official said.

The company has finalised the acquisition of loading and drilling equipment worth $15 million from BBML of India, which will be financed through a loan structure from Export and Import Bank of India, managing director Mr Thomas Makore told the AGM Acquisition of additional equipment has been finalised with BELAZ of Belarus, the world's third largest dump truck manufacture. The equipment, worth $18 million, will be financed through a loan from PTA Bank and the delivery is expected in August.

"On commission of the above pieces of equipment . . . the company will be able to produce 300 000 tonnes of coal per month," said Mr Makore, who was introduced to shareholders during the meeting. Mr Makore assumed office at the beginning of last month.

"With such production and estimated monthly revenues of at least $12 million, the company will become profitable and its going concern position will be enhanced." the monthly average volumes are presently at $5 million against obligations of $14 million.

Hwange Colliery reported a full year net loss of $30.8 million from a $3.1 million profit t in 2012, after revenue plunged due to low production while cost of sales jumped.

Revenue was down to $71.5 million from $104.2, million while sales volumes declined 176 percent to 1.6 million tonnes from two million tonnes, led by a steep decline in coal and coking coal output.

Also impacting on revenue was a 57 percent decline in coke and breeze exports after its customers in the Democratic Republic of Congo stopped operations, this was compounded by influx of cheaper imports from China. Apart from deploying new equipment, Hwange will embark on the refurbishment of underground equipment, restructuring of the balance sheet including conversion of Government debt to equity and divisionalise the company to managed performance and costs.

Mr Makore highlighted that the legacy debts, of close to $90 million, were having a negative impact on cash that can be used to finance operations. In the past two years, the company paid in excess of $35 million to service the legacy debts, he added. "Financial institutions view HCCL as high risk due to high current liabilities and therefore, are not keen to extend favourable lines of credit to the company," said Mr Makore.

Going forward, the company is considering other revenue streams, including selling coke oven gas to Hwange Power Station as an alternative to expensive diesel. The company was also looking at supply of coke oven by-products to ZimChem, a company that produces solvents and coal tar products as well as methane gas production. Additional opportunities for exporting coking coal to Zambia and South Africa are being pursued.

As part of its long-term plans, the company applied for additional mining concessions in the western area coalfields. "The reserves will enhance the life of the of the mine and give impetus to the new prospects that are in the pipeline," said Mr Makore. Meanwhile, Hwange employees will proceed with a court action they took against their company in relation to compensation of shares they bought in 2007 after shareholders voted against a resolution to pay back about $1.4 million to about 2 3 00 workers.

The share option scheme has been brought at previous AGM's with the initial resolution seeking to allocate the respective shares to workers but the route was discontinued..After engagements with workers, it was "mutually" agreed that the employees be refunded their money. The board was seeking approval to repay the workers instead of allotting shares. Mr Nicholas van Hoogstraten, a major shareholder, opposed the resolution, saying workers were only paid for the shares "six months after the cut-of date."

But a worker representative said it was high time the matter be resolved so that workers "get compensated." Workers have already approached the courts seeking a compensation of $5.6 million.

A shareholder then requested the board to relook into the matter. But chairman Mr Farai Mtamangira said: "I don't think much will be achieved by taking the matter back to the board. "It looks to me that in the absence of this issue not being carried in this meeting, then it can only be left to be resolved through litigation as it appears." He said the previous board took a decision in 2010 to compensate the workers and all the new board was doing was engaging the parties to get shareholders' approval to implement the resolution.
- The Herald

Tags: Hwange,