Govt validates Hwange’s debt

via Govt validates Hwange’s debt | The Herald September 15, 2015

GOVERNMENT is validating the money it is owed by Hwange Colliery Company in tax liabilities to the Zimbabwe Revenue Authority before undertaking a debt-to-equity swap. The Government, a 37 percent shareholder in the country’s largest coal miner intends to convert Hwange’s debt to Zimra for shares, through an $88 million rights offer.

“An independent debt validation is ongoing to agree on the amount that will be used in the debt-to-equity conversion,” said a source familiar with the transaction. “It is a moving number and there is need for clarity on penalties. If that is finalised, then submissions will be made to the Zimbabwe Stock Exchange. It is a normal process.”

The debt-to-equity conversion is part of the ongoing financial restructuring at the company, whose shares trade on the Zimbabwe, Johannesburg and London stock exchanges.

The rights offer will be underwritten by the Government. Hwange managing director Mr Thomas Makore confirmed the development but would not give further details.

The $80 million Zimra debt constitutes half of Hwange’s total debts, made up of suppliers and unpaid salaries. It has accumulated since 2006 and has been wiping out cash flows, which has had the effect of reducing production by constraining working capital.

Hwange is going through phases of recapitalisation to turnaround the fortunes of the company.

Recently, the company commissioned mining equipment worth $32 million acquired from India and Belarus.

The equipment was financed through facilities provided by PTA Bank and Eximbank of India. The JKL open cast mine, where the equipment was deployed is expected to produce 250 000 tonnes per month from 100 000 tonnes.

Overall, the mine expects to increase output to 450 000 tonnes year end, including production contribution from Mota-Engil, a Portuguese company contracted by Hwange.

To support the company’s recapitalisation and ability to raise capital, the Government recently granted Hwange new coal concessions in Lubimbi and western areas.

The concessions, with an estimated underground resource of 750 million tonnes, according to an independent competence report done by SRK Consulting, is expected to increase the life span of the coal mining firm by more than 50 years, according to the management.

Hwange has been battling to secure new concession over the past decade, a situation which made difficult for the company to raise capital.

At the company’s recent annual general meeting, Mr Makore said the company may consider a joint venture to develop new mines at the new coal fields. Apart from Lubimbi and western area coalfields, Hwange has also identified coal deposits in the Low-veld and the company is currently conducting technical feasibility study for possible prior to acquisition.

The Low-veld area is strategic because of its proximity to the South African market and ports of Beira and Maputo.