via Hwange Colliery production up, salary arrears below 12 months – DailyNews Live 3 March 2015
HARARE – Hwange Colliery Company Limited (HCCL)’s contract with Portugal-based Mota Engil has continued to bear fruit, with the coal miner having ramped up production to 996 000 tonnes of coal since August 2014.
With the arrangement expected to help the Zimbabwe Stock Exchange-listed firm stabilise its own production and bridge the gap between equipment purchases, and commissioning of the same by May, the companies’ combined production target — for the second half of the year — is a staggering 450 000 tonnes per month.
“To minimise the capital burden for HCCL… to fully turn around its operations, and mitigate production constraints, HCCL engaged a contractor to produce 200 000 tonnes of coal per month from its open cast operations at Chaba,” insiders at the company said, adding Mota Engil was “engaged through an open tender process”.
“Total production… has now reached 996 000 tonnes, which is a significant contribution indeed,” they said.
While HCCL has been in the news for a number of issues, including creaky infrastructure and serious salary backlog, the internal review document says the company has also been battling legacy debts of $160 million-plus.
“This debt has accumulated over time going back to 2006. It includes over $80 million owed to the Zimbabwe Revenue Authority and an almost equivalent amount to creditors, and staff…,” the sources added.
“The effect of this debt has been to wipe out cash flows with the negative spiral… reducing production capacity through constrained working capital,” it said, adding “there has been a lot of information asymmetry relating to its salary arrears with the lowest paid worker at 12 months and senior managers at 16 months”.
Crucially, the backlog was not for consecutive months, but cumulative balances – and which arrears will be cleared by proceeds from enhanced sales in the second half of its productive year.
And as the publicly-traded coal miner tries to claw its way back to viability, Farai Mutamangira’s board has also set its sights on restructuring HCCL’s balance sheet, which has been hampering the company’s turn-around efforts.
“The balance sheet has been heavily laden with debt and negative working capital. The board and management have now secured the necessary support of major shareholders to launch a rights offer (and) which proceeds will retire a significant portion of HCCL’s debt and result in… positive cash flow,” the insiders said, adding a significant interest burden would also be curtailed.
“The excess cash… generated by the business post the rights offer will be applied towards retiring the backlog in statutory obligations and salary payments,” said the source, noting that “the rights offer process would be launched soon upon receipt of all relevant regulatory approvals”.
Apart from these initiatives, Thomas Makore’s company has also progressed well in implementing its divisionalisation plan, with medical and estates now stand alone entities.
The mining division — expected to hold its engineering services, metallurgical, open cast and underground mining operations — are under further scrutiny ahead of full-scale standalone status.
“Implementation of (the divisionalisation plan) is being managed carefully in order to minimise disruptions and to communicate benefits to all staff. When fully implemented, the divisionalised cost and revenue centres will be clearly defined, and managed to ensure that the company turns a profit sustainably.”
Meanwhile, HCCL has also successfully closed its $31,2 million vendor-financed capitalisation transactions in respect of equipment to be delivered under the India EXIM and PTA Bank facilities. The two institutions contributed $13,03 million and $18,2 million, respectively.
“These two transactions will see the company take delivery of… equipment by March/April this year and all of which is at various stages of shipping,” they said.
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