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Fairness Moyana/Prosper Ndlovu, Business Reporters
HWANGE Colliery Company Limited (HCCL)’s coal output has dropped to a record 36 000 tonnes per month from a peak of about 300 000 tonnes, a trend management blames on severe working capital constraints.
Portuguese-owned mining contractor, Mota-Engil who were producing around 200 000t per month from HCCL’s Chaba concession site, have also suspended production citing working capital constraints after the Colliery failed to meet its payment obligations. The company is now owed more than $50 million.
With a drastic drop in output, the pull out poses a heavy blow and exposes the colliery firm, which apparently had relied on the contractor for output.
Managing director Mr Thomas Makore told Business Chronicle in an interview that the limping giant parastatal needs about $4 million working capital monthly to break even.
“Yes, our production level is low and we are behind our production plan mainly because of working capital constraints. These are being caused by the level of liquidity in the market where our customers are slow to pay us and this therefore puts enormous pressure on our operations.
“Sometimes we do not have adequate inputs for our production plans and that is why the production is not at the correct level,” said Mr Makore.
He said the funding, if availed would finance crucial operations that include buying consumables such as fuel, lubricants, explosives and spare parts as well as pay salaries and other production costs.
“The shortage of working capital has nearly grounded operations and this has seen production at the mine drop from about 100 000t per month to 36 000t,” said Mr Makore.
The HCCL’s interim financial results for the half year ended June 30, 2016, which were released in October this year, painted a gloomy picture about the performance of the strategic entity.
The company’s persistent losses have chewed shareholder value as reflected by a decline in total equity since 2013. Total equity dropped from $106.62 million recorded in 2012 to a negative $77.83 million in 2015, previous reports indicate.
Shareholders’ equity as reported is now negative at $106 million while shareholder value as in the reported balance has been wiped out.
The company’s liabilities at $310 million as of June this year, shockingly outweigh the $61.4 million assets value by 408 percent, which shows the company is technically insolvent.
Hwange Colliery also has obligations to financiers of new equipment acquired last year at a cost of $32 million, and with such poor performance hopes for enhanced capacity to meet its commitments to service obligations look dim.
The hole is likely to get deeper unless urgent steps are taken to salvage the situation in view of the difficult economic conditions facing the country.
Mr Makore would not be drawn to reveal how much the company was being owed. However, close sources told Chronicle Business that Hwange Colliery was reportedly owed over $90 million by various coal consumers with its major trader, Zimbabwe Power Company (ZPC), reportedly owing a larger chunk.
Mr Makore however, expressed confidence that the company’s turnaround plan was certain and that it would address most of the challenges facing the mine.
He said a scheme of arrangement with different creditors was nearing completion and was expected to unlock value and open new avenues for fresh capital injection.
“Hwange’s turnaround plan will address its liabilities, customer requirements by increasing production. However, to increase production, we need working capital and to get it we need to resolve the issues with creditors including employees, and that is the programme that we are busy with at the moment,” said Mr Makore.
He said the levels of production were way below the break-even point and this was one of the shortcomings that should be addressed urgently.
HCCL’s turnaround initiatives consists of balance sheet restructuring, cost reduction, increasing and re-aligning production, resuscitating underground mining as well as increasing export volumes.
Most mining entities have scaled down production and have attributed this to lack of working capital.
Makomo Resources recently said delays in payments by consumers was adversely affecting production.
The mine is producing between 60 000 and 70 000 tonnes of coal per month against monthly projection of 200 000 tonnes.
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