Hwange Colliery seeks more funds to pay debt

AILING Hwange Colliery Company Limited plans to ask shareholders for more money to restructure $70 million in debt and struggles to pay employees because of a drop in prices.

The debts arose at the adoption of the multiple currency system in 2009 when the government abandoned the local currency to help contain hyperinflation, managing director Thomas Makore said in an interview on Sunday.

“We’ve discussed with our major shareholders how to liquidate this debt, so we’ve agreed that we do a rights issue,” he said.

“Formal consultation with shareholders has started and Hwange is seeking approval for a circular from the Zimbabwe Stock Exchange, where the stock trades.”

Situated in the western part of the country, Hwange is Zimbabwe’s largest coal miner after Makomo Resources and a supplier of the fuel to state-owned power utility Zesa Holdings, which does not generate enough for the country’s needs.

The company has been held back by aging equipment and owes its 3,200 employees about $20 million in salaries for the past 13 months.

Coal producers worldwide are suffering as companies such as Glencore Plc, the biggest exporter of the power-station fuel, raise output even after prices dipped to the lowest in five years.

Zimbabwe’s government is the biggest shareholder in Hwange Colliery with a 37 percent stake, while British businessman Nicholas van Hoogstraten holds 20 percent through Messina Investments Ltd.

As part of the restructuring, the company is getting loans to buy equipment. It is finalising borrowing of $80 million from the Eastern and Southern African Trade and Development Bank, known as PTA Bank, said Makore.

The funds will be used to buy open-cast mining equipment from BelAZ Ltd, a Belarusian truckmaker.

Hwange is sourcing another $15 million of equipment from BEML Ltd., a state-run Indian construction equipment maker, and Ravanthi Ltd, which will be financed through Export-Import Bank of India, he said.

“This capacity will enable our open-cast production to reach about 300,000 tonnes a month,” said Makore, who joined the company in June.

“Right now, we are doing about 200,000 tonnes a month. We want to be able to produce with reliability and predictability.”

The company has secured $6 million in working capital from regional banking group, BancABC Ltd, which is based in Gaborone, Botswana. Mota-Engil SGPS SA, Portugal’s biggest builder, started “mining on a separate pit and augmenting operations” in August, he said.

Coal sales fell 16 percent to 764,813 metric tonnes in the first half from a year earlier, while revenue declined 18 percent to $33 million, the company said on September, 30. Its loss widened to $7,9 million.

The company exports about 5,000 tonnes of coking coal, used to make steel, to South Africa every month, with merchants selling the fuel to companies including ArcelorMittal’s local unit, which is the continent’s biggest producer.

Hwange has started restructuring its business into three units, being mining, estates and medical, to improve cost controls, Makore said.

The company has applied for concessions in the western part of Hwange, which has one billion tonnes of coal reserves, he said. “We’re still waiting for the official communication and confirmation about outcome, but we remain optimistic that we will be granted that concession because it’s strategic to us,” he said.

The concession would enable the company to supply more to the 940-megawatt Hwange coal-fired plant, which China’s Sinohydro Group Ltd. is expanding by 600 megawatts through building two units.

“Once the economy is turning around, the demand for coal is going to be massive.” —Bloomberg.