coal_reservesMartin Kadzere Senior Business Reporter—
HWANGE Colliery Company Limited has sealed two deals worth $31,2 million with a regional and international financial institution for the recapitalisation of the coal mining firm. The mega deal will see the refurbishment of a key energy player in line with Zim-Asset, which identifies power and energy as key drivers of the economic turnaround programme.

The vendor financed transactions will see Hwange acquiring mining equipment from BEML worth $13,3 million funded by India Exim Bank, Hwange said in a note to shareholders.

This was after the Finance and Economic Development Ministry granted Hwange guarantees for the loan facility.

The other batch of equipment worth about worth $18,2 million will come from mining equipment supplier BELAZ under the PTA Bank loan facility.

Hwange has been operating below capacity due to use of obsolete equipment, resulting in production inefficiencies.

It is also saddled with huge debts amounting to $160 million and this has negatively affected the company’s ability to access lines of credit.

The delivery of the equipment will result in substantial increase in production which will subsequently enhance the company’s ability to pay outstanding salaries by December.

“These two transactions will see the company take delivery of the (new) equipment by March/April this year (all of which is at various stages of shipping),” said Hwange.

“The new equipment will result in increased combined monthly production (including contribution from the contractor) to at least 450 000 tonnes by second half.”

The combined production includes contribution from Mota Engil, a Portuguese company contracted by Hwange to produce 200 000 tonnes of coal per month from its open cast operations at Chaba. Mota Engil has, to date, produced close to one million tonnes.

Mota Engil’s contribution has enabled HCCL to stabilise production while bridging the gap between the purchase of new equipment to be commissioned in May, said the company.

Hwange is of strategic importance to Government considering that the company is a significant supplier of coal to the Zimbabwe Power Company’s Hwange Power Station and its viability is critical for guaranteed supplies to up and coming power projects.

Managing director Mr Thomas Makore declined to comment because it is in closed period.

Apart from the lines of credit, the company has also obtained approvals from shareholders to raise equity funding, mainly to settle its outstanding debts. For a long time the HCCL balance sheet, which is heavily laden with debts and negative working capital, has been hampering the turnaround efforts of the coal mining firm.

As such, the cleaning of the balance sheet would enhance the company’s ability to mobilise lines of credit from regional and international markets. “We are happy that necessary approvals have been obtained from key shareholders and the exercise will be launched upon the receipt of regulatory approvals,” said the company.

HCCL has been battling the legacy debt amounting of $160 million, accumulated since 2006, according to the company. It includes over $80 million owed to the Zimbabwe Revenue Authority and $80 million owed to trade creditors as well as staff.

The huge debt has been wiping out cash flows with the negative spiral effect of reducing the company’s production capacity as a result of limited working capital.

Major shareholders in Hwange are Government, which owns 37,1 percent stake and Mr Nicholas Van Hoogstraten who owns 31 percent through different vehicles.

ArcelorMittal, the world’s leading integrated steel and mining company owns 10 percent.

Hwange said the retirement of the debts would significantly reduce interest burden.

On the outstanding salaries, Hwange said there had been a lot of information asymmetry relating to this backlog. “To correct this, please note that the lowest paid workers’ salary arrears is, in fact, 12 months while the management backlog is up to 16 months.

“This backlog is not consecutive months, but cumulative months’ backlog. For the avoidance of any doubt this backlog will be cleared by end of second half against the backdrop of increased production and sales.”