Hwange faces liquidation

By Africa Moyo and Tinashe Farawo

HWANGE Colliery Company Limited (HCCL) faces liquidation if it does not take remedial action like converting debt into equity, rationalising its staff complement, disposing employees’ houses and strengthening procurement procedures, a report by an external consultant has revealed.

HCCL is battling a myriad of challenges, chief among them a legacy debt of US$160 million and plummeting production levels due to aging equipment and breakdowns.

Crucially, it is feared that the company also faces potential loss of information as its IT systems are frequently switched off over non-payment for modules or facilities and implementation fees.

Government is the biggest shareholder in HCCL with a 37,10 percent stake while business magnate Mr Nicholas van Hoogstraten is the second largest shareholder with a 16,76 percent stake held through Messina Investments.

The HCCL Short-Term Way Forward Due Diligence Report dated November 19, 2015; which remains a proposal until the main board adopts some of its findings and recommendations says the Board is alive to what needs to be done to move the company forward but “a small push is what is required for the driver to take off”.

Reads the report in part: “The biggest risk now facing HCCL is that of liquidation. The second significant risk facing the mine is that of loss of information due to IT systems being switched off for non-payment for modules/facilities and implementation fees.”

Last week, HCCL managing director Mr Thomas Makore said that management has since submitted the findings and recommendations from the consultant to the main board.

“We therefore await Board feedback on the matter. A full main Board meeting has been tabled for December 21 to deliberate on these and other matters,” said Mr Makore.

Plunging production levels

According to the report, HCCL has been unable to arrest the plunge in production in the last four years. Production has fallen from 3,2 million tonnes in 2011 to 1,2 million tonnes last year due to aging equipment and breakdowns of new equipment.

The continuous miner, a critical implement in underground mining, is understood to have broken down due to inadequate servicing. Management is said to be hunting for funds to refurbish the continuous miner.

Production levels were expected to rise on the back of new equipment acquired at a cost of US$31,2 million from Belarus and India. The equipment was commissioned by Vice-President Phelekezela Mphoko on June 19, 2015 but several mechanical faults have emerged.

Machinery sourced from India has been “continually giving the mine some operational problems”, in particular the bursting seals or seals giving in, according to the report.

HCCL’s mine concessions have varying lives extending to 25 years and the mine has market potential of 740 000 tonnes per month but its design capacity means it can only produce 450 000 tonnes of coal per month.

This means the balance can be met through output from contract mining. The report has urged HCCL to consider looking for a second contract mining company to help it increase production or agree with Mota Engil to increase monthly tonnage.

This would increase output without new financing.

In June last year, a Portuguese conglomerate Mota Engil clinched a US$260 million deal to mine coal for five years on behalf of HCCL. Under the arrangement, Mota Engil would produce 200 000 tonnes of coal per month and be paid within 45 days after delivery.

Mota Engil has since pumped in about US$24 million into the purchase of mining machinery and in February this year, it surpassed the target by 6,6 percent after hitting 213,144 tonnes of coal.

The firm has a lean labourforce of just over 150 but is buoyed by efficient state-of-the-art machinery, including the two fairly latest excavators — the Liebherr R9250 — and 10 dump trucks that carry 100 tonnes of coal per load.

Nonetheless, the report says the HCCL/ Mota Engil deal has encountered some operational challenges “due to non-payment by HCCL”.

“Management informed us that there is a plan to open a separate bank account into which some proceeds would be deposited to serve any obligations to Mota Engil,” reads the report.

Staff rationalisation

The report urged the company to implement a raft of measures, including selling off employee houses, labour rationalisation and widening contract mining, if it is to reduce debt and return to viability.

Given the potential change in the business model from “own mined coal” to “contractor mined coal”, there could be a strong case for staff rationalisation. The mine owes its 2 500 workforce millions of dollars in unpaid salaries, “results of which might outweigh any anticipatory benefits”.

The report urges the company to take advantage of the Labour Act as amended this year and terminate contracts.

“The mine should perform an exercise where it computes its deferred loss of employment benefit for staff. This is based on, for each employee, the actual number of years served multiplied by two weeks’ pay.”

Employee accommodation bleeds HCCL

The free housing facility extended to employees is understood to have become an albatross on HCCL’s finances. Some of the houses are believed to be housing Makomo Resources’ employees with the burden being borne by HCCL.

The consultants have recommended that the company should sell the houses to employees, with salary arrears being used as part of the price settlement. Currently, HCCL meets electricity bills averaging US$750 000 per month and selling the houses is expected to save about US$450 000 per month.

Makomo Resources is a coal mining company in Hwange which has become the biggest supplier of coal to Hwange Thermal Power Station. Makomo, HCCL’s strong competitor enjoys low operational costs and does not provide free housing to employees.

In the past, it was the norm for mining companies around the world to provide free housing and transport from a central point. The Sunday Mail