Sinosteel dumps Zimasco?

Zimasco (Private) Limited’s revival prospects have continued to dim as the company has reportedly failed to secure a $7 million bailout from its major shareholder Sinosteel Africa Corporation to finance short-term operations.

This also comes as the Midlands-based company’s judicial management process has been mired in fresh controversy amid revelations that it had been instructed — by its Chinese parent — to withhold critical information about its business rescue plans from creditor banks late last year and it is equally facing serious environmental degradation charges at its Kwekwe plant.

“It is common cause that the company had announced that it was to receive $5 million for salaries and other short-term working capital obligations, and, so, a distress call was made to Sinosteel, which sent in a delegation here recently,” a source said this week.

“However, we are told that the Beijing-based company’s representatives categorically told John Musekiwa that their employer neither had the money nor appetite to inject new cash into the local firm,” they said, adding the development had further hampered Zimasco’s recent claims that it would restart operations in July.

As such, observers said the development not only undermined the ferro-alloys producer’s 60-day recovery plan — starting early June and under which Sinosteel was to recapitalise the business to the tune of $180 million-plus — but also further amplified suspicions that the Asian giant was unlikely to refinance the Midlands-based company.

Apart from recent reports that the State-owned Chinese company had written off $60 billion-plus worth of loans to a variety of under performing subsidiaries worldwide, the Asian firm has also reportedly lost nearly $500 million at its failed ASA Metals project in South Africa.

And as the Limpopo-based chrome producer continued to sink in the mire, Sinosteel eventually ordered the Dilokong mine and other assets to be put under business rescue — an advanced stage or process of Zimbabwe’s judicial management system.

As Zimasco continues to battle various charges, including allegations that it had misled Vice President Emmerson Mnangagwa on its operational status early June, the company is also facing a $30 million bill to deal with a serious chemical leak at its Golden Horizon plant due to years of operational neglect and that it had deliberately sought to mislead bankers on its High Court applications.

“…we confirm that Zimasco… had instructed its legal practitioner to file an application for provisional judicial management. This instruction was not disclosed to third parties on the instruction of the shareholders (Sinosteel) to avoid causing unnecessary alarm, particularly as there was a likelihood of withdrawal of the application..,” company financial controller Ngoni Mpofu said, in a December 21 e-mail to five of its bankers.

While the controversial document and admission of procedural flaws form part of High Court papers to the ferrochrome miner’s initial judicial management process application, it elicited a sharp rebuke from MBCA Bank Limited (MBCA), which accused Musekiwa’s company of dishonest behaviour.

“The lender banks became aware of the application… only by virtue of the application being listed on the motion court roll,” Allan Mutenda, the bank’s chief risk officer, said, adding the process was also being opposed on the basis that Zimasco’s directors — led by Li Jinqian and Lu Xiangkun — had long started their secretive push for judicial management.

“The lack of explanation… as to how it will… generate the funds necessary to trade given the fact that the lender banks will no longer fund a company in judicial management. The clear unwillingness of the shareholder (Sinosteel) to commit whether they will or will not provide the financial support required by the applicant,” he said.

Critically, the MBCA senior executive not only argued that judicial management was unlikely to succeed as long as there was no funding from creditor banks, but Sinosteel had also totally ignored their South African parent Nedbank Limited’s November 25, 2015 letter for funding commitment.

“The shareholder has neither acknowledged nor responded… although the applicant’s managing director (Mr Musekiwa) confirmed on the 16th of December that the letter had been forwarded to the shareholder. There is no reason to believe… that the shareholder will inject funds… This further supports the argument that a judicial manager would not have funds to trade..,” Mutenda said.

“Further, the applicant has advised that the shareholder (Sinosteel) had required that the management… make no disclosure of the current proceedings… This is sheer dishonesty on the part of the shareholder and shows that it is not concerned to act in the interests of the applicant or its creditors,” he said, adding “the underhanded nature of Zimasco’s judicial management process also meant that lender banks had little time to consider all issues under review”.

According to an internal review document, which gave rise to the June 3 consent order, the ferro-chrome producer admits that its “viability had progressively worsened” at the back of “low market prices and continued increase in operating costs”.

“…the company had $150 million (in) current liabilities covered by $103 million current assets, thus a net liability position of $47 million. This is an unhealthy state of affairs,” Zimasco said in the 2009-2015 review paper.

But despite these miserable numbers or statistics, Musekiwa’s team believes they can crack a profit of nearly $3 million this year, about $12,8 million in 2017 and another $8 million if the company slashes its head-count, closes non-performing businesses and rehabilitates ferrochromium slag dumps.

And while the market was still trying to digest the effects of this “naked deception”, Zimasco was plunged into another serious storm after a South African consultancy commissioned by the ministry of Mines blasted it for serious environmental damage at its Midlands operation out of “gross negligence”.

“The most evident elements discovered during the assessment includes, incorrect storm water management, incorrect separation of clean and dirty water, overflowing of dirty water containment trenches,” the report said, adding the toxic materials could cause such diseases as cancer, diabetes, stomach problems and other deadly ailments.

It was further stated that groundwater and boreholes are contaminated, and the Chinese-owned company was failing to “contain, and prevent pollution from entering the natural receiving environment”.

“More specifically, it can be determined that the current operations being carried out on site especially from the Chinese operated slag plants Sinosteel/Zimasco area and the trench carrying discharge water from their operations contribute to contamination being at very high levels.

“…highly contaminated toxic water is seeping into the receiving environmental surface water systems and into the natural stream, but also into the groundwater,” the report stated.

The report, which carried out soil sampling, water surface sampling and site walkover among other tests, further stated that toxic elements are present at alarming levels and are 700 times higher than the globally accepted standard.

“This indicates that the groundwater aquifer surrounding the site is also contaminated and poses a serious threat to the livelihood of people and livestock dependent on this water,” it said.

And as the Midlands-based metals trader is swamped in one of the worst environmental disasters to have hit Zimbabwe, it is understood that affected communities were seriously contemplating pickets and a class action lawsuit against Zimasco, and its bankers. Daily News