Hwange negotiating lifeline with creditors and funders

By Allan Seccombe |Business Day Live|

Hwange Colliery, a major Zimbabwean coal supplier listed on the JSE, is in talks with its creditors to ease its crippling debt burden and is looking for further funding to bring the company out of its loss-making position.

Hwange, which is a thinly traded share, is well off its June 2008 peak of R10.30 and trades at about 49c.

It reported interim results to end-June on Monday, showing current liabilities of $311m, of which $256m was under trade and other payables, against current assets of $61m, of which just $360,000 was cash. Finance costs in the first half grew to $1.8m, from $1.1m.

“The burden of servicing debts continued to strain the company’s cash flows, thereby presenting working capital challenges,” said chairman Winston Chitando, pointing out that the board had plans to stave off liquidation processes and return the company to profitability.

“The company is in the process of implementing comprehensive cost-reduction initiatives that seek to return it to profitability in 2017,” he said.

Hwange was given leave by the High Court of Zimbabwe to meet its creditors and present a plan to repay its debt in a structured way. The scheme should be finalised in the final quarter of 2016, he said.

The Zimbabwean government had agreed to convert short-term obligations of $88m into long-term financial instruments providing “immediate relief to the constrained working capital position”.

Some of the company’s debts would be converted to long-term financial instruments and the plans would be presented to shareholders for approval at an extraordinary general meeting in the next two months.

Hwange had nearly $13m of debt due in the next 12 months and $17m in longer-term loans.

Hwange’s shares have advanced 88% in 2016, almost recouping the 52-week decline, which now stands at 2%.

Hwange was securing a $7.5m loan from a major customer towards working capital and a facility with a Zimbabwean bank worth $3.5m.

It is trying to find another $6.3m to fix an underground mining machine that broke in August 2015 and to buy underground equipment.

“Management believes that the resumption of the underground mining operations will add high-value coal and coke to the company’s product mix. This refurbishment exercise is expected to be completed in the first quarter of 2017.”

Interim coal sales fell to 585,689 tonnes against a budgeted 1.77-million tonnes and 842,871 tonnes in the same period a year earlier because of a lack of working capital.

Hwange reported a $28m loss for the period, compared with a $44m loss the year before. Revenue was $24m compared with $35m.