Hwange Colliery needs more than a financial reboot

The government, through the ministry of finance issued treasury bills of $41 million and $18.2 million in settlement of the MotaEngil debt and RBZ/PTA Bank loan, respectively.

The company said it has implemented a cocktail of aggressive cost reduction initiatives to curb an unsustainably high cost structure and mitigate production inefficiencies mainly focused on cutting administrative expenses.

Chitando said these cost reduction initiatives include reduction of managerial staff by 30 percent, adding that in the period between October 2016 to March 2017, management salaries were reduced by 50 percent while non-managerial employees were on short time work (2 weeks every month)  resulting in a reduction in the wage bill by 50 percent.

The company also instituted measures for establishment of a contracts administration and procurement policy to minimise the cost base as well as reinforcing corporate governance.

The company believes there are enough opportunities to ensure its survival, including commencement of exploration drilling, coal reserves and resources estimation at the Lubimbi West coalfields later this year.

A similar exercise is planned for at the Western Areas coalfields while the 25 years’ coal supply agreement with ZPC’s Hwange Power Station should guarantee a ready market.

Additionally, the expiry of the Build, Own, Operate and Transfer (BOOT) agreement with Hwange Coal Gasification Company will imply the Colliery’s takeover of the coke oven battery by mid-2017, allowing it to fully control the unit and expand its operations. 

The Colliery’s debt alone, before taking into account borrowings, exceeds total assets. Current liabilities of $237 million versus total assets of $182.6 million imply that even if all of its assets are liquidated, they won’t be able to cover short-term creditors.

As Chitando noted, the company is not in a position to qualify for a loan from a reasonable financial institution, all things considered. 

Government’s efforts to bailout the struggling mining concern are relatively piecemeal given the level of indebtedness.

Even the conversion of short-term debts to medium and long-term may not the solution given the company has already proven over the years that it does not have the capacity to improve its operations.

Gross losses of $37.8 million in 2016 and $33.8 million in 2015 are proof of the inefficiencies in its overall production scope which means the company is not even able to make a profit after deducting the costs associated with providing its services.

Opportunities available to the Colliery as well as coal bed methane gas prospects require an investor with the technical and financial muscle to exploit them.

Hwange is on the verge of collapsing under the weight of poor strategic thinking on the part of its owners.

Given the paucity of its own resource pool, government should give private investors a chance if the company is to survive.- The Source

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