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Oliver Kazunga Senior Business Reporter
HWANGE Colliery Company Limited (HCCL) plunged to a $30,9 million loss in the full year to December 31 weighed down by severe working capital constraints and old equipment.Turnover of the period under review declined to $71,5 million compared to $104,2 million achieved the previous year.

In a statement accompanying its financial results, company chairman Farai Mutamangira said despite the economic environment having been generally stable since the introduction of a multicurrency system, 2013 presented challenges impacting negatively on the financial performance of the company.

“The low performance was driven by a number of critical factors worth noting. The production volumes were low consequent to the old equipment, the reduction in coal and coke prices both local and export, the increase in already high fixed overhead costs, the rising input costs, the impact of the legacy debts on current cash flows and the absence of facilities for working capital,” said Mutamangira.

“Due to the challenges highlighted above and the recapitalisation initiatives, the company incurred a loss for the year ended 31 December 2013 of $30,9 million compared to a profit of $3,1 million posted during the same period in 2012.”

HCC is currently in negotiations for a $50 million loan to recapitalise and refinance short-term debt with one of its major shareholders Nicholas van Hoogstraten.

The loan offer is reportedly hanging in the balance as the parties disagree on terms.

Van Hoogstraten offered the $50 million loan to Hwange through his vehicle Willoughby’s Consolidated.
Under the deal, the $50 million cash injection was to be formalised and secured by issue of convertible loan stock with a 10 percent interest and a conversion rate of one new 25 ordinary shares for each $0,50 of loan stock convertible after four years.

Willoughby’s wanted an initial five year exclusive management control.
Mutamangira said negotiations with Van Hoogstraten should be finalised by end of the second quarter.

The company’s current liabilities shot up to $162,3 million up from $125,2 million.
The liquidity crunch, Mutamangira said did not only suppress demand but also limited sources of working capital for the company although it managed to procure and commission mining equipment worth $12 million from Sany Heavy Equipment Company of China through a supplier credit.

A deposit of $2,8 million was paid from internal resources.

“There are two other lines of credit that have been concluded and currently being consumed amounting to $29 million. Mining equipment acquisition was in progress from India and Belarus through lines of credit being finalised with Pan African developmental financial institutions,” said the company.

The continued weakening of the South African rand against the United States dollar and other major currencies last year, the colliery said, resulted in costs reduction on imported spared and consumables.

Export sales of coke and coke breeze decreased by 57 percent as a result of shutdown of some of the operations of coke customers in the Democratic Republic of Congo and the invasion of cheaper coke imports from China.

“HPS coal supplied to Zimbabwe Power Company’s Hwange Power Station increased by three percent. Through this coal grade accounted for 57 percent of coal sales volume, contribution to revenue was 35 percent,” he said.

Coal fines sales totalled 201,610 tonnes compared to 233,453 tonnes sold the previous year.

“There has been increased demand for coal fines necessitating the company to reclassify the commodity as a by-product. This required that the company revalue the coal fine stockpile and recognise it into inventory,” said the coal mining entity.

The low off take of coke, local and export resulted in coke sales including breeze amounting to 85,910 tonnes compared to 228,201 tonnes sold in 2012.

The firm said due to limited debt servicing of some of the loans, borrowings have been reducing while trade payables increased because of the reliance on creditors to finance the business.

“However, some of the creditors have litigated against the company and settlement agreements were negotiated and are currently being implemented. The risk has been managed effectively such that the impact on the company’s ability continues as a going concern is minimal,” said Mutamangira.

“A year ago, HCCL announced its strategy to grow the business organically and set a target of $40 million. An amount of $35 million has been achieved and a new forecast of $70 million has been set for the short-term. This means that cash flows will remain tight as funds meant for working capital will be prioritised to capital expenditure.

“The company has experienced instances where it was not able to meet its obligations resulting in backlog in employee salaries.”