The Sunday Mail
Africa Moyo
Hwange Colliery Company Limited (HCCL) is on the cusp of sealing a game-changing deal with contractor Mota Engil Zimbabwe, which will see the latter producing 350 000 tonnes of coal per month.The deal is part of an ambitious plan by HCCL to reclaim its yesteryear position as Zimbabwe’s major coal-miner after a private company, Makomo Resources, recently overtook it in production terms.Makomo is consistently producing about 150 000 tonnes of coal per month while HCCL is digging as little as 11 000 tonnes monthly.
Sources close to the deal told The Sunday Mail Business that the arrangement with Mota Engil would be effective from January 2017.The sources said negotiations took place on Tuesday last week but Mota Engil, a well-heeled company with headquarters in Portugal, insisted on HCCL honouring its past obligations — amounting to almost US$40 million — in respect of coal supplied before a new deal could be ironed out.
But after HCCL indicated that it was financially constrained to pay at the moment, Mota Engil representatives, who reportedly included managing director Engineer Blake Mhatiwa and lawyers, asked Hwange to craft an “acceptable repayment plan” before its request for 350 000 tonnes of coal per month could be approved.
Said the informed source on condition of anonymity: “Yes, I can confirm that HCCL management has approached Mota Engil officially with the request of increasing production output from the current deal of 200 000 tonnes per month to 350 000 tonnes.
“The discussions are still in progress. The two teams are yet to agree but I am pleased to say they are almost there and it is highly likely that the deal will be agreed since most issues have been sorted.
“The only sticking point is payment of the almost US$40 million that HCCL owes Mota Engil. However, Mota Engil appears to be relaxing its demands and have simply asked Hwange to provide them with an acceptable plan of how the debt will be resolved because they have not been paid for a long time.”
HCCL managing director Mr Thomas Makore’s mobile phone was not reachable and he had not responded to emailed questions by the time of going to print.
Mota Engil MD Eng Mhatiwa confirmed they were approached but declined to divulge details as this would jeopardise negotiations.
Pressed if the company had capacity to extract 350 000 tonnes of coal per month in the event a deal was sealed, Eng Mhatiwa said Mota Engil was well-resourced and had no working capital constraints.
“Mota Engil has no upper limit; we can supply whatever they ask for.
‘‘We have no problem with capacity. Even if they want us to mine one million tonnes of coal per month, we will do so because we are a big company which does not have problems with capacity. The bigger the project, the better,” said Eng Mhatiwa.
If the negotiations are positively concluded, HCCL would heave a huge sigh of relief amid indications that production is currently at its lowest in decades.
Employees told The Sunday Mail Business that the company was producing anything between 11 000 tonnes and 25 0000 tonnes of coal per month, weighed down by antiquated equipment and under-performing new equipment sourced from India.
However, in its half-year results to June 30, 2016, HCCL said it was producing 113 862 tonnes per month compared to budgeted monthly production of 340 000 tonnes.
The plunge in production comes at a time when Mota Engil has reportedly suspended operations, pending the payment of money for coal supplied in the past.
HCCL engaged Mota Engil on a five-year renewable contract worth US$240 million in June 2014. It started mining in August 2014 and surpassed the 200 000 tonnes target in February 2015.
But the arrangement stalled in recent months after HCCL’s finances took a battering and failed to pay the contractor on time.
HCCL, which has been in coal mining since 1899, saw production rising to 4,575 million tonnes in 1999 due to operational efficiencies but output started trekking southwards soon after due to foreign currency shortages.
Since then, operations have suffered tremendously and HCCL is sitting on a US$310 million debt.
In May 2016, The Sunday Mail Business exclusively revealed that HCCL has crafted an ambitious recovery plan hinged on managing the US$310 million debt and seeking fresh capital to finance working capital requirements.
HCCL owes US$210 million to business creditors followed by employees (US$69 million), suppliers (US$24 million) and retrenchees (US$5 million).
As part of measures to clean the balance sheet and stem the continued deterioration of operations, HCCL management has devised a mix of cost-cutting measures and capital raising plans including engaging creditors.
In May, the miner sealed payment plans for 80 percent of creditors who were owed more than US$166 million, and it expects to arrest cash leakages through salaries after sacking 55 top managers in a move that will save US$2,1 million annually.
A scheme of arrangement is expected to be implemented at the same time with conversion of some debts into long-term financial instruments.
There are plans to convene an extraordinary general meeting in the next month or so at which detailed proposals will be tabled for approval by shareholders.
Once the scheme of arrangement and balance sheet restructuring are achieved, discussions to raise short, medium and long-term capital to operate at optimum capacity and to implement various other survival strategies will gain momentum.
While the company incurred a loss after tax of US$22,7 million compared to US$44,1 million recorded in the same period in 2015, and saw its sales revenue also declining to US$24,5 million compared to US$35,3 million recorded in the same period last year, there is a glimmer of hope.
Already, HCCL has narrowed its operating loss to US$25,9 million in the first six months to June 30, 2016 from US$48 million in the corresponding period last year.
It is hoped that the firm will turn the corner if management’s plans to attract investment, and increase production to 350 000, are successful.
The firm’s products have a ready market, which it can reactivate once everything is in place.
In the first six months, HCCL failed to meet market demand occasioned by product stock-outs and total sales tonnage was 585 689 against a budget of about 1,8 million tonnes.
