US$4m boost for Hwange Colliery

HWANGE Colliery Company Limited (HCCL) and some local and international financial institutions are in advanced talks that will see the company getting US$4 million to resume underground mining operations, and for its working capital requirements.

This comes as foreign currency shortages have become an albatross on the country’s economy, with key sectors such as mining, manufacturing and agriculture, operating at below optimum levels as they fail to purchase raw materials and spare parts.

The country’s biggest coal miners by production levels and assets — HCCL and Makomo Resources — have recorded coal production declines this year due to foreign currency shortages, resulting in low coal deliveries to the Zimbabwe Power Company (ZPC).

ZPC is the power generation unit of Zesa Holdings.

Its managing director, Engineer Noah Gwariro confirmed recently that power output at its small thermal power stations “was constrained due to low availability of the boiler and turbine plant, as well as unavailability of coal”.

Last week, HCCL managing director Engineer Thomas Makore told The Sunday Mail Business that while production has shot up to 300 000 tonnes per month from an average of 30 000 in the first quarter of 2017, foreign currency shortages remain a challenge.

“Our major challenges are lack of working capital and access to foreign currency. We are in advanced discussions with financial institutions to secure US$4 million funding for the complete resuscitation of our underground mining operations from which we will generate foreign currency.

“Our applications for working capital are also being considered by a number of banks,” said Eng Makore.

Similarly, Makomo Resources company director Mr Raymond Mutokonyi told The Sunday Mail Business last week that coal production was suffocated by a combination of foreign currency shortages and payment delays from ZPC.

HCCL and Makomo sell their coal to ZPC, which in turn uses it to generate electricity at its thermal power stations in Hwange, Harare, Munyati and Bulawayo.

“Our production was constricted because of two problems; one, ZPC was not paying us on time so we fell behind in terms of our equipment procurement cycle.

“The second problem is foreign currency. You see, in mining there is need to acquire equipment regularly but we can’t do that because of foreign currency shortages,” said Mr Mutokonyi.

Although ZPC has since paid the US$28 million owed to Makomo, the payment was done using Treasury Bills, which cannot be easily converted into foreign currency.

Mr Mutokonyi could not be drawn into revealing the size of foreign currency application made to the Reserve Bank of Zimbabwe to beef up its equipment.

“When you apply for US$400 million, just as an example, and you get $50 000, that is basically like you got nothing,” he said.

Makomo had proposed to Zesa that it reduces its payments for power imports to Eskom of South Africa so as to capacitate coal miners, who, in turn would ramp up production and feed thermal power stations and increase power generation.

It is alleged that Zesa has not responded to the suggestion.

No comment could be obtained from Zesa CEO Engineer Josh Chifamba as his mobile phone was unreachable.

While Mr Mutokonyi said Makomo’s production is “market driven”, output in the third quarter averaged between 220 000 tonnes and 245 000 tonnes.

The output therefore represents a 23 percent drop compared to the same period last year.

However, for the 118-year-old HCCL, production has been rising steadily since approval of the Scheme of Arrangement by creditors in April this year, from 30 000 tonnes to 300 000 tonnes per month by August.

HCCL then rescheduled its production in September in order to reduce the stockpiles of coal that accumulated during the ramp up period to minimise the risk of spontaneous combustion of the coal stockpiles.

Eng Makore said the rise in production is 35 percent compared to the same period last year, due to a number of factors including the halt of writs of executions and attachments because of the Scheme of Arrangement, dedication of limited funding to operations and resumption of operations by its major mining contractor, Mota Engil.

Productivity improvement initiatives through the rapid results programme code-named Project Gijima, also pushed up production.

There have been concerns across the board that HCCL was struggling to boost production in the last few years despite getting financial support from Government.

Crucially, in June 2015, HCCL took delivery of “new” equipment worth US$31,2 million sourced from India and Belarus, in a move that was expected to boost production.

However, the equipment was faulty, resulting in low production.

Eng Makore said having been used to different equipment over many years, the company had to learn how to operate and maintain the new equipment, causing production challenges.

“We experienced teething problems with the new equipment that resulted in production that was lower than expected. Since then, we have gone up the learning curve and are sweating the machines.

“The production figures this year demonstrate this fact. We have also commenced the resuscitation of our Three Main Underground Mine where we will produce high value coking coal.

“Our thrust is to sustain production above break-even point and to produce a balanced mix of high and low margin products. Hwange Colliery’s turnaround programme is well underway,” he said.

Eng Makore said HCCL is already generating a positive gross profit compared to a gross loss. In the six months to June 2017, HCCL reduced its operating loss to US$16, 2 million from US$25,9 million for the comparative period in the past year.

Its loss after tax also narrowed by 5 percent to US$27 million from the US$28, 5 million loss recorded for the same period last year.

 

 

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