New order threatens HCCL stranglehold

06 Apr, 2014 - 00:04 0 Views
New order threatens  HCCL stranglehold

The Sunday Mail


Makomo Resources is turning up the heat on HCCL. Picture by Percy Musiiwa

Prince Mushawevato recently in HWANGE
THE emergence of coal mining businesses in the coal-rich Hwange is threatening to shatter Hwange Colliery Company Limited (HCCL)’s 115-year stranglehold on the industry.HCCL, which was established in 1899 and is listed on the London Stock Exchange, the Zimbabwe Stock Exchange and the Johannesburg Stock Exchange, is currently saddled with a US$160 million debt, with key shareholders haggling on how the company can be rehabilitated.

HCCL plunged to a US$30,9 million loss in the full year to December 31, 2013, compared to a profit of $3,1 million posted during the same period in 2012.

Government, which is battling to maximise the exploitation of local mineral resources, has since issued several mining grants to various individuals and groups to venture into coal mining.

The Reserve Bank of Zimbabwe (RBZ) estimates that Zimbabwe, considered the second largest coal producer on the continent after South Africa, holds more than 56 billion tonnes of the mineral.

Newly licensed companies in the sector include Chilota Colliery Company, South Mining, Coal Brick and China-Africa and Makomo Resources.

But it is Makomo Resources, whose operations began in 2010, that is presenting a direct challenge HCCL.

Production at the new mine, which has the capacity to produce 300 000 tonnes per month, is slowly catching up with its peer which is presently producing just over 200 000 tonnes per month.

However, HCCL targets to increase to more than half a million tonnes by the end of the year.

Crucially, the two companies share the same market, but Hwange has been able to spread its tentacles into regional markets.

Makomo Resources general manger Mr Samson Mabvira told The Sunday Mail Business in an interview last week that the company will begin exporting its commodity to regional countries such as Botswana, Democratic Republic of Congo, Malawi and Zambia after it recently set up its US$15 million state-of-the-art wash plant. Presently supply on the local market is exceeding demand, he said.

“We are now looking at ways out of the predicament to improve our situation and increase productivity; hence, we are looking at the low ash products like coking coal for material to export . . .

“It has been difficult for us to export because we did not have a washer. When you export coking coal, you need to guarantee quality and this can only be done through washing; the export market is very specific.

“They want coal of a certain nature and the company has invested US$15 million in this regard,” explained Mr Mabvira.

US$250 million power plant to drive demand

Faced with softening demand from an industry that is presently battling an illiquid market, Makomo, in partnership with Chinese companies, intends to build a US$250 million thermal power station with  capacity to produce 300 MW.

Currently, Hwange, Bulawayo and Munyati thermal power stations are arguably the biggest local consumers of local coal.

The development came after the Zimbabwe Power Company (ZPC) ordered Makomo to reduce its delivery tonnage to 80 000 tonnes per month from a previous 150 000 tonnes.

“We have cards up our sleeves. We don’t want to continue being at the mercy of ZPC. If we have to go set up a power station, we will do so. Feasibility studies for the power station have already been done and we hope by end of year we would have started work on the project. The plant will have a capacity to generate between 200-300MW,” said Mr Mabvira.

HCCL concedes that new players in the business have changed the dynamics in the market, but it has since engaged contractors to add capacity to its business.

“The coming in of new coal mining companies has certainly changed the market trends and in a way affected our operations. But competition is good since it promotes productivity and guarantees quality of service delivery. We will continue to explore various options including boosting exports for HCCL to remain viable,” said HCCL spokesperson, Mr Burzil Dube.

New coal-mining companies

Chilota Colliery Company, which started operating last year, received its first order last month and is hoping to increase its market share by over 10 percent in the next year. The company’s mines director, Mr Herbert Makwala, said despite capital constraints, Chilota was presently producing an average of 50 000 tonnes of coal per month. He, however, pointed out that the figure could easily be doubled on demand.
The company’s investments, estimated at about US$2 million, are expected to run for close to 5 years.

“Our production is market driven and can easily be jolted to 150 000 tonnes per month by increasing workforce teams. We know the quality and depth of our three-year coal reserves and more exploration is going to be done later as the order book grows,” he said.

While some coal mining companies have found succour on the export market, some companies such as South Mining Limited are still suffering from the legacy effects of the collapse of the steel and ferrochrome industries.

Public relations manager of the business Mr Charles Muchabaiwa said the company’s top line is presently being supported by exports. He, however, noted that volatility of the South African rand against the United States dollar and continued unrest in the Democratic Republic of Congo is slowing down business.

South Mining is producing about 8 000 tonnes of coal per month. The figure is expected to increase after completion of the US$2 million refurbishment work on one of its batteries.

“The manufacturing sector is on the downside. Most of our domestic orders are coming from Zimasco and some new companies in the Selous area. The resumption of operation at Ziscosteel will go a long way in boosting business for us . . . Exports have been sustaining us, but the prices in South Africa for our product are not that viable compared to DRC. The two countries are in different export blocks with the Comesa rules on trade being supportive of growth compared to the SADC rules of trade,” said Muchabaiwa.

Though a significant number of newly licensed companies have begun operating, others are still struggling to begin operations as they fail to meet various requirements set by the Ministry of Environment, Water and Climate and various organisations like the Environmental Management Authority and lack of working capital.

Companies that are yet to start mining include Liberation Mines, situated towards Binga, Zambezi Gas that at one point began operation and later stopped and Victory Miners. China-Africa, which is in the Gwayi area indicated that it would be resuming operations anytime this month after successfully satisfying all the mining requirements.

Government last month granted 12 new mining exploration licences for coal exploration and exclusive prospecting, 12 years after the last ones were issued. Of the licences, eight were special grants for coal exploration and four for exclusive prospecting.

Straying into conservancies

Some of the coal-rich areas are found in wildlife containing areas, an industry that has been compelled to also follow the commodity to these areas.

The granting of mining rights in the Hwange-Gwayi and Hwange-Dete Conservancies in Matabeleland North in particular has raised fears for the country’s wildlife and environment.

The Hwange-Gwayi Conservancy is located on the periphery of Hwange National Park, which is home to an estimated 50 000 elephants and various wildlife species. It is a grouping of organisations and individuals, while the Hwange-Dete Conservancy is made up of Hwange National Park, Forestry Commission, consumptive and non-consumptive tourism operators.

Unsurprisingly, players in the tourism industry have been campaigning against mining operations.

Last year, chairperson of the Hwange-Gwayi Tourism Association Mr Langton Masunda said there was evidence that there would be serious environmental degradation once mining activities are in full swing in protected wildlife areas.

Fears are that the mining activities in parks and conservancies will drive wildlife populations into neighbouring countries such as Zambia and Botswana through land degradation and associated operating noise.

Hwange Local Board town secretary Mr Ndumiso Mdlalose noted that Government needed to protect the wildlife in the area since it was a backbone of the town.

“Our perception is that this is a tourist town with mining activities. It’s not a mining town because mining is very limiting. They (mines) have a lifespan so we are seeing ourselves living beyond the lifespan of any of these mines since we are in the middle of a national park. Wildlife is forever. We should avoid a situation whereby Hwange will become another Kamativi after the coal reserves are exhausted,” he said.

Conversely, miners have indicated that they have taken necessary measures to ensure that they do not disturb the wildlife. For instance, China-Africa Sunlight Energy general manager Retired Colonel Charles Mugari, whose concession in Gwayi is within a game park, said the company will use an underground mining method.

“Mining techniques vary. Initially we wanted to do both open and shaft mining. But after assessment of possible environment damages, we have resorted to shaft mining that leaves the top ground intact,” he said.

An official from Makomo, a company that shares a boundary with the Sinamatela section of Hwange National Park, said their mining activities would not extend into the game park. The official, however, admitted that it would be difficult to control movement of animals due to their proximity.

“Our mining grant is just outside the national parks and, with wild animals, they move anywhere and also cross into our area. But if you analyse, you will see that there are no indications that we will extend into the national parks boundary so we are not in conflict with them,” noted Mr Mabvira.

South Mining public relations manager Charles Muchabaiwa added, “In our case, we are far from game reserves hence there is no room for conflict. But, besides that, we have scouts that always keep a lookout for animals so that they don’t stray into our operations.”

Value Addition

With more mining companies venturing into the coal extraction business but demand for the product remaining rather subdued, a number of companies are resorting to the export market.

But concern has been raised over the continued exportation of raw minerals (coal included), a situation that has resulted in the country failing to realise maximum benefit from its infinite mineral resources.

Information from the Energy Information Administration indicates that since 2004, the use of coal as a global energy source has caught up with the use of natural gas, and would even surpass it by 2030.

Against this background, market watchers argue that Government should put into effect measures that promote value addition of the mineral.

They argue that it would be beneficial for Zimbabwe to set up a coal gasification plant with an advanced gasification process technology that offers a robust solution for monetising inexpensive, low-grade feedstock such as lignite coal, sub-bituminous coal, and high ash coal.

With the technology, coal energy suppliers can convert low-rank coal into clean coal energy for power generation, hydrogen for refining, and synthesis gas for ammonia, methanol and production of coal-to-liquid fuels.

South African company Sasol has been able to leverage on the country’s coal resources to invest in coal-to-liquids technologies.

The company uses proprietary technology to make jet fuel, gasoline and diesel from coal. It has assets in Mozambique, Qatar and Iran, and has actively pursued projects in Nigeria and Qatar. Accounting for more than 35 percent of SA, liquid fuel and 4 percent of GDP, Sasol has shown that there is inherent value in beneficiating coal.

At one time, South African firm LontoCoal made elaborate plans to invest more than US$9 billion in Zimbabwe for its coal-to-liquids plant and a coal slurry pipeline at its Lubumbi coal project. The company’s chief executive Mr Tshepo Kgadima claimed that of the US$9 billion investment, US$7,5 billion was earmarked for the coal-to-liquids plant which will produce about 50 000 barrels per day and create 5,000 direct permanent jobs.

The group has already concluded a feasibility study. It is believed that Zimbabwe consumes about 13 000bpd of liquid fuels, which was expected to grow to 20 000bpd by 2017-18.

It was widely expected that Zimbabwe through the project would realise US$2 billion in foreign exchange savings, as the fuel would substitute diesel and petrol importation. The project was expected to pay over US$9,8 billion to Government in royalties and taxes over the next 20 years, and procure goods and services including labour over the next 20 years for US$41 billion.

This shows the viability and material benefits that could accrue from such an effort.

Transport challenges

Failure by the National Railways of Zimbabwe to revive its operations continues to negatively affect coal mining companies. It is economical to transport the commodity using rail over long distances compared to using road. At present, most of the companies are using road as the rail system is not very reliable. The coal miners contend that effective exports will only be feasible with a reliable NRZ.

“NRZ does not have the capacity to move our tonnage and they are going to be the biggest let down on our export plans, hence we are already looking at ways to go around them including hiring transportation equipment such as wagons from South Africa,” said the Makomo general manager.

Social Responsibility

Companies are expected to invest in communities within their operating area or even beyond. And with the two mining companies HCCL and Makomo battling for the market, it is the Hwange community that is benefiting more through employment opportunities and various construction projects being carried out by the coal miners.

Despite facing capital challenges, HCCL is presently constructing a US$300 000 complex in the town (Hwange), while Makomo has already set the ball rolling for construction work of a multi-million dollar town centre. The company (Makomo) is currently supporting a group operating in Chief Nekatambe’s Village, which is into brick manufacturing.

Project manager Mr Timothy Tshuma said the brick manufacturer had the capacity to produce about 10 000 bricks a day. He added that though other companies were buying their product, a huge chunk was being consumed by Makomo in their building projects.

“The project has helped create employment in the area. We are happy that Makomo takes much of our stock,” he said.

Some of the bricks have been used in constructing offices for the mining company while others have been used in the construction of Lupane University, schools (Nekatambe Secondary) in the area and additional blocks at Hwange General Hospital.


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