HomeCoalPoor financial showing stymies Hwange turnaround

Poor financial showing stymies Hwange turnaround

Efforts to turn around the fortunes of Zimbabwe’s Hwange Colliery hit a stumbling block as the company reported significant financial losses for 2018.

Hwange’s performance worsened in 2018 in comparison to the 2017 financial year. The loss for the year increased by 79% from US$43.8 million recorded in 2017 to $78.4 million during the year under review.

Hwange’s performance for the period under review also fell short of budgetary targets. This was due to low production levels attributable to working capital constraints. Monthly production average was 150 000t compared to the budgeted monthly production of 300 000 t. As a result, the company failed to meet the market demand.

Meanwhile, revenue increased by 27% from $54.5 million in 2017 to $69.1 million in 2018. This increase is attributed to increased sales volume from the 1.2 million tonnes recorded in 2017 to 1.5 million tonnes in 2018.

However, Hwange’s  total liabilities exceeded total assets resulting in a negative equity position, attributed to recurring losses which eroded it capital and reserves.

Turnaround plan in place

In October last year, the Zimbabwean government placed Hwange under reconstruction in terms section 4 of the reconstruction of state-indebted insolvent companies. This was done to rescue the company from current difficulties and to try and give Hwange a chance to overcome the bottlenecks which were centred on poor production and sales volumes.

Subsequently, Hwange has put in place a comprehensive production plan which will be driven by mining at 3 main underground mine and the JKL opencast mine.

This plan will see 3 main producing an average of 35 000 Mt per month of high value coking coal in the first of 2019 and will increase production to
40 000 Mt per month in July and to 50 000 Mt in October 2019.

The JKL operation will produce an average of 70 000 Mt per month in the first half of 2019 and increase the volumes to 120 000 in the 2nd half. This will be 50% power coal and 50% high value coking coal.

The mining contractor is also expected to produce 100 000 Mt per month as from July 2019. This will be 50% industrial coal and 50% power coal. This production plan will see Hwange shifting away from the traditional approach of relying more on the contractor capacity than its own production.

Key projects identified

The key projects that are expected to stabilise production to the planned level of 170 000 Mt for HCCL own mining is the acquisition of two excavators for opencast and a third shuttle car for 3 main.

The projects will be funded mainly from internally generated resources through the sale of coking coal and some prepayment arrangements with some key customers.

Meanwhile, Hwange will continue its agreed payment plan to creditors although the time line maybe adjusted a bit through engagements with all the creditors. This strategy will see the company reversing the gross loss in 2019 and start moving towards profitability.