Hwange Colliery – time for govt to bow out

Hwange Colliery – time for govt to bow out

By Simbarashe Zishiri, HARARE, October 5 (The Source) – Hwange Colliery Company’s financial results over the last five years make for sorry reading. On Monday, the coal miner reported a $28 million net loss for the six-month period to June 30.

This has become a familiar script for the miner, which has become a by-word for corporate inefficiency.

Cash down the pit

In 2013 the company reported a 31.39 percent drop in revenue to $71.54 million from $104.28 million recorded for the full year 2012. That year, it reported a net loss of $30.68 million from after-tax profit of $3.13 million in 2012.

For 2014, revenue increased to $83.92 million but it reported a net loss of $37.86 million. Revenue plummeted to $67.58 million as the miner reported a loss of $155.06 million in 2015.

Sales of Hwange’s major products coal and coke dropped from 1.8 million tonnes in 2012 to 1.5 million tonnes in 2015 and 108,408 tonnes to 53,874 tonnes recorded in 2015, respectively. Subdued commodity prices also contributed to the fall in revenue.

Finance costs have also been rising since 2014 as the company continues to finance its operations with borrowings. The finance costs increased by 8 percent to $3.7 million in 2014 and 50 percent in last year to $5.54 million.

The increase in the finance costs was attributed to the increase in the company’s borrowings, which rose from $10.8 million in 2014 to $29.8 million in 2015. Trade and other payables shot up from $85.45 million reported for the full year 2012 to $241.5 million in 2015.

The company’s persistent losses have chewed shareholder value, as reflected by a decline in total equity since 2013. Total equity dropped from $106.62 million recorded in 2012 to a negative $77.83 million in 2015.

In the half-year results released on Monday, the company reported a negative $106.32 million compared to a negative $6.88 million recorded in the same period last year.

As a result of accumulated losses, the company has failed to honour its obligations and the company has so far lost litigation cases amounting to $44.9 million.

The company has been granted permission by the High Court to convene scheme meetings with its creditors in order to come up with a scheme document which stipulate the structure of the scheme and a proposal to liquidate creditor claims.

The company is also set to restructure its balance sheet after the largest shareholder, the government with 36.77 percent of equity, agreed to restructure short-term obligations amounting to $87.9 million into long term financial instruments, a move which is expected to relieve the company from its constrained working capital position.

The mid-term financials released on Monday showed current liabilities of $311 million, of which $256 million was under trade and other payables, against current assets of $61 million. The current just $360,000 was in cash.

hwange

The Government of Zimbabwe remains the largest shareholder in Hwange Colliery, with 36.77 percent shareholding as of 2015. Other major shareholders include Nicholas Van Hoogstraten with 31 percent equity through various vehicles and Mittal Steel Africa with 10 percent.

Analyst view

Owing to the poor performance of the mining company, there is a need to restructure the company into a private entity which is controlled by individuals who are competent enough to turnaround its fortunes. This is a company whose shares trade, in addition to the Zimbabwe Stock Exchange, on the Johannesburg and London bourses.

Converting some debt to long-term financial assets is not the solution because the company has already proven over the years that it does not have the capacity to improve its operations. Gross losses recorded by the company are a very big concern which shows that the company is not even able to make a profit after deducting the costs associated with providing its services.

Additionally, given the old equipment that the company possesses, it is difficult or even impossible to meet any increased demand at the moment. As such, the expected demand of an additional 200,000 tonnes per month from ZPC will not be met. The company is said to have problems with the equipment it commissioned in July 2015, with some of it having faults.

Opportunities presented by the additional ZPC demand as well as coal bed methane gas prospects require an investor with the technical and financial to exploit them.

A better option could be converting debt into equity because it will take a very long time for the company to pay off its debt and return to a positive equity position. Nevertheless, the current performance of the company remains a concern given its financial performance over the years.

It is better for the company to liquidate and give room to another investor who is competent enough to resuscitate its operations. Moreover, it will be very difficult, if not impossible, for any financial institution to extend credit to the company given its financial position.