CRUNCH TIME: Hwange Colliery has been given leave by the High Court of Zimbabwe to meet its creditors and present a plan to repay debt in a structured way. File picture: REUTERS
CRUNCH TIME: Hwange Colliery has been given leave by the High Court of Zimbabwe to meet its creditors and present a plan to repay debt in a structured way. File picture: REUTERS

The efforts of Hwange Colliery’s administrators to breathe life into the debt-laden and underperforming coal miner remain fruitless.

In its latest annual results, Hwange, which is listed in Harare, Johannesburg and London, had little to hearten investors, the biggest of which is the Zimbabwean government with a 37% stake and exposure of $138m in loans to the colliery.

Operationally and financially, Hwange remained technically insolvent, with sharply diminished cash.

Cash on the balance sheet dropped to $1.6m by the end of December 2018 from $8.9m a year earlier, leaving the company reliant on its internally generated cash and whatever loans it can secure to fund its wish list of plans to save the company.

PODCAST: The growing power of class action lawsuits 

Historically, the shares have barely traded on the JSE. At the time of suspension in November 2018, shortly after the company was placed in the care of administrators, it was listed at 51c, near the 12-month low of 50c. Hwange had a market capitalisation of R51.7m.

At hearings into Hwange in Zimbabwe’s parliament during 2018, allegations of fraud and corruption were made by board members against the colliery’s management, saying these activities contributed towards the company’s financial mess and threatened its listings on the three bourses.  

A $19.6m impairment was taken against Hwange’s assets during the year, said administrator Bekitemba Moyo in the results statement.

Hwange posted a loss of $78m compared to a $44m loss the year before.

Revenue grew to $69m from $54m, but operating costs shot up to $73m compared with $53m a year earlier. The difficult and complex fiscal regime in Zimbabwe and foreign exchange shortages there complicated the company’s performance.

In October 2018, the Zimbabwean government granted a reconstruction order for Hwange under regulations pertaining to companies owing the state money and which were insolvent.

Hwange’s debt to the government grew to $138m from $120m a year earlier.

Hwange’s total assets exceeded its total liabilities, leaving it with negative equity of $290m and technically insolvent.

While sales of coal products grew to 1.5-million tons from 1.2-million tons the previous year, the underlying mining operations continued to miss production targets, frustrating the efforts of the administrators who set a sales target of 3.5-million tons to generate cash for the business.

The majority of sales were to the Zimbabwean power-generating plant.

The lack of working capital during the year hampered production, with average output of 150,000 tons a month falling well short of the targeted 300,000 tons.

Moyo’s wish list for the year ahead was improved production and sales, and ramping up output from its own mining staff compared to the production coming from contractors.

During 2018, just 20% of production or 367,000 tons came from Hwange’s own crews operating in an open-cast mine. The intention is to reach 50% from its own staff in the future.

It also wants to start producing coking coal during 2019, arguing it had the capacity to produce and sell 45,000 tons of this coal in Zimbabwe and it would use this base to penetrate neighbouring countries wanting the product.

Without being specific, Moyo said Hwange had “put in place a mechanism to raise significant amounts for foreign currency” towards its plans to produce 170,000 tons of hard coking coal from its owner-run assets.

A problem looming in the near future is the open-cast mine coming to an end within a decade. The government opted not to renew the mining rights over the Western Areas coal fields where the open-cast operation is situated.

Moyo warned this development not only posed a threat to the company but to its 25-year coal supply agreement with Zimbabwe Power Company’s expansion.

“These new developments require the company to plead for the renewal of the Western Areas,” he said or Hwange would have to find new sources of coal around its other mining areas.