Hwange stops bleeding, gears for profit
THE board of directors at Hwange Colliery Company Limited (HCCL) has managed to “stop the bleeding”, with the company forecasting to break even this year and becoming profitable from 2018 through to 2021.
Through the ongoing turnaround strategy, managerial staff has been cut by 30 percent, while salaries have been slashed by 50 percent. But the bullish forecasts are mainly driven by new mining concessions at Western Areas and Lubimbi West. HCCL is a key economic player that supplies coal to Hwange Power Station (HPS) and other crucial coal consumers. A statement for the miner’s year end financials by chairman Mr Winston Chitando indicates that while the market has remain tight, the company is on course to achieving its goal of becoming profitable in 2018.
“In the half year statement to shareholders published in September 2016, I indicated a cocktail of measures which the company was taking anchored on a Scheme of Arrangement with its creditors. These measures are aimed at stabilising operations and returning your company to profitability.
“The company has since developed strategies and action plans to leverage its strengths not only to return to profitability but to realise its full potential. The main focus for the board during 2016 was to ‘stop the bleeding’, craft and implement a turnaround strategy as well as laying a solid foundation for the company to optimise on its full potential,” said Mr Chitando, a well-known personality in the mining industry.
He said the board had identified key areas of strategic focus in its turnaround strategy, which include the Creditors’ Scheme of Arrangement that is aimed at creating operating space for the company; a review of contracts with major contractors to reduce costs; the resuscitation of opencast production and underground mining operations.
Mr Chitando said the company’s high cost structure has mainly been driven by production inefficiencies and very high direct and indirect costs.
To remedy this, the board implemented a low-cost strategy that included reduction of managerial staff by 30 percent while from October last year to March this year, management salaries were reduced by 50 percent.
Non-managerial employees were on short-time work during the same period with a corresponding reduction in the wage bill by 50 percent.
In addition, the board reviewed the human resources policies in line with current market conditions, established a Contracts Administration and Procurement Policy to minimise the cost base and reinforce corporate discipline.
The board seeks to increase production and have readily made available thermal and industrial coal for the manufacturing sector and tobacco farmers while pursuing exports markets in Zambia, South Africa and the DRC.
“Traditionally, Hwange Colliery has operated the mine, town and hospital as a single enterprise with the resultant costs of operating the town increasing the operating cost platform. Given the need to reduce costs, the company will operate the Estates division and the Medical Services division as stand-alone business units which will be expected to contribute to the profitability of the main company,” said Mr Chitando.
He said the company faced serious liquidity challenges as financial institutions and creditors were unwilling to extend lines of credit.
As a result, there was a 41 percent drop in revenue from US$67,5 million recorded in 2015 to US$39, 9 million in 2016 mainly due to a decrease in sales volumes.
Cost of sales also declined by 23 percent to US$77, 7 million compared to US$101 million recorded in 2015.
Administrative costs stood at US$50,4 million, representing a 17 percent fall compared to US$60, 6 million recorded in 2015.
Mr Chitando said, “Based on increasing production from both open pit and underground mining, a break even result is forecast in 2017 and profitability will be achieved in 2018 through to 2021 driven by coal production from the new mining concessions at Western Areas and Lubimbi West.
“Coal supply will increase by more than 100 percent in the next 2-3 years on account of the Hwange Power Station Stage 3 Expansion, the refurbishment of the small thermal power stations at Bulawayo, Munyati and Harare and the commissioning of new Independent Power Producer thermal power plants.
“The company’s medium term strategic plans also include the replacement or rebuild of its coke oven battery which will also supply coke oven gas as fuel substitute for diesel to Zimbabwe Power Company’s Hwange Power Station as well as supply of tar and benzole products to its subsidiary Zimchem.”
HCCL plans to resuscitate 3 Main underground mining operations this year, the takeover of the coke oven battery by mid-2017 following the expiry of the build, own, Operate and Transfer (BOOT) agreement, commencement of exploration drilling, coal reserves and resources estimation at the Western Areas and Lubimbi West coalfields and exploration drilling of coal bed methane gas reserves and quality estimation at Lubimbi East concession in 2018.