EMBATTLED coal miner, Hwange Colliery Company Limited (HCCL), has lurched into quandary over dilapidated mining equipment sourced from India after suppliers refused to offer replacement.
The development is likely to worsen the colliery’s financial situation, especially after it last month re-stated its financials for the half year to June 30, 2015 to take into account a tax claim amounting to nearly US$70 million.
The tax claim inflated the company’s net current liability position to US$177 million during the half-year period, from US$85 million during the comparative period the previous year and US$122 million during the year to December 31, 2014.
The company is expected to report on its full year to December 31, 2015 before the end of this month.
HCCL acquired the mining equipment from India and Belarus nine months ago under a government-facilitated deal in a bid to improve production output.
The tri-listed resources firm received 10 dump trucks, five front-end loaders and two wheel dozers from Belaz of Belarus while two excavators, two water bowsers, three front-end loaders, three bulldozers, three drill rigs, a motor grader and one tyre handler were supplied by Indian firm, Beml.
The Zimbabwe Stock Exchange listed company also trades its shares on the London and Johannesburg stock markets.
The coal miner is now under pressure from government to turn around its fortunes but is facing challenges largely due to recurrent breakdowns of some of the machines acquired from BEML under a US$13,3 million vendor financed transaction facilitated by the Export-Import Bank (Eximbank) of India.
The other batch of mining equipment worth about US$18,2 million came from mining equipment supplier Belaz under a PTA Bank loan facility.
Sources indicated that Beml had flatly refused to accept back the condemned mining equipment, which some sources in the industry suggested were antiquated machinery simply spruced up for delivery to an unsuspecting customer.
The sources indicated that HCCL was still pushing for Beml to accept liability for the equipment supplies.
HCCL’s managing director, Thomas Makore, last week told the Financial Gazette that the Indian supplier had not adequately responded to its concerns, ruling out the possibility of Beml replacing the faulty equipment.
The Indian company has simply extended machines’ warranty period, he said.
“I don’t want to say we have sorted the issue (with the suppliers of the equipment), but the suppliers have extended the warranty period of those machines,” said Makore.
“We are monitoring the situation.”
While production should have increased since the commissioning of the equipment in June last year, output has remained low.
Expectations were that production would increase to 450 000 tonnes per month from 150 000 tonnes per month once HCCL started utilising the equipment.
However, soon after receiving the machines, it emerged some of the equipment under the deal had faults, denting efforts by the coal giant to maximise on production.
The controversy prompted the second largest shareholder in HCCL, British business magnet, Nicholas Van Hoogstraten, to allege underhand deals in the procurement of the equipment.
He said there was “gross corruption” in the acquisition of the equipment.
Government is the largest shareholder in HCCL with a 37 percent shareholding in the country’s largest coal miner.
Makore said production volumes are still under the break-even point of 300 000 tonnes per month.
“We are not yet at the level we wanted,” said Makore.
“Currently, we are producing about 200 000 tonnes a month from the 150 000 tonnes we were producing last year.”
Poor performance by HCCL forced the Minister of Mines and Mining Development, Walter Chidhakwa, last October to issue threats that he would relieve the company’s management of their duties in the event that they failed to turn around its fortunes.
In January this year, expectations were that Chidhakwa would fire management after the December turn-around deadline he had issued expired without the desired results.
Instead, Chidhakwa extended the management’s lifeline by another three months to the end of this month, saying this time he would not hesitate to axe the company’s executives if results were not pleasing.
Chidhakwa also ordered management to cut salaries and allowances by half.
Workers at the colliery have gone for 20 months without receiving their salaries.
Makore, however, refused to comment on the salaries arrears, saying: “I can’t comment on the issue because I am going into a meeting right now.”
HCCL says it has adequate coal reserves to enable it to continue operating for the unforeseeable future. The market demand for coal remains unsatisfied.
HCCL used to enjoy a monopoly in coal production, but has come under pressure from new producers, Makomo Resources, Coal Brick and Chilota Colliery, which have chipped off its market share.
The company widened its loss by more than 400 percent to US$44,1 million during the half year period to June 30, 2015, from US$7,9 million reported in the comparative prior period.
HCCL is saddled with a US$160 million legacy debt, which includes what is owed to employees in unpaid salaries (US$50 million), the Mining Pension Fund (MPF) (US$25 million) and tax liabilities.
The burden of servicing legacy debts continued to strain the company’s cash flows and this presented working capital challenges.
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