TOTAL liabilities for Hwange Colliery Company (HCC) in Zimbabwe exceed assets by $19m, casting uncertainty on the ability of the coal miner – currently under judicial management – to continue as a going concern. This is despite hopes for a productivity-driven boost in coal output.
HCC has attributed its net current liability position to “… high fixed overheads associated with the company’s operations”. Challenges experienced with “equipment resulted in an increase in direct costs of production without a corresponding increase” in output, it said.
“A report on the review (of the company’s financials) has been issued and has an adverse conclusion with respect of … non-compliance with International Accounting Standards (on) the effect of changes in foreign exchange rates, fair value determination of property (and) going concern (status),” HCC said in notes to its interim results ended June.
Management at the company now believes “that the company’s ability to continue to operate is dependent upon future profitability” in light of the adverse opinion from external auditor Grant Thornton. The future profitability for the company also hinged on it hiring an independent contractor to provide mining services at its open cast mine.
During the period under review, HCC posted a profit of about $250,000 against a loss of $1.6m in the previous contrasting period. This was after revenues came in 128% higher at $2.1m. The Zimbabwe dollar is trading at about 1:14 against the US dollar on the official interbank market.
Production was interrupted during the year under review: firstly, the firm’s contract miner stopped mining from mid-December 2018 until August; secondly, its own-operated open cast mining was disrupted. It only resumed open cast mining in March.
As a result, production for HCC declined 52% from 819,859 to 394,704 tons. Total sales tonnage declined 16% from 682,152 tons in 2018, although the sales mix improved with hard coking coal sales increasing 4.2% to 279,790 tons. Thermal coal sales to Hwange Power Station fell 38% to 232,222 tons.
The firm’s appointed administrator, Bekitemba Moyo, said the second half of the year “… had started reasonably well” with the focus falling on underground mine operations. Cost reductions and pillar mining, as well as resuscitation of the heavy media separation (HMS) plant in order to lift washing capacity, were other key strategies for the second half.
“The company is working on stabilising the underground mine operation which averaged 21,2000 tons per month for the period under review. The target is to bring the operation to 50,000 tons per month which will contribute significantly to the company’s line and enhance exports,” said Moyo.