STATE-OWNED Zimbabwe Power Company (ZPC) has given tri-listed coal miner, Hwange Colliery Company Limited (HCCL) a guarantee for a US$10 million loan from a local banking institution, the Financial Gazette can report. ZPC is the power generation unit of ZESA Holdings, which is wholly-owned by government.
HCCL had requested for the guarantee from ZPC on account of a loan from BancABC, a commercial banking unit of ABC Holdings, which is dually listed on the Zimbabwe and the Botswana bourses. The coal miner, which is listed on the Johannesburg, Zimbabwe and London stock markets, requested ZPC, which is one of its biggest customers, to provide the guarantee for it to secure the funding. The request was made in June this year, as first reported by the Financial Gazette in April.
The ailing coal giant has been battling diminution of value sparked by under capitalisation since dollarisation of the country’s beleaguered economy in 2009. But the Financial Gazette can exclusively reveal that the facility is now in place and of the US$10 million it required, US$6 million has already been paid. This will go towards working capital requirements.
This injection, coupled with other recapitalisation initiatives, will result in improved production performance, expected to be at least 500 000 tonnes per month by the end of the year. HCCL managing director, Thomas Makore, confirmed the development. “The Zimbabwe Power Company has agreed to provide the loan guarantee. One of the clauses is that we will supply ZPC with 90 000 tonnes of coal and they (ZPC) will pay us on time. Of the US$10 million, we got US$6 million from BancABC as working capital and the balance we will be drawing down for equipment repairs and so forth,” said Makore.
A well-placed source at the power utility confirmed that the loan guarantee had indeed been provided. By agreeing to provide the guarantee, ZPC has undertaken to repay the loan in the event that HCCL defaults. The funding is part of a broader push by the cash-strapped coal miner to boost its working capital.
HCCL incurred a loss after tax of US$7,9 million during the half year to June 30, 2014, from US$1,3 million in the prior comparable period, after both coal and coke sales declined significantly. The coal producer reported that its revenues for the period under review stood at US$33,05 million compared to US$40,4 million during the comparable period the previous year, a 21 percent decrease.
HCCL, which used to enjoy a monopoly in coal production, has come under pressure from new producers, Makomo Resources, Coal Brick and Chilota Colliery, who have chipped off its market share. They are likely to eclipse the oldest coal producer in output if current trends continue. HCCL expects its output to increase to between 450 000 and 500 000 tonnes per month by the end of this year, from about 150 000 tonnes currently.
A Portuguese mining and construction company, Mota-Engil, has been awarded a contract to mine coal on behalf of HCCL at Chaba open cast mine under a US$260 million deal agreed nearly a year ago following the end of a similar deal last year with Billy Rautenbach’s Clidder Minerals. Mota-Engil, which has already started operations at the colliery, is expected to run its business independent of HCCL operations.
The contract runs for the next five years, a development which is expected to turn around the fortunes of HCCL. The Portuguese firm is expected to produce about 200 000 tonnes of coal per month. Makore said HCCL was finalising paperwork to secure another US$18 million loan from PTA Bank headquartered in Egypt to enable it to acquire equipment from Belarusian mining equipment manufacturer BELAZ, the world’s third largest dump truck manufacture.
“We are finalising the paperwork for the release of US$18 million from the PTA Bank. This funding will go towards the acquisition of equipment which is coming from Belarus. The equipment will allow us to produce coal quantities at targets that we have set for ourselves,” said Makore. He further said they expected the equipment in the country by end of November.
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