Hwange Colliery sees signs of hope despite widened 2018 loss

Hwange Colliery Mine

Despite achieving higher production and sales volumes for the year ended December 31, 2018, Zimbabwe-based Hwange Colliery’s financial performance worsened, with the miner’s loss for the year having widened by 79% to $78.4-million, from a loss of $43.8-million in 2017.

The bigger loss was mainly as a result of the impairment of some assets, as well as subdued coal prices against increased input costs.

Hwange’s performance for the period also fell short of its budgetary targets, owing to lower-than-expected production levels, which were attributable to working capital constraints.

Meanwhile, revenue for the period increased by 27% to $69.1-million, from $54.5-million in 2017, and is attributed to an increase in sales volume to 1.5-million tonnes in 2018, up from the 1.2-million tonnes sold in 2017.

The monthly production average was 150 000 t, compared with the budgeted monthly production of 300 000 t. Hwange failed to meet the market demand as a result.

Total sales tonnage was just over 1.5-million tonnes against a budget of just over 3.5-million tonnes, compared with almost 1.3-million tonnes and 3.6-million respectively recorded in the prior year.

Cost of sales during 2018 increased by 36% owing to higher input costs, which Hwange said was driven by the parallel market exchange rate that was being used by most suppliers to charge their products in real time gross settlements (RTGS).

SIGNS OF HOPE

As demonstrated by the improved sales and production volumes, Hwange on Monday reported that “there are signs of recovery despite the widening of the loss position”, where impairment of assets and stripping activity assets written off contributed about $27-million.

In terms of strategic priorities for the year, Hwange focussed on increasing production and sales. Production increased to 1.79-million tonnes from the 1.2-million tonnes recorded in 2017 and sales increased to 1.5-million tonnes from the 1.2-million tonnes recorded in the previous year.

The company’s own opencast operation contributed 366 959 t for the year, which represents about 20% of the overall production. Contractor operations contributed just over 1.2-million tonnes for the year, which represents 68% of the total.

Going forward, Hwange confirmed that there was a need to increase the company’s own production to more than 50% of total production.

Constraints in the logistics and processing section of the value chain are being addressed, Hwange averred, adding that coal movement was largely by road, an expensive transportation mode.

“The revival of the National Railways of Zimbabwe and our own conveyor belt to the power station will come as a solution to the logistical requirements for the product to reach

customers in a cost-effective way. Efforts continue to be made to secure working capital,” the company said.

Further, Hwange continued to optimise its underground mine operations and managed to produce more than 35 000 t for the best month. The aim is to increase production to 50 000 t a month.

While the full production of the underground mine operations was delayed, Hwange views this as a sign of recovery as production of high-value products is set, and the company’s capacity to generate export sales from coking coal and coke is enhanced.

Foreign currency remained a challenge during the year, as most of the underground equipment spares were imported from South Africa.

In terms of coke production, Hwange said it was still pursuing the takeover project of the Hwange Coal Gasification Company (HCGC) coke oven battery pursuant to a build, own, operate and transfer agreement with its Chinese partners in HCGC.

Engagements remain in place to ensure that this is achieved without placing risk on the company, Hwange stated, adding that, moving forward, the company has placed more emphasis and attention on the building of its own coke battery.

To assist with cost reductions, Hwange adopted a low-cost, high-productivity strategy during the period under review, which has enabled it to significantly reduce its costs.

Employment costs have reduced owing to a short time working arrangement, as well as the revision of employment benefits in line with industry best practice.

However, the strategy was negatively impacted on by the macroeconomic environment, which pushed input costs higher.

Meanwhile, as the company increases the focus on the core business of mining, it said on Monday that it would also look at ways of allowing other entities to assist in the running of town services such as road maintenance, electrical power distribution and sewage treatment.

The adoption of enterprise resource planning systems to automate the administration of the business would also improve efficiencies, Hwange said, and lower the cost per ton of produced coal.

OUTLOOK

Strategic plans to unearth the company’s potential are being developed and include increasing the volume of high-value and high-margin coking coal, toll coking and the replacement of Hwange Colliery’s coke oven battery, as well as fixed and mobile plant repair and restoration of full capacity and the development of new concessions, while also increasing the volume of export sales.

The life-of-mine at the current opencast operations is estimated to be less than a decade, Hwange noted. Therefore, the nonrenewal of the Western Areas coalfields mining rights threaten the future of the company, as well as the 25-year coal supply agreement it signed with the Zimbabwe Power Company for the Hwange Power Station Stage 3 expansion.

These new developments require the company to plead for the renewal of the rights or to secure alternative reserves around the current mining areas if there are to be any chances to supply coal for the Stage 3 expansion, and also guarantee of the opencast mining operations beyond ten years.

Given the company’s deliberate focus on increasing the mix of high-value and -margin coking coal and coke, Hwange reiterated its focus to grow its market share in neighbouring countries. – Mining Weekly