Hwange Colliery’s transport costs to benefit from revival of Zimbabwe railways

Hwange Colliery Mine
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The revival of the National Railways of Zimbabwe (NRZ) is expected to help Hwange Colliery overcome the high costs of transporting coal by road, the company said in its results to end-December, released on Thursday.

Hwange Colliery, which changed its name from Wankie several years ago, is a majority state-owned Zimbabwean coal miner listed on three stock exchanges — Zimbabwe, Johannesburg, and London.

In February, the NRZ took delivery of new locomotives, passenger coaches and 157 wagons as part of a deal between a consortium made up of Zimbabwe’s Diaspora Infrastructure Development Group (DIDG) and Transnet.

Hwange Colliery said on Thursday working capital constraints — namely hard currency requirements largely dependent on allocations from the reserve bank — had seen the company failing to meet its production target in the year to end-December. But the Zimbabwe coal miner managed to cut its loss for the year by half.

A better performance in 2017, compared to 2016, led to a 51% reduction in the loss for the year, to $43.8m, from $89.9m in 2016.

Revenue rose by 41% from $39.9m to $54.5m in 2017. This was the result of increased sales volumes from the 921,000 tonnes to 1.2-million tonnes.

However, working capital shortages was cited as the reason for the company’s failure to meet its budgetary targets.

Monthly production average was 110,000 tonnes compared to the budgeted monthly production of 340,000 tonnes. As a result, the company failed to meet the market demand.

Total sales tonnage was 1.3-million tonnes against a budget of 3.6-million compared to 921,627 and 3.6-million respectively recorded in 2016.

Yet the company reported having reduced the cost of sales 32%, mainly as a result of a number of initiatives, including reduced labour costs due to a voluntary retrenchment exercise.

Hwange is bullish about the future, saying its strategic priorities included a production increase as well as the expected change from road transportation to rail, due to improved capacity by the NRZ.

In the year under review, the company also managed to bring an underground mine back into production, enhancing the company’s capacity to generate export sales from coking coal. The company will develop a second underground mining section so that coking coal production will double in 2018.

“While foreign currency remained a challenge during the year, support received from the Reserve Bank of Zimbabwe in availing foreign currency needed to import the key pieces of equipment for the underground mine is appreciated.”

However, Hwange Colliery announced a delay to its planned takeover of the Hwange Coal Gasification Company coke oven battery, pending a build, own, operate, transfer (boot) agreement with its Chinese partners in the project.

The company concluded an Exploration Agreement to undertake exploration and drilling of the Western Areas Concession. Thereafter, mine development will follow after securing funding for this phase, which is intended to provide a new source of coal. The life of mine at the current open cast operations is estimated to be less than five years.

Long-term supply contracts have already been signed with the Zimbabwe Power Company and with an independent power producer. Bidders have been invited to tender for development of the coal bed methane resources at Lubimbi East.

As it seeks to further position itself for production increases, Hwange Colliery has also invited bidders to tender for the full rebuild of its coke oven battery, byproducts plant and ancillary plants or the supply of a completely new coke oven battery of the same capacity, as that closed in 2014.