Zimbabwe: Hwange Engages Forensic Auditors

Source: AllAfrica

Coal miner, Hwange Colliery Company Limited (HCCL) has engaged forensic auditors to investigate its costly debt in excess of US$30 million, as speculation swirled in the market that directors and shareholders suspected pillaging of borrowed resources by some executives.

Board chairperson, Farai Mutamangira, said forensic auditors were already poring over details of the company's debt, which has hamstrung growth and curtailed profitability due to its cost.

HCCL's debt amounted to US$31, 6 million as at December 31 2012.

Mutamangira said the company was still "troubled by legacy debts" accumulated over the past five years. He said a permanent remedy to the debt situation would yield automatically when production volumes increase to achieve the targeted design capacity.

"These debts have been subjected to a forensic audit and when verified, a comprehensive plan to discharge the liabilities will be put in place," said Mutamangira.

It was not clear what concerns the new board, put in place after an armistice between bickering shareholders, had over the debt. But one of the major shareholders, Nicholas van Hoogstraten, has charged HCCL management of corruption and mismanagement.

Van Hoogstraten influenced a decision not to renew the contract of the company's former managing director (MD), Fred Moyo, after it expired in September last year. HCCL is now on the market for a new MD.

HCCL had been in talks with South African funders for a US$100 million bailout, but talks collapsed unexpectedly over a year ago. It has not been explained by management why funders walked away.

HCCL had sought to raise US$75 million from the Development Bank of Southern Africa (DBSA), which had conducted a technical due diligence.

The DBSA was the lead arranger of HCCL's initial capitalisation phase while the key partner in the deal was the Industrial Development Corporation of South Africa (IDCSA).

IDCSA had also conducted the due diligence.

HCCL was said to be also seeking a separate US$10 million package from DBSA to bankroll the opening of new coal fields, which would bring the total loan facility to US$85 million.

But the US$75 million was expected to be used principally to fund repairing and re-equipping of current production and operation processes.

Mutamangira, who said current loans were being rescheduled to periods of up to 24 months while others were currently being serviced through ring fencing of specific customers, said borrowings of US$1 million and below were currently being liquidated on the basis of arrangements with lenders.

"In the short term aggressive cost cutting has improved the margins of the company creating the capacity currently being utilised to purchase equipment unassisted by borrowings," he said.

Mutamangira said in the medium term, the sustainability of the company's operations lied in increased revenue.

"In the medium to long term, the company has set its sight on acquiring new coal concession and the development of new mines in conjunction with strategic investment partners," he said.

HCCL last year turned to the PTA Bank for capital after failing to secure funding from the South African funders.

The coal miner was seeking funding to the tune of US$50 million from the PTA Bank.

In the absence of medium to long term financing structures in the market, Mutamangira said the company had been financing some of its recapitalisation through working capital.

"Going forward, there will be focus on project finance with a view to unlocking any working capital to service current liabilities," said Mutamangira.

He said Hwange's strategy was to turnaround its fortunes through a concerted recapitalisation programme blending debt financing and internal resource mobilisation.

HCCL's turnover for the year to December 31 2012 was US$104,2 million, from 107,9 million recorded the previous year.

Export revenue of US$26,1 million accounted for 25 percent of turnover for the year compared to US$13,4 million a 12 percent increase from the previous year. The export revenue is expected to continue to grow given the anticipated increase in production volumes as the company takes delivery of new equipment.

Profit from operations increased by 73 percent from US$4,1 million in 2011 to US$7,1 million the previous year. The net profit for the year ended December 31 2012 was US$3,1 million compared to US$3,9 million achieved during the same period in 2011.