HCCL secures $18m PTA loan

HARARE - Hwange Colliery Company Limited (HCCL) has secured an $18,5 million loan from the PTA Bank, officials say.

This comes as the company has been rocked by divisions as a group of shareholders — led by Nicholas Van Hoogstraten — has been pushing for the board’s ouster over a number of operational issues, including the company’s placement under judicial management.

Thembelani Ncube, HCCL’s company secretary, would neither confirm nor deny the Thursday injection of the cash, which sources said would go towards capital equipment purchases.

The funds also come as Farai Mtamangira’s board has unveiled a four-pronged turnaround strategy and the unveiling of Portugal’s Mota-Engil as the main contractor to boost production levels to its cherished 500 000 monthly tonnage from the current 200 000 tonnes.

In a recent shareholder notice, the HCCL chairperson said that “capitalisation remains critical as a lot of more money is required to stabilise (HCCL’s) operations”.

“The current operations of HCCL remain severely constrained from both an own capacity perspective and a working capital perspective,” Mtamangira said, adding the current tonnage leaves the company at break-even level and new capacities will translate to a monthly turnover of $18 million-plus.

“At this level, and assuming costs are contained below $9 million a month, HCCL will have sufficient turnover and gross margin to not only grow the business but also, to service its legacy debt,” he said.

On the back of the planned fresh capital injection, HCCL will stabilise its production at about 300 000 tonnes per month using own capacity while an additional tonnage of 200 000 — to achieve the targeted 500 000 tonnes per month — will be contributed by contractors.

“With achievement of normal production capacity, HCCL will be able to regain its market dominance and also aggressively venture into new export markets,” he said, adding that his board will focus on key areas such as cost reduction, human resources evaluation and balance sheet restructuring.

He said the long-term capitalisation strategy will be anchored on securing significant debt and or equity injection to the tune of $150 million, to bring about a complete turnaround of the current operations.

But despite these efforts, Mtamangira’s board is facing a multi-pronged opposition from Van Hoogstraten — a 30 percent shareholder in HCCL— on the grounds that it had turned down a proposal to place the company under judicial management and any government conversion of its $80 million debt to equity would significantly dilute the tycoon’s shareholding.

At the same time, HCCL has also spurned Van Hoogstraten’s rescue package — extended through Willoughby’s — under which he offered the miner a five-year convertible irredeemable loan stock of $50 million at an estimated cost of $9 million — a 10 percent interest plus three percent of turnover and 17 percent of profit per annum.

The group had concerns over the running of the group, as Van Hoogstraten wanted effective management control during the five-year loan tenure, and the cost of the funding.

With a Snowden report indicating that the company needed a $100 million cash injection — at a time liabilities are topping $150 million — the board desperately needs shareholder support to turn around the group’s fortunes and the British tycoon would need to pump in $50 million to maintain his stake.

As such, Van Hoogstraten has told a South African weekly that HCCL’s board had committed a “criminal offence” by not calling for an extraordinary general meeting and the turnaround plan was “a little too late”.

Apart from the PTA loan, HCCL is also pursuing a $15 million credit line from India’s Eximbank which it expects to secure by end of May 2014.

The facilities will bring the total amount injected into the Zimbabwe Stock Exchange-listed coal producer to over $50 million since 2011.

Meanwhile, Mtamangira said the group adopted an aggressive cost reduction strategy involving a systems audit of all contractor activities by Ernst and Young.

He said the audit enabled the group to rationalise, re-price and terminate some contracts, resulting in administration costs coming down by about 30 percent.

 

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