Hwange Colliery Company (Zimbabwe) – FY2021 inflation-adjusted revenue jumps by 31% to ZWL 9.4 billion

By Published On: May 23rd, 2022Categories: Corporate announcement, Earnings

Hwange Colliery Company Limited (HCCL.zw) 2021 Abridged Report

ADMINISTRATOR’S LETTER

OVERVIEW

The operating economic environment for the year under review was fairly stable, with some price discovery challenges affecting the company’s input costs and profitability. Despite these challenges, the market was buoyed by a strong demand for both thermal and coking coal that positively pushed sales.

FINANCIAL PERFORMANCE

Revenue improved by 31% from ZWL 7.2 billion in 2020 to ZWL 9.4 billion in 2021 on an inflation-adjusted basis. This was largely driven by a combination of an increase in sales of high value coking coal and regular product price adjustments done during the year in line with market value.

Gross profit increased by 26% from ZW1.6 billion prior year to ZWL 2.1 billion in inflation adjusted terms this year. The company posted a net profit of ZWL 28.6 million during the year and the decrease was mostly attributed to exchange rate impact on legacy debts. Legacy debts contributed ZWL 904 million of unrealised losses on inflation adjusted terms

REVIEW OF OPERATIONS

The Company’s production increased by 49.5% during the period under review. The sales volumes also increased by 39% compared to prior year. Operations were negatively affected by the prevalence of Covid-19 pandemic, depressed cash-flows to import spares and consumables as well as the depressed market for NPD (nuts, peas and duff) and Duff products. Going forward, the Company is targeting to increase coking coal production and sales, which will in turn increase capacity to discharge obligations to creditors as well as create a positive balance sheet in the medium term.

The strategic priorities for the Company’s year were as follows:

a) Safety, Health, Environment and Quality

HCCL experienced a fatality free shift record for the period under review. The Company ran a successful Covid-19 awareness and vaccination program, for both  workers and the greater Hwange Community. The company did a detailed assessment on the 7 East underground fires and it has engaged a German-based company to do the fire control strategy. The lost shift injury frequency rate improved due to initiatives, such as increasing safety awareness campaigns, systems implementation and technology embracing. HCCL embraced a risk/opportunity-based approach to operations aimed at enhancing journey to zero harm. Top risks included Acid Mine Drainage, for which an Environmental Management Plan (EMP) to manage its effects is now in place. Likewise, robust measures aimed at reducing similar incidents related to non-communicable diseases were established through a Wellness policy.

b) Coal Production

During the period under review, focus was on increasing production and sales of high value coking coal. Raw coking coal and clean coking coal sales increased by 226% from 63 294 tonnes in 2020 to 206 564 tonnes in 2021. The coking coal sales volumes were however limited by washing capacity constraints and the company redressed it by recommissioning a washing plant during the period under review.

c) Open Cast Mining

Total coal mined by Opencast operations was 1 804 663 tonnes, a 53% increase in production from the previous year.

A total of 733,102 tonnes of coal was delivered to Hwange Power Station during the course of the year, which was an increase of 11% from previous year. Deliveries into the power station were however negatively affected by plant challenges in the power station and limited stock holding space.

d) Underground Mining

3 Main Underground Mine coal production was 27% higher than the previous year. This was mainly because of improved operational funding and credit facility availed by spares suppliers.

e) Fixed and Mobile Plant Repair

Significant investment has been made in repairs and maintenance of the existing plant and equipment. Repair work on the Heavy Media Separation (HMS) washing plant was completed and the plant was recommissioned in April 2021.

f) Cost Control

The Company continues to put emphasis on a low-cost high productivity strategy. This has enabled the organisation to significantly reduce its costs to remain viable. Tight controls remain on costs and this has had positive impact on cash flows as well.

OUTLOOK

Strategic plans to unearth the Company’s potential are being developed and these include: –

a) Increasing the Volume of High Value Coking Coal

The company has entered into an equipment mobilisation agreement for the Underground Mine, that will result in the company getting new underground mining equipment valued in excess of USD 15 million in the next two years. This arrangement will enable us to increase production to 50 000 tonnes per month in the second half of 2022, then 100 000 tonnes per month first half of 2023 and 150 000 tonnes per month in the last quarter of year 2023 compared to the current production of 15 000 tonnes per month. In addition, Opencast operations at the JKL pit will continue to be capacitated in order to increase high value coking coal in the product mix, the target being to increase production to 90 000 tonnes per month by end of 2022. The company also engaged a new mining contractor to increase high value coking coal with a target production of 20 000 tonnes per month.

b) Fixed Plant Repair and Restoration to Capacity

The main thrust as we move into 2022 is to ensure that we fully capacitate our opencast and underground mine by addressing all bottlenecks currently affecting the mining process. The equipment mobilisation contract has a washing plant that will be located near the mining areas, this equipment will be commissioned during the second quarter of 2022. This will reduce hauling and processing costs. The organisation will also go on a vigorous proactive maintenance drive to continue to stabilise the current washing capacity at both the HMS plant and the Jig and Floatation plant.

c) Chaba Mine