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HCC feels the heat

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COAL miner Hwange Colliery Company (HCC) Limited has recorded a 16% decrease in overall volume sales attributed to low production and cut-throat competition in the local coal market.

Nqobile Bhebhe
Chief Reporter

According to HCC’s audited financial results for the year ended December 31 2013, coal demand in the domestic market significantly decreased during the year under review amid increased competition among coal and coke producers.

The colliery particularly bemoaned an influx of cheap coal supplies from China to its traditional markets.

Several firms have in recent years entered the coal sector injecting fierce competition in the local coal market.

In his statement accompanying the HCC results released yesterday, company chairman Farai Mutamangira said competition among coke and coal producers was weighing on the firm’s performance.

“Coal demand on the domestic market significantly decreased giving rise to increased competition among the coal and coke producers. Coal and coke export demands remained firm, but the prices generally declined,” said Mutamangira.

The company’s overall sales volumes decreased by 16% due to low production and ageing mining equipment.

The turnover decreased to $71,5 million compared to $104,2 million recorded in the corresponding year.

“Export sales of coke and coke breeze decreased by 57% because of shutdown of some of the operations of coke customers in the Democratic Republic of Congo and the invasion of cheaper coke imports from China.

“The low performance was driven by a number of critical factors worth noting. The production volumes were low consequent to the old equipment, the reduction in coal and coke prices both local and export, the increase in already high fixed overhead costs, the rising inputs costs, the impact of the legacy debts on current cashflow and absence of facilities for working capital,” he said.

The firm incurred a loss of $127,3 million compared to a profit of $3,1 million posted in 2012.

Mutamangira said despite severe liquidity challenges experienced in the year under review, the mining firm managed to procure and commission mining equipment worth $12 million from a Chines company — Sany Heavy Equipment.

He said internally generated funds were used to pay a $2,8 million deposit.

On the strategic thrust, the chairman said last year $40 million was set as a target to grow the business organically of which $35 million was achieved.

However, a new forecast of $70 million has been set for the short period.

“This means that cashflows will remain tight as funds meant for working capital will be prioritised to capital expenditure. The company has experienced instances where it was not able to meet its obligations resulting in a backlog in employment salaries,” he said.

But Mutamangira is confident that the colliery will return to profitability in the short term given the strong operational base attributed to capitalisation and contractor capacity.

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