By Own Correspondent- In an editorial article for a state owned publication, Finance Minister Mthuli Ncube said the government had raised $449 million from the 2 percent tax introduced in October 2018.

The minister revealed this while announcing that $100 million of that money has been allocated to cyclone Idai relief efforts.

Said Ncube:

One of the key elements of our strategy to get our finances back on track was the Intermediated Money Transfer Tax (IMTT), popularly referred to as the 2 percent Tax, which we introduced six months ago in October 2018, to replace the previous flat tax of 5 cents per transaction.

The purpose of this tax was twofold. First, it was intended that the 2 percent tax would raise significant revenue to be used to balance the budget and finance various priority development programmes. The tax’s performance in this regard has exceeded all expectations, and to date, we have collected $449 million.

This money has helped to cut the monthly budget, for example from a US$242 million deficit in November to a surplus of US$733 million in December, and has also gone towards key projects such as dualisation of Norton strip of the Harare-Bulawayo Highway.

The second goal for this tax was to give government the ability to fund inescapable and unforeseen expenditures, without recourse to debt creating instruments such as Treasury Bills, through the establishment of a dedicated and ring-fenced fund.

We are well aware that we live in a region in which natural disasters are becoming sadly ever more common, and that therefore, government must have the ability to respond to such events without creating further debt.

The ongoing Cyclone Idai disaster is one such event.

The tax has been fairly unpopular with Zimbabweans but Ncube said today that though unpopular, it’s introduction was the right thing to do.

Below is part of the Wankie Colliery Mine audit report which names the mines minister, Winston Chitando for allegedly presiding over the looting of over 115 million dollars in loan money. The development led to the company collapsing and failing to pay its employees’ salaries.

Our engagement to perform Forensic Audit Investigation is limited to confirming or dispelling any fears that the Board that engaged us to perform had, at the time of engaging us. Accordingly, those concerns cannot be extended nor replicated for adoption as the concerns of any other successor persons who may be appointed to replace the persons in the appointing Board.

We warned, as we warn again herein, that our report is not designed for Court action, suffice to confirm or dispel agreed Board concerns. Further work would have to be undertaken to bridge this report to meet any additional requirements of a successor Board or persons charged with governance, which may arise as a result of consummation of the contents set out in this report if it becomes desirable to meet the exacting standards of a court process. Additionally, other legal instruments may be required in order to enable the forensic investigation to cover certain areas of an investigation to gather corroborative evidence that can be produced in a court of law.

Our report is solely for your information and it is not to be used for any other purpose or to be distributed to any other parties without our prior written consent. We have included a point which is in this report, which we can on an anticipatory basis, authorize the Board that appointed us to circulate to shareholders without our further written consent.

This report relates only to the agreed upon terms of reference for the forensic investigation and it does not extend to other activities of Hwange Colliery Company Limited nor the Hwange Colliery Company Limited annual financial statements taken as a whole, which is the prerogative of the appointed statutory auditor of Hwange Colliery Company Limited. Because the work was performed on an agreed upon procedures basis, whilst every care was taken, the report cannot and does not stand as competent evidence in a court of law in Zimbabwe and we cannot stand as witnesses in any litigation process because of the foregoing limitations

1. BACKGROUND

Hwange Colliery Company Limited (HCCL) which has experienced many years of governance and management shortcomings faced liquidation in 2015. The year 2015 closed with a loss after tax of USD115 million. Then, there was an acting Chair Person Mr Jimitias Chininga, after the chirman Mr Farai Mutamangira had resigned. The Jimitias Chininga-led Board sought “Quick Wins” ideas and a plan from Ralph Bomment Greenacre & Reynolds to avert the HCCL collapse. Ralph Bomment Greenacre & Reynolds provided the Board of Directors with the survival strategy to avert collapse. In December 2015 that Board starterd a process of placing the company on a recovery path. Management commenced the quick wins implementation from 1 January 2016. Management did not succeed in the roll out and it approached Ralph Bomment Greenacre & Reynolds once more to work with the Board and management to assist in the implementation of the prescribed roadmap and ideas. The former Minister of Mines and Mining Development Mr Walter Chidhakwa brought in a new Board and appointed Mr Winston Chitando to chair the new Board. Meanwhile, one of the key and second largest shareholders withdrew his appointed non executive directors from the Board leaving only Government appointed non-executive directors on the Board. The new Board embraced the working “Quick Wins” strategy initiated by the J Chininga Board. Consequently, the final implementation commenced July 2016. Immediately, success started registering in the books and the records of HCCL leading to a reduction in the loss for the year from USD115 million recorded for the 2015 year, down to USD89 million for the year ended 31 December 2016. For the purposes of loss tracking we have used 2015 as the base year. The loss for the year further went down to USD43 million for the year ended 31 December 2017 marking a significant improvement of 62.61% compared to the base year December 2015. Published results for the six month period ended 30 June 2018 showed that the loss came down to USD23 million. This manifests significant improvement of 80% when compared to the 2015 base year loss position when the company was at its worst ever. The idea is to plot a graph tracking the loss, and not just to show the loss position at half year compared to the previous half year.

The significant improvement in the economic fortunes of the company, however, appeared to have attracted a”Gold Rush” for quick pickings. Because of this, HCCL, went through a period of standoff between Board members appointed by the Government of Zimbabwe, within themselves, disagreeing on certain of the decision making processes. The Chairman and new management executive committee appeared to stand in one corner. Other Board members stood in the other corner raising issues of transparency against the Chairman. This led to months of standoff between some Board members and the Chairman which culminated into significant dispute around governance and pre award due diligence of certain contracts which in their opinion was not in the best interests of employees, creditors and shareholders.

The foregoing standoff continued after the Chairman was appointed Minister of Mines and Mining Development. In August 2018, the Board appointed Ralph Bomment Greenacre & Reynolds to perform a forensic investigation into the HCCL affairs and report to the Board. After attempts to hold an Extraordinary General Meeting to fire the Board failed, the Minister placed the company under Administration on the grounds that the Company had failed to repay a loan to the Government, among other issues of insolvency.

The said loan was made by Government to the the Board led by him before he was appointed Minister of Mines and Mining Development. So, the substance on the ground is that Government gave the loan using its right hand and the left hand was managing the loan. Other shareholders were not involved in the Board at all and had no influence whatsoever, in how the loan was to be applied.

The terms of the loan were as follows:

a) An amount of USD111 500 000 was advanced by way of Treausry Bills which themselves are RTGS based (Not real USD).
b) The loan is a 15 year loan advanced in 2016,
c) It attracts interest at 7% rate per annum.
HCCL went through a long patch of transluscent governance over the years. Accordingly, there is no way HCCL could be expected to come out of the financial and operational bottlenecks in under two years, exacerbated by lack of foreign currency to procure critical logistics.
The loan was utilized to clear old pressing obligations/issues. No meaningful amount was set aside for use in current production. From the foregoing, no reasonable or informed person could expect an insolvent company to get up and go in such a short period of time, more so, without injecting capital into production or into capacitation of income generating functions, necessary for sustainable operations.
During the course of the forensic investigations the Acting Managing Director Mr Sheperd Manamike was suspended along with the Finance Executive Mr Tawanda Marapira, the Acting Human Resources Manager Mr Fortune Nyoni and Chief Accountant Mr Paradzai Makunde.
Dr Charles Zinyemba took over as Acting Managing Director.
We received transparent cooperation from Dr C Zinyemba, never mind he was not a player in the core activities of the mine. Annexure 44
In general senior management was on suspension during our work. We largely depended on documentary evidence in some repsects.

1. TERMS OF REFERENCE

2.1. The Board requires comprehensive forensic audit to cover the following:

2.1.1. Revenue generating activities from production to the time money is received

2.1.2. Procurement of goods and services and anything in between

2.1.3. Review of HR matters

2.1.4. Corporate governance issues and audit

2.1.5. Review of the IT

2.1.6. Control environment in general – contract analysis, policies and procedures and recommend.

2.2. REQUIRED SCOPE OF THE FORENSIC SERVICES

2.2.1. Conduct objective and independent investigations of matters brought to HCCL attention involving possible financial misconduct, irregularities of a financial nature and HR matters or any commission of economic offences

2.2.2. Determine the total revenue and examine the authenticity of expenditure incurred for the years 2013 to 2018

2.2.3. Ascertain receivables and or payables related to the years in question

2.2.4. Assess allegations of theft, fraud and corruption if any

2.2.5. Completed proceedings and recommendations of the firm based on the evidence gathered should be submitted to the Board.

2.3. REPORTING TO SHAREHOLDERS

2.3.1. The matter of HCCL reached Parliament, accordingly, included in this report is a briefing document which we believe may suit the purpose in the event that the Shareholders demand it, points 2.3.2.

2.3.2. What caused the HCCL Finances to collapse?

2.3.2.1. Top most source of HCCL troubles is that the HCCL cannot properly account for every tonne mined/poor stocks management, that is the primary source of the money being lost, before discussing issues of housekeeping.
2.3.2.2. HCCL sold HPS coal at unviable prices to ZPC for a very long time, this is the second source of HCCL problems
2.3.2.3. Poor procurement policies and procedures regarding equipment and the subsequent failure to service the same equipment and the associated loans
2.3.2.4. Poor management of Mota Engil Contract Mining agreement resulting in start-stop operations, depriving the market of product and the HCCL of revenue
2.3.2.5. Insider trading – AVIM, Inductoserve, Philcool, etc.
2.3.2.6. Sub-contracting matters that could have been handled internally, e.g. haulage
2.3.2.7. Not installing and not judiciously using weigh bridges to determine quantities carried by contract haulage companies resulting in possibilities of overpayment
2.3.2.8. Not installing and maintaining the Conveyor Belt to reduce hiring of haulage companies
2.3.2.9. Poor decisions – such as buying dysfunctional Turbo business, buildings and equipment
2.3.2.10. Blotted and top-heavy management structure resulting in significant staff costs with no commensurate value for money
2.3.2.11. Other staff benefits liberally given and poorly managed such as school fees, medical aid funds, death benefits
2.3.2.12. High social responsibility costs – town, hospitals, roads, schools, payment of journalists with no performance measures or targets
2.3.2.13. Unethical management of the company such as paying money of a bribery nature to journalists.

2.3.3. What obligtions did HCCL have as at 30 September 2018?

2.3.3.1. Borrowings (Top 11) USD174 694 000
2.3.3.2. Payroll related obligations USD 88 795 420

2.3.4. The company had Barter deals as at 30 September 2018; USD16 675 663

Recommendations for Shareholders

Reduce political interference in HCCL for the company to run as a listed company business,

Appointed directors themselves should elect a chair person, not an imposed chair person.

There is need for a management overhaul, which the Board of Directors had already commenced on before its role was taken over by the Administrator. The whole organogram of HCCL and its staff benefits structure need to be overhauled too. New funding is required to procure functional equipment. In the medium term HCCL should replace all kinds of hired organisations involved in the value chain. In the long run this will save the Company substantial sums of money. Where contracts are necessary, there is need to perform judicious cost/benefit analyses and to ensure full compliance, and monitoring.

The finance function should be headed by a mature, ethical, experienced and courageous person who can defy management override of controls and external political interference and who should be a professional accountant registered by the Pubic Accountants and Auditors Board (PAAB), the governing Statutory body in Zimbabwe.
The selling price of the HPS coal to ZPC is causing financial loss to HCCL. HCCL should perform a competent costing exercise and use it for an upward review of its HPS coal price to a viable level. In the alternative, commensurate subsidies should be given by ZPC on electricity tariffs to HCCL, or the Government should subsidise HCCL’s price since the ZPC energy is used nationally.

The Scheme of Arrangement suggested by our firm and adopted by HCCL needs to be followed closely as it had already registered success by bringing in willing creditors and willing management together without threats of court actions, to help the company to turn around. Specifically, reported losses had decreased from USD115 million for the year ended 31 December 2015 to USD23 million for the six months ended 30 June 2018. Accordingly, HCCL should adhere to scheme payments, and where it is critically not possible to honour any one instalment, advance warning must be given to the beneficiaries in order to continue to receive their cooperation and also allow the concerned parties to plan accordingly in time.

1. CAVEAT TO DISCOVERY OF ACTUAL FRAUD

Modern developments in management fraud no longer manifest directors actually taking from the till of the company directly.

Modern fraud perpetration involves directors who are dictatorial or who exercise significant influence over management. Such directors manipulate tenders in favour of connected persons. It also includes bullying senior executives to become “yes men” in order for management to save their jobs. So, in the process, any instructions from the Board Chair Person sails without much discussion.

The said strongmen or unethical directors who exercise significant influence over unethical management earn their spoils from the personal accounts of the directors of the favoured companies. At times the favoured companies buy assets for the enjoyment of such directors. Nothing will ever be documented in such corrupt deals. Accordingly, no physical flow of money will be happening from the company to the bank accounts of the said directors.

A collegial clan of control structure (some call it “old school boys” relationship type) is usually put in place under the pretex of “head hunted experts” in order to facilitate illicit transactions out of an entity in a manner that would look pretty honest as reolutions are passed in the ordinary course of business, which officialises frauds and other forms of impropriety. Here, the Chairman simply informs Board members that the experts have carried out due diligence about a matter, who are we to dispute this, any dispute/dissenting opinions ladies and gentlemen? There being no dispute or dissenting opinions, shall we move to the next item? This is how illicit transactions pass in such boards.

When confronted with such sistuations, shareholders only need to identify collegial clan of control and certain patterns in the awards of contracts in order to fire Boards of Directors.

1. HIGHLIGHTS FROM THE INVESTIGATION

4.1. Governance and transparency lacked as the Board did not seem to deliberate on issues properly – Numerous (more than 40) round robbin resolutions were passed, resulting in some Board members commissioning this investigation

4.2. Some apparent Illegal acts were committed by the Board under the 2016 to 2017 Board chairmanship

4.3. Accounting for mined coal as reported in financial accounting reports is not reliable, these are the figures the former CEO has announced to the press, and have never been achieved.

4.4. However, more reasonable figures for mined coal tonnages are those that are produced by the Quantity Surveyor

4.5. Accordingly, control over accounting for product volumes needs significant improvement

4.6. A Board Chairperson must be elected by the appointed Non Executive Directors to serve interests of all shareholders

4.7. Concerned with governance and transparency issues, the recent ex Chairperson Ms Juliana Muskwe ordered an investigation into the affairs of the Company including issues of governance by the past Board leadership

4.8. The New Board’s plan to investigate the Company’s governance met with significant resistence (Public ridicule at a rally in Hwange as was shown on ZTV, which was followed by a failed Extraordinary General Meeting (EGM) and finally, the subsequent placement of the company under an Administrator) which silenced the directors from further questioning mendacious activities in the Board.
4.9. A new executive structure implemented in 2017 placed the Finance Manager as the Executive Head responsible for Buying, IT Systems and Paying, significantly assuming unfettered ability to override controls over procurement/sourcing/buying, recording of transactions in the systems and payments.

4.10. It is difficult to believe that the integration of incompatible functions was through ignorance.

4.11. However the Finance Executive Mr T Marapira did not believe that there was anything wrong with the structure where he assumed the incompatible functions where he became in charge of buying, in charge of IT systems and in charge of paying.

4.12. A review of the Finance Executive’s qualifications on file and inquiry of the Public Accountants and Auditors Board showed that the Finance Executive was not a Registered Public Accountant, in terms of the Public Accountants and Auditors Act Chapter 27:12, accordingly he was in the job illegally, to the extent that HCCL is a public entity or a listed company.

4.13. A 15 year loan through Treasury Bills attracting 7% interest per annum was received in 2016.

4.14. There was reckless trading

4.15. There was Money laundering

4.16. In the year 2017 Bribery payments were made to journalists to potray the image of HCCL positively

4.17. There were cases of malfeasance

4.18. There were cases of misfeasance

4.19. Collegial clan of control, resulted from the new Executive Structure put in place on 2 May 2017

4.20. The 2016 to 2017 period HCCL Chairman Mr Winston Chitando was a serving executive chairman of MIMOSA, a mining company in Zimbabwe, any risks of using confidential information or protected strategies or information protected by “work product doctrine” of MIMOSA in HCCL, it would appear, rests with HCCL and Mr Winston Chitando if any (ie use of unathorised MIMOSA tactics in HCCL including importation of suppliers identified by MIMOSA into HCCL, for example Inductoserve (Private) Limited, a transport company)

4.21. Companies and persons who had something to do or some link with persons who had something to do with MIMOSA got lucrative contracts (haulage and insurance)

4.22. HCCL financial statements were prepared by an unregistered Accountant contrary to the law, (Public Accountants and Auditors Act Chapter 27:12), meaning no one had ethical obligation to produce credible accounts.

4.23. Life of the Mine requires extension, hence the need for procuring additional claims in the Western Areas coal fields

4.24. At times. connected companies performed incompatible functions, creating room for theft of coal.

4.25. Significant doubt about the ability of CELL Insurance Company to meet foreign currency based claims/ or it may not have the foreign currency to import and replace HCCL Plant and equipment

4.26. CELL Insurance retains 100% of premiums on Plant and equipment, which is imported equipment, meaning the company assumes full risk which gives rise to a question such as:
4.27. Does CELL Insurance Company have a strong balance sheet to carry any loss on plant and equipment given it has not placed the risk to any form of Fucultative reinsurance (ie spread risk with other direct insurers) nor did it place the risk with Treaty Reinsurance (ie specialist insurance companies that insure direct insurance companies)?

4.28. The Board policy on school fees is anathema to sound commercial practice

1. EXECUTIVE SUMMARY

5.1. Our focus was checking completeness of production stocks by reviewing the reconciliation of production to sales in order to establish whether all production was being turned into sales and properly accounted for or not, and investigate any financial impropriety

5.2. The results of the exercise showed that the mine systems are incapable of accounting for all its production and which is why the mine has cash flow problems, and at times gave misleading information to newspapers about its production

5.3. Corporate governance was generally poor noting from the multiplicity of round robin Board resolutions passed

5.4. Recruitment of key personnel concentrated on people from Masvingo Province easily creating the risk associated with Collegial Clan of Control/Old School Boys/Mwana wo ku musha chawawana idhla ne hama mutogwa une hangamwa/M’fo wethu/Wachimwene, whereas it is very possible that Matabeleland which houses the School of Mines may equally have relevant personnel for the job, as well, Mashonaland, Manicaland also have skilled people for the tasks befitting a listed company

5.5. Shortages in accounting for stocks are hidden/thrown into a suspense account called “transfers”, which account does not show a listing of where exactly the transfers were eventually made to.

5.6. A review of the accounts did not show any write off of stocks or show minutes of meetings where at any point in time, management and Board discussed write off of stock yet stock shortfalls existed?

5.7. During the year 2016, the mine got a USD111.5 million 15 year loan from Ministry of Finance and Economic Development which attracts interest at 7% per annum in the form of Treasury Bills.

5.8. Treasury Bills although styled in United States Dollars, are not money that can be utilized to pay for foreign currency denominated logistics

5.9. There is no meaningful accounting for/reconciliation of Mine production figures to Survey figures, opening and closing stocks and sales

5.10. Under the J Chininga led Board, a corporate social responsibility and public relations fund was established, in year 2015.

5.11. Management, during the Chairmanship of Mr W Chitando embarked on extensive unethical practice of paying what I define as “bribes” to many journalists under the guise of Corporate Social Responsibility. Refer point 28.1

5.12. Audited accounts show that the company made a loss after tax of USD115 million for the year ended 31 December 2015, refer to point 13.1

5.13. The 2016 audited accounts show that after the implementation of Ralph Bomment Greenacre & Reynolds turnaround “Quick Wins” HCCL improved performance by 37.6% in under six months, as results showed that the loss for the year came down to USD89 million. Point 13.1

5.14. The 2017 audited results show that the loss for the year went down to USD43 million, a 62.61% cumulative improvement in under one and a half years of implementing the Ralph Bomment “Quick Wins” tactics. Point 13.1

1. 15.The 2018 management accounts as at 30 September 2018 show that the loss for the nine months stood at USD32 million.

5.16. Graphically presented, the movement from the December 2015 position where the company was facing liquidation to 30 September 2018 shows a 72.17% improvement in loss after taxation.

5.17. The Company recorded a gross profit for the months June 2018, July 2018 and August 2018, refer point 14.

5.18. Board members, it appears, were not transparent to each other, leading to the demand for this investigation. The Board members represented that it would appear that some decisions were being taken outside the Board and were just run through the Board for completeness of compliance without independent/ethical due diligence. Refer to Annexure 1(a), 1(b), 1(c) and 1(d).

5.19. Some directors suspected that the Board leadership appeared like it was leading the Company in a manner described as being:

5.1.1. Reckless trading; deviated from “Quick Wins”, eg. The self administerd medical fund and funeral assurance at the expense of wages. Point 30.9
5.1.2. Trading with gross negligence: buying Turbo Mining equipment without due diligence and no valuation and money laundering involving Inductoserve a contracted foreign haulage company. Point 27.2

5.1.3. Trading with intent to defraud creditors and shareholders or workers or any other persons or for any fraudulent purpose. Points 24, 25 and 26.

5.20. Accordingly some Board members wanted to detect and manifest the causal factors for possible reckless trading resulting from possibly someone manipulating the Board for certain reasons.

5.21. Mr Manamie and Mr Marapir signed Inductoserve contract whose payments in the absence of Exchange Control of South Africa constitutes contravention of Exchange Control as proceeds due to a South Africa Inductorserve were retained in Zimbabwe at Standard Chartered Bank Newlands.

5.22. Networked companies performing incompatible functions by being responsible for loading coal into trucks and for movement of coal out of the mine to customers, never mind it was for a limited time. Points 44, 45, 46 and 47

5.23. Money Laundering through contracting Inductoserve a South African company and making payments to that company into a Zimbabwean bank account. Point 26. So we have a South African company that is invoicing under Inductoserve (Private) Limited of 9042 Industrial Site, Zambezi, Gweru, whose VAT number is 10053013. Refer Annexure 13(C).

5.24. There is also a company called Inductoserve whose registered office is Matsa Store P O Box 119 Gutu, Zimbabwe.

5.25. That company is used in the process of aiding a South African company Inductoserve to not pay proceeds from business conducted in Zimbabwe, to its South African banks where the company is domiciled

5.26. Exchange control issues through the use by a Midrand based company offering haulage services to HCCL, utilizing a bank account at Standard Chartered Bank located at Newlands in Harare. Annexure 13(b)

5.27. HCCL should stop payments to Inductoserve for breaking VAT Law by using another company’s Tax Clearance certificate to process payments due to a South African company until South Africa Revenue Services clears Inductorserve of South Africa about possible tax evasion.

5.28. The proximity of the bank where proceeds of crime are banked at Standard Chartered Bank at Newlands, Harare to the MIMOSA’s offices also in the Newlands environs, creates uncertainty about the Chairman’s independence to Inductoserve.

5.29. The fact that Inductoserve serves MIMOSA as well, further componds issues of independence

5.30. The fact that Inductoserve serves ZIMASCO exacerbates the transparency issue.

5.31. Further, this company called Inductoserve whose head office is in Gutu, Masvingo Province at Matsa Store, there could be issues of co-mingling business of the South African Inductoserve with the Gutu company.

5.32. The Inductoserve trucks that we saw at the mine are Zimbabwe registered trucks, not South African, meaning possibly the south African company sub contracts a Zimbabwean company or that the Board was cheated that an independent South African Haulage company was hired yet it is a GUTU company doing the haulage work.

5.33. Alternatively, there is a possibility that the South African Industroserve was presented to the Board in a tender process just as a cover up to mislead other Board members/directors in awarding the tender to what essentially would be a Gutu company.

5.34. Based on the foregoing, only an investigation under the Prevention of Corruption Act can prove or dispel any fears about lack of independence, which is why the Administrator or those charged with governance should cause this to happen and clear the air for the benefit of directors.

5.35. Presented with a clear case of coal diversion, the failure by the Board to not take substantive action against AVIM Investments, a Haulage truck company contracted to move coal to ZPC in Kwekwe which was diverting coal to own benefit may have compromised the Chairman’s credibility as an independent person to the issues of AVIM Investments, as some Board members thought that the Chairman would instruct the Managing Director to report the case to the Police.

5.36. The fact that management presented a seemingly routine criminal matter to the Board instead of reporting the criminal matter to the Police, persuasively indicates that someone in the Board had an interest in the matter which is why management feared taking action without clearance, which clearance never came in any case after reporting to the Board.

5.37. Subsequent review of comments made by the Finance Executive indicates that, instead management was instructed to give AVIM Investments more business in order to create capacity in the hands of AVIM to clear the obligation to HCCL.

5.38. Reckless trading is evidenced in the Turbo Mining purchase agreement, the company was purchased for USD2.02 million before a due diligence exercise and valuation were performed

5.39. Subsequent independent valuation of Turbo Mining showed that the equipment was worth about USD823 thousand.

5.40. Financial statements are prepared by an unregistered accountant Mr T Marapira, contrary to Public
Accountants and Auditors Act Chapter 27:12. PAAB confirmed, he is not registered Annexure 47

5.41. Board Chairman appeared to engage in reckless trading for the benefit of an individual supplier

5.42. The said supplier, masqueraded like an Official of the Office of the President and Cabinet, a matter now generally known in public therefore representing political suicide by any party that does not take corrective action in a timely manner.
5.43. The said supplier also may have misrepresented that he was an official of Hwange Colliery Mine

5.44. Major contracts were offered and awarded to companies with some links to MIMOSA and ZIMASCO.

5.45. The Company went against the self insurance policy aspect recommended in the “Quick Wins” and suffered loss whereas the self insurance is justified on the grounds that HCCL did not have ability to meet premiums as they fall due every time

5.46. When premiums are outstanding the Medical Aid policy does not provide cover and payments made would have gone to waste

5.47. Self insurance in medical Aid would have saved the company money, as compared to monthly subscriptions of around USD60 000. With the HCCL erratic payments, claims are not readily honoured as the Company has outstanding premiums.

5.48. Funeral assurance self insurance can save money (about 5 deaths of employees were registered in 2018 and about 13 dependants also died in 2018) when compared to paying +USD 24 000 per month. Point 29

5.49. A review of ghost workers showed that HCCL did not have ghost workers on the payroll

5.50. A review of fuel, travel and subsistence claims shows that the system needs to be improved through a review of conditions of service

5.51. Issues of bribing journalsits emanating from the governance level of HCCL hierarchy, are pernicious to efforts to attract investment into the mine or into Zimbabwe, as long as potential investors can Google who they will be discussing with about mining in Zimbabwe, only to find those persons are tarnished in bribery cases or other matters of financial impropriety. Point 28

5.52. Information Technology is not fully implemented and the IT Software licences are no longer valid

5.53. HCCL school fees policy which sets USD180 per term to USD380 per term for primary school and USD480 per term to USD2 525 per term for secondary school per permanent worker up to a limit of 3 children per employee is unheard of and can only disadvantage shareholders due to the heavy financial burden involved.

1. CONCLUSION

6.1. Based on the work done, I am of the opinion that:

6.1.1. There was bad corporate governance, which led to some Board members calling for a forensic investigation into the management of the Company with the view to protecting shareholders’ interests. Refer Annexures 1(a): 1(b): 1(c): 1(d): 1(e) and points 24 to 40

6.1.2. There was reckless trading, racketeering, money laundering, violation of Exchange Control Act, violation of VAT Act and fraudulent misrepresentations to gain contracts. Refer to poimts 24; 25; 26; 27

6.1.3. In the year 2017, management under the Board Leadership of Mr W Chitando, was involved in the bribery of Journalists. Refer point 28

6.1.4. There was fruitless and wasteful expenditure. Refer points 29 and 30

6.1.5. There was collegeal clan of control which led to connected service providers largely taking over control over the movement of coal and provision of insurance services. Refer to points 12.3; 45; 46; 53 and pervasive throughout

6.1.6. There are significant weaknesses in the accounting for coal production leading to untraced tonnages of coal/losses being included in “transfers”. Points 42.1; 42.9; 42.10; 42.11; 42.12; 42.13; 42.14

6.1.7. Whereas production personnel worked with some dangerous assumptions that the filled trucks of varying design weights, carried an assumed weight. It is here where the problems of HCCL start leading to the issuance and pronouncements of production figures that cannot be realized through sales and have pervasive implications on cashflow forecasts and budgeting.

6.1.8. Much of the Board fights appear to come from stress of leading a Company that has cash flow problems and the Board’s own inability to identify the route cause of the cash flow problems which we identified as HCCL’s weak control over what it mines.

6.1.9. Fuel supplied to a transporter of coal is not linked to tonnage hauled by the transporter. Point 43

6.1.10. Advance payments made to some suppliers are not adequately supported by contractual terms

6.1.11. Preferential treatment of some contractors and other matters if not resolved properly are likely to have serious ramifications in the Company as employees are the people in the Company and know how much coal they are mining, who is taking the coal, who steals coal and so forth.

6.1.12. Salaries paid to some executives were approved by the managing director, however they are not in line with grading system an indication that the MD tried to incentivize senior personnel

6.1.13. Information technology is dysfunctional leading to excessive use of Excel in accounting

6.1.14. The Company is not solvent and it was operating under the protection of a scheme of arrangement sanctioned by the High Court

6.1.15. Some prepayments are not adequately substantiated

6.1.16. Notwithstanding all the foregoing, the turnaround plan which is the basis of the Scheme of Arrangement worked properly despite Board rivalry.

6.1.17. Because of failure to service its membership of the JSE for a number of years, HCCL is in fact not a member in good standing with JSE

1. RECOMMENDATIONS

7.1. The appointed Board members should elect their chairperson to avoid dominance and manipulation of management processes by a parachuted chair person.

7.2. Immediate steps must be taken to properly account for all mined coal tonnages/close leakages as a way of revenue assurance.

7.3. HCCL should use the Quantity Surveyor production figures as the basis for recognizing tonnage produced and reconcile management accounts figures to those figures

7.4. HCCL should acquire more claims in the Western Areas

7.5. HCCL should look beyond Masvingo Province when recruiting key personnel in order to reflect the national outlook of the company and also manage creation of “Old school boys Club or connected persons”.

7.6. HCCL should terminate the contract of Inductoserve for misrepresentation, violation of Exchange Control Act, violation of Zimbabwe Income Tax Act/VAT Act through fraudulent use of a Tax Clearance Certificate and lack of transparency

7.7. For the engagement of companies with some link to MIMOSA and for looking the other way after management reported theft of coal/failing to order management to cause arrest of a company diverting HCCL Coal to own benefit leading to financial loss of business, the Administrator or those charged with governance should take necessary steps to cause specification and an investigation into the conduct of the former Chairman under the Prevention of Corrucption Act or its successor legislation if any.
7.8. Those charged with governance of HCCL should recover all the “fees of a bribery nature” or money paid to journalists for no apparent service

7.9. Some Board members should be investigated for aiding a South African company Inductoserve to divert money to a Zimbabwe Bank, Standard Chartered Bank at Newlands Shopping Centre, Harare, Account number 8700216586300, thereby likely constituting money laundering, instead of remitting the money to its country of incorporation, Halfway House Midrand, South Africa

7.10. For losses suffered in the period from 1 January 2016 when a proper turnaround plan was put in place, the shareholders should proceed in terms of Section 318 of the Companies Act, Chapter 24:03, and other related law, to sue the then Chairman of the Board and any selected directors, for reckless trading, acts of bribery of journalsits, money laundering, lack of transparency and for destabilizing the subsequent Board leading to financial loss of the business of HCCL which was on a recovery path.

7.11. Any new Chairpersons or Board of an underperforming company must exercise due care by investigating causes of under performance and causes of financial losses as part of takeover due diligence/ before taking over responsibility as Board.

7.12. Creditors should exercise their right and proceed to sue some Board members under Section 318 of the Companies Act in relation to reckless trading, money laundering leading to creditors losing value of their money

7.13. Employees in their capacity as creditors to the extent that they have suffered exasperation arising out of their long outstanding salaries and wages, should proceed to sue some Board members for worsening the insolvency of HCCL

7.14. HCCL should eliminate the misleading use of the term “Transfers” when preparing a product movement statement and show exactly where the product would have gone

7.15. Product accounting should be performed using a reliable cost effective ERP ensuring that production figures reconcile to SURVEY figures and to sales and avoid manipulation of stock figures.

7.16. Those charged with governance should proceed to reverse Funeral Policy which should be internalized. Claims are less than the +-USD400 000 which is payable as premiums annualy. HCCL has no ability to consistently service its premiums leading to claims not being honoured and financial loss to HCCL.

7.17. Those charged with governance should proceed to cancel outsourced Medical Aid Cover whose cover ceases when premiums are outstanding and should revert to internal Medical Aid Fund but which must be managed by independent trustees of the employees as per the recommendations put in place in 2016 to save the company from recklessly spending money. About one million dollars can be saved,which can be invested under Trusteeship of HR

7.18. Those charged with governance should cancel Insurance policy for Plant and Equipment placed with CELL Insurance because the equipment is all imported, CELL Insurance Company is unlikely or it is not feasible to guarantee availability of foreign currency for the replacement of imported equipment at short notice. Instead the +-USD253 000 premiums can be invested in production

7.19. Those charged with governance should reverse the Executive structure that was implemented on 2 May 2017 which made the Finance Executive in charge of procurement, IT and payments for goods and services (Incompatible functions).

7.20. The Executive management committee should be expanded to at least 6 in order to avoid performance of incompatible functions at executive level and to bring in critical mine planning function and medical function at executive level

7.21. Those charged with governance should purchase a minimum of two weighbridges to ensure that all stocks collected from contracted miners or from mining operations are properly weighed and reconcile to payments for contract mining, and reconcile to tonnage delivered to processing plants. The other weighing device should weigh all coal moved from Open Cast mine to Metallurgical Plant

7.22. Those charged with governance should purchase a Conveyor Belt to move coal from the Coal Plant to the Metallurgical Plant.

7.23. Those charged with governance should replace current dysfunctional ELIPSE Software and acquire low cost reliable ERP system to assist in real time online management of stocks, purchases, sales, debtors and financial reporting system that uses intelligence modules to limit human manipulation

7.24. Maintain the SURPAC Mining software for a while to assist in Mine Planning which was absent till about November 2018

7.25. Documentation for the loading of stocks should be serially numbered. Current loading instructions which are filled in manually on a form printed on bond paper lack audit trail because they are not serially numbered, registered and controlled.

7.26. Deployment of security companies needs to be monitored to avoid one company getting too familiar with coal truckers

7.27. Contracts with Security Companies should include a clause that compensates HCCL in the event of loss through stock thefts

7.28. CCTVs are currently not all monitored 24 hours as required, some may be out of order and the human effort required to continue monitoring on a twenty four hour basis may not be feasable. Consider Robotics in this area, as a cheaper and reliable compliment.

7.29. Fuel usage by haulage trucks requires increased controls and should be related to tonnage moved after taking into account issues of slack or low output periods

7.30. HCCL should invest more funds in the production of better paying coking coal

7.31. HCCL should retender for the purposes of replacing the following

7.31.1. Inductoserve Investments (Private) Limited
7.31.2. AVIM Investments (Private) Limited
7.31.3. Risk Management Services (Failed to assess risk properly by selecting CELL Insurance which has no capacity and for uncommon practice of demanding retainer fees thereby compelling HCCL to fork out undue fees)
7.31.4. Find a new insurance company by discussion with the new Broker, who should look for an insurance company with adequate capacity

7.32. Some board members allege that a number of important decisions did not get adequate consideration at board level or that adequate information surrounding certain transactions was withled from the board

7.33. This investigation is a culmination of these allegations

1. CONTEXT OF THE FORENSIC ASSIGNMENT

8.1. The Board of HCCL is desirous of managing suspicion of a material irregularity in the finances of the mine, HR issues and more particularly the revenue and expenditure aspects surrounding contracts

8.2. The Board is desirous of an independent professional investigation into the affairs of the company

8.3. Some Board members are of the view that issues although approved by them, there were possibilities of manipulation of Board matters. Refer Annexures 1(a), 1(b) and 1(c).

8.4. The mine has suffered a plethora of governance problems over a number of years

8.5. HCCL is in an insolvent state, however it settled for a Scheme of Arrangement with creditors which was sanctioned by the High Court. Annexure 2

8.6. HCCL’s shareholders have not benefited from their investment for prolonged periods

8.7. HCCL is listed on the Zimbabwe Stock Exchange (ZSE) and has secondary listing on the Johannesburg Stock Exchange (JSE) and the London Stock Exchange (LSE)

8.8. The Company is currently under a Scheme of Arrangement which is supported by a plan of action that we recommended to the Board to avoid Court cases, avoid liquidation and to minimise on borrowings and costs.

8.9. We are convinced that our recommendations leading to the Scheme of Arrangement are a success story.
8.10. HCCL Production matters

8.10.1.     The production processes for HCCL are pretty straightforward. 

8.10.2. The Open Cast is already operating but with some bottlenecks which are caused by inadequate working capital.
8.10.3. Droppings of some working capital did not yield desired results, in our view, as it was not targeted to specifics.
8.10.4. HCCL contracted a company called MOTA Engil which does contract mining.
8.10.5. Mota Engil is generating significant production for the mine, averaging 78.34%.
8.10.6. The Underground operations came down significantly due to equipment breakdown.
8.10.7. The Continuous Miner was refurbished and put into operation
8.10.8. The Continuous Miner mines higher grade quality coal called Coking Coal.
8.10.9. The new production equipment imported from India did not perform to expectation for a long time

1. OUR APPROACH TO THE FORENSIC ASSIGNMENT

9.1. We prepared an investigation work programme covering the scope of work.

9.2. Held discussions with management and staff of HCCL to obtain information about HCCL.

9.3. Obtained and reviewed HCCL Strategic document and its Memorandum and Articles of Association.

9.4. Reviewed prior years audit reports.

9.5. Held meetings and discussions with various stakeholders including some Board members.

9.6. Reviewed previous years’ audited financial statements, records and systems of internal and accounting control.

9.7. Documented the revenue streams of HCCL

9.8. Reviewed HCCL budget

9.9. Reviewed minutes of meetings

9.10. Reviewed financial records for possible manipulation of records

9.11. Reviewed fixed assets register

9.12. Traced acquisitions of fixed assets to fixed assets register and performed physical existence checks.

9.13. Reviewed procurement records in detail, agreements supporting acquisitions and disposals of assets.

9.14. Performed cashbook scrutiny, reviewed bank statements and bank accounts held by banks for HCCL for completeness and reviewed movement of funds for the agreed period.

9.15. Reviewed loan agreements and loan facility letters and any encumbrances.

9.16. Confirmed loan agreement balances with the banks and selected creditors.

9.17. Reviewed payments to contractors

9.18. Conducted review of annual returns for some suppliers at Registrars’ offices and to establish their directors

9.19. Reviewed HCCL insurance cover

9.20. Documented misdemeanors

9.21. Prepared the Report

1. WHAT WE PERCEIVE ARE SOME MANAGEMENT AND BOARD CONCERNS

10.1. Was there impropriety?

10.2. Where did the impropriety actually happen?

10.3. What was the contribution of poor company policies and procedures to this impropriety?

10.4. Level of collusion?

10.5. Was top management involved?

10.6. Was it a departmental issue or cross-functional?

10.7. Was it at middle management, supervisory or low level?

10.8. Were external third parties involved?

10.9. Materiality and frequency of misappropriations?

10.10. Level of monetary misappropriations vs revenues, asset values?

10.11. How many counts of misappropriation?

10.12. How often were they committed?

10.13. Committed by the same or different people?
10.14. Which months of the year, weeks/month, days of the week, and times of the day did the improprieties occur?

10.15. Nature of impropriety?

10.15.1. Document falsification: False orders, False suppliers, False receiving documents
10.15.2. False bank accounts or misdirecting customer payments
10.15.3. Transfer from genuine HCCL bank accounts to fictitious ones
10.15.4. Assets stolen under false pretences
10.15.5. Over-expenditure, un-authorised expenditure, theft
10.15.6. Any estimate of the financial prejudice so far?

10.16. Which sections of the company were affected?

10.17. Have formal allegations been made against any staff members?

10.18. Was this impropriety in its infancy or mature or even declining stage?

10.19. Was the Board ever alerted to this?

10.19.1. Yes and what did it do? Or No, and why not?

1. OUR RESPONSE TO PERCEIVED BOARD CONCERNS

11.1. Some of what we examined/worked on:

11.1.1. Policies and procedures
11.1.2. Board resolutions
11.1.3. Contracts and their cut offs
11.1.4. Systems – ICT processes and reports
11.1.5. Journals
11.1.6. Online authorisation procedures in marketing and sales
11.1.7. Manual systems
11.1.8. Internal controls
11.1.9. Physical asset security measures
11.1.10. Physical movement security measures
11.1.11. Strategic plans
11.1.12. Procurement records
11.1.13. Creditors files
11.1.14. Debtors files
11.1.15. Payment procedures and vouchers
11.1.16. HCCL management accounts
11.1.17. Held discussions with management and other employees
11.1.18. Reviewed any formal and written allegations made
11.1.19. Reviewed any disciplinary procedures already taken
11.1.20. Reviewed Police reports already made
11.1.21. Circulated bank letters and obtain all particulars about the mine and all statements of the mine covering the period 1 January 2013 to 31 July 2018
11.1.22. Reconciled production to sales ensuring completeness and accuracy of sales
11.1.23. Reviewed take on balances of unrecorded creditors apparent from the BCA report
11.1.24. Reviewed contracts with suppliers in general and other contractual obligations
11.1.25. Reviewed the encashment of Treasury Bills
11.1.26. Reviewed the usage of the proceeds from the Treasury Bills
11.1.27. Reviewed the Motor Engil contract
11.1.28. Reviewed the production from Motor Engil Contract and its impact on overall sales of the mine
11.1.29. Reviewed Pearlhouse Contract and its efficacy and benefit to the mine
11.1.30. Reviewed the AVIM contract
11.1.31. Reviewed the Inductoserve contract
11.1.32. Reviewed the CLIDER Contract/Turbo Mining contract
11.1.33. Reviewed South Mining Contract
11.1.34. Reviewed construction of Harare Coal Depot
11.1.35. Reviewed prepayments and their justification
11.1.36. Reviewed fuel usage and claims of travel and subsistence in the context of possible duplication of claims and fuel coupons
11.1.37. Reviewed redundant stocks and justifications for their initial procurement
11.1.38. Reviewed possibilities that ex-employees are not suppliers to the mine
11.1.39. Reviewed contract with security company, who owns the company and fairness of the contract to the mine
11.1.40. Reviewed for dubious suppliers or non-existent creditors
11.1.41. Reviewed marketing costs against sales revenue
11.1.42. Reviewed management accounts of JKL analysing costs of production for JKL against revenues generated from mining at JKL
11.1.43. Reviewed management accounts of 3 Main analysing costs of production for 3 Main against revenues generated from 3 Main
11.1.44. Reviewed management accounts of other open cast mining other than the foregoing
11.1.45. Reviewed the assertion that HPS Coal is sold at below cost of production (can you mine the better coal without first taking out the HPS Coal level?)
11.1.46. Reviewed the ICT Systems
11.1.47. Reviewed HR issues, qualifications, HR Policies, recruitment procedures compliance to policy, school fees policy, executive cars

1. REVIEW OF GOVERNANCE MATTERS

12.1. We reviewed minutes of meetings of the Directors as a board and as committees

12.1.1. Except for the absence of a registered public accountant, there was a Board of Directors that was varied in composition regarding its:

12.1.1.1. Number of members
12.1.1.2. Gender mix
12.1.1.3. Skills/background mix

12.1.2. The number of directors has fluctuated from 4 to 9 inclusive of the Managing Director.

12.1.3. At the time of the appointment of the Administrator in November 2018, the directors were 4, viz.

12.1.3.1. Mrs J Muskwe
12.1.3.2. Mrs N Masuku
12.1.3.3. Mr E N Tome
12.1.3.4. Mr V Vera (Who represented the Ministry of Mines and Mining Development)

12.1.4. The mix between executive and non-executive directors was poor as there was only one executive director – the Managing Director, who resigned during the first half of 2018. Best practice is 30% executive and 70% non-executive directors

12.1.5. The quorum for board meetings is 4, hence there was a sufficient number to form a quorum for board meetings.

12.1.6. A small number of four like this, however, leaves little room to achieve a quorum should any of the 4 directors travel, have commitments or fall ill at the time when a meeting is called. This might be one of the reasons why a number of issues were dealt with through circulating resolutions

12.1.6.1. Meetings were held at least quarterly for all the years under audit, i.e. from January 2013 to September 2018
12.1.6.2. At all board meetings, there was a quorum
12.1.6.3. Chairmen changed for various reasons over the period 2013 to 2018.
12.1.6.4. Minutes were taken and signed for each of the meetings of the Board

12.1.7. Resolutions made during board meetings were well structured, in general

12.1.8. There was a large number of circulating resolutions passed over the years, especially in 2017 and early 2018.

12.1.9. This behaviour seemed to indicate pressure and urgency to discharge decisions.

12.1.10. Its weakness is that directors would have no time to interchange views as would happen in meetings, hence they may well sign resolutions that they would have declined, had they received full presentation of facts from management in a board meeting and shared their views therein

12.1.11. In the implementation of resolutions, in some cases management did not update the board, e.g.

12.1.11.1. Regarding the fact that Fugro Earth Resources never did any exploration work at HCCL.
Annexure 4
12.1.11.2. That funds set aside for the exploration were now being used for numerous working capital requirements outside of the specific mandate, hence requiring ratification by the Board of Directors of management’s actions

12.1.12. There was no indication in the board minutes that there ever was any serious dissent of opinion from any one director that needed to be recorded. Accordingly we can safely assume that after deliberations, ultimately the board agreed and held one view or the same decisions as were recorded in the minutes or otherwise not adequate information was put on the table to make informed decisions

12.1.13. The consequential disputes in the Board indicate that there may have been manipulation of Board meetings

12.1.14. There are 4 committees, viz. Audit, Marketing, Human Resources and Technical

12.1.15. The committees met at least once per quarter, generally

12.1.16. Minutes of the committee meetings were taken and signed

12.1.17. Annual general meetings (AGMs) were held within the statutory parameters, i.e. within 6 months of the financial year end and within 18 months from the previous AGM

12.1.18. AGMs were properly called and attended, with adequate quorums in terms of the minutes that we reviewed.

12.1.19. The question is, why did other directors raise issues?

12.1.20. This we addressed by reviewing for collegial clan of control and review of use of common contracts from prior connections

12.2.   Review for possibility of manipulation of Board through a Collegial clan of control  

(Location of significant influence in HCCL)

12.3.   HCCL ORGANISATIONAL STRUCTURE (WITH EFFECT FROM 2017) 


12.3.1.     Board 
12.3.2.     Managing director 
12.3.3.     Executive Managers, who at the time, were; 

12.3.3.1. Mr S Manamike (from Masvingo), who headed Mining Operations

12.3.3.2. Mr T Marapira- (from Masvingo), who headed Procurement, IT and Finance

12.3.3.3. Mr R Munengwa (from Masvingo/Mashava), who headed HR, Estates and Health

12.4. Review for significant influence of MIMOSA background and ZIMASCO background in HCCL matters was carried out.

12.4.1. The Minister of Mines and Mining Development exercises significant control over HCCL, through the appointment and dismissal of Board members who are Government appointees.

12.4.2. The Board Chairman and now Minister of Mines was the Executive Chairman of MIMOSA

12.4.3. The Mining Executive Mr S Manamike’s employment referee on CV is Mr A D Mushonhiwa, General Manager at MIMOSA. Annexure 49

12.4.4. The Finance Manager Mr T Marapira’s employment referee on CV is Mr B Daka an official at
MIMOSA. Annexure 50
12.4.5. Inductoserve (Private) Limited which is the most significant Transporter of Coal also offers transport services to MIMOSA. Refer to point 53

12.4.6. Risk Management Services (Private) Limited which offers Insurance services to HCCL also offers services to MIMOSA

12.4.7. The Chairman used to work for ZIMASCO

12.4.8. The Finance Manager used to work for ZIMASCO

12.4.9. The Mining Executive Mr S Manamike’s referee was Mr J Musekiwa the CEO of ZIMASCO

12.4.10. The foregoing relationships/linkages create a collegial clan of control

12.4.11. The Managing Director, sitting in the middle of a circle there per point 12.2, was surrounded by persons with some common string/or common history

1. OVERALL PERFORMANCE OVER THE MATERIAL PERIOD 1 JANUARY 2013 TO 30 SEPTEMBER 2018 13.1. Overall loss (USD) trajectory over the period 1 January 2013 to 30 September 2018
   Hwange Colliery Company ltd

13.2. Ralph Bomment Greenacre & Reynolds “Quick Wins” were provided in December 2015 when the loss position had shot to USD115 million dollars. HCCL, then faced liquidation. Quick Wins were implemented after mid year in 2016 with immediate impact reflected by the significant drop in losses.
Overall, the HCCL is on the right path to recovery. Performance improved by 72.17% comparing the loss position at 30 September 2018 to the loss position as at 31 December 2015.

13.3. The loss after tax for the year 2013 stood at USD32 million. There was a gentle increase in the loss for the year ended December 2014 havng moved from USD32 million in 2013 to USD38 million.

13.4. HCCL suffered very heavy losses in the year 2015 at USD115 million (2014-USD38m). The steep losses left the Company facing liquidation had it not been of the intervention with “Quick Wins”.

13.5. The Company has significant wages burden due to its business model and tradition. Point 49 and 49.3.14

13.6. The Labour Act compels the Company to retain staff because there is not enough cash flow to be able to retrench personnel.

13.7. The Quick Wins moved the loss from USD115 million in 2015 to USD89 million for the year ended 31 December 2016.

13.8. Had the Quick Wins been implemented earlier, the losses could have been even lower, in my view.

13.9. In 2016 , the loss after taxation was falling steeply to end the year 31 December 2017 at USD43 million, marking a 62.61% improvement in performance when compared to the most dreadful base year, 2015.

13.10. The overall performance improved by 72.17% when you compare the position for December 2015 to the position for the nine months ended 30 September 2018, where the loss was USD32 million.

1. HWANGE COLLIERY COMPANY LIMITED PERFORMANCES OVER THE MATERIAL PERIOD 14.1. Five years financial results- Income statements

Year 2018
9 Mths 2017
Audited 2016
Audited 2015
Audited 2014
Audited 2013
Audited

Revenues 51 492 645 54 497 858 39 911 465 67 576 220 72 031 451 71 540 667
Cost of sales (54 895 743) (53 150 059) (77 742 700) (101 345 965) (82 320 263) (81 957 758)
Gross loss (3 403 097) 1 347 799 (37 831 235) (33 769 745) (10 288 812) (10 417 091)
Other income 692 037 795 358 545 008 470 858 694 761 936 849
Other gains & losses – (3 609) 790 000 (19 007) (5 425 101) (504 314)
Marketing costs (424 010) (1 232 479) (2473 101) (1 314 953) (1 486 861) (2 738 360)
Administrative costs (17 930 987) (25 098 636) (47 582 295) (60 628 370) (26 527 782) (27 652 799)
Redundancy costs – – – – (5 053909) –
Impairment costs – – – (4 465 881) (3 452 516) –
Profit/(Loss) on disposal of treasury bills 892 000 (6 521 040) – – – –
Operating loss before interest & tax (20 174 056) (30 712 608) (86 551 623) (99 727 098) (51 540 220) (40 375 715)
Finance costs (12 411 480) (13 062 019) (1 992 977) (5 548 984) (3 701 723) (3 432 092)
Share of loss- equity accounted investments – (63 113) (1 365 390) (413 134) (1 123 788) (915 000)
Loss before taxation (32 585 536) (43 837 740) (89 909 990) (105 689 216) (56 365 731) (44 722 807)
Income tax – – – (9 367 557) 18 499 846 13 108 780
Loss after taxation (32 585 536) (43 837 740) (89 909 990) (115 056 773) (37 865 885) (31 617 027)

14.1.1. Revenues declined since 2013, hitting rock bottom in 2016 before picking up as a result of the turnaround programme.
14.1.2. The above Loss to date is declining due to the revival strategy, but it is likely to rise due to continued fixed cost nature of the salaries bill and of course threats to MOTA Engil which reduces output/sales.
14.1.3. The loss position is exacerbated by the destabilization activities of a person called S Tundiya who was exercising undue influe in the running of the Company and who is not even an official of the mine, leading to reduced output.
14.1.4. HCCL has little contribution of its own from the Opencast Mine where reliance is on MOTA Engil, a mining contractor
14.1.5. Annexures 51 show production statistics per finance department

1. MONTH BY MONTH GROSS LOSS OR GROSS PROFIT TRAJECTORY FOR THE NINE MONTHS ENDED 30 SEPTEMBER 2018
   Hwange Colliery Company Ltd

The red line is the loss border

15.1. The overall picture shows that the mine is just about to turn from gross loss to gross profit position.

15.2. Apparently. HCCL started registering a gross profit position in June 2018. In July, the Company made another gross profit. In August 2018, HCCL posted yet another gross profit.
15.3. In September 2018, it would appear that, some top level fights took energy out of the Board, management and personnel as all started fighting for survival and their rights, with little attention going to the business of HCCL. Accordingly, profitability dropped.

15.4. Below are graphs showing month by month sales for the years 2013 to 9 months ended 30 Septemebr 2018

15.5. Month to month year (USD) sales 2013

15.6. Month to month year (USD) sales 2014

15.7. Month to month year (USD) sales 2015

15.8.   Month to month year (USD) sales 2016 









15.9.   Month to month (USD) sales year 2017 

15.10. Month to month (USD) sales for 4 month period in year 2018

1. OVERALL MINING PROCESS FLOWCHART
2. REVIEW OF THE MINING PROCESSES – BY WALKTHROUGH 17.1. Mined coal movement to Run Off Mine (ROM) or Raw Coal Stockpile

The main reason why revenues can only fall when fuel consumption in mining operations is unrelated to tonnage, can mainly arise from lack of completeness of accounting for the output. We spent a considerable amount of time in understanding and following up production to plant and to sales.

17.1.1.     The team started at the Open Cast 
17.1.2.     Reported to Mr Rejoice Ndlovu 
17.1.3.     Referred to Data Capture Clerks 

17.1.4. The objective at the Data Capture Clerks was to extract records/statistics of Mine Coal from the Open Cast
17.1.5. We obtained Tally sheets from the Data Capture Clerks
17.1.6. Obtained schedule of Coal Movement factors
17.1.7. Using the Tally sheets and the Coal Movement factors we re-computed tonnages based on the factors provided
17.1.8. Coal Factors are determined by reference to results of samples of trucks submitted for weight verification at the weighbridge
17.1.9. Because of the foregoing, a factor determined for a truck is applied to all trucks
17.1.10. What this means is that if a truck is loaded using say ten buckets of a front-end loader and goes to the weighbridge, all subsequent trucks loaded with ten Front End loader buckets will be deemed to weigh the same amount of tonnage as the truck that went to the weighbridge first
17.1.11. But it is not possible that a bucket will always carry the same amount of tonnage at any given moment, even issues of moisture can affect tonnage for a given volume.
17.1.12. This causes variances in tonnages
17.1.13. Based on the computations made by HCCL management and our reperformance, there are differences between the results obtained when compared to those arrived at when using Survey figures
17.1.14. Survey figures are more likely reliable because they are not affected by issues of truck factors or bucket factors characteristic when estimates are made using the size of a bucket of a coal hauler or truck body of truck that ferries Raw Coal to processing plant.
17.1.15. Stockpile at Chaba 1 pit and Chaba 2 pit are moved by a combination of truckers, Colbro and Inductoserve
17.1.16. Some hired Front End loaders augment the loading of coal at the Chaba 1 and Chaba 2 pits
17.1.17. The equipment that ferries raw coal from the JKL/3 Main area, out to a stockpile or to Primary Tippler is owned by the mine. The equipment that would ordinarily operate at JKL/3Main is:

17.1.17.1.  B40D 
17.1.17.2.  B50D 
17.1.17.3.  SRT95  
17.1.17.4.  SRT55 
17.1.17.5.  ROCK DUMPER 
17.1.17.6.  COAL HAULER 

17.1.18. For the year 2014, the Open Cast did not have Tally Sheets, we relied on summaries produced by Data Capture Clerks
17.1.19. For the year 2013, there are no Tally Sheets and summaries.
17.1.20. The Technical Superintendent Mr Mulungisi Dube contacted the IT Personnel to retrieve information from a crushed computer at the Open Cast mine so that we could perform our procedues.

1. DRAGLINE MINING TECHNOLOGY

18.1. The dragline is the cheapest form of open cast mining powered by electricity, but it is old technology.

18.2. It has a bucket size of 50m3 and 55m3 with consideration of the fill factor.

18.3. The equipment has the capacity to mine 1700 tonnes/ hour with an 85% plant availability and 100% utilization. The dragline’s main spares are rigging attachments which include the bucket and its accessories. Ropes are changed quarterly as per the manufacturer’s recommendations. However the Dragline is not working due to lack of cash to buy spares.

1. MINE PROCESSING PLANTS

19.1. There are 4 Plants

19.1.1. Plant A-Chaba Mobile Screen. (This is processing some of the stockpile of MOTA Engil mined coal)

19.1.2.     Products from Chaba A Mobile Screen are: 

19.1.2.1. Daff
19.1.2.2. Peas
19.1.2.3. Nuts
19.1.2.4. Large Cobbles
19.1.2.5. Rounds
19.1.2.6. NPD
19.1.2.7. Coal Fines

19.1.3. Chaba Mobile Screen (B):

19.1.3.1. Products are HPS processed into:
19.1.3.2. NPD

19.1.4. JIG Plant

19.1.5.     The products from JIG Plant are: 

19.1.5.1.Coking Coal
19.1.5.2. Washed coal fines

19.1.6.     Wet Processing Plant 

19.1.6.1. Products from Wet Processing Plant are;

19.1.6.1.1. Duff
19.1.6.1.2. Peas
19.1.6.1.3. Nuts
19.1.6.1.4. Large Cobbles
19.1.6.1.5. Rounds
19.1.6.1.6. NPD (Nuts/peas and Daff comes HIC and HCC
19.1.6.1.7. Coal fines

19.1.7.     Front End loaders used at the mines are owned by the mine 

19.1.8.     Front End Loaders used at the Processing Plant are hired 

19.1.9.     At the Processing Plant, coal is processed into many products 







20.     ECONOMICAL MOVEMENT OF COAL FROM RUN OFF MINE (ROM) TO PROCESSING PLANTS 


20.1.   The Conveyor Belt and the need for its replacement 

20.1.1. The conveyor belt sits at the centre of raw coal movement, as being the cheapest mode of moving coal from the Coal Plant to the processing plants

20.1.2. The Coal Plant is the name given to the plant where coal to ZPC passes through and this is where a conveyor belt moves some of the HPS coal from Primary Tippler to ZPC Hwange.

20.1.3. HCCL’s main Conveyor Belt from the Coal Plant to Metallurgical Plant has not been functional for a long time.

20.1.4.     The mine is currently relying on hiring trucks in order to move coal 

20.1.5. The use of hired trucks is a bone of contention with workers who accuse the Board or management of spending money that could easily have been utilised in procurement of a conveyor belt.

20.1.6.     Associated with the requirement for refurbishing that Conveyor Belt is: 

20.1.6.1. Drive gearboxes,
20.1.6.2. Electrical switchgear,
20.1.6.3. Electrical motors,
20.1.6.4. Idlers (return and troughing),
20.1.6.5. Idler frames,
20.1.6.6. Obtaining of quotations for this conveyor belt and its infrastructure is important for mine planning purposes
20.1.6.7. It is noted that the WPC system running might require suppliers to visit the site for assessment before quoting.

20.2.   Weighbridges 

20.2.1.     The mine should procure weighbridges in order to stop estimation of tonnages 

20.2.2. Weighbridges provide reliable weights for planning purposes as opposed to working with estimates
20.2.3. The mine became notorious with creditors because management has always overestimated capabilities and output
20.2.4. The total estimated cost of weighbridges should include the cost of civil works necessary to install a weighbridge

20.3. Movement of coal by haulage transport

20.4. Movement of Raw Coal /Run Off Mine Coal from the Stockpile is done by Truckers for Chaba 1 and Chaba 2

20.4.1. Colbro Transport

20.4.1.1. Colbro Transport uses either double trailer or single trailer

20.4.1.2. Double trailer ferries between 38 tonnes and 40 tonnes

20.4.1.3. Single trailer can carry between 30 tonne and 35 tonnes
20.4.1.4. Colbro confirmed that they have adequate trucks to service HCCL in case of need. Annexure 5

20.4.1.5. Colbro is supplied with fuel only when HCCL is unable to make a monthly payment/when payment is in arrears

20.4.1.6. Colbro contract ran out, based on Engineering Services Department who limit it to five years. The company is still offering its services

20.4.1.7. A review of HCCL business with Colbro shows that Colbro offers honest and professional services to HCCL

20.4.2.     Inductoserve Transport  

20.4.2.1. Inductoserve Transport uses trucks with double trailers and some with single trailers

20.4.2.2. All movements of Inductoserve Trucks are deemed to be carrying 30 tonnes of coal from the mine to the processing plant.

20.4.2.3. Clearly, using guess work about tonnages hauled creates variances between Quantity Surveyor known tonnage and accounting tonnage.

20.4.2.4. The difference between this gueessed tonnage and the Quantity Surveyor scientifically measured tonnage is what the mine calls Truck factor, where a truck is in use.

20.4.2.5. There is persuasion for hired truckers to make more trips per day but carrying less than the assumed 30 tonnes.

20.4.2.6. Assuming the tonnage is deemed to be 30 tonnes per each load, a truck that makes ten loaded trips per day is deemed to have ferried 300 tonnes per day.

20.4.2.7. Because of the foregoing weakness, tonnages recorded in forecasting processing at the processing Plants can be overstated/misleading.

20.4.2.8. This is exacerbated by the fact that for a hired truck, it is in the best interests of drivers to carry lesser weight and save on tyres and fuel consumption

20.4.2.9. It is also in the interests of the trucking company to make more trips from a given stockpile as the trucking company is paid based on tonnage

20.4.2.10. It was noted that Inductoserve gets fuel and there is no evidence about whether that fuel is utilized for HCCL business alone or not.

20.4.2.11. Some of the Inductoserve Trucks are signaged “Zambezi Gas Zimbabwe”. Annexure 6

20.4.2.12. We are not sure about whether the Inductoserve company shareholders are also the owners of the much talked about Zambezi Gas Project which is portrayed in public more like a Government/ national project and whether Inductoserve is not using some of the HCCL fuel on the Zambesi Gas Zimbabwe, project?

1. REVIEW OF HCCL MARKETING PLAN 21.1. Top customers’ needs per month
   Customer Product Forecast tonnage
   ZPC Hwange HPS 70 000
   ZPC Small Thermals Peas/NPD 35 000
   PPC Duff 10 000
   LaFarge Zimbabwe NPD/DUFF 5 000
   Tongaat Peas 3 000
   SINO Coal fines 4 000
   Inamo various 8 000
   ZSR Peas 2 000
   Willdale Fines 2 400
   Rockdrill various 4 000
   Hospitals Wet peas 1 000
   Manica Boards & Doors Wet peas 1 200
   McDonalds Nut/rounds 1 800
   South Mining Raw coal 13 000
   HCGC Coking coal 10 000

TOTAL 170 400

21.1.1.     Key HCCL customers are forecast to buy 170 400 tonnes per month 

21.1.2. The mine may not likely meet this demand unless MOTA ENGIL is provided the necessary tenure to produce for the mine

21.2. Sales forecasts November 2018 to December 2018

21.2.1.     The figures are not likely to be achievable due to the MOTA Engil production decline 

21.3. Forecast sales tonnages for November 2018 to December 2018

21.3.1. As at 1 December 2018, MOTA Engil, which is the backbone for any credible HCCL marketing plan, had cut down on production citing spares shortages

21.3.2. There are other pressures resulting from foreign currency availability to service equipment

21.3.3. Uncertainty with regards extension of contract may have affected MOTA Engil production, which affects the whole HCCL going concern

1. SUSPECTED ACTS OF SABOTAGE WITH A VIEW TO UNORTHODOX TAKING OVER OF CONTROL OF HCCL

22.1. MOTA ENGIL contract was standing on soft ground in 2018.

22.2. It was not clear whether MOTA ENGIL will continue or not.

22.3. If MOTA Engil is removed from the mine, there is a likelihood that the mine can sink deeper or even close

22.4. MOTA Engil is contributing not less than 78% of current year (2018) tonnage. Refer to point 38

22.5. There is possibility that the significant drop in the MOTA ENGIL output in the months September 2018 to November 2018 was a result of preparing to pack and go due to possibilities of termination of contract.

22.6. MOTA Engil faces pressure from someone acting fraudulently, or scandalously trying to replace the company, a person known as S Tundiya sought to replace MOTA ENGIL, in a fraudulent manner

22.7. The following letter can have implications to an existing contract mining company which leads to reduced output.

22.8. S TUNDIYA: ALLEGEDLY MENDACIOUSLY PREPARED A CONTRACT BETWEEN HCCL AND J R GODDARD. HE ACTED AS A HWANGE BOSS WHO PREVIOUSLY WAS THE MAN IN CHARGE OF HCCL FROM THE PRESIDENT’S OFFICE
22.8.1. A synopsis of the contract is below. The full contract allegedly drafted by S Tundiya for J R Goddard to sign is Annexure 7

22.9. S TUNDIYA MAY HAVE MISREPRESENTED FACTS TO JR GODDARD WITH A VIEW TO TAKING OVER HCCL IN A DECEITFUL MANNER

22.10. S Tundiya: Destabilisation of mining operations

With such machinations, there is no reason why MOTA Engil cannot play it safe

MOTA ENGIL scaled down operations fom September 2018

1. EMPLOYEES’ CONCERNS WHICH AFFECT PRODUCTION

23.1. Discussions were held with employee representative

23.2. Employees are concerned that the Company has numerous Payroll related obligations making it difficult for HCCL to meet their normal outstanding wages. Refer to payroll creditors figure Point 49.

23.3. Employees are also concerned about the contractors that they believe were ropped in by the former Chairman at the expense of buying a Conveyor Belt and normal servicing HCCL’S own equipment.

23.4. Employees are concerned about advance payments made to the contractors suspected to be connected persons. Work done confirmed that the contractors owe the mine in advance payments. Refer point
44.12 and 45.21 or 46.11, subject, of coure to dispute resolution as well.

23.5. Employees are concerned that Inductoserve trucking company is issued with fuel without regard to tonnage ferried. Refer to point number 43 showing fuel issues versus tonnage

23.6. Confidence needs to be restored in the employees

23.7. Employees do not believe that persons that failed at ZIMASCO which went into Judicial Management, would have the capabilities of managing HCCL properly to come out of the woods. Refer to the ZIMASCO linked persons on the collegial clan of control point 12.2.

23.8. Employees are concerned that the mine management does not care much about refurbishing the
Conveyor belt which they consider to be the cheapest means of moving coal because they express that
it pays better to some directors to not repair the conveyor belt which benefits suspected connected truckers or alternatively if a conveyor belt starts functioning truckers would go out of business

23.9. Employees are worried about HCCL not taking clear steps to acquire claims in the Western areas

23.10. These concerns do not auger well for the mine in a turnaround process

23.11. We established that the conveyor belt that feeds from the Coal Plant to Wet Plant has not been repaired nor refurbished and that it is not working.

1. IDENTIFIED CASES OF POSSIBLE RECKLESS TRADING AND MISFEASANCE 24.1. TURBO Mining contract USD 2.02 million for the purchase of Turbo Mining

24.1.1. Turbo Mining which used to be called CLIDER sold old infrastructure to HCCL Annex 8

24.1.2. The historical financial activities of Turbo Mining in relation to HCCL is as follows:
24.1.2.1. Turbo Mining Transactions summary
Total Total Credit Rentals HCCL Bank Tresuary
Year Invoiced Notes for Coal Credited Transfers Bills Balance
2012 812 522.28 – – ( 300 000.00)
2013 8 642 976.75 (4 497 406.31) ( 32 860.00) ( 730 000.00)
2014 7 681 049.51 (9 131 771.70) ( 28 380.00) –
2015 798 399.52 (4 883 512.70) ( 30 000.00)
2016 130 370.00 (2 758 005.73) – ( 40 000.00) (2 667 635.73)
2017 39 700.00 ( 157 000.00) ( 37 381.31)
Accrued Amount Supported by Delivery Certificates/Invoices 210 892.78
Accrued Amount Without Delivery Certificates / Invoices 481.91

Balance –

Debtor Balance – Coal Account 713.03

Total 18 105 018.06 (21 427 696.44) ( 61 240.00) (1 137 381.31)

The debtor balance is for coal supplied. The historical accounts were settled save for coal account. Detailed
Turbo Mining transactions soft copy is available
24.1.3.Management did not carry out an inspection about whether the equipment which HCCL went on to buy functioned properly or whether it was serviceable or not before purchasing it.

24.1.4. HCCL engineering personnel carried the inspection after the purchase agreement had been signed already.

24.1.5. Board did not perform valuation of the Turbo Mining before purchasing the assets

24.1.6. Valuation was performed 80 days later as at 13 July 2015 and the report is dated 16 July 2015

24.1.7. Valuation by professional Valuers indicated that the value was only USD825 525. Annexure 9

24.1.7.1. Fair Value of Plant and Equipment                   807 725 
24.1.7.2. Fair value of buildings and improvements                  17 800 

24.1.7.3. Total fair value of purchase                            825 525  

24.1.8. HCCL may have lost USD1 199 975.

24.1.9. The Managing Director Mr Thomas Makore signed the contract of purchase on 24 April 2015. Annexure 10

24.1.10. Other Board members believe that the process was not clear, and needed an investigation of the matter

24.2.   Risk Management Services Contract 

24.2.1. Risk Management Services (RMS) is an insurance risk adviser who entered into an agreement with HCCL for Risk Advisory. Annexure 11

24.2.2. A contract for Risk Management Services entered into with Risk Manaegement Services (RMS) may not stand the test of careful decision making

24.2.3. RMS charged “retention fees”, instead of charging fees for work done. Annexure 11.

24.2.4. There is no evidence of other competitors in a proper Tender process

24.2.5. Broking companies which offer the same services do not charge “RETENTION FEES”

24.2.6. Accordingly a retention contract fee of USD354 000 charged to HCCL appears to be outrageous and not in the best interests of the Company, when compared to what the HCCL could have obtained from other registered Broking companies who generally advise clients and earn their income from the actual risk taker/insurance companies.

24.2.7. The Risk Management Services Official Mr Caleb Tapfuma called on 30 November 2018 confirming that he would submit responses to our questions the following Monday, 3 December 2018, but did not.

24.2.8. There is a possibility that this Mr Tapfuma is related to Mr Tapfuma at President’s Office who is implicated in HCCL?

24.2.9.At Parliament, the Mr Tapfuma of the President’s Office agreed to knowing Mr S Tundiya and he pointed out that they ceased to be friends when two factions in their political party surfaced, with Mr Tapfuma becoming Lacoste and the Mr S Tundiya working with the other faction.

24.2.10. This claim that links Mr S Tundiya to another camp may cause significant issues in their party and also cause significant doubt about the loyalty of those who may be identified as being connected persons to him

24.2.11. Accordingly, if the Risk Management Services’ Mr C Tapfuma is linked to MIMOSA, HCCL and other companies like CELL insurance, this can create issues of political risk to those viewed as being connected to him in this octopus relationship, as all by inference can be deemed to be in the other camp referred to by Mr Tapfuma of President’s Office under point 24.2.9.

24.2.12. These matters have not much to do with this assignment, suffice to know that there is a network

24.2.13. Mr Edwin Chidawa of RMS responded in due course on 4 December 2018.

24.2.14. Retention fees charged by RMS in the amount of USD354 000 do not appear to represent money well spent by HCCL given that other Brokers would not have charged retainer fees.

1. IDENTIFIED ASPECTS OF RACKETEERING:

25.1. Matters about Inductoserve (Private) limited, a company which was awarded movement of coal contract:

25.1.1. For the purposes of seeking a coal haulage contract, Inductoserve presented itself as a South African company.

25.1.2. It is suspicious that the company uses a Zimbabwean company Tax Clearance certificate in its dealings with HCCL? Annexure 12.

25.1.3. Payments to this South African company are not made to South Africa

25.1.4. Payments to Inductoserve (Private) Limited are made to an account at Standard Chartered Bank at Newlands, Harare, within a few minutes walking distance from MIMOSA Mine Head Office. Refer to the contract. Annexure 13

25.1.5. There is a Zimbabwean company also called Inductoserve, whose Head Office is Matsa Store PO
Box 119 GUTU?. See extracts made at Registrar of Companies, returns Annexure 14

25.1.6. Some of the Inductoserve trucks are inscribed “Zambezi Gas Zimbabwe”?. Annexure 6

25.1.7. The question is who really owns Zambezi Gas Project in Zimbabwe? The matter is beyond our current mandate,

25.2. AVIM Investments (Private) Limited matters, which has a coal distribution contract. Annexure 29

25.2.1.A Board meeting of 24 March 2017 was informed about a key haulage services supplier having diverted HCCL Coal to personal business. HCCL diverted coal schedules. Annexure 15

25.2.2. Board Minutes of 24 March 2017 show that the case was formally presented to the Board (Annexure 16)

25.2.3. Based on subsequent actions, it is clear that the matter did not receive what a reasonable person would consider to be a reasonable discussion and course of action befitting a Board.

25.2.4. At the next Board meeting of 13th June 2017, the Board was steered in a manner equivalent to “Casting the eyes the other way” or turning the eyes the other way” in a matter involving criminal diversion of coal destined to a customer, Zimbabwe Power Company (ZPC) generally known as Munyati Power Station in Kwekwe.

25.2.5. Coal diversion is a critical matter that a Board can not just fly past or gloss over because that is the cornerstone of the business of HCCL for which shareholders expect a return.

25.2.6. As a consequence to this, other Board members did not consider the matter lightly and wanted an investigation

25.2.7. Findings revealed that AVIM Investments trucks:

25.2.7.1. Loaded the coal,
25.2.7.2. Drivers signed at the security guards check point and
25.2.7.3. Proceeded to pass through the Hwange Tollgate Annexure 17
25.2.7.4. Passed through the Umguza Tollgate Annexure 17
25.2.7.5. Even though subsequent to this and after disappearances of critical documentation,
25.2.7.6. A person who appeared at Parliament as an official of AVIM Investments denied claims that the AVIM trucks picked the coal and diverted it.

25.2.8. Our procedures were designed to verify whether the trucks ever came to HCCL on the given dates, then ask the question “so what were the trucks doing in the mine area on the material dates, evidenced by signing at security gates and also capture by Tollgate systems along the material road to and from HCCL?

25.2.9. Relevant AVIM Investments trucks movement. Annexures 17 and 18 are massive and are on separate file.

25.2.10. Dr Charles Zinyemba the Acting Managing Director formally suspended all business with AVIM Investments (Private) Limited. Annexure 19

1. IDENTIFIED ASPECTS OF MALFEASANCE AND MONEY LAUNDERING

26.1. Inductoserve (Private) Limited contract

26.1.1. Under the Chairmanship of Mr W Chitando, Inductoserve which presented itself to the HCCL as Inductoserve (Private) Limited a South African company, was awarded a contract to move coal within the mine area.

26.1.2. However South African companies of equivalent incorporation status are not called by the style “(Private)” Limited, as set out on the contract agreement, such companies are generally called “(Proprietary)” Limited or “Pty Ltd”

26.1.3. Based on confession of one of the Inductoserve managers, that company also offers services to the following;

26.1.3.1. MIMOSA Mine
26.1.3.2. ZIMASCO Mine
26.1.3.3. ZPC

26.1.4. The Chairman Mr Winston Chitando’s career has taken him through the foregoing two mines, ZIMASCO and MIMOSA amongst others

26.1.5. He was the Executive Charman at MIMOSA

26.1.6. Mr T Marapira who also got a job at Hwange Colliery Company had a senior MIMOSA Mine official as his referee
26.1.7. Mr S Manamike who became the Acting Managing Director had one of his referees as being a MIMOSA senior official

26.1.8. The foregoing officials Mr Manamike and Mr Marapira signed a contract with Inductoserve. Annexure 20.

26.1.9. Instead of HCCL paying the money into a bank account in South Africa, for the Inductoserve services, the money for the haulage services was being paid into a local bank account at Newlands in Harare. Annexure 21

26.1.10. Inductoserve has an account at Standard Chartered Bank Highlands Branch, Harare

26.1.11. The branch is within five minutes walk from Mr W Chitando, the Ex Chairman of Hwange Colliery Company Limited’s work place

26.1.12. The first contract with Inductoserve was entered before the Chairman became Minister

26.2. An inquiry was made /Confirmations sought with independent Authorities to clarify the efficacy of the Inductoserve transactions

26.2.1. South Africa Reserve Bank did not confirm whether Inductoserve had exchange control authority to divert proceeds due to South Africa, to a Zimbabwean bank?

26.2.2. South Africa Revenue Services (Taxes Department) did not confirm whether Inductoserve was paying taxes on income earned on the contract with Hwange Colliery Company in Zimbabwe?

26.2.3. Inquiry has been made with Reserve Bank of South Africa whether Inductoserve has Exchange Control Authority approval to not remit money earned by a South Africa Company doing business in another country

26.2.4. Another email was submitted to the Chief of Staff of the South Africa Reserve Bank also to confirm whether the transaction is in accordance with South African Law that the contract income earned by a South African company can be banked externally without Exchange Control approval/ or whether that constitutes Money Laundering and violation of Exchange Control Regulations

26.2.5. Communication was also made to ZIMRA directed to Mr Rameck Masaire, a Commissioner at ZIMRA, to the extent that the Tax Clearance certificate which is being utilized by Inductoserve, a South African Company is not one issued by South African Revenue Authorities. ZIMRA makes its own follow ups on such matters and in a confidential manner, which is not disclosed to an inquirer. So we cannot confirm whether ZIMRA has taken any steps to verify. The necessary tax clearance was copied to ZIMRA for ease of their reference.

26.2.6. Inductoserve is using a Zimbabwean company Tax clearance certificate yet it is a South African company as shown under Annexure 12.

26.2.7. Accordingly, there is possible illegal use of a Zimbabwe Revenue Authority issued Tax Clearance Certificate by another company called Inductoserve whose Head Office is MATSA STORE Box 119, Gutu.

26.2.8. Preliminary email response from South Africa Financial Intelligence of SA Reserve Bank is below-Email;
From: [email protected] [email protected]
Sent: Saturday, 8 December 2018 9:13 PM
To: [email protected]
Subject: Thank you for submitting your query

South African Reserve Bank  
Dear Dr REYNOLDS MUZA 

Thank you for your interest in the South African Reserve Bank, your query with reference number 0004066SARB is being addressed and you will hear from us shortly

Kind Regards,
SARB

1. MATTERS AFFECTING Mr STENJWA THOMAS MAKORE (Former Managing Director’s issues)

27.1. We must first acknowledge the significant general improvement in the ambiance of the mine under the management of Mr Thomas S Makore when compared to the position as at November 2015. Thomas was given very stringent milestones to achieve HCCL objetives. Annexure 20

Purchase of Turbo Mining

27.2. Mr. Thomas S Makore signed a contract for the purchase of Turbo Mining on 24 April 2015

27.3. The purchase of Turbo Mining equipment caused HCCL financial loss assessable at USD1 199 975

27.3.1.     The purchase price of the equipment was agreed at USD 2 025 500. Annexure 10. 

27.4. The cumulative financial affairs with Turbo as at 30 September 2018 are covered under the report on Turbo, point 24.1.2

27.5.   A listing of the infrastructure purchased from Turbo Mining, Annexure 8 

27.5.1. Dawn Properties performed Independednt Valuation of the assets as at 13 July 2015. Annexure

1. 27.5.2. The valuation was performed 80 days (eighty days) after the agreement of sale was signed. Annexure 9.

27.5.2.1. Excess of purchase price over professional fair value, USD1 199 975. Refer point 24.1.8
27.5.3. Pre-inspection of the equipment was performed after the purchase

27.5.4. DAWN Properties performed Valuation of the assets after the sale agreement had already been concluded. Annexure 9.

27.5.5. Given the significance and gravity of the decision to acquire Turbo Mining equipment in the state it is and it was, and the foregoing process which was undertaken to acquire the assets, it is imperative that the photographs of the equipment be included in the main report as opposed to being presented as an annexure.

27.5.6. We leave it to the user of this Report to decide whether the decision to buy the equipment in that state and through the said processes constituted a reasonable buy or not, although we believe it was reckless trading.

27.5.7. Anyone is entitled to their own opinion depending on the circumstances, but it appears this was a highly desperate move by management and Board.

27.5.8. Some of the equipment purchased has not moved or operated since the date of purchase

27.5.9. The buildings are in a state of disrepair as the following photograph will show

27.5.10.    In the eyes of a simple person, the assets do not represent money well spent 

27.5.10.1. TURBO MINING KEY ASSETS/ EQUIPMENT PURCHASED USD2.02 MILLION

27.5.10.2. Below are the delapidated Turbo Mining Site offices which HCCL purchased and are built of ordinary bricks

Although the roofs and windows of the two mining site office buildings were subsequently taken away by unknown persons, this is in itself further indication and confirmation that the buildings were already dilapidated at the point of acquisition otherwise no one would have risked vandalizing the roofs and windows of an occupied building?

27.5.11. Below are some of what HCCL considered to be “key Turbo Mining equipment” which HCCL purchased

The front end loader below was idle as at the date of purchase and it has remained in that state as shown below

27.5.12. Another purchased antequated Front End Loader

27.5.13. TURBO MINING MOBILE Plant at Chaba 2

The above mining plant is in working order and positioned at Chaba

27.6.   Elements of double dipping in domestic workers wages allowances 


27.6.1.     Mr Thomas Makore received domestic workers wages allowance with his salary 

27.6.2.     The domestic workers also received wages on the normal HCCL payroll 

27.6.3. From the foregoing circumstance, Mr Thomas Makore double dipped, in the absence of further contractual evidential information on his personal file to the contrary

27.6.4. There was no evidence that Mr T S Makore paid the domestic workers from the allowances he received

27.6.5. The said domestic workers were being paid by the mine and form part of the outstanding mine wages

27.6.6. Any accurate prejudice cannot be assessed as the Estates person a Mr Moyo, in charge of such labour did not cooperate with us despite he being asked by Mrs Kamocha the Payroll Accountant to provide us with information about the persons who actually worked at Mr T Makore’s residence for confirmation about whether in addition to their mine salaries, Mr T Makore paid them extra money or not. Suffice to state that the matter ranks for misfeasance in the absence of evidence to the contrary.

27.6.7. The Acting Managing Director and Internal Audit or would have to follow this up. We considered the matter from a substantive point of view and concluded that whatever amounts involved in that would not rank as what killed the mine. However, the matter is significant from an ethical point of view hence mine management should follow it through.

1. BRIBERY RELATED PAYMENTS TO JOURNALISTS (To look the other way on HCCL matters)

28.1. In 2017 the company paid bribery related money to some journalists as follows

Date Details of payment Bank name Account Number Amount USD
3/01/2017 B CHAWANDA Cash Cash 1,500.00
6/13/2017 T M MASAWI- CSR EFFORTS NMB 020254491 2,500.00
6/14/2017 C A MUFUNDA(CSR) Stanchart 8750505700301 2,000.00
6/21/2017 T M MASAWI- CSR EFFORTS NMB 020254491 1,800.00
6/22/2017 K MADONDO- CSR EFFORTS ZB 4151488245200 3,000.00
6/26/2017 T FARAWO- CSR EFFORTS CABS 1005732868 200.00
6/29/2017 K MADONDO- CSR EFFORTS ZB 4151488245200 3,000.00
7/13/2017 K MADONDO- CSR ZB 4151488245200 1,500.00
7/26/2017 K MADONDO- CSR ZB 4151488245200 2,000.00
7/27/2017 T M MASAWI- CSR NMB 020254491 2,000.00
8/7/2017 K MADONDO- CSR ZB 4151488245200 2,000.00
8/18/2017 T M MASAWI- CSR NMB 020254491 1,500.00
8/31/2017 T MASAWI NMB 020254491 1,800.00
9/29/2017 S MAGACHA STEWARD 1003705467 2,000.00
10/3/2017 E MASHINDI- CSR CABS 1003884164 3,000.00
10/5/2017 E MASHINDI CABS 1003884164 1,500.00
10/10/2017 E MASHINDI- CSR CABS 1003884164 3,000.00
10/11/2017 N SANIE NMB 240111144 1,500.00
10/20/2017 NYASHA SANIE NMB 240111144 1,500.00
12/19/2017 NYASHA SANIE- CSR NMB 240111144 5,000.00
12/20/2017 E MASHINDI CABS 1003884164 750.00

             44,050.00 

1. IDENTIFIED FRUITLESS AND WASTEFUL EXPENDITURE

29.1. Funeral Assurance premiums- A Policy becomes invalid if premiums are not up to date. HCCL has no capacity to pay.
Month 2017 Date Ref # Amount

August 2017 8.2017 Eco17/101 22 370 70
Sept 17 9/2017 Eco17/137 22 181 90
Sept 17 0/2017 TNB17/5532 24 514 10
Sept 17 9/2017 STNB17/7094 45 000-00

Total paid-premiums not up to date though 114 066.70

SECOND YEAR
Month 2018 Date Ref# Amount

March 2018 3/2018 Eco18/040 75 000
June 2018 6/2018 STNB18/2519 50 000
August 2018 8/2018 STNB18/4175 20 000
October 2018 10/2018 STNB18/5054 20 000
December 2018 12/2018 STNB18/5913 8 000

Total paid- but premiums not up to date 173 000

29.2. As per the Quick Wins, HCCL is supposed to be self insured, since it does not have ability to meet all premiums in time
29.3. In the period January 2018 to 3 September 2018, a total of 5 employees and some 13 dependants deaths were recorded
29.4. HCCL in a precarious financial position, may not consistently meet premium due dates, policies are lapsed accordingly
29.5. Medical Aid does not cover when premiums are in arrears. The company does better with Internal Insurance Fund

1. CELLMED MEDICAL AID COVER

30.1. The way MEDICAL AID cover works is that payments are made on a regular basis to a medical aid fund

30.2. Claims are made from time to time from the fund

30.3. The Medical Insurance company continuously monitors the claims levels against premium inflows

30.4. If the insured company, in this instance HCCL fails to pay its premiums, policy is lapsed

30.5. HCCL has been experiencing persistent cash flow problems to the extent that it cannot meet regular payments to the medical aid fund

30.6. It is against this background that a decision should have been taken to self insure through a fund administered, not by management, but by Trustees of employees

30.7. The Board either through favouratism or incompetence approved the engagement of CELLMED to provide medical aid cover to staff knowing very well that the company does not have stable revenues from which to meet premiums

30.8. Consequently, the following payments were made to CELLMED during the period 2017 to 2018 thereby losing money.

30.9. SCHEDULE OF PREMIUMS MADE TO CELLMED FOR THE PERIOD AUGUST 2017 TO OCTOBER 2018: USD1 022 188

Month Date Ref No Name Amount
Aug-17 8.2017 ECO17/94 Minerva/Celmed 63,682.07
Sep-17 9.2017 ECO17/138 Minerva/Celmed 30,000.00
Sep-17 9.2017 STNB17/4793 Minerva/Celmed 50,000.00
Oct-17 10.2017 ECO17/146 Minerva/Celmed 31,000.00
Oct-17 10.2017 STNB17/5531 Minerva/Celmed 47,386.00
Dec-17 12.2017 MET17/074 Minerva/Celmed 37,631.97
Dec-17 12.2017 ECO17/172 Minerva/Celmed 37,306.50
Dec-17 12.2017 STNB17/7040 Minerva/Celmed 37,631.97
Total for 2017 334 638-51

1.1. Payments made in 2018
Jan-18 1.2018 STNB18/507 Minerva/Celmed 73,243.00
Feb-18 2.2018 ABC18/012 Minerva/Celmed 15,000.00
Feb-18 2.2018 ECO18/016 Minerva/Celmed 37,306.50
Feb-18 2.2018 STNB18/508 Minerva/Celmed 11,000.00
Feb-18 2.2018 STNB18/9509 Minerva/Celmed 37,000.00
Feb-18 2.2018 STNB18/691 Minerva/Celmed 11,000.00
Mar-18 3.2018 ECO18/41 Minerva/Celmed 100,000.00
Mar-18 3.2018 ECO18/118 Minerva/Celmed 40,000.00
May-18 5.2018 STNB18/932 Minerva/Celmed 18,000.00
Jun-18 6.2018 STNB18/2023 Minerva/Celmed 115,000.00
Jul-18 7.2018 STNB18/2745 Minerva/Celmed 50,000.00
Sep-18 9.2018 STNB18/3743 Minerva/Celmed 85,000.00
Oct-18 10.2018 STNB18/4859 Minerva/Celmed 75,000.00
STNB18/5055 Minerva/Celmed 20,000.00
2018 payments 687 549-50
GROSS PAYMENTS 2017 & 2018 only 1,022,188.01

The funds do not seem to represent money well spent by HCCL as it is lost because Medical Aid claims are not being honoured.

1. LOAN FROM TREASURY-GOVERNMENT OF ZIMBABWE

During the year 2016 HCCL received Treasury Bills (TBs) in the amount of USD111 500 000., Accountant General letter (Annexure 22)
USD
Some of the Treasury Bills were discounted before maturity date. Refer to Lot 1, discounting raised 10 385 888
USD

31.1. Lot1 Treasury Bills discounting
31.1.1. Total value of Treasury bills issued was
111 500 000-00
31.1.2. Total face value of Treasury Bills whose maturity date was in 2018 59 200 000-00
31.1.3. Total face value of Treasury Bills whose maturity date was in 2019 17 433 333-34
31.1.4. Total face value of Treasury Bills whose maturity date was in 2020 17 433 333-34
31.1.5. Total face value of Treasury Bills whose maturity date was in 2021
17 433 333-34
31.1.5.1. Total face value of all TBs as at date of issue in 2016 (Round robin Annex 23)

31.1.6. Below is how the 1st lot of Treasury Bills sold before maturity date was applied 111 500 000-00
Discount Raised
31.1.7. Of the 59 200 000-00 bills maturing in 2018, face value USD1 982 032-87 8,75% 1 808 604-99
31.1.8. Of the USD17 433 333-34 bills maturing 2019, face value USD8 241 031-00 30% 5 76 8 721-70
31.1.9. Of the USD17 433 333-34 bills, maturing 2019, face value USD$3 744 748-00 25% 2 808 561- 00

31.1.10. Total face value of the Treasury Bills discounted/sold before maturity date: USD13 967 811 87

31.1.11.    Total actual proceeds collected from those discounted Treasury Bills above are:     10 385 888 

31.1.12.
Application of the proceeds from the sale of Lot1 Treasury Bills above
31.1.12.1.
MOTA Engil 3 000 000
31.1.12.2.
Working capital 3 735 888
31.1.12.3.
3 Main Undersground mine 2 500 000
31.1.12.4.
Pool vehicles 250 000
31.1.12.5.
CCTV 300 000
31.1.12.6.

 SANY  Equipment repairs                              600 000 
31.1.12.6.1. Total utilization of lot 1 Treasury Bills discounted       10 385 888 













31.1.13.    UTILISATION LOT 2  

Maturity value in year 2018 2019 2020 2021 Total face value Discount Net Received

Employees & Creditors>50k 2,864,273.23 2,864,273.23 17.00% 2,377,346.78
Employees & Creditors>50k 7,528,461.00 7,528,461.00 24.00% 5,721,630.36
Maintenance (Working Capital) 1,379,413.11 1,379,413.11 15.00% 1,172,501.14
Money raised at this stage of discounting bills 11,772,147.34 21.24% 9,271,478.28

Application/distribution of above proceeds
Employees 7% Deposit payment 5,827,977.14
Clearance of creditors below USD50 000 1,971,000.00
SANY equipment creditors 300,000.00
Resuscitation of equipment 1,172,501.14
Cash utilized to reduce dues to employees 9 271478.28

Stage 1&2 usage of cash @ face/discounted value 25 739 959.21 19 657 366.53

31.1.14.    TREASURY BILLS DISCOUNTING LOT 3 

Maturity value in year 2018 2019 2020 2021 Total face value Discount Net Received

Excavator Hire
773,147.54
773,147.54
17.00%
641,712.46
ZIMRA 4,262,638.54 4,262,638.54 20.00% 3,012,179.37
2017 Retrenchees 342,406.26
Dynamic Fund 55,525.20

TOTAL 5,035,786.08 5,035,786.08 4,051,823.29
31.1.15. DISCOUNTING LOT4

Maturity value in year 2018 2019 2020 2021 Total face value Discount Cash Received
TB PAYMENTS
Financial Institutions
Agribank 2,583,281.10 2,583,281.10
India Exim Bank 889,556.89 889,556.89
ZAMCO 819,551.34 819,551.34
Mota Engil 39,017,967.13 39,017,967.13
RBZ PTA Bank Loan 18,200,000.00 18,200.000.00

Production Critical
Colbro 1,323,941.81 1,323,941.81
Turbo & Total 1,955,105.81 1,955,105.81
Belaz 590,942.75 590,942.75
Bolt gas 141,933.16 141,933.16
Zuva 136,452.80 136,452.80
Dozer & Dumper 909,524.30 909,524.30
Engen 80,483.28 80,483.28
SRTC 516,422.67 516,422.67
Sany 379,820.62 379,820.62
Barzem 297,827.87 297,827.87
Barzem 321,792.59 321,792.59
Solar Explochem 353,153.45 353,153.45
Mmampilo 323,654.18 323,654.18
Bell 2,290,223.79 2,290,223.79
Petrotrade 144,856.86 144,856.83

TOTAL FOR THIS LOT 71 276 492,37

31.1.16.     

Maturity value in year 2018 2019 2020 2021 Total face value Discount Cash Received

Creditors>$50k
Chrome base 72,403.07 72,403.07
Fosbel Ceramic 252,072.37 252,072.37
Fosbel Zimbabwe 8,272.04 8,272.04
Consolidated African Ventures 15,700.30 15,700.30
ZIMDEF 62,484.27 62,484.27
Interest Research Bureau 6,432.34 6,432.34
BDO Tax & Advisory Services 6,238.91 6,238.91
Barloworld (Barzem) 8,272.04 8,272.04
MIPF 949,000.93 949,000.93
Otto Simon 215,000.00 215,000.00
December scheme payment 175,003.00 175,003.00
Net one 14,215.10 14,215.10
TBA -2.99 114,909.80 114,906.81
MMCZ 68,738.00 68,738.00
Telone 64,513.40 64,513.40

3 Main & Scheme Creditors 549,908.90 208,684.87 758,593.77
Scheme payment 1,651,000.00 371,000.00 2,022,000.00
Employee Scheme Creditors Feb Instalment 2,426,000.00 2,426,000.00 2,426,000.00
Cash-Collection Account 1,300,057.07 779,045.79 2,079,102.86

TOTAL FOR THIS LOT 9 31 8 949,21

1. DETAILED MINING OPERATIONS ISSUES -HCCL MINING PROCESS AT A GLANCE

32.1. Mining starts with the removal of bushes by dozers, then suitable equipment moves in to remove overhead benches one and two generally known as supplementary stripping. This is followed by accessing the top of coal. The coal has three layers, HPS Coal, then
HIC Coal and lastly the HCC
COAL PRODCUTION PROCESS FLOWCHART BASED ON OUR OWN VIEW

32.2. HCC COAL PRODUCTION PROCESS

1. HIC PRODUCTION PROCESS FLOWCHART BASED ON OUR OWN VIEW
2. HPS PRODUCT BASED ON OUR OWN UNDERSTANDING
3. DETAILED PERFORMANCE REPORTS

1.1.1. HCCL PERFORMANCE FOR THE NINE MONTHS TO 30 SEPTEMBER 2018 Profit and loss accounts January 2018 to September 2018
January February March April May June July August September

Coal- MT sold 99 018 79 302 105 171 79 965 142 663 148 995 153 972 163 834 118 357
Duff 246 209 60 10 356 7 053 8 199 7 192 5 686 3 460
Coke-MT Sold 516 261 235 378 145 – 1 – 99
USD USD USD USD USD USD USD USD USD
Sales revenue 4 687 3 773 4 442 4 209 6 499 6 617 7 049 7 538 6 126
Cost of sales (4 962) (4 999) (5 428) (4 769) (6 815) (6 591) (6 693) (7 219) (6 858)
Gross (loss)/profit (275) (1 225) (987) (560) (316) 27 356 319 (732)

Interest cost (990) (1022) (517) 249 (871) (856) (786) (771) (820)
Interest on debenture – (529) (439) (1 266) (645) (838) (681) (681) (681)
TB discount reversal – – 892 – – – – – –

Operating expenses
Administration costs (706) (843) (1 100) (931) (1 245) (910) (1 087) (987) (793)
Labour-services (802) (879) (1 319) (1 010) (907) (978) (868) (777) (481)
Excess labour – – – – – – – – –
Care & maintenance (109) (103) (118) (153) (148) (120) (112) (107) (126)
Sales commission (23) (21) – (43) (43) – – – –
Extraordinary costs (2 905) (4 622) (3 588) (3 716) (4 176) (3 676) (3 178) (3 005) (3 632)

Other income 74 50 40 65 200 89 6 32 51
Loss before tax (2 831) (4 572) (3 547) (3 651) (3 976) (3 587) (3 172) (2 973) (3 581)

Cost USD/Tonne 66.73 93.37 67.77 78.24 63.76 57.22 55.96 55.79 68.96
Selling price /tonne 37.15 34.63 32.68 35.35 37.60 34.67 37.74 38.52 38.63
Margin /tonne (29.58) (58.73) (35.08) (42.89) (26.16) (22.55) (18.22) (17.28) (30.33)

1. MINED COAL YEARS 2013 TO 9 MONTHS 2018 2013 2014 2015 2016 2017 2018
   Tonnes Tonnes Tonnes Tonnes Tonnes
   Production per production sheets 1 036 318 949 862 738 170 865334
   Production per Quantity Surveyor 1 797 395 1 567 990 969 153 1 273 710 1 525 746

Differences (761 077) (618 128) (230 983) (408 376)

36.1. The production sheets figures are per Annexures 24.

36.2. The Quantity Surveyor figures are per points 37.1 to 37.5.

36.3. Underground mining was inactive for a long time due to problems related to the Continuous Miner serviceability.

36.4.   Uderground mining equipment performance 





36.5.   Continous Miner last made meaningful production in year 2013 

36.6.   The equipment is back underground peforming the HCC mining.  

36.7. Auxiliary equipment working with the Continous Miner ferrying records show that Shuttle car number 5 is busier of the three shuttle cars operating underground.

1. PER SURVEY FIGURES
   37.1. Year ended 31 December 2014
   XXXXXXXXXX

37.2. Mined coal for the year ended 31 December 2015

37.3. Mined coal for the year ended 31 December 2016- Per Surveyor

37.4. Mined coal for the year ended 31 December 2017-Per Surveyor

37.5. Mined coal for the 9 months ended 30 Se-ptember 2018

1. MOTA ENGIL CONTRIBUTION TO MINING TONNAGE

MONTH YEAR
2014 2015 2016 2017 2018
January 187 366 91 582 – –
February 213 144 151 563 – –
March 213 734 102 356 – –
April 23 032 90 167 52 799 100 066
May – 128 567 69 910 136 494
June – 11 493 132 559 238 605
July 82 841 – 199 485 205 550
August 20 083 105 325 – 205 686 180 985
September 111 570 – – 14 126 105 251
October 99 102 – – – 25 090
November 172 488 113 961 – – –
December 193 092 50 518 – – –
Mota Engil Total 596,335 989,921 575,728 674,565 992,041
Total Mine output per production sheets before Underground Tonnage
1 036 318
949 862
738 170
865 334

MOTA Engil % Contribution               57.54%      100%    78%         78% 


MOTA Engil average contribution to HCCL output  78.39% 






38.1.   MOTA ENGIL 


38.1.1.     HCCL has a contract mining agreement with MOTA Engil. Annexure 25 

38.1.2.     The directors of MOTA Engil and their addresses are as follows: 

COMPANY NAME DIRECTORS NAMES ID NUMBER NATIONALITY DIRECTORS ADDRESSES OFFICE ADDRESS
Mota Engil EngenHaria E.
Construcao S.A
PUBLIC LIMITED
(E/4/2010)

Principal Officer Carlos Alberto Grilo
Pascoal
(Resigned)

Blake Mhatiwa

Oliveira Dos Santos
Jorge Fernando

Tavares Guerreiro
Gomes Pedro Nuno

Chrispen Nyambo
Passport number:
345728 (8148601)

12-046-288-Q-12

Passport No:
78341

Passport No:
N501107 Portuguese

Zimbabwean

Portuguese

Portuguese

Zimbabwean Rua Mario Dionisio, No 2
Linda-A-Velha P.O.Box 990
100AZ, Amsterdam,
Switzerland

C7 Northfields Flats, 6th St
J/Tongogara Ave, Harare

7 Routledge St, Milton
Park, Harare

7 Routledge St, Milton
Park, Harare

Inyama Crescent,
Wilmington Park, Harare
7 Routledge St Milton
Park, Harare

38.1.3.     The Contractor contributes significantly at 78.39% to the tonnages mined by HCCL 

38.1.4.     Lack of weighing machines hampers the accuracy of the figures mined by Mota Engil 

38.1.5. The figures are largely based on estimates made by the Surveyor and effects of bucket sizes of mode of truck

38.1.6.     Payment to Mota Engil is based on Survey figures. 

38.1.7. Whereas estimates of production is based on estimated tonnages lifted by trucks and haulers which are largely overstated as a result of bucket factors and usage of truck factors

38.1.8. No fair conclusion can be arrived at with respect to fairness of payments made to Mota Engil, given the absence of a weighbridge between the Mota Engil mining pit and the Run Off Mine (ROM) or the Mota Engil Stock pile

38.1.9. Between the Mining Pit and the ROM or stockpile there is no other accurate means of measuring the quantities

38.1.10. Any realized differences are generally thrown into the figure for “Internal Transfers”

1. COST OF PRODUCTION OF HPS COAL AS PER HCCL

HPS COAL PERFORMANCE ANALYSIS

PERIOD 2013 TO 2018 Price per tonne Vs Cost per tonne
2 013 2 014 2 015 2 016 2 017 YTD SEPT ’18 TOTAL
SALES TONNAGE (t) 924 659 996 200 887 273 544 025 669 349 575 825 4 597 331
SALES VALUE
VALUE (US $) 25 659 275 27 644 561 24 621 839 15 096 689 18 574 429 15 979 153 127 575 946
PRICE PER TONNE PPT (US$t) 28 28 28 28 28 28 28

COST OF SALES Cost (US $) 33 418 521 37 367 477 39 392 092 24 138 382 19 432 525 17 583 708 171 332 706
CPT (US$t) 36 38 44 44 29 31 37
Gross loss (9 722 916) (14 770 253) (9 041 693) ( 858 097) (1 604 555) (1 604 555) (43 756 760)
OVERHEADS Costs (US $) 9 819 610 9 009 068 16 320 739 4 195 858 22 390 108 13 004 414 74 739 797
CPT (US$t) 11 9 18 8 33 23 16

TOTAL Costs (US $) 43 238 131 46 376 546 55 712 831 28 334 240 41 822 634 30 588 122 246 072 504
CPT (US$t) 47 47 63 52 62 53 54

39.1. The foregoing is the basis used by the HCCL to assess cost of the product

39.2. There is real need to conduct a proper product costing exercise. The current approach is not quite analytical and cannot be relied upon for planning purposes, even though losses made are apparent.

1. STOCKS

40.1. Difference between theoretical stocks per records and actual stocks as at year end.

40.1.1. There are differences between physical stock on hand and theoretical stock

40.1.2. Some of the causes of the differences arise from estimations

40.1.3. The quantity surveyor uses proven methodologies for recording production

40.1.4. Production staff uses more of guesses in the way they record stocks, for instance

40.1.5. When stock is loaded on to 30 tonne trucks using front end loaders, once the truck is full, the production staff considers the truck to have ferried 30 tonnes of coal, whereas the Surveyor carries more reasonable tonnage figures from a vacuum created as a result of mining operations.

40.1.6. This difference which arises as a result of assuming that a 30 tonne truck is full is called “Truck Factor”, once full it is considered to have loaded 30 tones when in actual fact it may not be 30 tonnes

40.1.7. There is also another difference called “Bucket factor”. Bucket factor refers to differences which arise as a result of estimates made when loading is done onto coal haulers. Some coal haulers carry 45 or 55 tonnes and some 95 tonnes. Once the bucket of a coal hauler is full, it is assumed that the designed tonnage is what is carried in the hauler or if a hauler has been sent for weighing, all subsequent filled haulers are deemed to be carrying the same tonnage.

40.2. SCHEDULE OF ANNUAL STOCK DIFFERENCES AS AT YEAR END, FOR THE YEARS ENDED 31 DECEMBER 2013 TO 9 MONTHS, 30 SEPTEMBER 2018

9/2018  2017    2016    2015    2014    2013 
 Tonnes      Tonnes      Tonnes      Tonnes      Tonnes      Tonnes 

Rounds 51 (786) (194) (435) (702) 403
L/Cobbles 6 954 7 260 715 4 610 (9 126) 1 044
Coal nuts 4 869 176 39 18 525 (23 824) (7 170)
Peas 1 871 61 1 602 (928) (117 308) 5 075
Dry NPD 76 688 82 320 41 266 116 645 362 783 323 961
Flint coal (189) – – – – –
Raw coal local (93 082) (40 701) (5 521) (13 310) (73 627) (7 015)
Coal fines (45 299) (137 731) (33 059) (289 445) (215 742) (148 693)
Coking coal 68 220 (55 685) (4 547) 43 605 45 591 28 107
Coke (671) (13 779) (4 950) (8 204) (19 913) (26 954)
Duff 258 232 19 008 117 213 148 951 98 232 165 904
HPS (12 523) 33 357 (49 995) 32 081 27 946 57 868

40.2.1. The above schedule shows the annual differences in stock figures by grade of coal at year end, based on point 40.3 less point 40.3.1, by grade.

40.2.2. The value cannot be determined as at 30 September 2018 because of the three tier price system prevailing as at that date, the reader of this report is free to apply a price based on their perception of the implied exchange rate

40.2.3. The schedule is computed from the tables of actual count figures and the theoretical stock figures below

40.3. STOCKS BALANCES AT ANNUAL COUNTS (THEORETICAL AND ACTUAL STOCKS BY GRADE AND BY YEAR BY PRODUCT)
Theoretical Stock 9/2018 2017 2016 2015 2014 2013
Tonnes Tonnes Tonnes Tonnes Tonnes Tonnes
Rounds 238 (786) (194) (435) (702) 403
L/Cobbles 7,632 7,260 1,753 5,052 (9,126) 3,251
Coal nuts 6,352 176 39 18,803 (19,305) 4,712
Peas 3,347 729 1,782 (928) (116,760) 5,579
Dry NPD 93,951 94,771 42,408 123,224 385,633 324,634
Flint coal (189) 0 0 0 0 0
Raw coal local (65,469) (39,619) 4,715 10,434 7,015 0
Coal fines 159,504 67,319 127,685 (80,714) (215,629) (148,693)
Coking coal 68,220 (53,257) (2,119) 43,618 46,486 28,945
Coke (671) (8,626) 203 3,469 (13,736) (9,823)
Duff 285,421 155,707 253,912 277,820 140,613 191,420
HPS 85,861 91,086 7,734 50,747 95,198 82,333
40.3.1. Actual stocks on hand
Rounds 187 – – – – –
L/Cobbles 678 – 1,038 442 – 2,207
Coal nuts 1,483 – – 278 4,519 11,882
Peas 1,476 668 180 – 548 504
Dry NPD 17,263 12,451 1,142 6,579 22,850 673
Flint coal – – – – – –
Raw coal local 27,613 1,082 10,236 23,744 80,642 7,015
Coal fines 204,803 205,050 160,744 208,731 113 –
Coking coal – 2,428 2,428 13 895 838
Coke – 5,153 5,153 11,673 6,177 17,131
Duff 27,189 136,699 136,699 128,869 42,381 25,516
HPS 98,384 57,729 57,729 18,666 67,252 24,465

40.4.The Acting Managing Director informed us that he was not aware of any stock differences being reported in the figures presented by the Finance Manager or by the Accounts Department at monthly management meetings.

1. ACCOUNTING FOR STOCKS AS PER THE MINE RECORDS

41.1. We tested for completeness of revenue of the mining operations, by:

41.1.1. Performing reconciliation of Mined Coal, tracing to the plant and reconciling plant production to sales

41.1.1.1. The work done showed that loopholes do exist in the system of accounting for completeness of production

41.1.1.2. The following was noted:

41.1.1.2.1. Motor Engil mines and moves to a coal stock pile. The Quantity Surveyor determines the void created during a month and computes tonnage mined.
41.1.1.2.2. Once the tonnage has been moved to a stock pile, trucks ferry the raw coal
41.1.1.2.3. There is no weightometer to measure the actual weight of the coal mined by MOTA ENGIL.
41.1.1.2.4. The coal is moved by trucks from the Stockpile to processing plant or to the sale target.
41.1.1.2.5. There are variances which manifest here which are generally known as a Truck factor.
41.1.1.2.5.1. Truck factor means that for example, a 30 tonne truck is loaded with coal using front end loaders and a sample may be taken to the weighbridge. The weight that is obtained at the weghbridge some kilometres away, is then applied to all subsequent loads without taking the loads to a weighbridge. The weight of the bucket of a Front End loader is unknown. Errors arising out of this unreliable process, is called truck factor. When a 30 tonne truck is loaded it does not necessarily mean that the load is 30 tonnes. Because this weight is only a deemed
weight of a loaded truck, there will generally be differences in weight than had the trucks actually been weighed scientifically. It is possible that a 30 tonne truck would move from the loading site probably with less than 30 tonnes. Accordingly from a Survey measured stock pile, more loads can be made than expected because of these factors.

41.1.1.2.6. Apparently, it is in the best interests of the Trucker to carry less weight for a given stock pile because that results in more trips and more revenue to the trucker along with savings in wear and tear or fuel usage.

41.1.1.2.7. An analogy below buttresses the practicalities of the foregoing truck factors/variances:

41.1.1.2.7.1. Dig a one cubic metre of earth and shovel it a metre away
41.1.1.2.7.2. After a few minutes, try to fill back the void created, using the same soil
41.1.1.2.7.3. The soil will invariably fill the void and a considerable quantity will not fit into the void which would overflow
41.1.1.2.7.4. The cubic metre void is what the Quantity Surveyor works with and its sample weight, hence its reliable
41.1.1.2.7.5. So when this loose soil gets loaded onto a 30 tonne truck and fills it, it does not necessarily mean that the truck is carrying 30 tonnes
41.1.1.2.7.6. Whereas production personnel work with filled trucks of varying design weights, it is here where the problems of HCCL start leading to issuance and pronouncements of production figures that cannot be realized through sales.

41.1.1.3. The overall effect of these weaknesses is the reporting of overstated coal production tonnages, because the tonnages are based on the number of trips made by the trucks and haulers which do not necessarily carry designed capacity tonnes
41.1.1.4. So, trying to trace these tonnages to sales gets distorted by the figures recorded as “transfers” when management accounts are being prepared.
41.1.1.5. We tested the actual mined coal production records at the Open Cast and Underground Mine and noted that there are differences in what is mined /produced and what is moved to the Processing Plant/Metallurgical Plant.
41.1.1.6. From an accounting point of view, there is a figure which is recorded as “transfers”, this figure is a suspense account.
41.1.1.7. The figure for the transfers is supposed to represent actual coal movements, but in there is included stock differences which renders the transfers figure less reliable for use in determining the quantity of mined stock and the tracing of that to the plant where it is finally crashed and to sales.
41.1.1.8. Issues of loss in cleaning raw coal and moistures also give rise to variances between raw coal and processed coal.
41.1.1.9. The transfers also includes coal utilized internally for mine needs
41.1.1.10. There is no proper listing supporting this figure called “transfers”, therefore giving rise to a very high risk area requiring significant attention for business survival.
41.1.1.11. The IT environment is dysfunctional, accordingly accounting for these stock movements is poor

1. REVIEW FOR COMPLETENESS OF QUANTITIES SOLD AND REASONABLENESS OF MINING STOCKS

42.1. RECONCILIATION OF STOCK JANUARY 2018 TO AUGUST 2018
HWANGE COLLIERY

STOCK MOVEMENT – (TONNAGE)
AUGUST 2018

Description Opening Stock Production Transfers Sales Closing Stock

RAW COAL – ROM
HPS 30,324 490,463 (215,408) (139,023) 166,356
HIC 1,082 476,591 (322,274)
(61,609) 93,790
HCC 2,632 164,307 (69,760)

• 97,179
  HPS – PRIMARY TIPPLER 8,832 396,885 (395,042) 10,675
  –
  SALEABLE COAL – –
  HIC – 225,300 111,926 33,241) 3,985
  UNPROCESSED COAL FROM JIG & FLOATATION PLANT 3,473
  56,705 (60,135)
• 43
  HCC (145) 41,200 (16,465) (21,186) 3,403
  Wet Screens – 98,953 (28,136)
  (62,781) 8,037
  Commentary (Extracted as is from HCCL records)

42.2. The opening stock is the actual stock as at the given date
42.3. The Production is the figure of production as per production records
42.4. Transfers should represent production of one section moved to another process or to sales
42.5. In the transfers is included coal used for HCCL own consumption
42.6. There are no records evidencing own consumption leaving the term transfers open to fraud and manipulation
42.7. The foregoing schedule just goes to demonstrate that tracing coal from mining to saleable stock is muddled by the transfers figures.
42.8. All stock shortages/deficiencies which the mine cannot account for are included in the figure of “transfers” as if its all tonnage that went to the plant for processing.

42.9. RECONCILIATION OF STOCK FOR THE YEAR JANUARY 2017 TO DECEMBER 2017

HWANGE COLLIERY                  
STOCK MOVEMENT - (TONNAGE)                   
12 months to 31 December-17                      

Description Actual
Opening Stock Production Transfers Actual tonnage Sold Actual
Closing Stock

RAW COAL – Run Off Mine
HPS 44,429 703,964
(616,948) (101,120) 30,324
HIC 3,362 559,742
(512,705) (49,316) 1,082
HCC – 17,541
(14,909) – 2,632
HPS – PRIMARY TIPPLER – –
576,837 (568,004) 8,832

SALEABLE COAL –
HIC exc duff 124,420 347,839
44,529 (513,809) 2,978
UNPROCESSED COAL JIG &
FLOATATION PLANT 308 56,209 (53,045) – 3,473
HCC (174) 18,904
37,361 (56,236) (145)

42.9.1. The reconciliation is performed in tonnage for the reason that, if it were performed in USD value, a true operational bottleneck can be missed

42.10. REVIEW OF THE RECONCILIATION OF STOCK FOR THE YEAR JANUARY 2016 TO DECEMBER 2016

 HWANGE COLLIERY                 
 STOCK MOVEMENT - (TONNAGE)                      
 12 months to 31 December-16                     

Description Opening Stock Production Transfers Sales Closing Stock

RAW COAL – ROM
HPS 15,089 551,786
21,578 (544,025) 44,429
HIC 32,938 335,183
(345,730) (19,029) 3,362
HCC –
83,683
(83,683) –
HPS – PRIMARY TIPPLER – –

• – –

SALEABLE COAL
HIC 138,680 148,258
54,642 (217,161) 124,420
UNPROCESSED COAL JIG & FLOATATION PLANT –
37,574
689 (37,955) 308
HCC 780
54,445
34,259 (89,658) (174)
COKE 11,673 –
6,678 (13,800) 4,551

42.10.1. The aim here is not to try and trace where the stocks went to because the records are not capable of explaining this fully.
42.11. REVIEW OF THE RECONCILIATION OF STOCK FOR THE YEAR JANUARY 2015 TO DECEMBER 2015

 HWANGE COLLIERY                 
 STOCK MOVEMENT - (TONNAGE)                      
 12 months to 31 December-15                     

Description Opening Stock Production Transfers Sales Closing Stock

RAW COAL – ROM
HPS
67,252 733,190
101,921 (887,273) 15,089
HIC
31,455 507,804
(436,113)
(70,208) 32,938
HCC
3,117 316,573
(319,690) – –
HPS – PRIMARY TIPPLER – –

• – –

SALEABLE COAL
HIC
58,497 205,262
167,989 (293,068) 138,680
UNPROCESSED COAL JIG &
FLOATATION PLANT – – – – –
HCC
954 236,321
(19,177) (217,319) 780
Coke
8,182
66,578
(30,030)
(33,056) 11,673

42.11.1. HCCL records do not permit drilling into the figures of the above annual reconciliation

42.12. REVIEW OF THE RECONCILIATION OF STOCK FOR THE YEAR JANUARY 2014 TO DECEMBER 2014

HWANGE COLLIERY                  
STOCK MOVEMENT - (TONNAGE)                   
December-14                      

Description Opening Stock Production Transfers Sales Closing Stock

RAW COAL – ROM
HPS
24,377 849,314
189,761
(996,200) 67,252
HIC
2,242 696,165
(666,952)

• 31,455
  HCC
  3,117 256,883
  (256,883)
• 3,117
  HPS – PRIMARY TIPPLER – –
• – –

SALEABLE COAL
HIC
2,118 481,408
(47,873)
(377,156) 58,497
UNPROCESSED COAL JIG &
FLOATATION PLANT – – – – –
HCC
646 239,647
61,397
(300,736) 954
COKE
16,540
31,932
9,428
(49,717) 8,182

42.12.1. As set out for the other years, the HCCL records are not capable of providing better quality information about accounting for stocks
42.13. REVIEW OF THE RECONCILIATION OF STOCK FOR THE YEAR JANUARY 2013 TO DECEMBER 2013

 HWANGE COLLIERY                 
 STOCK MOVEMENT - (TONNAGE)                      
 December-13                     

Description Opening Stock Production Transfers Sales Closing Stock

RAW COAL – ROM
HPS
8,439 686,152
241,152 (911,365) 24,378
HIC 3,129 485,679
(484,537)

• 4,271
  HCC – 296,735
  (296,735) – –
  HPS – PRIMARY TIPPLER – –
• – –

SALEABLE COAL – –

• – –
  HIC
  21,414 304,380
  (19,385) (304,380) 2,029
  UNPROCESSED COAL JIG &
  FLOATATION PLANT – – – – –
  HCC
  58,392 127,102
  45,700 (230,747) 447
  COKE
  24,076
  62,721
  (601)
  (69,656) 16,540

42.13.1. As set out for the other years, the HCCL records are not capable of providing better quality information about accounting for stocks

42.14. EXAMPLE OF UNEXPLAINED VARIANCES STOCK MANAGEMENT REQUIRING MD ATTENTION
42.14.1. A review of January 2018 stock shows the following differences
COAL TYPE HPS Tonnes

Opening stock 1 January 2018 16 015
Add
Mined coal during January 2018 48 905

Total stock assuming no HPS Coal movement occurred 64 920
Less closing stock at 31 January 2018 (23 438)

Therefore, theoretical stock moved to customer/to next value chain stop 41 482
But actual stock moved as per the transport means below 31 870

Variance in stock moved (9 612)

42.14.2. Actual movement of coal January 2018
TRUCKER OR MEANS OF TRANSPORT Tonnes

COLBRO 3 010
INDUCTOSERVE 21 860
SRT55 1 650
B30D 1 740
ROCK DUMPER 750
COAL HAULER 2 200
B50D 500
RMS 60

Total Coal tonnage actually transported from mining operations by type of transport or by hire transport company
31 870

42.14.3. Variance in stock movement for January 2018 as a % of actual moved = 30.16%. Such, is what management needs to know.

42.14.3.1.  Intepretation of the stock variance in the foregoing tables 

42.14.3.1.1. In January 2018 the total stock available of HPS Coal to be moved was 41 482 tonnes.
42.14.3.1.2. Truckers moved only 31 870 tonnes and that was it (all was reported moved), meaning 9 612 tonnes could not be properly accounted for, representing 30.16% of the month’s production.

42.14.3.1.3. A number of weaknesses are at the shop floor:

42.14.3.1.3.1. Lack of weighing equipment
42.14.3.1.3.2. Problems of continuously weighing loads, staff can use a sample from a hauler or a truck and say that the hauler or truck or bucket carries X amount of tonnage, therefore if the carrier makes X number of loads, it means the deemed tonnage multiplied by trip gives the carried tonnage. A sample truck or hauler can be sent for weighing. The whole day the staff will be making this assumption. This leads to over or under estimation of tonnages. If coal is loaded and it is less than 30 tonnes, what it means is that staff can count the number of trips made in a day by a 30 tonne truck to the plant and multiply by 30 tonnes. That leads to overstatement/understatement of tonnage produced but which may not be recoverable in sales
42.14.3.1.3.3. Loss is suffered by the mine because where the mine is supposed to pay for say three loads, it goes on to pay for more loads because the load is going not filled to capacity or the truck may be filled to capacity but density differs from that of undug coal
42.14.3.1.3.4. The mine can suffer loss through production bonuses for tonnage not produced and delivered (Bucket factors and Truck factors)

1. REVIEW OF HAULAGE TRUCKS FUEL USAGE VS TONNAGES LIFTED (COLBRO AND INDUCTOSERVE) AT A GLANCE

43.1. Fuel usage to tonnage: Colbro Vs Inductoserve Investments

Year Colbro issued fuel Colbro hauled tonnage Inductoserve issued fuel Inductoserve hauled tonnage

2013 102 212 241 981 – –
2014 172 158 509 262 – –
2015 320 668 550 635 – –
2016 18 279 136 947 – –
2017 21 537 352 662 138 328 381 114
2018 16 216 151 819 213 560 513 238

43.1.1. Tonnes per litre Colbro-Yellow shading

43.1.2. Tonnes per litre Inductoserve- Pink shading

43.1.3. Note that COLBRO claims fuel only if its haulage invoices are not settled

43.2.   Pictorial presentation of Truckers’ usage of fuel and relational graph to tonnage moved  

43.2.1. This graph must be read with the statistics/numbers presented, under point 43.1.
43.2.2. The significant differences in fuel consumption depicted above are a result of the contract wording as below;
43.2.2.1. COLBRO is provided with fuel only when payments are far in arrears and that is deducted from subsequent payments
43.2.2.2. Inductoserve is supplied with fuel nothwithstanding payment position.

1. PHILCOOL INVESTMENTS (PRIVATE) LIMITED COAL LOADING CONTRACT

44.1. A company called Philcool was contracted to do the loading of coal into trucks using front end loaders at the mine. Philcool Contract, Annexure 26

44.2. The directors of this company are:

44.2.1. Wilfred Tundiya whose ID number is 23-029067-T23

44.2.2. Talent Munyoro whose ID number is 58-265308-F27

44.2.3. Thethelesa Musarurwa ID number 58-265573-T15

44.2.4. Philcool Investments (Private) Limited office address is: 3623/17 Extension Mbizo, Kwekwe

44.3. Philcool Investments (Private) Limited entered into a contract whereby it took responsibility for the following mine wide functions at the Metallurgical Operations Department for clearing and loading:

44.3.1. Coal at Chaba Mine plants,

44.3.2. Coal at Coal Preparation Plant

44.3.3. Coal at Jig and Floatation Plant

44.3.4. Open Cast and

44.3.5. Any other works as assigned by the mine
44.3.6. The charge out rate per hour was fixed at USD103,65

44.4. The payment was at the agreed terms set out in the contract, on a monthly basis calculated using time sheets as compiled and agreed to by the Contractor and HCCL representatives

44.5. However not one of the directors of the company signed this contract between Philcool and HCCL

44.6. A person, S Tundiya who is not a director of Philcool signed this contract, on the 26th June 2017

44.7. Accordingly the company took control of the loading from the stage of the raw coal

44.8. A Mr C Munyamane a Sectional Engineer Electrical Services signed for HCCL

44.9. We did not find documentation that gave Mr C Munyamane authority to bind the mine

44.10. Given S Tundiya is not a director of Philcool Investments, we did not find documentation at the mine which would authorize a person from another company where he is not an official, to come and enter into a contract with HCCL.

44.11. Accordingly, two possibly unauthorized persons entered into an agreement that bound HCCL to a contract of Works.

44.12. Philcool owes HCCL in prepayments for works contrary to the agreement, USD170 852-67

44.13. Philcool payment profile is annexed. Annexure 27

44.14. There are payments to Philcool that are not supported by invoices. Annexure 28

1. REPORT ON AVIM INVESTMENTS (PRIVATE) LIMITED-CONTRACT OF FERRYING COAL OFF THE MINE TO ZIMBABWE POWER COMPANY LIMITED (ZPC) MUNYATI, IN KWEKWE

45.1. AVIM Investments (Private) Limited has a haulage contract with HCCL. Annexure 29

45.2. AVIM is a Haulage company whose registered office is:

45.3. Number 2813 Edisan Street

45.4. Light Industrial Sites

45.5. Kwekwe, Zimbabwe

45.6. The directors of the company are:

45.6.1. A person called Shepherd Tundiya of 7 G 26 Westend Kwekwe
45.6.2. A person called Nyaradzai Charamba 7 G 26 Westend, Kwekwe

45.7. The contract was for the coal loading and hauling of coal peas from Hwange to Zimbabwe Power Company (ZPC) Munyati Power Station in Kwekwe

45.8. A person called Shepherd Tundiya signed the contract on 6th October 2014

45.9. On 6th November 2014 using Truck number ACZ5924 AVIM Investments was contracted to ferry 29.80 tonnes of coal peas.

45.10. On13th November 2014, using Truck number ACZ5924, AVIM Investments was contracted to ferry
30.16 tonnes of coal to ZPC Munyati in Kwekwe.

45.11. In these two trips there is no evidence that ZPC at Munyati Power Station received the coal

45.12. AVIM Investments had embarked on a mssion to divert coal entrusted with it to own use thereby causing financial loss to the mine. Annexure 30

45.13. An amount of 1 003. 48 tonnes was lost to AVIM Investments through this scheme of picking coal on the understanding that the loads of coal were being delivered to HCCL’s customer ZPC Munyati in Kwekwe

45.14. It took a while for HCCL to discover that coal was being diverted, and an exercise was carried out which confirmed the diverting of coal to own stock by the trucking company

45.15. The matter was reported to the Board at a board meeting of 24 March 2017, which was chaired by Mr W Chitando for guidance and action as follows:

45.15.1. That AVIM Investments had diverted HCCL coal, at the time, valued at USD17 000
45.15.2. That AVIM Investments had been paid by an HCCL’s customer, AFROCHINE an amount of USD45 000 which amount was for HCCL
45.15.3. That AVIM Investments had been overpaid for transport, an amount of USD21 000

45.16. Since an investigation had been carried out, surely, a reasonable Board decision would have been to order the arrest of the AVIM Investments director for theft

45.17. This was not done
45.18. Other Board members felt that the matter was not given reasonable room to discuss, which is why some Board members who did not agree with the omission by their Chairman continued to pressure for Forensic Investigation

45.19. As if that was not enough, AVIM Investments was given preferential treatment in payments and would be paid in advance, thereby exacerbating the already suspicion in the Board between the Board members and the Chairman

45.20. A review of AVIM statement at 30th September 2018, showed that the company owed it owed HCCL in prepayments USD271 953-88

45.21. As at the same date AVIM Investments owed HCCL for its own coal purchases USD209 271-32

45.22. Total amount owed by AVIM Investments to HCCL as at 30th September 2018 USD481 225-20

45.23. Engagement of a conflicted transporter who is both a buyer and transport contractor is not a reasonable decision

45.24. Board minutes of 13 June 2017:

45.24.1. At a Board meeting Chaired by Mr. W Chitando, held at Royal Harare Golf Club
45.24.2. AVIM Investments matter was discussed as follows:

45.24.2.1. “The Company engaged the debtor for a mutual reconciliation after which the debtor acknowledged owing the company a sum of USD234 000. To liquidate its indebtedness,
the debtor offered haulage services to move ZPC targeted deliveries and recovering its debt by withholding 50% of the amount due to the debtor. The debt was expected to be liquidated over a period of six (6) months. This matter shall be referred to the Audit Committee for monitoring and be removed from the matters arising”.

45.24.3. Some Board members contest this decision, which they view as being inconsistent with good conduct and was not in the best interests of shareholders
45.24.4. Subsequent to this meeting, Internal Audit recommended that the money be recovered in full and that the company stops being given additional business

45.24.5. Comment by Mr Tawanda Marapira the Finance Manager

45.24.6. The Finance Manager responded to the Internal Audit recommendation by saying:

45.24.6.1. “The Transporter has since acknowledged the claim by HCCL. An agreement was reached to allow the transporter to continue carrying product to ZPC to allow HCCL to recover money owed from ZPC transport payments”.

45.24.7. The Internal Auditor was Mr T Zvidzai

45.24.8. Based on the foregoing, it is clear that a person had agreed to diverting/stealing coal and instead of reporting to Police, the company was actually given opportunity for more business?

45.24.9. Subsequent to this, the following matters which have no documentary evidence transpired

45.24.9.1. The existing Internal Auditor Mr Mudenda claimed that he got death threats from the said
S Tundiya a matter which he claimed was taken to Hwange Police
45.24.9.2. The said S Tundiya abducted or attempted to abduct the current Internal Auditor Mr I. Mudenda using a double Cab with no number plates
45.24.9.3. On 12 November 2018 a gentleman called Mr S Tundiya appeared before a Parliamentary Committee on Mines and Mining Development
45.24.9.4. That man, S Tundiya, claimed that he had internal documents of Hwange Colliery Company and that he obtained them thorugh his sources
45.24.9.5. Board Chairperson, Mrs J Muskwe, claimed that S Tundiya would dish out instructions about which manager to engage back from suspension and the instructions were barked in front of the former Chairman who is now the Minister. See outgoing Chairlady written representations, Annexure 1(d)
45.24.9.6. This is likely an indication that S Tundiya had the approval of the Minister
45.24.9.7. The former Board Chairman Mr W Chitando who at the time of the investigations had become the minister of Mines and Mining Development did not cause the arrest of this person after it was discovered that AVIM Investments diverted coal for own benefit?
45.24.9.8. It is claimed by the HCCL Chairlady that the Minister stood by when S Tundiya was dishing out illegal instructions to her, the Board Chair person?
45.24.9.9. The good question, though, is if this S Tundiya had no links with someone of significant influence in the Board at the time, why would management not just cause his arrest without making it a Board matter?
45.24.9.10. The foregoing Acts or ommissions by the Minister can be deemed to be complicity in the S Tundiya affairs with HCCL

1. REPORT ON THE PERFORMANCE OF INCOMPATIBLE FUNCTIONS: S TUNDIYA

46.1. Philcool Investments was engaged to perform coal loading functions at the mine.

46.2. A company called AVIM Investments was engaged in the ferrying of coal to ZPC Munyati Power Station in Kwekwe.

46.3. Philcool which prima facie is an independent company is actually not an independent company in relation to AVIM.

46.4. S Tundiya who is not a director in Philcool signed the Philcool/ HCCL contract thereby binding Philcool an indication he is possibly a beneficiary shareholder of Philcool Investments. Annexure 26

46.5. AVIM Investments whose director is S Tundiya does the ferrying of coal to ZPC Kwekwe

46.6. Accordingly, the loading of coal at the mine and its haulage to Kwekwe is done by related parties thereby eliminating the critical control of ensuring that all tonnages are properly accounted for by the mine from the point the coal is mined to the dispatch to customers.

46.7. The fact that S Tundiya signed the contracts of both companies, the loading company and the haulage company is persuasive enough evidence that he has significant influence in the loading of coal and ferrying it to customers.

46.8. Further the fact that AVIM Investments also buys coal from HCCL yet it is the very company that was also loading and transporting the coal to ZPC Munyati left HCCL exposed to serious internal control weaknesses, exacerbated by inadequacies of weigh bridges at the mine and demoralized security personnel

46.9. Mr S Tundiya has on a number of occasions instructed HCCL to pay amonuts that he considered to be due to Philcool

46.10. This buttresses the fact that the two companies must be related

46.11. As at 30 September 2018, the two companies owed HCCL an amount of USD652 077.77 from recorded transactions including overpayments and the value of diverted coal.

46.12. Given the risk that the two companies are performing incompatible functions the possibility of the existence of unrecorded transactions exists.(We mean two companies controlled by one person, one of them did the loading of coal and the other did haulage)

1. REPORT ON POTENTIAL DISPUTE BETWEEN HCCL AND AVIM INVESTMENTS

47.1. Avim Investments was awarded a contract to ferry coal to Munyati Power Station

47.2. There is a dispute arising from allegations that AVIM Investments converted some of the coal loads to own use.

47.3. The dispute arose after the disappearance of signed dispatch documents evidencing that AVIM Trucks ferried the coal from the mine

47.4. The mine uses a combination of computerized records and manual records maintained in Excel

47.5. Prior to the disappearance of the dispatch tickets, reading comments of the Finance Executive, on the internal audit report, there was an arrangement whereby management was instructed to give more business to AVIM Investments in order to create capacity in the hands of AVIM Investments to pay for the diverted coal?

47.6. The foregoing nature of decision making gives rise to questions about the Board”s independence on the matters of AVIM Investments.

47.7. At Parliament, Mr Shepherd Tundiya a director of AVIM Investments, claimed that he did not owe anything to HCCL and also that he even had some records about the mine including bank statements.

47.8. Asked further how he obtained the HCCL records, he said he was not divulging, suffice to say that the mine did not have proof that he owed.
47.9. Such claims, extend the depth of the forensic investigation
47.10. Given this mendacious position, our approach was as follows:

47.10.1. We obtained a listing of the disputed truck loads of coal
47.10.2. Obtained the listing of the trucks that were alleged to be involved in the scam and their registration numbers
47.10.3. Obtained duplicate dispatch tickets from the system that generated the original dispatch tickets that were signed by the AVIM Investments drivers as evidence of collection but which tickets later on disappeared from the HCCL files either through collusion with the service provider or for whatever reason
47.10.4. Accessed Security guards archives
47.10.5. From the security guards archives, we obtained guardroom “sign on “sheets/gate traffic booking sheets
47.10.6. Sign on sheets are the records whereby any vehicle entering or leaving the designated area is recorded and the driver’s details are recorded
47.10.7. The sign on sheets include the details about the registration numbers of the trucks/motor vehicles entering or leaving premises/designated point
47.10.8. Drivers sign on the sign on sheets as evidence of entry or departure
47.10.9. We traced some concerned trucks to the archives noting that the registration numbers agreed with the AVIM Investments numbers on the HCCL claims
47.10.10. We also noted that it was not just AVIM Investments vehicles on those sign on sheets, but all
vehicles entering, therefore this appeared to be an honest record about vehicle movements through that point which AVIM Investments cannot deny
47.10.11. We sought ZINARA records about the movements of the said relevant AVIM Investments trucks. Annexure 31
47.10.12. ZINARA records showed the history about each and every one of the identified trucks for the period 2014 to the relevant date in 2018
47.10.13. The ZINARA records showed those movements for the whole country where the relevant trucks passed through a Tollgate wherever in Zimbabwe
47.10.14. From the ZINARA records, which we deemed very independent, we selected for each and every truck, evidence of movements past Umguza Tollgate
47.10.15. The reason why we selected movement past Umguza Tollgate from Bulawayo was to obtain persuasive evidence that the truck was coming to Hwange.
47.10.16. We traced the same trucks to the Hwange Tollgate, buttressing evidence that the relevant trucks entered Hwange area.
47.10.17. We further traced these trucks to the HCCL security guards sign on sheets as increased evidence that the trucks entered the mine technical area where coal is collected
47.10.18. Our search was performed in reverse
47.10.19. Here, we traced the trucks to ZINARA Hwange Tollgate as evidence that the trucks passed through the Tollgate on their way back.
47.10.20. We traced the same trucks to Umguza Tollgate as evidence that the trucks used Bulawayo Victoria Falls highway on their way back to base.
47.10.21. ZINARA transting records are filed in the AVIM File. Annexure 17 to 18

47.11. Conclusion on coal diversion by AVIM Investments

47.11.1. Based on the work performed in this claim, covering a review of the information set out on the dispatch tickets, having obtained evidence that the AVIM Investments driver and truck was registered at the security guards gate, having obtained evidence that AVIM Investments truck passed through ZINARA’s Umguza and Hwange Tollgates on the way from Bulawayo, having obtained evidence that the AVIM Investments trucks passed through ZINARA’s Hwange and UmguzaTollgates on way back to Bulawayo and along with the corroborative claims by HCCL, we are persuaded to conclude that AVIM Investments diverted the concerned coal and that HCCL has a legitimate claim against AVIM Investments, subject to certain alterations (mutatis mutandis) which may arise from any payments and setoffs that may not have become apparent during our investigations.

47.11.2. Annexures 17 to 18 show the listing of the AVIM Investments trucks involved in HCCL diversions of coal

47.11.3. Annexures 17 to 18 show the various trips that the AVIM Trucks made passing through tollgates in Zimbabwe during the material period

47.11.4. Annexures 17 to 18 show the summary by truck of the material dates the trucks passed through Umguza and the Hwange tollgates

1. REVIEW OF TOP BARTER DEALS AGREEMENTS -SITTING IN DEBTORS AGED ANALYSIS

CODE CUSTOMER TOTAL CURREN
T 30 DAYS 60 DAYS 90 DAYS 120 DAYS >120 DAYS TOTAL

54 GENERAL
BELTINGS 84,740 4,528 2,194 2,252 – 2,229 73,535 84,740
109 NRZ 65,467 – – 10,326 6,977 – 48,163 65,467
112 NIMR & Chapman
P/L 74,308 – – – – – 74,308 74,308
275 HWANGE COAL &
GC 15,070,274 842,657 536,039 662,322 390,937 526,9777 12,111,338 15,070,274
123 Pepper Grinder Trdg 147,597 – – – – – 147,597 147,597
132 RAM QUIP P/L 4,975 – – – – – 4,975 4,975
135 Sable Chemical Ind 35,903 26,394 – – 9,509 – – 35,903
164 ZFC LIMITED 13,136 6,727 – – 6,409 – – 13,136
280 PALE HOUSE 123,765 – – – – – 123,765 123,765
1818 W & K Earth Movers 18,296 – – – – – 18,296 18,296
1977 Preedon P/L 351,670 – – – – – 351,670 351,670
1503 MRS.S. MAPFUWA 14,958 – – – – – 14,958 14,958
1540 TURBO MINING 60,713 – – – – – 60,713 60,713
1630 CHROMEBASE
MINING COMPANY 170,285 – – – – – 170,285 170,285
1644 RITE EDGE (PVT) LTD 228,889 – – – – – 228,889 228,889
496 Drill well 1,407 – – – – – 1,407 1,407
1712 AVIM
INVESTMENTS 209,271 – – – – – 209,271 209,271
TOTAL 16,675,663 880,307 538,234 674,902 413,834 529,206 13,639,177 16,675,663

48.1. We reviewed the list of the top barter trade entities and amounts due to HCCL as at 30 September 2018
48.2. HCCL staff could not provide us with formal written agreements entered into with these parties to effect barter trades.
48.3. The staff at the mine referred us to the Marketing Department at Coal House in Harare, who in turn referred us back to the mine.

48.4. It is possible that such written agreements never existed because notes made by the Credit Controller indicated that HCCL was actually asking the debtors to consent to set-off, as opposed to following up on agreed positions, accordingly we did not have to inquire of the concerned parties.

48.5. We noted the following:

48.5.1. Management made barter arrangements and instructed their subordinates to implement them
48.5.2. The total amount owed to HCCL by 17 entities at 30 September 2018 was $16 739 675
48.5.3. There were no reconciliations for these debtors
48.5.4. The largest amount of $15 147 617 was owed by Hwange Coal and Gas Company. Notes made by Mrs S M Chigumira indicated that this amount would be set-off against the coke oven battery take over.
48.5.5. We requested for the agreement and valuation of coke oven battery, but got none
48.5.6. The Credit Controller, Mrs Chigumira followed up the clients
48.5.7. The high number of barter arrangements made it difficult for HCCL to monitor, set-off or collect.
As a result, significant amount of the trading parties were sitting with amounts largely overdue, $14 208 266 (85%) over 120 days old.
48.5.8. In this record, Avim Investments which is commented on elsewhere in this Report owed HCCL $209 271
48.5.9. A significant amount of the barter debtors received coal from HCCL and failed to pay, and offered their goods or services in repayment

1. REVIEW OF UNAUDITED HCCL PAYROLL RELATED CREDITORS

As at 30 September 2018

MIPF 25,813,409.00 1,209,802.00 27,023,211.00
ZIMRA (PAYE) 33,879,368.00 2,663,826.00 36,543,194.00
NSSA 2,690,851.00 902,701.00 3,593,552.00
NATIONAL EMPLOYMENT COUNCIL 436,755.00 80,741.00 517,226.00
STANDARD DEVELOPMENT FUND 1,060,889.00 142,481.00 1,203,370.00
ZIMBABWE MANPOWER DEVELOPMENT FUND 1,164,527.00 366,928.00 1,531,455.00
HWANGE FUNERAL FUND 1,086,271.00 38,622.00 1,124,893.00
HWANGE MEDICAL FUND 10,973,875.00 486,479.00 11,460,354.00
FIDELITY FUND 3,034,097.00 913,541.00 3,947,638.00
HWANGE EMPLOYEES DYNAMIC FUND 1,388,130.00 4,101.00 1,392,231.00
COURT GARNISHEE MAINTENANCE ORDERS 127,664.00 14,342.00 142,006.00
NATIONAL UNION OF MINES QUARRY IRON & STEEL WORKERS OF ZIMBABWE 69,650.00 (5,598.00) 64,052.00
NATIONAL MINE WORKERS UNION OF ZIMBABWE 202,609.00 30,828.00 233,437.00
ASSOCIATED MINE WORKERS UNION OF ZIMBABWE – 18,801.00 18,801.00
NYARADZO FUNERAL FUND – 51,809.00 51,809.00

TOTAL 81,928,095.00 6,867,325.00 88,795,420.00

49.1. Payroll related creditors amounted to $88 795 420.

49.1.1.     Of this amount $36 543 194 million (41%) was owed to ZIMRA in respect of PAYE and  
49.1.2.     MIPF was owed $27 023 211(30%) of total, 
49.1.3.     The third largest payroll creditor was $11 460 354 (13%) due to Hwange Medical Fund 

49.2. The total amount is split into $81 928 095 (92%) absorbed into the scheme of arrangement and

49.3. Accumulated after the scheme is $6 867 325 , i.e. outside the scheme of arrangement (thus forming new arrears)

49.3.1. On the MIPF – $27 023 211 – the employer contributes 7,5% of basic salary up to 10% for senior managers.

49.3.2. The employee contributes 7,5% only.

49.3.3. Following upon an actuarial valuation done in the past, member companies were required to contribute a mandatory enhancement of 2,2% of basic salary with effect from 2008.

49.3.4. We did not see the communication, but the deductions are occurring. We recommend that HCCL takes this matter up with MIPF as the 2,2% should have been reviewed after the introduction of the multi-currency system

49.3.5. On NSSA – $3 593 552 – The contributions from both the employer and employee are 3,5% of basic pay up to a maximum monetary amount of $700. In addition, a 1,18% of basic pay is contributed towards workmen’s compensation insurance fund. This is paid by the employer only towards accident cover

49.3.6. National Employment Council (NEC) – $517 226 – The Company contributes a maximum of $1.20 per person

49.3.7. Regarding Standards Development Fund – $1 203 370 – HCCL pays 0,05% of basic salaries plus company contribution
49.3.8. ZIMDEF- Zimbabwe Manpower Development Fund – $1 531 455 – The Company contributes 1% of gross earnings and company contribution. This excludes those covered directly by ZIMDEF training such as nurses

49.3.9. Hwange Funeral fund – $1 124 893 – This was an internal funeral fund where deductions of $6 per employee were effected. All employees were eligible. This stopped in August/September 2017, when the scheme was moved to Nyaradzo Funeral Services. There was no bank account set aside for this fund. All money was in the general company bank accounts, therefore exposed to risk of any bad management.

49.3.10. Hwange Medical Fund (Hospitalisation) – $11 460 354 – This was a compulsory in-house medical aid fund. It was discontinued when HCCL moved over to Cellmed Medical Fund

49.3.11. Fidelity Life – $3 947 638 – This provided group life cover. The Company was paying 4% of basic salaries and employees did not pay, i.e. it was a non-contributory life policy. HCCL fell into arrears in 2009 and is no longer covered. There is now a self-assurance fund but the ledger postings continue to go into the same account. There is no specific bank account

49.3.12. Hwange Employees Dynamic Fund – $1 392 231 – Employees set up a fund to purchase land and build houses. The Fund has a constitution, trustees and an executive committee. Deductions are voluntary. It has a bank account. Some employees have already built houses using this facility

49.3.13. A few smaller amounts were owed to unions, garnishee orders and funeral fund totalling $510

1. These arrears occurred for the same reason of cash flow challenges

49.3.14. Other payroll payables

49.3.14.1. The following are the other payroll payables as at 30 September 2018 from the standpoint of Mrs E Kamocha the Payroll Accountant

Other- Scheme of Arrangement
45,599,193.31
Other payrolls arrears not on Scheme

Other payrolls Scheme arrears Aug and 8,163,616.90
Sep 2018
3,989,135.39

Executive Scheme
4,892,108.19
Executive arrears not on Scheme

Executive Scheme arrears Aug and Sep 1,654,544.56
2018

        369,241.75  

1. REVIEW OF UNAUDITED HCCL BORROWINGS AS AT 30 SEPTEMBER 2018

NAME OPENING
BALANCE CAPITAL INTEREST ADJUSTMENT REPAYMENT CLOSING
BALANCE
$’000 $’000 $’000 $’000 $’000

EXIM 13,703 – 342 – – 14,046
GOVERNMENT OF ZIMBABWE 119,955 – 5,853 – – 125,809
ZAMCO 16,653 – 858 (1,044) – 16,467
ATLAS COPCO 367 – 12 (24) – 355
CHINA NORTH 4,906 – 103 – – 5,009
LEASE LIABILITY 596 – – – – 596
BELL SA LOAN
BANC ABC – 6,818 – – – –
ECOBANK – 3,700 198 – – 7,016
CABS FACILITY 271 2,000 252 – – 3,952
CBZ – – 35 (162) (738.94) 1,133
BELL LOINETTE – 35 – – 307

 156,454     12,518  7,692   (1,231)         174,694      

50.1. We reviewed the Company’s financial obligations as at 30 September 2018

50.1.1. Some of the borrowings were as follows: $

50.1.1.1. Term borrowings 174 694 410 50.1.1.2. Payroll related creditors 88 795 420

50.1.1.3. We could not find formal agreements or formal contracts in respect of the following borrowings:

50.1.1.1.1. Export-Import Bank of India – $14 046 260
50.1.1.1.2. Government of Zimbabwe for treasury bills funding of $125 809 160 used to part pay creditors under the Scheme of Arrangement
50.1.1.1.3. ZAMCO (Zimbabwe Asset Management Corporation) – $16 467 140 for taking over the HCCL non-performing loan (NPL) from BANC ABC
50.1.1.1.4. Ecobank Ltd – $7 016 560

50.1.1.4. Of the $174,7 million term borrowings, $125 809 160 (72%) relates to Treasury Bills obtained from the Ministry of Finance and Economic Development to fund the Scheme of Arrangement; and $16 467 140 (9%) was funded by ZAMCO as an NPL from Banc ABC Ltd; and $14 046 260 (8%) in respect of Export-Import Bank of India, which amount originated from the funding of BML equipment
50.1.1.5. The term borrowings of $174 694 410 were contracted before 2013 with the exception of
$12.1 million contracted in 2016/2017 from commercial banks for working capital financing

50.1.1.6. The Export-Import Bank of India loan of $14 046 260 was obtained to fund the Belarus BML equipment. This equipment has had several challenges that are detailed elsewhere in this Report

50.1.1.7. The ZAMCO/Banc ABC loan was obtained to fund Bell equipment, some of which was not operating as at 30 September 2018

50.1.1.8. The China North loan with a balance of $5 009 620 was sourced to fund the Terex equipment, some of which was dysfunctional as at 30 September 2018

50.1.1.9. The Financial Accountant, Mr N Nkomo, promised us loan reconciliations which were eventually not made available

1. REVIEW OF HPS COAL GRADE COST OF PRODUCTION AGAINST ITS SELLING PRICE

HPS Coal performance analysis for the period 2013 to 2018
Price per tonne Vs Cost per tonne
2 013 2 014 2 015 2 016 2 017 YTD SEPT
’18 TOTAL
Sales tonnage (t) 924 659 996 200 887 273 544 025 669 349 575 825 4 597 331
Sales value Value (US $) 25 659 275 27 644 561 24 621 839 15 096 689 18 574 429 15 979 153 127 575 946
Price/tonne PPT (US$t) 28 28 28 28 28 28 28

Cost of sales Cost (US $) 33 418 521 37 367 477 39 392 092 24 138 382 19 432 525 17 583 708 171 332 706
CPT (US$t) 36 38 44 44 29 31 37
Gross loss (9 722 916) (14 770 253) (9 041 693) ( 858 097) (1 604 555) (1 604 555) (43 756 760)
Overheads Costs (US $) 9 819 610 9 009 068 16 320 739 4 195 858 22 390 108 13 004 414 74 739 797
CPT (US$t) 11 9 18 8 33 23 16

TOTAL Costs (US $) 43 238 131 46 376 546 55 712 831 28 334 240 41 822 634 30 588 122 246 072 504
CPT (US$t) 47 47 63 52 62 53 54

PPT = Selling Price per tonne
CPT = Cost per tonne

We did not test the costing system as that would be a task for a different engagement

51.1. As part of our review, amongst other procedures, we anaylysed the official debtor’s statements sent to ZPC for the period 1 January 2013 to 30 September 2018 concerning the sale of the HPS coal.

51.2. We found the following:

51.2.1. A total of 4 771 519 tonnes of HPS coal was sold to HPC
51.2.2. The price remained the same at $27.75 per tonne from 2013 to 2018.
51.2.3. This amount was authorised in a memorandum of agreement
51.2.4. This price does not include VAT
51.2.5. HCCL asserted that all suppliers of this grade of coal to ZPC charged the same unit price to ZPC
51.2.6. Total income inclusive of VAT amounted to $151 022 247
51.2.7. HCCL is likely disadvantaged because it has a large capacity making its cost of production unprofitable when compared to smaller players
51.2.8. Adjustments put through the debtors account totalled $79 131 234, leaving a net amount of $71 891 013
51.2.9. These adjustments represented, inter alia:
51.2.9.1. Set-off in respect of electricity supplied to HCCL for company use, residential and domestic use, etc.
51.2.9.2. Payments made by ZPC to Turbo Mining in respect of services rendered by Turbo to HCCL totalling approximately $14 462 250
51.2.9.3. Corrections for over/under billings
51.2.9.4. ZPC Hwange started to prepay HCCL as from February 2018. As a result, at 30 September 2018, the account was in credit with HCCL owing ZPC Hwange a net $10 020 642 for electricity sales. Annexure 34
51.2.9.5. The lowest annual sales were recorded in 2016 amounting to $17 841 259 whilst the highest annual sales were recorded in 2013 reaching $25 583 398
51.2.10. HCCL asserted that this grade of coal has no other meaningful local open market price for comparison against what HPC pays. We have not been able to confirm this assertion
51.2.11. We reviewed the cost of production per tonne statistics compiled by HCCL and compared them to the selling price.
51.2.12. The cost of production varied from $47.00 to $62.00 per tonne. Accordingly there is a cost underrecovery ranging from USD19 to $34 per tonne, subject to an appropriate costing exercise.
51.2.13. This represents a loss to HCCL, in addition to which, there was no possibility of gross profit.
51.2.14. The estimated loss for the period, at the conservative cost of production per tonne less selling price totalled $163 424 526.
51.2.15. The aggregate loss per tonne on this coal grade, somewhat represents assistance given to the Government of Zimbabwe over the years for which shareholders who are not government may want to consider as a loan or subsidy to government to keep the price of electricity lower in the hands of the consumer but at the expense of private shareholders

1. REVIEW OF HUMAN RESOURCES MATTERS

Our review of the Human Resources issues showed that there are areas that should be improved as follows

52.1. The Executive Committee that was put in place in 2017 is thin and includes performance of incompatible functions as set out in the preceding sections of this Report

52.2. The executive committee for an entity of HCCL’s size should have at least six (6) managers in it in order to gather relevant broad based business matters of the entity as opposed to only four.

52.2.1. Health should be involved in the executive committee because it caters not only for mine workers
52.2.2. Mine planning should be at executive level in order for the Managing Director to have planning at the highest level

52.3. The mine is riddled with debt due to Mining Associations. The mine should consider contributing towards the obligatory NSSA pension scheme only for all new employees

52.4. Medical aid cover is erratic due to shortfalls in contributions. The mine should revive the self funded medical aid fund but it must be administered by a committee of employees

52.5. The mine offers remuneration which has many allowances. The mine should introduce best practice of paying one basic salary and employees look after themselves for the rest of the expenses. This best practice should apply to all new staff

52.6. Education assistance is offered to all employees. The mine should scrap education assistance to all new employees. The mine should in the meantime consider limiting the assistance to mine schools and local universities or for the university education, the mine should pay a cash equivalent to standard university fees applicable to the nearest university to the mine.

52.6.1.     Current employment incentives/benefits 

52.6.1.1. Names and nature of incentives Access & Distribution
52.6.1.2. Accommodation 50% company and 50% all staff
52.6.1.3. Acting allowance NEC grade 1He and below
52.6.1.4. Additional responsibilities All employees at same level
52.6.1.5. Car allowance Not in policies but applied to some
52.6.1.6. Car loan purchase scheme SST Level 2 and above
52.6.1.7. Cell phone allowance Level 1 and above managers
52.6.1.8. Club membership Not in policies but applied to some
52.6.1.9. Company car SST Level 2 and above
52.6.1.10. Domestic workers Managing Director
52.6.1.11. DSTV subs Managing Director
52.6.1.12. Employee development Cadets at Zimbabwe School of Mines
52.6.1.13. Employee further education/development All employees
52.6.1.14. Fuel to work allowance Qualifying managerial employees
52.6.1.15. Holiday benefits Level 3
52.6.1.16. Housing allowance All employees – 50% of rentals
52.6.1.17. ISO Champ allowance Not in policies but applied to some
52.6.1.18. Life assurance (group) All employees below 65 years
52.6.1.19. Medical aid All permanent employees
52.6.1.20. Motor vehicle purchase scheme Managers in place of company car
52.6.1.21. Non-practice allowance Not in policies but applied to some
52.6.1.22. Overtime NEC 1Hd and 1He
52.6.1.23. Pension All permanent employees
52.6.1.24. Performance incentive bonus All departments
52.6.1.25. Personal loans Not in policies but in contracts
52.6.1.26. Personal vehicle mileage refund 1Hd & Executive
52.6.1.27. Professional subscription 1Hd and above
52.6.1.28. School fees assistance All employees
52.6.1.29. Security cover Managing Director and select few
52.6.1.30. Settling in Managerial staff
52.6.1.31. Share option All employees
52.6.1.32. Responsibility allowance Selected by line managers
52.6.1.33. Urban and housing allowance All permanent employees
52.6.1.34. Vehicle allowance Not in policies but applied to some
52.6.1.35. Wholesale purchase of goods on HCCL orders Managing Director
52.6.1.36. Worker of the month/year All employees
52.6.1.37. Working allowance Not in policies but applied to some

52.6.1.38.  The access by and distribution to employees 

52.6.1.38.1. The access by and distribution to employees is as stated above, but to varying degrees depending on seniority.

52.6.1.38.2. Some benefits are found in contracts whilst the general policies covering them could not be found

52.6.2.     The impact on employee performance and commitment; 

52.6.2.1. There may be need to conduct some form of survey to determine the impact. The danger in such a survey is that employee expectations may be raised erroneously

52.6.3.     N.B. 

52.6.3.1. Some people who received benefits that do not appear to be covered by HR Policies, but were above Board are as follows:

52.6.3.1.1. ISO Champ (Authorised but not as a condition of service)

52.6.3.1.1.1.   Collen Munyamana – Grade 2H – Oct 2017 $246.93 
52.6.3.1.1.2.   Butholezwe Dube – Grade 1HE – Oct 2017 $141.16 

52.6.3.1.2. Car allowance (Authorised but not as a condition of service)

52.6.3.1.2.1. Allen Masiya – Grade L3L – October 2017 $2 467.68
52.6.3.1.2.2. Stenjwa T Makore – Grade L5 – Oct 2017 $11 576.14 (He also got Vehicle allowance of $624.49 for 600 units)

52.6.3.1.3. Non-Practice allowance (Authorised, but not as a condition of service)

52.6.3.1.3.1.   Didymus Bernard Ngorora – Grade 2H – Oct 2017 $246.93 
52.6.3.1.3.2.   Dr Charles Zinyemba – Grade L3H – Oct 2017 $690.15 
52.6.3.1.3.3.   Chenesa Mbanje – Grade 2H – October 2017 $246.93 

52.6.3.1.4. Working allowance

52.6.3.1.4.1.   Judah Tsuro – Grade 2H – Oct 2017 $131.70 
52.6.3.1.4.2.   Beaven Jinga – Grade 2H – Oct 2017 $131.70 

52.7. HCCL school fees policy which sets USD180 per term to USD380 per term for primary school and USD480 per term to USD2 525 per term for secondary school per worker up to a maximum of three children in a company with plus or minus 2 700 employees, sounds like this is no longer normal best practice and can only disadvantage shareholders due to the very large cost involved. Refer Annexure 35

52.8. Overall Comments over the Senior Management payroll

52.8.1. Salaries were paid according to the contracts of employment
52.8.2. Certain managers obtained salary increments whose Board approval still needs t be confirmed
52.8.3. New managers were hired whose appointments need to be traced to Board meeting minutes
52.8.4. Certain managers were paid advances outside the payroll and whose repayments may be inadequate since the senior payroll was administered from outside HCCL and the Consultatnt who prepared the payroll had no reliable debtors ledger to trace the advance payments to and deductions therefrom
52.9. Senior management payroll is reviewed per Annexures 38”A”, 38”B”, 38”C”, 38”D”, 38”E”, 38”F”, 38”G”. 38”H” and 38”I”

1. REPORT ON INDUCTOSERVE (PRIVATE) LIMITED

53.1. A South African company calling itself Inductoserve (Private) Limited was awarded a tender for the movement of coal within HCCL mining operations

53.2. Inductoserve (Private) Limited presented itself as a South African company.

53.3. Its South Africa address was provided as

53.3.1. 97 Modderfontein Road, President Park, P O Box 4436, Halfway House, Midrand, South Africa.
53.3.2. Mr Solomon Matsa represented the company in the contract with HCCL
53.3.3. Inductoserve supplied a Zimbabwean bank account number instead of a South African bank account number since it must be a South Africa Tax payer.
53.3.4. The bank details are;

53.3.4.1. Inductoserve (Pvt) Ltd.
53.3.4.2. Bank : Standard Chartered Bank
53.3.4.3. Branch Code: Highlands, Harare
53.3.4.4. Account number : 8700216586300 (USD)

53.4. Incidentally, there is another company in Zimbabwe called Inductoserve (Private) Limited 53.5. This company’s registered address is;

53.5.1. Inductoserve (Private) Limited
53.5.2. Matsa Store
53.5.3. P O Box 119, GUTU
53.6. This Zimbabwean company, prior to becoming Inductoserve (Private) Limited in Zimbabwe was called Nowax Enterprises (Private) Limited

53.7. Nowax Enterprises passed a resolution to change its name to Inductoserve on on 22 April 2005

53.8. On 18 May 2005 the Regitrar of Companies changed the name NOWAX to Inductoserve. Annexure 36

53.9. The Zimbabwean company Inductoserve (Private) Limited has no contract with HCCL

53.10. However, Inductoserve (Private) Limited of South Africa which has a contract with HCCL supplied Tax Clearance certificate belonging to another company called Inductoserve which is a GUTU based company

53.11. HCCL pays Inductoserve on the basis of what appears to be a fake or invalid Tax Clearance certificate

53.12. Annexure 12 shows the Tax clearance certificate issued by ZIMRA instead of South African papers, if indeed it is a South African company

53.13. South African companies of equivalent status with Inductoserve are termed (Proprietary) Limited as opposed to “Private Limited”

53.14. It appears that the company misled the Board that it is a South African Company or someone in management or in the Board cheated colleagues knowing fully well that Inductoserve was not a South African company

53.15. Management and Board did not ask for legal documentation allowing a South African company to hide revenues in a Zimbabwean bank account

53.16. The fact that a South African company has a bank account within five minutes walking distance from the HCCL former Board Chairman is likely to impair the former Chairman’s independence in as far as the nefarious transaction is concerned

53.17. Inductoserve is supplied with fuel to carry out its operations at HCCL

53.18. There is no evidence that the fuel issued to Inductoserve is related to tonnage carried

53.19. Some of the Inductoserve trucks are signaged “Zambezi Gas Zimbabwe”, in addition to the name Inductoserve. Annexure 6, as previously shown.

53.20. From the foregoing, one may be persuaded to assume that Inductoserve owns the Zambezi Gas Project

53.21. Fuel usage by Inductoserve is a bone of contention with some workers at the mine, who claim that the company uses the HCCL to do other business

53.22. A comparison of tonnage ferried by Inductoserve to fuels issued does not make busness sense, which is why mine personnel view Inductoserve with some suspicion.

53.23. For fuel issued refer to point 43.1.

53.24. Inductoserve is paid in advance

53.25. Total value of business carried out by Inductoserve for the twenty two and a half months from 1
January 2017 to 16 November 2018 amounted to USD 3 571 458-01. Annexure 37

53.26. As at 11 November 2018, Inductoserve owed the mine USD180 615-56 through advance payments

53.27. The total invoiced amounts as at 11 November 2018 amounted to USD 2 710 842-45

53.28. The total payments to date as at 11 November 2018 amounted to USD 2 891 458-01

53.29. But as of that date, Inductoserve had some work certified to date USD 860 127-27

53.30. Based on this, HCCL cannot claim disadvantage.

53.31. The real question HCCL can lay is about whether there is relationship between tonnage and payments?

53.32. Tax invoices raised by Inductoserve are not raised by the South African company

53.33. To the extent that HCCL is dealing with a company involved in translucent transactions, directors should cancel the contract, irrespective of the fact that its actually South Africa that is being swindled, the fact is that the Inductoserve related companies are also breaking the VAT laws in Zimbabwe by lending a Tax Clearance certificate to another a foreign company

1. REVIEW OF SANY EQUIPMENT

54.1. Sany equipment

54.2. Most of the Sany equipment is not working. Table 54.8 below, shows the operational track record /stoppages of the Equipment.

54.3.   HCCL was not able to recover expected hours of utilisation of the equipment. 

54.4. There are plans to resuscitate the equipment, some of the repair costs incurred only in 2018 are shown in the table below. They are using local dealer Nashy Mining Component who takes the spares to South Africa for repairs whose costs are on the higher side compared to other dealers.

54.5. Two Sany Sy700C Hydraulic Crawler Excavators and Mobile 55T Crane have been locked due to the non-payment by HCCL to Sany International Development Limited. HCCL will only be able to use the equipment once it is unlocked. HCCL owes Sany $5 212 772.

54.6. A delegate was sent to China just to appreciate the equipment, people who went include Eng Moris, Llyod Madyegasva, Mbirikira and Milton Dube. When the team went to China the deal to purchase the equipment had already been sealed, that is according to Milton Dube. We were not able to get the full report of the team’s findings because the Engineering and Projects Office does not know the whereabouts of the Sany file.

54.7.   To be read with Annexure 40 

54.8.   Schedule of SANY Equipement repairs 
                                2018 Repairs and

fuels

Asset category fleet no Cost
(USD) Date commissioned Hours recovered Expected life (hours) Under recovery Status/ breakdown date Breakdown period fuels and oils materials used
Coal hauler 1682 1 147 826 01-11-13 1 098 15 000 (13,902) 05/04/14 4yrs 6 month s – 15 955
Coal hauler 1683 1 147 826 01-11-13 3 871 15 000 (11,129) Available – 29 210 124 890
Coal hauler 1684 1 147 826 01-11-13 3 417 15 000 (11,583) 11-12-14 3yrs 11month – 7 248
Coal hauler 1685 1 147 826 01-11-13 3 655 15 000 (11,345) 05-04-15 3years 6 mont – 10 955
Coal hauler 1686 1 147 826 01-11-13 1 996 15 000 (13,004) 30-05-14 4years 5 mont – 10 955
Dump Truck 1690 575 383 01-11-13 5 098 15 000 (9,902) 20-03-15 3years 7 mont – 58 035
Dump Truck 1691 575 383 01-11-13 8 041 15 000 (6,959) Available – 44 666 76 874
Dump Truck 1692 575 383 01-11-13 2 216 15 000 (12,784) 14-12-15 2years 11 mo n – 15 021
Dump Truck 1693 575 383 01-11-13 5 881 15 000 (9,119) 25-04-15 3 years 6 mo n – 3 131
Dump Truck 1694 575 383 01-11-13 7 661 15 000 (7,339) 30-05-15 3 years 5 mo n 2 879 –

The table was computed by Wellington Chitavati, Rebuilds Foreman, Open cast.

1. REVIEW OF NASH MINING REPAIRS

55.1. NASH Mining is engaged from time to time to perform repairs to equipment

55.2. NASH Mining directors are:

55.2.1. Yanai Adnet Nyamukondiwa
55.2.2. Sydin Maviya
55.2.3. Obert Junior Nyasha Mavhiya
55.2.4. Emanuel Chikoo

55.2.4.1.   Annexure 43 

55.3. The frequency with which NASH Mining is coming to repair HCCL equipment indicates the inadequacies within the apprenticeship training of HCCL

55.4. The frequency also indicates the inadequacies in contracts with suppliers of equipment at the point of buying equipment

55.5. HCCL continues to hire NASH to carry out repairs of equipment.

55.6. At face value one would suspect that there is manipulation. Our procedures included visiting the equipment to see exactly where components would have been fitted

55.7. Based on the reviews of the components tracking, we are satisfied that HCCL itself should train its personnel to a level adequate to perform the repair work. Annexure 42

55.8. HCCL should also ensure that any purchase of equipment agreement includes training of technicians prior to taking delivery of equipment

56. REVIEW OF KEY EQUIPMENT PURCHASES 

56.1.   BELAZ Equipment 

56.1.1. Belaz equipment was bought from Ramon Invest Limited of Belarus. Included in the Belaz equipment were 5 Front End Loaders that were not fit for their purpose. The Front End Loaders are too small to load coal on to the Coal haulers. For them to use the Front End loaders, they have to put the Loaders onto a ramp or they can dig the ground surface and put the coal hauler in that trench so that the Front End Loader will be able to load reach the height for it to be able to load.

56.1.2. This is evidence that appropriate users are not involved in the procurement of equipment when management flies out of the country to select equipment, which it does not operate.

56.1.3.     Belaz Equipment track record of performance report 
                            2018 Repairs and

fuels

Asset category fleet no Price Date commisi Hours Recovered Expected
life Under Recovery Status/
Breakdown fuels and oils materials used
75131 Coal Hauler 1711 1 385 000 19-Jun-15 2 897 18 000 (15,103) 07-07-17 – –
75131 Coal Hauler 1712 1 385 000 19-Jun-15 7 342 18 000 (10,658) Available 140 803 18 077
75131 Coal Hauler 1713 1 385 000 19-Jun-15 8 070 18 000 (9,930) Available 151 197 23 498
75131 Coal Hauler 1714 1 385 000 19-Jun-15 9 078 18 000 (8,922) Available 143 833 15 024
75131 Haul Truck 1715 1 385 000 19-Jun-15 9 447 18 000 (8,553) Available 171 021 5 071
75131 Haul Truck 1716 1 385 000 19-Jun-15 9 112 18 000 (8,888) Available 144 818 4 747
75131 Haul Truck 1717 1 385 000 19-Jun-15 7 816 18 000 (10,184) 05-03-18 37 548 34 700
75131 Haul Truck 1718 1 385 000 19-Jun-15 7 803 18 000 (10,197) Available 94 864 18 918
75131 Haul Truck 1719 1 385 000 19-Jun-15 9 471 18 000 (8,529) Available 125 550 48 906
75131 Haul Truck 1720 1 385 000 19-Jun-15 2 129 18 000 (15,871) 07-05-17 – 49 036
Front end Loader 1721 634 000 19-Jun-15 5 661 15 000 (9,339) 15-01-18 4 425 18 802
Front end Loader 1722 634 000 19-Jun-15 7 161 15 000 (7,839) 01-10-18 122 001 43 610
Front end Loader 1723 634 000 19-Jun-15 568 15 000 (14,432) Burnt 27/8/15 – –
Front end Loader 1724 634 000 19-Jun-15 1 684 15 000 (13,316) 17-03-16 925 –
Front end Loader 1725 634 000 19-Jun-15 6 558 15 000 (8,442) Available 20 125 37 085
Wheel Dozer 1729 598 000 19-Jun-15 5 122 15 000 (9,878) 13-11-18 75 538 8 483
Wheel Dozer 1730 598 000 19-Jun-15 3 698 15 000 (11,302) Available – –

56.2.   BEML EQUIPMENT 

56.2.1. The Beml equipment was acquired from India. As indicated in the table below some of the equipment is no longer working yet it did not reach its expected useful life span. One of the excavators was burnt due to technical fault, it had lapsed its warranty period. A team from HCCL went to India to appreciate the equipment. We were not able to get the report for the fact finding by the team, the Engineering Services Manager said he never saw the report.

                            2018 Repairs and fuels

Asset category fleet no Price Date commisioned Hours worked Expecte d life (Under)/ over Status/ Breakdown date fuels and oils materials

Water Bowser 1733 350 000 01-06-15 9 063 15 000 (5,937) Available 71,622.49 63,215.85
Water Bowser 1734 350 000 01-06-15 2 991 15 000 (12,009) 20-05-16 – 30,953.92
Grader 1735 440 000 01-06-15 3 242 15 000 (11,758) Available 36,287.84 12,340.26
Tyre Handler 1736 312 000 01-06-15 1 135 15 000 (13,865) Available 3,570.19 1,280.01
Crawler Excavator 1737 2 180 000 01-06-15 5 309 15 000 (9,691) Burnt on 26/7/17 – –
Crawler Excavator 1738 2 180 000 01-06-15 5 169 15 000 (9,831) 06-04-17 – –
Bull Dozer 1743 590 000 01-06-15 6 229 15 000 (8,771) Available 106,088.00 105,018.45
Bull Dozer 1744 590 000 01-06-15 4 904 15 000 (10,096) 05-03-18 16,252.67 381.35
FRONT END LOADER 1726 1 333 500 01-06-15 7 796 15 000 (7,204) Available 14,361.33 4,456.16
FRONT END LOADER 1727 1 333 500 01-06-15 2 030 15 000 (12,970) 04-07-16 – –
FRONT END LOADER 1728 1 333 500 01-06-15 3 632 15 000 (11,368) Available 6,480.49 –
Bull Dozer 1742 590 000 01-06-15 2 223 15 000 (12,777) 14-08-16 – –
WHEEL DOZER 1731 478 000 01-06-15 1 951 15000 (13,049) 19-04-17 – –

1. SEARCH FOR HIDDEN GIFTS/KICKBACKS OR PRACTICES OF A CORRUPT NATURE THROUGH THIRD PARTIES

Invariably, the new approach to receiving kickbacks involves officials of an entity receiving gifts which are paid through third parties or through companies owned by directors of favoured companies

57.1. We undertook some searches for corrupt related gifts which originated out of HCCL inwards through relatives of executives but for the ultimate consummation of the executives

57.2. The exercise could not be completed therefore Internal Audit deparment should make follow ups

57.3. As part of search for kickbacks/working from outside inwards we inquired of Central Vehicle Registry of new vehicle registrations in the names of HCCL executives or their wives. Annexure 38

57.4. Two Ranger cars were noted, one AEF5484 came from Botswana and the other one came from South
Africa. One was registered in the name of a wife of a suspended executive. Annexure 39

57.5. Internal Auditor needs to follow up on the Ford Ranger vehicles to a concusive level and

57.6. Establish the source of the funds in Botswana and the source in South Africa through official banking channels of those countries then confirm whether the Ranger Vehicles were not purchased by any one of the contracted companies for the personal benefit of some HCCL executives.

57.7. It was noted that the wife of the executive does not appear to have been in employment at the time of sourcing the car

57.8. We inquired of ZIMRA whether the wife of the executive had taxable income or not

57.9. ZIMRA keeps this information conficentially, in accordance with ethical rules of their profession

57.10. Due to the nature of this mandate, unlike an investigation under the Prevention of Corruption Act, we could not go deeper with that transaction to investigate the following;

57.10.1.    The name of the supplier of the vehicles 
57.10.2.    What was the price? 
57.10.3.    Where did the foreign currency to buy the Ranger cars come from? 
57.10.4.    What bank account in South Africa did the money come from? 
57.10.5.    Who are the owners or directors of that entity in South Africa if an entity? 
57.10.6.    Is the payer one of the suppliers to  or customers of HCCL? 
57.10.7.    What relationship is there between the wife of the executive and the payer? 

1. LEGACY ISSUES

58.1. The following are legacy issues which arose prior to 2013, and reference is made to them from time to time in discussions pertaining bad management. We have not attempted to go into periods prior to
2013, where it relates to prior to 2013 as this was outside our mandate

58.1.1. HCGC matter
58.1.2. Some of of the Palehouse matters
58.1.3. Some of the Turbo Mining matters

58.1.3.1. The legacy matters should not preoccupy the Board as they are irreversible and irrelevant to the resuscitation of the mine viability and commenced prior to 2012
58.1.3.2. The legacy issues are spillovers into the period under current review and to be dealt with by management
58.1.3.3. What is relevant to resuscitation of HCCL viability among other things are;

58.1.3.3.1. Accounting for full production
58.1.3.3.2. Accounting for full sales

1. REVIEW OF INSURANCE COVER

59.1. HCCL has insurance cover through CELL Insurance

59.2. CELL Insurance Company Limited is a short term insurance company in Zimbabwe

59.3. HCCL is covered as follows:

Maximum     Cell Insurance  Re-insurance cover 
Cover Limit     Retention   Surplus Treaty 
            USD         %           % 

59.3.1.     Assets all risks            6 673 248-00      44.96%            55.04% 
59.3.2.     Plant all risks             1 531 644-44    100%            Nil 
59.3.3.     Directors/officers liability       250 000-00   100%            Nil 
59.3.4.     Motor Fleet                180 000-00     55.56%            44.04% 
59.3.5.     Marine Cargo               624 190-00     80.10%            19.90% 

59.3.5.1.   Relevant Annexure 45 

59.3.6. A review of the insured Plant under the all risks cover relates to imported equipment for which HCCL pays a premium of USD153 048-03 per annum for the Plant all risks only, whereas the total premium for all risks is USD253 000.

59.3.7. The equipment has no spares available locally

59.3.8. The balance sheet of CELL Insurance per statistics held by IPEC does not seem to provide comfort nor demonstrate persuasive capacity to cover Plant All risks 100%, given that CELL
Insurance also covers other large mines and corporates in its portfolio, such as;

59.3.8.1. MIMOSA MINING
59.3.8.2. ZIMASCO
59.3.8.3. Bilboes Holdings

59.3.8.3.1. Refer Annexure 46

59.3.9. The equipment needs foreign currency to buy and there is no guarantee that CELL Insurance has foreign currency or will secure foreign currency, especially since it does not receive premiums in foreign currency.

1. OUR UNDERSTANDING OF HCCL BUSINESS AND ITS ENVIRONMENT (PESTEL MATTERS) POST INVESTIGATION

60.1. There are weaknesses in the value chain management / inadequate segregation of duties in key areas
i.e. Procurement function, IT & Finance where one person has overall responsibility

60.2. There are Senior management possibilities of conflict of interest in contracts

60.3. For years the finance function was managed by unregistered accountants/ unprofessional accountants (IFAC definition applies)

60.4. Inadequate working capital matters e.g. the Company struggles to pay ZIMRA

60.5. Coal is sold to ZPC at uneconomical prices, prima facie, reducing overall profitability

60.6. Deferred loss of employment costs are not currently recognised in financial reporting

60.7. There is an imbalance between non-executive directors and executive directors at board level

60.8. Prior to the Scheme of Arrangement, the Board and Management for a long time were seized with issues of very many matters before the courts

60.9. The mine can be a subject of liquidation given the precarious financial position

60.10. Inadequate planned maintenance at the mine

60.11. Unclear cut offs in contracts of supply, short term going into long term without documentation

60.12.  Challenges ahead 

60.12.1. Lack of goal congruence in shareholders
60.12.2. Possibilities of self interest in key management
60.12.3. The Board may not have enough information about the goings on in the company/ poor communication channels
60.12.4. Inadequate corporate governance
60.12.5. High overheads and inadequate working capital
60.12.6. Possibilities of inadequate skills
60.12.7. Shrunk domestic market and increased competition (eg. From Makomo Resources) 60.12.8. High level of debts
60.12.9. Possibilities of potentially corrupt and selfish officials/managers
60.12.10. Not well thought out projects causing fruitless and wasteful expenditure
60.12.11. Lack of commitment/lack of implementation will
60.12.12. Wrong business model/company model inappropriate (Hospital and Estates)
60.12.13. High cost of production, coupled with some old mining equipment (Dragline) and poor financial reporting technology
60.12.14. Mismatch between skills and experience (particularly engineering)
60.12.15. Accountability and poor performance management
60.12.16. High overheads and inadequate plan to allocation of resources
60.12.17. Threats of substitutes (Use of other forms of heating)
60.12.18. Culture change, low worker morale/disgruntled employees
60.12.19. Proliferation of low cost producers in the vicinity of HCCL

60.13.  HCCL some critical success factors for consideration 

60.13.1. Acquisition of additional coal reserves in Western areas
60.13.2. Use of low cost ERP
60.13.3. Recapitalisation of the business
60.13.4. Shift towards higher value product, Coking coal
60.13.5. Market consolidation and expansion
60.13.6. Reclaimation of lost market
60.13.7. New markets penetration strategies required – including exports
60.13.8. Review the business model
60.13.9. Skills review
60.13.10. Training and development
60.13.11. Retention of reliable personnel
60.13.12. Restructure the organization
60.13.13. Review corporate governance system
60.13.14. Improve planning and implementation
60.13.15. Resolution of disputes with disgruntled work force
60.13.16. Handling of employee relations

60.14. HCCL strengths

60.14.1. Loyal workforce
60.14.2. Expertise
60.14.3. Skills base
60.14.4. Still pays competitive remuneration levels
60.14.5. Sound training infrastructure
60.14.6. Currently using up to date underground mining technology (Continuous miner)
60.14.7. Some good quality coal
60.14.8. Good systems and procedures
60.14.9. ERP system needs improvement
60.14.10. ISO & QMS
60.14.11. Dragline, though old appears it is still an accepted mode of equipment?
60.14.12. Well established infrastructure
60.14.13. Health facilities

60.15. HCCL weaknesses

60.15.1. Unethical management who pay bribes
60.15.2. Cannot fix a good price for HPS Coal
60.15.3. Industrial disharmony resulting from the rotting of the fish’s head
60.15.4. Poor capital planning (Looking for more than is required)
60.15.5. Procurement from middlemen
60.15.6. Weak balance sheet
60.15.7. Not satisfying customers in terms of quality and volume
60.15.8. Low staff morale
60.15.9. Low coal reserves
60.15.10. High cost per tonne
60.15.11. Equipment mismatches/poor selection of equipment
60.15.12. High social overheads
60.15.13. Depleted resources
60.15.14. Using small pieces of opencast equipment
60.15.15. Weak bargaining power (HPS Coal)
60.15.16. Lack of capital
60.15.17. Subdued volumes
60.15.18. Small capacity equipment
60.15.19. Loss making

60.16. Opportunities

60.16.1. Coal-bed methane Gas
60.16.2. New ZIMSTEEL
60.16.3. Underground acid water purification
60.16.4. Demand for power coal exports (SA)
60.16.5. Power generation equipment resuscitation
60.16.6. Coking coal exports
60.16.7. Turning Coal to liquid fuel
60.16.8. Active shareholders/Shareholder intervention
60.16.9. Coke oven gas
60.16.10. Coal gasification
60.16.11. Shareholder loans
60.16.12. Significant shareholder is responsible for issuing out Coal reserves
60.16.13. Availability of ready market
60.16.14. Availability of right size opencast equipment on the market
60.16.15. Coke export to the northern markets
60.16.16. ZPC expansion

60.17. Threats

60.17.1. Newspaper articles which can threaten the Scheme of Arrangement
60.17.2. Hanging litigations (though under control per strategy)
60.17.3. Distance from market
60.17.4. Failure to meet statutory obligations
60.17.5. Market liquidity
60.17.6. High cost and unreliability of logistics
60.17.7. Liquidity crunch
60.17.8. Competition
60.17.9. Country risk
60.17.10. Cost of money
60.17.11. Corporate social responsibility
60.17.12. Negative publicity
60.17.13. Key shareholders not working in harmony