Zimpapers Logo

Business Reporter

ZIMASCO (Private) Limited’s woes continue to mount amid revelations that some Kwekwe residents are mobilising for a class action suit against the troubled ferro-chrome producer and the private prosecution of its directors over a looming environmental disaster at its Midlands plant.This also follows reports that the company has failed to secure a $7 million bailout from its major shareholder Sinosteel Africa Corporation (Sinosteel) to finance short-term operations and it is facing a $30 million tab to clean up its operations.

“The company has been heavily criticised in a report commissioned by the Ministry of Mines earlier this year and the community is seeking legal advice on a class action suit against Zimasco and possibly its bankers for funding an environmentally-damaging operation around Golden Horizon,” an insider told The Herald Business this week.

“Essentially, residents want Government to step in and hold Sinosteel accountable especially after the Chinese went to Kwekwe and misled the community about the money needed to fix the mess.

“As it is, some former Zimasco directors are facing private prosecution,” said the source adding that these environmental concerns and lack of funding commitment from the major shareholder have undermined the company’s revival prospects.

While the Environmental Management Agency was not immediately available for comment on the issue, deputy Mines Minister Mr Fred Moyo has previously confirmed the existence of the report saying Government action is pending.

“The most evident elements discovered during the assessment includes, incorrect storm water management, incorrect separation of clean and dirty water, overflowing of dirty water containment trenches. The toxic materials could cause such diseases as cancer and other deadly ailments.

“It was further stated that groundwater and boreholes are contaminated, and the Chinese-owned company was failing to “contain, and prevent pollution from entering the natural receiving environment,” reads part of the report.

It further says highly toxic water is not only seeping into the receiving environmental surface water systems and into the natural stream, but also into the groundwater aquifer surrounding the site, posing a serious health threat to people and livestock dependent on this water.

The development also comes as Zimasco’s judicial management process has been mired in further controversy amid revelations it had been instructed by Sinosteel to withhold critical information about its business resuscitation plans from creditor banks last year and that it misled Vice President Emmerson Mnangagwa about its operational status just days before it approached the High Court for preservation.

According to analysts, the recent funding snub by its Chinese parent had not only undermined the ferro-alloys producer’s 60-day bankable recovery plan — commencing June and under which Sinosteel was to commit funding in excess of $180 million to clear debts — but also further strengthened suspicions that the major shareholder was unwilling to recapitalise the company.

“We confirm that Zimasco had instructed its legal practitioner to file an application for provisional judicial management. This instruction was not disclosed to third parties on the instruction of the shareholders (Sinosteel) to avoid causing unnecessary alarm, particularly as there was a likelihood of withdrawal of the application . . .,” wrote Mr Ngoni Mpofu on December 21, 2015, to five bankers led by MBCA Bank Limited.

While the controversial document and admission of procedural flaws form part of court papers to the ferrochrome miner’s initial judicial management process application, it elicited an immediate response from MBCA chief risk officer Mr Allan Mutenda, who accused the Midlands-based company of dishonest behaviour.

“The lender banks became aware of the application . . . only by virtue of the application being listed on the motion court roll,” he said.

Mr Mutenda said the process was being opposed on the basis of “the dishonesty displayed by the applicant (Zimasco)” and that company directors, including Mr Li Jinqian and Mr Lu Xiangkun, had already started to push for business rescue since November 2015.

“The lack of explanation . . . as to how it will generate the funds necessary to trade given the fact that the lender banks will no longer fund a company in judicial management. The clear unwillingness of the shareholder (Sinosteel) to commit whether they will or will not provide the financial support required by the applicant,” Mr Mutenda said.

Crucially, the MBCA senior staffer not only argued that Reggie Saruchera’s caretaker management was unlikely to “succeed as there will be no funding” from lender banks, but Sinosteel had also totally ignored South African bank Nedbank’s November 25, 2015 letter for funding commitment.

“The shareholder has neither acknowledged nor responded . . . although the applicant’s managing director (Mr John Musekiwa) confirmed on the 16th of December that the letter had been forwarded to the shareholder. There is no reason to believe . . . that the shareholder will inject fund . . . This further supports the argument that a judicial manager would not have funds to trade . . .,” Mr Mutenda said.

“Further, the applicant has advised that the shareholder had required that the management . . . make no disclosure of the current proceedings . . . This is sheer dishonesty on the part of the shareholder and shows that it is not concerned to act in the interests of the applicant or its creditors,” he said, adding “the underhanded nature of Zimasco’s judicial management process also meant that lender banks had little time to consider all issues under review.”

In an internal review document covering the 2009 to 2015 period, the company said its “viability had progressively worsened” at the back of “low market prices and continued increase in operating costs”.

“. . . the company had $150 million (in) current liabilities covered by $103 million current assets, thus a net liability position of $47 million. This is an unhealthy state of affairs,” Zimasco said.

Despite its woeful finances, Zimasco says it can crack a $2,8 million profit in 2016, nearly $13 million next year and $7,8 million thereafter if it is allowed to cull staff, shut down non-performing businesses and rehabilitate ferrochromium slag dumps.

While Mr Musekiwa’s company was banking on a cash injection under a plan put together by Deloittes Hong Kong and its Zimbabwean peer, the latest developments have virtually put paid to its recovery efforts.