How SMCL ensured a remarkable performance within 2 years of operations

The State Mining Corporation Limited (SMCL), a DHI owned company, in less than two years of actual operation, and in spite of serious challenges posed by the erratic nature of coal deposits, has made a profit of Nu 67.39 mn after taxes in 2017, and that also from just the coal business.

The Chief Executive Officer (CEO) of SMCL, Kezang Jamtsho, said that the profit margin was calculated at 26.21 percent and the return on equity stood at an admirable 22.78 percent, which is the highest return on equity among DHI companies.

Given the small set up of the young company, their achievement cannot be compared with other companies, in terms of figures like, net profits and gross revenue, he added. However, he said that their performance in 2017 is remarkable, and that if they examine, in terms of profit margin, the return on equity per employee is Nu 1.2 mn and gross revenue per employee is Nu 4.89 mn.

“This achievement was the outcome of the management and employees’ constant efforts in improving efficiency and reducing cost in all our operation, which is very difficult,” he added.

SMCL declared a dividend of Nu 26.84 mn, 11 percent of the paid up capital of Nu 243.99 mn. According to SMCL, the actual paid income tax was Nu 23.75 mn.

“A total of Nu 50.59 mn has been contributed to the exchequer, making an auspicious beginning in revenue generation. However, royalty, mineral, rent and surface rent are not included in this figure,” said the CEO.

From its two coalmines, the company produced 53,622.15 metric tonnes (mt) of coal in 2017, surpassing the compact target of 50,000 mt. In addition, some of the key operational decisions taken by the management to bring efficiencies were quarry development and civil works done departmentally to cut cost and save time, major borrowing to finance capital costs deferred to avoid cost of finance, staff recruitment deferred and already recruited ones redeployed in Tshophangma Coal Mine.

The company sold 41,111.36 MT of coal generating total revenue of Nu 260.44 mn. Dungsum Cement Corporation Limited (DCCL), being the major consumer, was supplied 37,283 MT of coal.

SMCL’s business model has to be understood, the CEO said, adding that it was established to work on strategic minerals and to generate revenues as well as control and stabilize prices of minerals in the domestic market.

“Therefore the Multi Sector Pricing Committee (MSPC) has fixed our coal price for the domestic markets, and it is 10 to 15 percent lower than the prevailing rate depending on the destination of supply,” he said.

In addition, he also said that DCCL being their major coal consumer has reaped a benefit of about Nu 40 mn in 2017 due to price difference and with their entry into the domestic market, every consumer stands to benefit from this price difference, now and in the future.

Meanwhile, the CEO said that they have faced several challenges though they have done quite well in 2017, and their major challenge is cash flow.

“Our cash flow from a single business source is stuck with DCCL as they also have a huge receivable from hydro-power projects. As of 31 December 2017, Nu 92.99 mn is receivable from DCCL,” he added.

Thereby, to manage the resource gap, he said that they are compelled to take working capital and term loan, exposing the young company to financial distress. “Receivable from DCCL gets accumulated as a result of its huge receivables from hydropower project against supply of cement,” he added.

He also said that while the upstream big project delay payments with several reasons, the impacts on downstream small businesses are devastating, adding that, this impasse must be resolved to bolster economic activities in downstream suppliers and vendors through better cash flow.

“Shortages of professionals and experts in the mining field still remain. Therefore, manpower planning is still a challenge for the company,” states the SMCL 2017 report, adding that coal extraction is done manually, and therefore, is labour intensive.

Coal mining presents inherent challenges due to the erratic nature of coal reserves and so the company makes careful and frequent revisions and updates, which puts pressure on time and resources.

Mining business, by nature, involves transportation of bulky minerals whereby transportation cost is about 30-40 percent of the total cost. “The low carrying capacity of existing bridge and road conditions, increase transport cost, sometimes even to the extent of making the overall business not feasible,” the report states.

In addition, in 2017, the company’s total assets increased by 138 percent when compared to 2016, and now it stands at Nu 365.35 mn. Likewise, the company’s net worth has increased from Nu 120.37 mn to Nu 295.85 mn in 2017.

There was also a steep rise in the company’s gross revenue from Nu 63.52 mn in 2016 to Nu 260.44 mn in 2017 and the increase in gross revenue was entirely due to increase in sale of coal

Coal from Bhutan has inherent higher ash content. The average ash content is 3.07 percent higher than the acceptable as content of 20 percent by cement industries.

As per the report, the company continues to manage higher ash content problem with stringent quality control measures. However, due to inherent high ash content, penalty against as content has deprived the company of Nu 20.07 mn.

By Damchoe Pem

The writer is a senior reporter with The Bhutanese

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