SMCL earns Nu 1.43B, declares 108% dividend for 2019

Increase in revenue from Khothakpa Gypsum mines

Rinzin Wangchuk

Contrary to the pervading notion that state owned enterprises are lethargic and inefficient in operating mining business, the State Mining Corporation Ltd (SMCL) has performed extremely well in 2019 making a net profit after tax (PAT) of Nu 336.35 million.

The increase in PAT, according to SMCL directors’ report 2019, is 268 percent when compared to Nu 91.39M in 2018, surpassing the compact target of Nu 320M.

The SMCL’s board also declared 108 percent of equity injected as dividend, amounting to Nu 317.51M, an increase of 390.89 percent from Nu 64.68M or 22 percent of equity in 2018. The return on equity (RoE) was 49.33 percent, highest among the Druk Holding and Investments (DHI) owned companies, which was an increase from 24.43 percent in 2018. Over the last five years, DHI had pumped only Nu 293.99M as equity in SMCL.

The total revenue for the year was Nu 1,432.75M, against the compact target of Nu 1,239M, which is an increase by 218.58 percent as compared to Nu 449.72M in 2018. About 61.04 percent of the total revenue was contributed from gypsum sales, 37.38 percent from coal, 1.09 percent from quarries and 0.49 percent by corporate income mainly from fixed deposit interest.

Of the total expenditure of Nu 952.25M, Nu 634.39M was ploughed back into the local community and businesses.

 

The Khothakpa Gypsum mines

The sharp increase in SMCL’s business prospect and revenue was attributed mainly to the mining of Khothakpa Gypsum Mines (KGM), which was given to SMCL by the government for an interim period of two years from January 1, 2019, after the expiry of lease to Druk Satair Corporation Ltd.

With just Nu 55.20M as investment in KGM, the company achieved a PAT of Nu 248M, with a high profit margin of 28.36 percent. Druk Satair declared a PAT of Nu 201.577M in 2018.

SMCL’s production achieved was 512,218MT surpassing the target of 460,000 MT and the sale achieved was 488,000MT surpassing the target of 450,000MT. The SMCL annual report 2019 states that the return on per metric tonne of gypsum achieved may be the highest in the history of gypsum business, which was Nu 508M.

The government’s directive was to carry out a seamless takeover and maintain the gypsum markets in the region. “In hindsight, it is gratifying to note that SMCL has achieved the seamless transition and even passed the harder litmus test set by DHI in Compact 2019 on gypsum operation,” the report stated.

The report also stated that the grant of gypsum operation to SMCL offered the opportunity of a different kind, to engage the community in benefits sharing, which SMCL has been promoting in coal operation. Seizing this opportunity of broad based benefits sharing from mining operations, SMCL outsourced the equipment hiring to the community of Shumar gewog. The households from the gewog collected money and invested in purchase of earth moving equipment, which have been deployed successfully by the company.

Similarly, transportation of gypsum to Samdrupjongkhar Stockyard was offered to individual freelance transporters at the existing rates. “We even provide fuel to the permanent freelance transporters, who also enjoy advantage in terms of better rates when compared to “backload” truckers,” the report.

The report stated that the private sector development has become the bone of contention in the mining and minerals sector.

“Nurturing local community and businesses by partnering with them in mining operations to share benefits, we believe is private sector development at the grassroots level besides bridging the gaps in society,” the report stated.  “If this definition carries some meaning, then involving the state in mining operation gives better overall return to the nation as a whole.”

 

Challenges

Professionals or experts in the mining field are scarce in the existing work force. The report stated that it is a challenge to get people with knowledge, skills and integrity.

“The low carrying capacity of existing bridges and poor road conditions of peripheral road network will remain a serious challenge to transportation of low value high volume minerals. Transportation cost of such materials adds 30-50 percent to the cost of production and this component could make a business not feasible,” the report stated.

Gypsum face some risk from chemical gypsum in their use in cement production. Gypsum use in other value added products have not gained pace.

Established as the designated body by the government to develop and manage strategic minerals, SMCL was incorporated as a DHI company in December 2014. Today, the company also operates two mines in Habrang and Tsophangma, and two stone quarries, Dzongthung stone quarry in Trashigang and Kharibaridara in Samtse.

Over the last three successive years of profit making, SMCL has contributed Nu 636.16M to the national exchequer. Its net worth as on December 31, 2019 has reached Nu 681.77M.

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