Optimum Coal: The big trade-off
Mines minister brokered a deal to relieve Glencore’s Optimum of fine in exchange for sale to Guptas.
By Warren Dick
According to recent reports, the selling price of the Optimum Colliery was reduced by as much as R1 billion-R1.2 billion. This reduction was made in order to get Glencore off the hook for the R2.5 billion penalty that Eskom was planning to impose on the company for failing to deliver coal to the Hendrina Power Station. The Business Report reported on Monday that imminent court action was expected to overturn the sale by a group of businessmen led by the chairman of the South African Mining Development Association Peter Temane. (Read the article here.)
The deal was brokered by the new Minister of Mineral Resources Mosebenzi Zwane, a close ally of the Guptas, on a trip to Zurich last year, as reported by the Sunday Times. The end result was the sale of Optimum to the Gupta-controlled Tegeta Exploration and Resources.
The Department of Mineral Resources (DMR) had not responded to questions by the time of publishing.
The initial damages, claimed by Eskom, for failing to deliver coal to the Hendrina Power Station in the quantity and quality stipulated was R2.5 billion. On Monday Eskom spokesperson Khulu Phasiwe told Moneyweb that the new owners of Optimum take over all the obligations of the seller, including the supply contract with Eskom and the R2.5 billion penalty.
“Before Optimum went into business rescue, we imposed the penalty, but once it entered business rescue it was ‘parked’ or suspended. The business rescue practitioners then struck a deal with Tegeta Resources, where they would take over the penalty and all other items relating to the contract. So we are not waiving the penalty, and Optimum must still deliver on the volume, price and quality as stipulated in the contract until 2018 for the supply of coal to the Hendrina Power Station,” said Phasiwe.
That means the coal will still be delivered at R150/tonne until the contract terminates in 2018.
The deal is now with the Competition Commission. Should it give the go-ahead for the deal, Tegeta will be on the line for the R2.5 billion. Phasiwe further said that the R2.5 billion was calculated based on the provisions in the Service Level Agreement that exists between it and Optimum Coal.
Following an enquiry from Mineweb, joint Business Rescue Practitioners (BRP), Piers Marsden and Peter van den Steen stated: “We considered all options to rescue the Optimum business, and the Tegeta offer was the only binding offer received and presented the most compelling value for all stakeholders of Optimum. Any court action as cited in today’s Business Report would be without merit and would be vigorously defended.”
Besides the R2.15 billion purchase price, the new owners will inherit all the outstanding liabilities of the business, of which the R2.5 billion penalty would be included. “Tegeta will be responsible for settling, disputing and/or compromising those liabilities as they see fit after the transaction,” said the BRPs.
This would pit Brian Molefe against the Guptas, assuming the CompCom approves the transaction.
Looking at a company whose imputed enterprise value is at least R4.65 billion, but whose major contract was so far underwater that it had to file for business rescue, suggests that the Guptas have massively overpaid for the asset. Unless, however, they have other ideas about either reducing the liability, or increasing the profitability of the mine through new contracts.
In a statement regarding the transaction, Glencore said: “Glencore notes the recent press reports regarding the transaction concluded by the BRPs of Optimum Coal and Tegeta Exploration and Resources in respect of Optimum Coal. Glencore has been working with the BRPs of Optimum Coal and all other stakeholders, including government, over the past few months in order to identify a sustainable solution for Optimum Coal. Glencore is pleased with the terms of the transaction concluded by the BRPs with Tegeta which allows for the Optimum and Koornfontein mines to continue operating and supplying coal to Eskom. Glencore continues to work with Tegeta and the BRPs to close the transaction as quickly as possible.”