Minister suspends Glencore licence
Ramatlhodi warns industry as he deplores ‘inhumane’ job losses
THE Department of Mineral Resources took the rare step yesterday of suspending the mining licence of Glencore’s Optimum Colliery, coinciding with the news that Glencore was putting the mine into business rescue because of an uneconomic contract with Eskom.
Optimum, which employs 1,500 people including contractors, halted production of export coal earlier this year because it was no longer profitable. The decision affected 1,067 jobs.
After talks with the trade unions, forced retrenchments were reduced to 359. Another 267 chose voluntary retrenchment and 86 were employed at other Glencore units.
Mineral Resources Minister Ngoako Ramatlhodi said the retrenchments were “inhumanely conducted” and “disregarded all the legal prescripts”. He said other mining companies should follow the law on retrenchments if they did not want to suffer the same fate as Optimum.
Slumping commodities prices and cost pressures are causing mining companies to haemorrhage jobs. Anglo American said last week it would reduce its global workforce from 150,000 to below 100,000 by 2017, through disposals and retrenchment, and Lonmin could cut up to 6,000 jobs as it suspends uneconomic shafts at its Rustenburg operations.
National Union of Mineworkers (NUM) acting spokesman Livhuwani Mammburu said it welcomed the minister’s decision because Glencore failed to comply with the law relating to companies’ commitment to social and labour plans.
Clinton Ephron, head of Glencore Coal SA, said Optimum complied with all legal requirements for retrenchment, including all key consultations.
The decision to seek business rescue arose because of a fixed price contract signed with Eskom in 1993. Optimum had to supply Eskom with 5.5-million tonnes of coal a year. Mr Ephron said Eskom was paying less than half as much as it cost Optimum to produce coal because as the mine aged, it went deeper and further from infrastructure. He declined to disclose the price that Eskom was paying but he said the cost of producing this coal was more than R400/tonne.
Mr Ephron said Optimum had tried for several years to renegotiate the contract at a mutually acceptable price.
It also wanted to extend the contract from its current expiry date of 2018 to the end of the estimated life of Hendrina power station in 2023. Over the past year, Optimum shareholders had lent the mine about R900m to continue operating.
Optimum said Eskom declined in June to renegotiate the agreement and last month asserted its rights to claim historical and future penalties because Optimum could not meet the specifications in the supply agreement. These penalties would result in Optimum supplying coal to Eskom at an effective price of R1/tonne.
“While Optimum is disputing the Eskom claims, the continued financial hardship of Optimum means that Optimum cannot continue operating the mine and supplying Eskom on this unsustainable basis.”
Eskom said it had become aware of the situation through the media and Optimum had not yet given it official notification.
“Eskom has an existing coal supply and offtake agreement with Optimum and we expect the terms to be honoured,” it said.
Mr Ephron said Glencore was not walking away from Optimum. It retained ownership and was willing to provide postbusiness rescue funding.
THE Department of Mineral Resources’ decision to serve Glencore with a section 93 notice in terms of the Mineral and Petroleum Resources Development Act raises the stakes for other mining groups considering retrenchments.
A section 93 notice is issued when a mineral rights holder contravenes or fails to comply with the act, the consequence of which can be the suspension or termination of the mineral right.
The warning to other mining companies considering retrenchments was unequivocal: Mineral Resources Minister Ngoako Ramatlhodi “urges mining companies to follow the law to the letter when thinking of retrenching workers if they do not want what befell Optimum Coal Mine to visit them”, the department said.
Companies in a range of sectors from platinum to gold, coal and iron ore have announced mine closures and thousands of job losses because of weak global commodity markets and soaring domestic costs, most noticeably labour and electricity.
But the act is clear in section 52 that mining right holders must talk to the minister after engaging unions when the profit-to-revenue ratio at an affected mine is less than 6% for 12 months, or if 10% or more of its workforce or 500 workers are likely to be retrenched.
So the big stick is being brandished when what government should be doing is making the operating environment as easy as possible so mining companies can minimise job losses as they adjust to the hard economic reality.
CAPITAL raisings have reached R17bn in the listed property sector this year so far, despite SA’s weakening economy. But they are unlikely to beat the record of R40bn set last year. The sector raised R18bn in 2013, R11bn in 2012 and R16bn in 2011, including new listings, rights offers, distribution re-investments and private placements, mostly in the form of book builds that have been oversubscribed within hours.
“Surprisingly, 2015 has turned out to be quite a strong year in terms of equity raisings, despite market volatility from mid-April to end-June,” says Stanlib listed property fund head Keillen Ndlovu.
Despite impending interest rate rises and sluggish economic growth, analysts still expect more activity — Ndlovu expects a few more listings this year on the JSE but some may spill over to next year. Two listings that stand out are Indluplace Properties, a company that invests in residential property, and New Frontier Properties, which focuses on UK shopping centres.
Meanwhile, local companies Resilient and Pivotal are trying to list funds that invest solely in other African countries, and in Europe, JSE-listed Redefine International is building a hotel-focused fund.
Dave Marrs edits Company Comment (marrsd@bdfm.co.za)