Guptas to buy mines amid talk of Glencore exit from SA

STRATEGIC: Ivan Glasenberg, CEO of Glencore GLENCORE boss Ivan Glasenberg will be selling two of his coal mines in South Africa to the politically connected Gupta family after the Anglo-Swiss mining company was unable to successfully renegotiate terms with Eskom.

The Gupta family, through their Tegeta Resources business, will be celebrating the new year as they add to their collection of coal mines by taking control of Glencore subsidiary Optimum Coal Holdings on January 1. It comes with a price tag of just more than R2-billion.

“This is sad news, but not unexpected,” said a coal industry expert who asked not to be named.

“I expect that Glencore could even be on their way out of South Africa. There is no export market to speak of currently, with coal prices pinned at $42 a ton for January, and the company has not been able to do real business with Eskom from those mines,” the expert said.

In what appeared to be a strategic move, Glasenberg placed Optimum Coal Holdings into business rescue in August, after the mine had been running at a loss and Eskom decided to slap a penalty of R2-billion on the company for not supplying the correct quality of coal to the power producer.

Eskom was paying Optimum about R150 for a ton of coal, while the cost of producing a ton of coal from the colliery ran to around R400. On top of that, the ageing mine did not deliver coal according to the original specifications that were agreed upon 22 years ago.

Glencore’s team had been renegotiating terms with Eskom, but talks broke down after the company was notified about the fine, which would apply to past and future production of coal and would essentially mean that Optimum would only be paid R1 for every ton of coal that it supplied to Eskom. Eskom also refused to extend Optimum’s contract to supply coal to Hendrina power station to 2023 without a tender process.

On Friday, about three months into the business rescue proceedings, an announcement came that Optimum Holdings would be picked up by Tegeta.

Through Tegeta and other associates, the Gupta family own a number of other coal mines, including the Brakfontein and Vierfontein mines in Mpumalanga, as well as coal prospecting rights in the Free State, KwaZulu-Natal and Limpopo.

Brakfontein and Vierfontein have both made headlines for mining without water licences, environmental concerns and supply contracts being signed with Eskom even though the coal qualities were allegedly not up to standard.

Through the latest deal, Tegeta will take hold of the Optimum coal mine and the Koornfontein mine. The Koornfontein operation was not part of the business rescue process, but will form part of the deal.

Eskom CEO Brian Molefe said he still wanted his R2-billion in penalties and that the new owners would still be paid the agreed R150 for a ton of coal.

Joint business rescue practitioners, Piers Marsden and Peter van den Steen, confirmed that Tegeta would take over all liabilities and claims of Optimum Holdings, which included the penalties.

Tegeta had also undertaken to honour the existing coal supply agreement with Eskom that ran until December 2018, they said.

“Over the past several months, the practitioners have worked with the management of Optimum to consider all available options to rescue the companies that may be acceptable to Eskom and other key stakeholders,” Marsden and Van den Steen said.

“We are of the view that the current offer from Tegeta presents the most compelling option for all stakeholders,” read a statement released by them.

Tegeta would pay about R2.15- billion for the assets. That would go towards paying Optimum’s bank debt, which stands at R2.55-billion. Glencore agreed to advance about R400million to settle the balance of the bank debt for the deal to go through.

“We believe this transaction provides the most optimal outcome for stakeholders and importantly preserves the livelihoods of thousands of the mines’ employees and dependants as well as the uninterrupted coal supply to two of Eskom’s 13 power stations,” said the rescue practitioners.

Glencore responded with a one-liner on the sale of Optimum Holdings to Tegeta saying: “We are pleased that a solution has been found that will allow both operations to continue operating and supplying coal to Eskom.”

The company has been unable to do real business