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Guptas make a play for Optimum

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The influential Gupta family has emerged as a possible buyer of the troubled Mpumalanga mine Optimum Coal.

City Press has confirmed through various sources that due diligence is under way at Optimum to determine if one of two Gupta-owned companies, Oakbay Investments or Oakbay Resources, will buy the mine, which has a contract to supply 5.5 million tons of coal a year to Eskom’s Hendrina Power Station.

Tegeta Resources, a company partly-owned by the Guptas’ Oakbay Investments, already supplies Eskom with 2.4 million tons of coal a year.

Optimum, which is majority-owned by multinational mining giant Glencore, was placed into business rescue in August after Eskom refused to renegotiate a crippling coal-supply contract that results in Optimum losing about R3.7 million a day.

Speculation was rife this week about whether Optimum would be sold, and to whom, after business rescue practitioners confirmed “there was buying interest” and “one specific option” was being pursued.

City Press sent detailed questions to both Oakbay Resources and Oakbay Investments, but despite numerous follow-ups over more than a week, neither company offered any response.

Glencore also declined to comment on any potential buyout by Oakbay, while a spokesperson for the business rescue practitioners said all they could say at this stage was that they “are still considering all options available that are acceptable to Eskom and the other stakeholders”.

For months there has been speculation that Oakbay, as well as several other mining companies, were showing interest in Optimum.

“[The Guptasï showed an interest long ago, and they kept quiet up until the retrenchments. They’ve just resurfaced,” an Optimum employee told City Press. (Employees have been warned not to speak to the media about negotiations atOptimum. Those who agreed to speak to City Press did so only on condition that their identities be protected.

“They’ve done a desktop due diligence, and as of [November 16] are in the mine,” said the employee.

Three sources confirmed that a large delegation arrived atOptimum Coal in the tiny town of Pullen’s Hope in Mpumalanga last month, followed by a smaller team to carry out what was believed to be a 30-day hands-on inspection of the mine.

“We were told by the business rescue guys, ‘There’s a company’ – they didn’t divulge the name – ‘and those guys are going to come to do a due diligence,’” said the employee.

“On Monday, there were about 35. The first thing they did was to put them in a bus to go and see all around the mine. From Tuesday, they got into business.”

City Press visited the mine two weeks ago where a contractor confirmed that the delegation that had visited the mine was from Oakbay.

“They haven’t come formally to say the potential buyer is the Guptas,” said a second employee.

“We had to find out in our own way,” the first employee added.

“They are keeping everything quiet … but we are told they seem to be impressed.

A R4.1 billion hole

Optimum Coal is contracted in terms of a 1993 agreement to deliver coal to Eskom until the end of 2018 at roughly R150 per ton.

Although Eskom coal contracts are usually sought after, the current cost to mine is upwards of R400 per ton, meaning a new buyer would inherit a contract representing a potential R4.1 billion loss over the next three years.

Both Optimum and the practitioners have been trying to negotiate a better price from Eskom, in line with the hardship clause in their contract, but Eskom has refused to budge.

At Eskom’s interim results presentation last week, Eskom CEO Brian Molefe told those present that Eskom was willing go to court to force Optimum to keep supplying coal at R150 per ton or to claim damages if coal supplies ceased.

“They brought in business rescue, thinking they would be able to talk to Eskom and Eskom would agree,” said the first Optimum employee. “But Eskom said there was nothing to talk about.”

Glencore has secured bank finance to fund Optimum’s losses on a month-by-month basis while the business rescue practitioners try to find a solution to preserve Optimum’s 1500 jobs and keep the mine out of liquidation.

A potential moneymaker

Despite Optimum’s dire financial situation, coal industry expert Xavier Prevost describes the mine as “a potential moneymaker” for any buyer who can persuade Eskom to offer them a better price.

“There’s nothing wrong with Optimum. It’s a good mine, is producing and has a good resource,” he told City Press in an interview last month. “The only problem the mine has is Eskom’s contract.”

Prevost said: “If [Optimum] is sold through the business rescue plan, then Glencore is out of the picture – and that’s what Glencore wants, they don’t want to make money they just want to get rid of it - the moment they do that, then the mine becomes an asset to anyone who wants to buy it. It doesn’t matter who buys the mine, if they are BEE compliant they go immediately to Eskom and make an agreement.”

The Optimum employees City Press spoke to said they are hoping that if Oakbay buys Optimum, the Guptas will be able to use their influence to secure a better price from Eskom.

“We have hit the wall with the current employer. So we’ll be happy with whoever takes over, as long as it saves jobs,” said one employee.

“If Eskom doesn’t want to budge, then we are back to square one. Because if [the Guptas] can’t get it right, I’m not sure who’s going to.”

On Thursday, Eskom spokesperson Khulu Phasiwe said that Eskom had not been approached by any potential buyers for Optimum, but confirmed that Eskom may be willing to negotiate a new price if Optimum is sold: “If there is going to be a new buyer we are willing to sit down and discuss the contract with them. We will not be unreasonable,” he said.
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