Glencore faces court over Gupta deal

Johannesburg – Mining giant Glencore is facing a legal challenge from a group of local businessmen who had wanted to buy its Optimum coal mine after it went into distress last year.

At least three sources, who are familiar with the developments, told Business Report last week that the businessmen, led by the chairman of the SA Mining Development Association, Peter Temane, acting in his personal capacity, were preparing court documents to challenge the deal after their bid was turned down in favour of Tegeta Exploration and Resources.

This was despite the bid being much more lucrative than Tegeta’s.

Tegeta is owned by the controversial Gupta family’s Oakbay Investments.

According to the sources, Temane and his consortium offered to pay $200 million (R3.1 billion), or more than R3.2bn at the exchange rate towards the end of last year.

But the consortium, which had tried to solicit support from the National Union of Mineworkers (NUM), failed and the mine was subsequently bought by Tegeta for R2.15bn in December.

“Temane and his group are busy finalising their papers because they feel that their bid was overlooked in favour of the Guptas,” said one. “From what they had tabled, it looked like a good offer and a genuine effort to place the mine in the hands of black South Africans.

“But after some backroom machinations, the group lost and that is why they want to challenge it. So we should expect the high court challenge on Tegeta soon.”

Temane was not immediately available for comment.

But a NUM official, who spoke on condition of anonymity, confirmed the approach by Temane and his consortium, and said the union had given its tacit support because the consortium had guaranteed not to effect any retrenchments.

The official said Temane and his consortium went as far as tabling a proposal that would have empowered Optimum employees through an equity share scheme.

“There was nothing wrong with what Peter (Temane) and his group were proposing and their offer was much stronger than the Guptas,” said the official. “But they fought a losing battle because the Guptas are well-connected.”

Business rescue

Optimum coal mine was placed into business rescue proceedings in August after Eskom and its parent company Optimum Holdings failed to renegotiate a coal sales agreement.

At the time, Glencore had held a 60 percent stake in Optimum Holding, and was embroiled in a stand-off with Eskom after the power utility presented it with a demand for R2bn in penalties for below-specification coal quality.

Glencore put Optimum under business rescue after it argued that the penalties would have meant supplying coal to Eskom to the end of the contract at an effective price of R1 per ton.

Glencore said it could not drive a profit from selling coal to Eskom at the agreed sales price of R150 a ton and proposed doubling it – a level that would still result in loss-making from the mine – but which Eskom said it could not stomach anyway.

Glencore was unavailable for comment yesterday.

Guptas’ influence

But another source said Temane and his group had approached the business rescue practitioner, Piers Marsden, with their bid, but fell flat to the Guptas. “It was going to be difficult for Temane because of the Guptas’ tentacles in South Africa,” said the source.

An ANC national executive committee member last week told Business Report that there was growing concern within the party about the influence the Gupta family, which has close links to President Jacob Zuma, wielded in South Africa.

The member said some members had raised serious misgivings and warned that the family would compromise the party. “We cannot look the other way while people such as Ajay (Gupta) behave as if they are running the country,” said the member.

“This thing has to come to an end before it is too late because even if they bidded fairly for the Optimum mine, their history in South Africa will always leave question marks on whatever they do.”

Coal supply

Optimum has supplied Hendrina with about 5.5 million tons of coal a year since 1993 on a fixed-price contract – currently about R150 a ton.

On Friday, Eskom said that it had sourced coal from seven interim suppliers to power its Arnot power station after its 40-year contract with Exxaro Resources to supply the Arnot mine ended in December.

Eskom’s group executive for generation, Matshela Koko, said the suppliers were roped in to ensure the business continuity of Arnot.

“These interim suppliers will ensure security of coal supply pending the conclusion of the long-term contract.

“One of these suppliers is Optimum, who has provided less than 15 percent of the coal delivered to Arnot in January. All interim suppliers deliver coal significantly below the previous Exxaro price – further demonstrating the correctness of Eskom’s decision to seek a new supplier,” the company said.

He said Eskom was dismayed by accusations regarding any purchase of coal from Optimum due to an ownership change to Tegeta.

But an Eskom engineer described the power utility’s arguments about the Glencore coal quality as “ridiculous” because the Hendrina power station, which the company supplied, was designed to use low-quality coal.

“Power stations such as Hendrina, Kendal, Kriel and Tutuka use cheap coal so that mining companies can export the rest to China and Germany.

So they have boilers that are designed to use Sim 1 coal, or coal that is as close to the rock as possible.”