Optimum coal mine rescue plan envisages R2.4bn sale

A rescue plan for the Optimum coal mine in Mpumalanga, South Africa, estimates a sales price of around R2.4bn ($195mn) for the mine.

By contrast, the mine's liquidation will yield only 12 cents in the rand for creditors and can take as long as 18–24 months, the plan says.

Optimum mine is one of eight entities that went into business rescue in February after their owners, the India-born Gupta family, fled the country to evade prosecution over their alleged involvement in widespread corruption. The mine has been non-operational ever since.

In the interim, the rescuers have cancelled the Gupta-owned Tegeta Exploration and Resources' sale of the mine to Charles King, a deal that was widely viewed with suspicion as the purchaser is a Switzerland-registered clothing distributor.

The survival of Optimum depends on securing a higher price for coal supplied to Eskom while at the same time increasing export volumes, said the mine's rescuers in their plan unveiled late yesterday.

This will result in significant revenue gains and positive cash flow that can then be used to recapitalise Optimum so that the mine can be sold, says the Trade Out Plan with a View to Sell, seen by Argus .

"A sale process can run parallel to the trade out process without having to propose the sale of securities or a shutdown of operations," it suggests.

The rescuers envisage that with adequate cash flow, operations can ramp up and significantly improve the mine's attractiveness for a prospective buyer. Creditors whose claims have been accepted will be paid in full. But any penalty claim by Eskom and retrenchment costs will be dealt under a final distribution plan after the mine has been sold. Eskom's probable future claim has been provided for at R1.6bn. Claims to date amount to over R800mn, including a fine incurred by Optimum for not meeting its contractual minimum monthly supply obligation in January.

Optimum's current contract with Eskom is "not economically viable" as the manufacturing cost of around R250/t exceeds the R201/t selling price fixed by the contract, the plan says. As such, the plan's success is highly dependent on increasing the price paid by Eskom to R430/t, which is what the utility already pays for the coal produced by the Koornfontein mines.

"Should Eskom provide the price increase, we can gradually increase Eskom tonnage and ensure the purchaser buys an asset that can adequately serve Eskom's future needs," the rescuers said. An increase would also be in the public interest given the utility's current severe supply shortage , which risks insufficient power supply and possible load shedding, they added.

To resolve this, the rescuers have met with Eskom's attorneys to discuss an interim supply agreement whereby the minimum that Optimum has to supply to Eskom will be reduced from 400,000 t/month to 200 000 t/month.

At the same time, this will allow Optimum to redirect 200,000 t/month for R1,000/t to commodities trading firm Vitol under a more lucrative 12-month offtake agreement agreed earlier this month that helped save the colliery from certain liquidation, according to the rescuers.

All affected parties including creditors and mineworkers will vote to accept or reject the plan within ten working days. Once the rescue plan has been approved, the sale and bidding process will start.

To participate a buyer must be a local operator in the mining industry, meet all the requirements set out in the mining charter and pay a deposit of R250mn, the plan stipulates. The business rescuers will assist but accept no responsibility for the mining right not being transferred, it says.

Related News