Eskom needs the big mining companies

[miningmx.com] – Eskom needs the big international coal mining companies which is why it is important that the situation at Optimum Colliery is resolved well according to Glencore CEO Ivan Glasenberg.

Replying to questions after the presentation of Glencore’s interim results for the six months to end-June Glasenberg commented, “the head of Eskom has said he does not want to build coal mines.

“That means he needs foreign investment to build the collieries required for his new power stations and, to get that, he needs to encourage the big mining companies to invest.’

Glencore put its loss-making Optimum colliery into business rescue proceedings on August 4 after failing to re-negotiate a coal sales agreement with Eskom which buys some 5.5 million tonnes (mt) of coal from the colliery to supply its Hendrina power station.

According to Glencore it had been supplying coal to Eskom in terms of an agreement signed in 1993 “at a cost significantly less than the cost of production for a number of years’.

Glencore said it acted after being told by Eskom in June that it would not re-negotiate the agreement. This was followed in July by a R2bn claim for historic and future penalties which would result in Optimum supplying coal to Eskom for “an effective price of R1/t’.

Glencore said at the time, “the directors are of the view that if the Eskom supply agreement can be renegotiated, there is a reasonable prospect of rescuing Optimum.’

But Eskom acting CEO Brian Molefe was uncompromising on August 11 when he commented, “if Glencore dispute it, we have to argue the matter in court. We are convinced we are owed it because of their shoddy performance.’

One mining industry source queried precisely how Eskom would get Optimum into court over the disputed payment given that the company was now in business rescue proceedings.

The Department of Mineral Resources (DMR) also got involved suspending operations at Optimum on August 3 on the grounds that retrenchment procedures had not been followed correctly. That was rebutted by Glencore and the suspension on operations was lifted on August 7.

All of which makes for a volatile situation facing Glencore given Glasenberg’s comments last September in Johannesburg that he was positive about investment in South Africa and that “government has generally been very supportive. Government welcomes foreign investment and we are able to deal with them.’

Asked whether he had changed his mind given the developments at Optimum, Glasenberg replied, “No. The situation with the DMR at Optimum is all sorted now that they understand the retrenchment procedures followed but we will see how the Optimum dispute with Eskom gets resolved.

“The fact is that they need us and therefore I speak to my previous statement last year that they have to make it attractive for us to invest.’

Glasenberg commented last September that, “Governments have to be smart to attract foreign investment and ensure they don’t make it too difficult – or impossible – for us to invest.’