Tegeta seals R2.15bn Optimum deal

THE controversial acquisition of Optimum Coal by a unit of the Gupta family’s Oakbay Investments has gone ahead.

The R2.15bn deal was executed through Oakbay’s Tegeta Exploration & Resources, which has bought Optimum Coal Mine and six other target firms from Glencore.

Atul and Varun Gupta and South African President Jacob Zuma’s son Duduzane, who became a significant shareholder in Tegeta weeks before the deal, resigned from Oakbay Resources and Energy on April 8 after banks and auditors dumped them following various allegations of improper business relationships between the Gupta and Zuma families.

It has been widely reported that the Gupta family has since left South Africa for Dubai.

In a press release announcing completion of the Glencore deal, Oakbay said the transaction demonstrated its “firm commitment to South Africa.”

Oakbay bought Optimum out of business rescue. Glencore owned Optimum in partnership with deputy president Cyril Ramaphosa.

It is unclear what happened to Ramaphosa’s stake but it is assumed it now sits in investment company Pembani following the merger of Pembani and Shanduka, Ramaphosa’s investment vehicle prior to his appointment as deputy president. No mention was made of another shareholder in Oakbay’s announcement.

Tegeta said it met the Competition Tribunal of South Africa’s condition that the merging parties do not retrench any Optimum employees.

It claims to have saved more than 3,000 jobs but warned that if bankers ABSA, Standard Bank, FNB and Nedbank do not work with Oakbay, these employees, and more than 4,500 others, risked losing their jobs.

Nazeem Howa, Oakbay Investments’ chief executive officer, said “despite the threats by some of our country’s banks to cut their ties with Oakbay, we are committed to investment in South Africa and creating jobs.”

He said Oakbay would put its proven turnaround skills to work on Optimum. This will be an onerous task given that the business rescue was the result of a long term contract with power utility Eskom which requires Optimum to supply coal well below its production cost.

Optimum’s business rescue practitioners said recently that “Tegeta has undertaken to honour the existing coal-supply agreement with Eskom”.

Glencore’s losses from Optimum amounted to $1bn, according to its 2015 annual report and it seems impossible to profitably sell to Eskom at current coal prices.

According to Oakbay, the mine produces in excess of 14 Mt of coal a year.

2 COMMENTS

  1. I can’t understand how Glencore provided substandard coal to Eskom’s Hendrina power station, so much so that Eskom could tip it over into business rescue mode with a R2 billion fine. But now in the Guptas hands the same mine can deliver thermal coal to the same power station, which suddenly is of perfectly acceptable grade. Am I the only one who smells something fishy here?

    • Hi – there’s been a lot of speculation about this and you’ve got to wonder what Tegeta can do better than Glencore. The way I understand it, however, is that the business case turns on supply of coal from Optimum to Arnot power station. As it mines further south, Optimum is quite close to Arnot. So we wait on Eskom’s announcement regarding Arnot … which is overdue by the way.

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