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How Guptas, Duduzane Zuma could score from coal deal

Apr 17 2016 14:25
Jan de Lange

Johannesburg - "The transaction that makes no sense" - the sale of the Optimum coal mine to the Guptas and Duduzane Zuma - was concluded on Thursday, reported Netwerk24 on Sunday.

Tegeta Exploration and Resources paid the R2.15bn, which was owed in order to have the mine transferred to them. At the same time Glencore paid R450m to the business rescuers Piers Marsden and Peter van den Steen. This meant the bank debt of Optimum Holdings has been paid and Tegeta becomes the owner thereof.

This indicates that the Guptas are not intending to disinvest from SA despite a sudden departure of family leaders to Dubai last Thursday evening.

Optimum must deliver 4 million tonnes of coal to Eskom's Hendrina power station at R150 per tonne over the next three years. Glencore's previous owner, however, had complained that production costs at the mine are about R450 per tonne. This would, therefore, mean a loss of R1.4bn per year over the next three years.

President Jacob Zuma's son Duduzana, became the largest shareholder in Tegeta two weeks before the sale transaction was signed in December last year. This means, for instance, that Tegeta became a company under black control. Eskom pays a premium of 50% on its purchases to black economic empowerment companies.

READ: Tegeta-Optimum merger approved with condition

The big question is how Duduzane Zuma and the Guptas will manage to operate Optimum in a profitable way. Duduzane's involvement makes if possible for Eskom to increase the price it pays for Optimum's coal from R150 per tonne to at least R225 per tonne in order to promote black economic empowerment. That would make the loss smaller, but still would not contribute to erasing the initial debt.

Optimum, however, has the production capacity of 14 million tonnes of coal per year. A key asset of this giant mine is the right to export 6.5 million tonnes of coal via Richards Bay. This is probably the main reason why the Guptas and Duduzane bought the mine, because export prices of coal are now about $53 per tonne - about R750 per tonne depending on the current exchange rate. The price is valid for coal delivered by rail in Richards Bay.

Remember, these are coal prices at the lower point of the commodity cycle. If Duduzane Zuma and the Guptas keep going at the Optimum mine and the neighbouring Koornfontein mine (also part of the Optimum Holdings acquisition) in this way for the next two to three years, they could have paid off the initial debt of R2.15bn by that time.

If Eskom becomes just a bit more reasonable with the fine of R2bn it wanted to collect from Optimum, because the mine's coal was supposedly not the right quality, then Duduzane could be seriously wealthy by that time.

* For the full story and more business news in Afrikaans, visit Netwerk24.

ALSO READ: Gupta-owned Oakbay completes Optimum take over



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