One company. Three deals. So many questions. | Fin24

One company. Three deals. So many questions.

Apr 29 2016 06:30
Marcia Klein

Deal 1

In May 2008 BHP Billiton sold Optimum Colliery and 6.5Mtpa (metric tons per annum) of Richards Bay Coal Terminal entitlement to Optimum Coal Holdings, a group led by Eliphus Monkoe, a previous chief operating officer of BHP Billiton Energy Coal South Africa (BECSA).

It is unclear what figure the deal was struck at, but it was reported to be in the region of R1bn.

According to their deal, BHP Billiton would buy all export coal from Optimum over the life of the mine. Optimum Colliery, in Mpumalanga, supplied coal to Hendrina power station as well as export markets. It produced 11.6m tons and employed 1?070 employees and 1?397 contractors.

Less than two years later, in March 2010, Optimum listed on the stock exchange and a group of individuals, which included CEO Mike Teke, Monkoe, Mlungisi Kwini, Peter Gain, Tom Borman and Sivi Gounden, hit the jackpot.

Based on their shares at listing, these few people were worth somewhere between R387m and R640m each in 2010. This excluded management and director salaries and fees and a R1.5m a month payment to Gain and Borman’s company Beacon Rock for consulting services.

By the 2011 year-end, according to Optimum’s annual report, at which time the market cap was R6.8bn, Teke had 7.55% of the company, Borman 6.18%, Gain 6%, Nomavuso Mnxasana 5.37%, Monkoe 5.28% and Gounden 4.8%.

It was indicated that Kwini’s personal shares were reduced to nil between 2010 and 2011, but Kwini Mining Investments is named as a 10.22% shareholder. At the time, almost 43% of the company was owned by just 13 directors or their associates.

Details of the disposal of their shares are not readily available, but the subsequent buyers – Glencore and the now deputy president Cyril Ramaphosa – paid somewhere between R34 and R38 a share over some months to buy out shareholders.

This was significantly higher than Optimum’s R27 a share valuation at end-2011. As the share went up ahead of the Glencore offer, the market cap about a month before Optimum’s 2012 listing was in the region of R9.5bn.

Based on their holdings in 2011 and a market cap of R9.5bn, 13 people walked away with just under R4bn between them.

Kwini Mining would have walked away with close to R1bn and companies associated with Peter Gain, Warrior Coal and AMCIC Warrior Mauritius, R2.7bn.

Deal 2

In September 2011, a consortium of Glencore subsidiary, Piruto BV, and Lexshell 849, a company wholly owned by deputy president Cyril Ramaphosa, offered R34 a share to buy out the company.

By March 2012, the consortium had 67.77% of Optimum Coal and would offer the remaining shareholders R38 a share. The total acquisition amount, according to Glencore, was $780m, although shares were bought between the two dates at different prices.

Ramaphosa’s shareholding is unclear, but would presumably have been 26% or more in order for Glencore to fulfil its BEE requirements. It was announced that his investment company at the time, Shanduka, would help with some of the financing.

As there was little transparency around his assets when he became deputy president, it has to be assumed that the Optimum stake was transferred to Pembani, which merged with Shanduka, although Optimum Coal was not listed as a Shanduka asset, according to its last annual report.

The Competition Tribunal, in its ruling on the Shanduka Pembani merger, cites Lexshell 849 only as one of the “other firms relevant to the proposed transaction”.

It is also, therefore, not clear if Pembani will receive any of the proceeds of the third deal, or if it provided any funding for Optimum during Glencore’s ownership, which was challenging and loss-making.

Optimum continued to be held to BHP’s original 1993 deal with Eskom to provide 5.5Mtpa at R150 a ton, and at prevailing coal prices, Optimum not only lost money, but Glencore injected additional funding to keep it going. In its 2015 annual report, it recorded a $1bn loss on its Optimum investment.

A number of events last year, which in retrospect appear unusual with knowledge of the deal that was to come, helped push Optimum Coal over the edge and by August, Optimum was under business rescue.

These events include it being unable to negotiate a better contract with Eskom, which also imposed a R2bn penalty for supplying “poor-quality coal” and a “shoddy performance”.

Its mining licence was suspended by the department of mineral resources for “inhumane retrenchment” despite it insisting it went by the book. The licence was later reinstated.

It is widely speculated that Glencore was pushed into selling to the buyer in the third deal, but the company would not respond to questions regarding this.

Deal 3

In mid-December, just after mineral resources minister Mosebenzi Zwane flew to Switzerland (apparently with a Gupta family delegation) to meet Glencore  CEO Ivan Glasenberg, and days before finance minister Nhlanhla Nene got the axe, Glencore announced it was to sell Optimum Coal to Tegeta Exploration and Resources, in which the Gupta-controlled Oakbay has a stake, for R2.15bn. 

Glencore would pay the balance of Optimum’s R2.55bn debt.

Tegeta, a relatively unknown entity before this deal, but which is now linked to President Jacob Zuma’s son Duduzane, owns two mining rights for coal and has prospecting rights in four provinces.

The deal makes absolutely no sense on paper. Despite the fact that it is seemingly impossible not to lose billions of rand under a current coal supply deal with Eskom, Tegeta and Oakbay Resources have not only come up with R2.15bn at a time when bankers have severed ties, but they have indicated Optimum will make a profit through efficiencies and management’s experience in turning businesses around.

The business rescue practitioners said “Tegeta has undertaken to honour the existing coal-supply agreement with Eskom”, and Eskom has confirmed the supply deal, and the R2bn fine imposed on Optimum during Glencore’s ownership, still stands.

At the prevailing coal price, this would result in losses totalling billions of rands over the next few years. 

Bloomberg reported that Duduzane Zuma, who is in partnership with the Guptas in numerous companies, obtained shares in Tegeta just three weeks before the Glencore deal.

It reported that on 20 November 2015, about half of Tegeta’s shares were transferred to Mabengela Investments, owned by Duduzane, and a company called Elgasolve. Oakbay owns 34.5% of Tegeta, Mabengela 28.5%, Elgasolve 21.5% and Dubai-based Fidelity Enterprises 15.5%. 

Oakbay Resources & Energy was listed on the JSE in November 2014 and the Guptas’ Oakbay Investments owns most of it.

Oakbay is also the majority owner of Shiva Uranium, a company widely believed to have been setting up business for government’s covert nuclear power deal with Rosatom, of Russia.

Despite all of the uncertainty following the Guptas being dumped by banks, the resignation of Gupta family members and Duduzane from the Oakbay Resources board, and the Gupta family’s recent late-night flight from South Africa, the deal has now been concluded. 

This article originally appeared in the 5 May 2016 edition of finweek. Buy and download the magazine here.  

optimum  |  glencore  |  oakbay  |  bhp billiton  |  coal  |  mining  |  resources

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