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Real Economy News in Real Time
R/€ = 15.83 Change: -0.11
R/$ = 13.93 Change: -0.10
Au 1283.51 $/oz Change: 4.55
Pt 792.59 $/oz Change: -6.44
 
 
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BRPs to meet with Optimum, Koornfontein creditors to vote on proposed business rescue plans

10th January 2019 BY: Simone Liedtke
Writer
Photo by: Bloomberg

JOHANNESBURG (miningweekly.com) – The joint business rescue practitioners (BRPs) of Optimum Coal Mine (OCM) and Koornfontein Mines (KFT) expect to convene meetings with creditors within the next few weeks to vote on the proposed business rescue plans for the mines.

The meetings will take place once the BRPs have resolved State-owned entity Eskom’s queries surrounding the published plans.

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This, the BRPs tell Mining Weekly Online, follows after Eskom requested an adjournment to further consider the published plans, subsequent to a creditors meetings held in December.

The BRPs are meeting with Eskom, one of the major creditors of the mines, as a result of penalties levied by the utility, on Friday.

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In the published business rescue plans, the BRPs have proposed Project Halo as the preferred buyer of the mines.

The offers contained in the business rescue plans that creditors are considering are coupled with financing of R600-million that will become available as soon as the plans are adopted, the BRPs say, adding that “this will give reprieve to the many employees, suppliers and other creditors who depend on the successful rescue of these mines”.

Simultaneously, this will give the mines the ability to continue operating while the sales process is being concluded.

Project Halo, according to the BRPs, has the financial backing of a known international energy trader and bank in the form of Macquarie Bank, an Australian financial services company.

Project Halo’s offers were the only offers received that had financial backing in place at the time of making the offers, the BRPs say, emphasising that the decision to accept the offer contained in the business rescue plans lies solely with the mines’ affected persons.

Project Halo submitted four offers, which comprise a combined offer for the three assets – OCM, KFT and Optimum Coal Terminal (OCT) – at R3-billion plus post-commencement finance (PCF) of R600-million.

This comprised a R200-million offer for KFT; a R2.8-billion offer for OCM, plus PCF of R600-million; and a R50-million offer for OCT. However, the offers for OCM and OCT are dependent on each other and, as such, the BRPs advise that one cannot be accepted without the other.

“The BRPs engaged in extensive negotiations with Project Halo and have provisionally accepted the combined offer by Project Halo to purchase the three companies, subject to approvals by affected persons,” the BRPs tell Mining Weekly Online.

Affected persons were notified of the status of the sales process through business rescue status reports published in October and November, the BRPs say.

While offers were received from other entities, none of these entities provided the BRPs with the required vetting information or with the required R250-million deposit. Neither did the offers allow for sufficient time for the BRPs to engage in negotiations and to formulate a feasible business rescue plan, the BRPs explain.

They add that none of the belated offers provided proof of funds to conclude the proposed transactions.

COAL DELIVERY

During the initial stages of the business rescue proceedings, the mines continued to supply coal to Eskom’s power stations.

The outstanding amount owing to the mines by Eskom for coal supplied is in excess of R70-million and, despite numerous meetings, Eskom has not made any payments to the mines for the coal supplied, the BRPs lament.

Instead, Eskom elected to set the amounts owed to the mines off against penalties incurred by the mines while being under the control of the beleaguered Gupta family.

This lack of payment for coal supplied to Eskom forced the BRPs to suspend coal supply to the utility and to export the coal at better rates, so as to ensure income for the mining operations, the BRPs explain.

Further, the embattled State entity had insisted that the mines pay about R100-million for electricity use. This, the BRPs say, the mines have done.

Earlier this week, the National Union of Mineworkers (NUM) expressed its dissatisfaction over the nonpayment of employees’ salaries at the OCM and KFT coal mines for the past two months.

Union members and other workers will be entering their third month without being paid salaries, it said in a statement.

The NUM had also questioned the BRPs’ stance that there was no cashflow to sustain the business and said it remained unconvinced that the BRPs were working in the interest of rescuing the business from the current financial constraints.

In closing, the BRPs tell Mining Weekly Online that “[they] are employing all legal means necessary to conclude the sale of the mines and concomitant access to [much-needed] funding”.

BACKGROUND

The failure by the Guptas to invest in the two mines since 2016 had led to a steady decline of the operational capabilities at both operations.

This was further exacerbated by the lack of transactional banking facilities, with the lack of recapitalisation resulting in a failure to acquire surface rights, which are essential for the continued sustainable production from opencast operations.

The opencast operations at OCM, the BRPs explain, had to revert to alternative measures that had short-term gains, but ultimately compromised efficiency in terms of keeping the draglines productive.

The replacement or refurbishment of mining equipment that had reached the end of its economic life were also not done, resulting in a decline in the reliability and availability of machines essential to sustainable mining operations.

Additionally, the development of the underground operations at KFT and OCM, which is essential to provide pit room for the underground sections to mine, was not done. This resulted in a section being closed at the OCM underground operations.

“[As a result of] the fact that the businesses did not have long-term access to transactional banking facilities, it made the application for credit from suppliers and vendors very difficult. Many of the suppliers would only consider doing business with the companies on a cash-on-delivery basis, or on very limited credit terms which, given the size of the operations and the concomitant cash requirements, made doing business very difficult,” the BRPs explain.

This, in turn, resulted in, besides others, mining equipment not being repaired or maintained on a regular basis or at all. The knock-on effects included production beginning to lag, and the supply of coal to customers, including Eskom, falling behind.

During September 2017, the Bank of Baroda announced that it was going to close the accounts used by the Gupta-controlled companies, including OCM and KFT. During the same month, employees were notified that they would receive their salaries late as a result of “issues related to the bank accounts”.

From September onwards, the situation at the mines continued to deteriorate, with creditors not being paid and production continuing to decline. Some of the key production contractors began to de-establish from site as a result of nonpayment.

As a result, both businesses were under huge financial distress and on the brink of being liquidated, prompting the companies to file for business rescue.

Although the companies’ directors assured the BRPs that they only filed for business rescue as a result of the imminent loss of transactional banking facilities, the BRPs tell Mining Weekly Online that “it quickly became clear” that the mines were “in a perilous state of disrepair and the companies [were] unable to pay their monthly expenses as they became due”. 

EDITED BY: Chanel de Bruyn Creamer Media Senior Deputy Editor Online
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