The state-owned mining company, African Exploration Mining Finance Corporation (AEMFC), a subsidiary of the Central Energy Fund (CEF), has not yet approached the Treasury for approval for a deal to buy Optimum mine.
Mineral resources minister Gwede Mantashe said part of the funds for the acquisition were being sourced from the CEF so that AEMFC can acquire the mine, formerly owned by the Gupta family.
In a reply to a parliamentary question from the DA’s James Lorimer, Mantashe said AEMFC, which is part of a consortium to acquire the mine, would be contributing R500m. This money would come from a shareholders loan intended to be sourced from the CEF and subject to necessary Public Finance Management Act approvals being obtained.
But the Treasury on Sunday said it had not yet been approached.
Optimum, formerly owned by the Gupta mining company Tegeta, has been in business rescue for more than a year without any resolution, which has put the mine and employees, who have not been paid since October 2018, at risk.
Business Day reported last week that AEMFC entered into the transaction without the knowledge of the Treasury or permission from the energy minister.
The funding from the consortium would be used to finance the business rescue process and restart operations at Optimum. Under the Public Finance Management Act, a state-owned enterprise must inform the Treasury in writing and obtain the permission of its executive authority prior to entering into any partnership or joint venture.
In February, the AEMFC announced it had been awarded a two-year mining contract under the supervision of the business rescue practitioners, for which it would provide R1bn in post-commencement funding.
The state-owned mining company is part of a consortium that includes empowerment group Lurco, which has partnerships with several companies in mining and related operations, and Sycamore Corporation, a UK-based financier.
Optimum mine cannot be sold because of a court challenge preventing a sale, but the contract gives AEMFC and Lurco the right of first refusal when the assets come up for sale. The CEF also said it had pledged R1bn to support the investment. According to Lurco, the companies will each provide 50% of the funding.
Mantashe in his parliamentary response said R1bn was raised from Sycamore Capital Corporation for the acquisition. When asked what risks the agreement held for AEMFC, the minerals minister cited ordinary mining business, financial and operational risks.
There was also the question of whether there was a market for the coal and whether the operation would be profitable. Mantashe said environmental rehabilitation liabilities were another risk, just like any other mining operation.
However, AEMFC would conduct due diligence so that it could apply suitable business strategies to mitigate any risks prior to final commitment, he said.
“This is … an opportunity that has availed itself through an open business rescue process which AEMFC as a commercial enterprise, albeit state-owned, has sought to pursue, not only as a potential for its own growth but also as a means to support Eskom as a sister [state-owned enterprise] in securing energy supply to the SA economy,” Mantashe said.
Eskom is in an operational and financial crisis, which has left it with a R420bn debt load, which it cannot service through its revenue. The country was subject to rolling blackouts last week, which crippled large sections of the economy as the power utility grappled with unexpected boiler tube leaks at several coal-fired power stations, ongoing diesel shortages and the loss of electricity imports from Mozambique.
Load-shedding threatens to play a central role in election campaigns as opposition parties attempt to use it as evidence of the ANC’s incompetence. The Electoral Commission of SA has expressed concern about power cuts on voting day and as it starts to count votes on May 8.
Load-shedding was suspended on Sunday, but it is not yet clear if it will continue this week.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.