A group of disgruntled creditors of the troubled Arnot OpCo mine has taken issue with the business rescue process, rejecting a R435m proposal that other major creditors are backing.
Arnot OpCo was established in 2019 as a joint venture between Wescoal, now known as Salungano, and Arnot InvestCo, which was formed by Exxaro Resources employees who were about to be retrenched after the expiry of the company’s coal supply agreement with Eskom in 2015.
It operates the Arnot mine in Mpumalanga, which has thermal coal reserves of 190Mt. It resumed coal supplies to the Arnot power station in February last year, but a few months later Wescoal/Salungano went to the South Gauteng High Court to have the company placed under supervision and business rescue. It argued that the management had misused funds and was blurring the line between rehabilitation costs and re-establishment costs.
Arnot InvestCo in turn accused Salungano of wanting to control the mine and of failing to honour its funding obligations to the business.
The court placed the mine in business rescue in October last year. Phahlani Mkhombo from Genesis Corporate Solutions was appointed business rescue practitioner. In his business rescue plan published on July 14, Mkhombo proposed a management restructuring plan that requires a R308m injection and envisages production of 3.5Mt a year from 2025 on. Creditors would receive 50c to the rand.
Mkhombo proposed a disposal process and received offers from Ndalamo Resources, Mashwayi Consortium OpCo, NG Global Consortium and Cometa.
On July 28 creditors voted to accept Ndalamo’s offer of R435m. It comprises R70m to settle creditors’ claims, both pre- and post- business rescue, and R365m as post-commencement funding.
Mashwayi offered unsecured or concurrent creditors 55c to the rand, NG Global offered 68c to the rand and Cometa offered 57c to the rand.
A disgruntled creditor who spoke on condition of anonymity said Mkhombo had informed creditors that four of the biggest creditors — Boipelo Mining Contractors, Ingwenya Mineral Processing, Amandla TM Group and Wescoal/Salungano — had formed a voting bloc to approve the Ndalamo offer.
Strangely, they also indicated that they would not participate in the creditor dividend of R70m, which effectively meant that at the time, the remaining creditors would receive 17c to the rand over two years
— Dissenting creditor
“Strangely, they also indicated that they would not participate in the creditor dividend of R70m, which effectively meant that at the time, the remaining creditors would receive 17c to the rand over two years. This was the worst offer by far compared to the others on the table. However, if the plan were to be adopted this offer would win because of the voting bloc,” he said.
The aggrieved creditor said he was not satisfied with the way the process had unfolded.
“I don’t understand why he [Mkhombo] characterised the Ndalamo offer as being for over R400m when that money would not be going to the creditors. What would be going to creditors is R70m, and that is how he should have defined the offer.
“The practitioner published two revised creditor lists which indicate a substantial increase in the accounts payable. I have doubts that the Ndalamo offer, after this, guarantees a better return than liquidation, which is a requirement for it to constitute a rescue in terms of the Companies Act.”
Approached for comment, Salungano said: “Arnot OpCo was in financial distress for a prolonged period and the option of business rescue was considered the most appropriate under the circumstances. The Salungano Group is of the firm belief that a business rescue plan could facilitate a successful turnaround. Salungano’s investment in Arnot was fully impaired in the annual financial statements for the year ended March 31 2022 due to the uncertainties around funding of the operation.”
Salungano said it considers the issue sub judice because a related court application is pending.
Thatha Project Resources (TPR), Nomqibelo Trading Enterprise, Mpendulo & Sons, Maler Dynamics, Meljon Construction & Projects and ZGM Construction Projects have launched an urgent court application opposing the Ndalamo proposal. They want the court to declare them as concurrent creditors of Arnot with voting interests.
Law for All, legal representatives of TPR, said Amandla TM — a service provider to the coal mine — had cast votes without proper authority.
“Our client wishes to point out that the Ndalamo offer is clearly not in its interest or the interests of any other creditors since it makes provision for recovering only 17.5c in the rand, as opposed to some of the other offers that would result in a higher return,” the lawyers said in a letter to Amandla TM on August 2.
“Our understanding of this provision is that, in essence, you have agreed on behalf of the creditors seemingly resorting under your claim against Arnot OpCo to not receive payment of the outstanding invoices for such creditors — therefore causing substantial financial losses and prejudice to our client.
“That you would see it fit to do so, fully in the knowledge that your voting interests were propped up by claims of other creditors and that you have failed to obtain any mandate from such creditors prior to voting, is in our client’s opinion unlawful and/or unconscionable.”
Law for All said its client was demanding that Amandla withdraw all votes cast at the creditors’ meeting on July 28 and that Mkhombo veto the votes.
Mkhombo and Ndalamo Resources did not respond to questions.
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