5th Aug 2015 05:57
LONDON (Alliance News) - Glencore PLC on Tuesday said the directors of its Optimum Coal Holdings and Optimum Coal Mine have started business rescue proceedings in South Africa amid an ongoing dispute with local utility Eskom on the coal supply agreement between the two.
FTSE 100-listed Glencore said Optimum has spent the past six months taking a number of steps to restructure its operations and cut costs, including downscaling its operations and reducing its production, but has continued to face financial difficulties due to the supply agreement it has in place with Eskom.
Optimum has a contract to supply 5.5 million tonnes of coal per year to Eskom, following an original deal signed back in 1993, which has resulted in Optimum supplying the coal for a price significantly less than the cost of production for a number of years.
Optimum has been in talks with Eskom over the course of the past few years to try to renegotiate the contract but, in June, Eskom said it was not willing to renegotiate the framework already in place and terminated the agreement, which had been used to conduct the negotiations between the two parties.
Glencore said that though fully aware of the financial situation facing Optimum, Eskom served notice in July to claim significant historical penalties from Optimum and to impose future penalties on the company. "Eskom is enforcing specifications in the supply agreement which Optimum is unable to meet on a sustainable basis and which were the subject of the recent renegotiation discussions," Glencore said.
Glencore said the penalties Eskom is seeking to impose would mean it would pay Optimum an effective ZAR1 per tonne for the coal it supplied, around 5 pence.
Glencore said Optimum is disputing Eskom's claims but said Optimum cannot continue operating under the current conditions, hence the decision to place it into business rescue proceedings, the South African equivalent of the UK process of placing a company into administration to give it protection against creditors.
The Times on Wednesday reported that the move to put Optimum into business rescue proceedings comes as Glencore is engaged in a row with the South African government over the Optimum mine. Ngoako Ramatlhodi, South Africa's mines minister, has ordered Glencore to halt operations at the mine, claiming the recent redundancies Glencore has made at the project were "inhumanely conducted" and illegal.
Glencore has cut 1,067 jobs at the Optimum mine amid recent cost-cutting measures. It defended its actions, saying it held a 150-day consultation period with the staff, instead of the statutory 60 days, and said its redundancy packages were more generous than the average.
By Sam Unsted; [email protected]; @SamUAtAlliance
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