Glencore eventually caved in and sold Optimum mine to Guptas, state capture inquiry told

27 February 2019 - 18:27
By Amil Umraw
Former CEO of Glencore Coal Mine Clinton Ephron during his testimony at the state capture commission of inquiry on February 27 2019.
Image: Via Twitter/@StateCaptureCom Former CEO of Glencore Coal Mine Clinton Ephron during his testimony at the state capture commission of inquiry on February 27 2019.

The Gupta family allegedly made three offers to purchase Optimum coal mine from Glencore - before the multinational mining company caved under pressure from Eskom and the department of mineral resources.

Former Glencore chief executive Clinton Ephron, testifying at the state capture inquiry on Wednesday, described three attempts by the Gupta family to buy Optimum mine, which supplies coal to Eskom's Hendrina power station in Mpumalanga.

The offers eventually culminated in a meeting in Zurich, Switzerland, in December 2015. The meeting was allegedly facilitated by then mineral resources minister Mosebenzi Zwane, regarding by many as a key figure in the state capture project.

Ephron said Glencore received a letter from audit company KPMG on July 1 2015 detailing an offer from one of their clients, who at the time wished to remain anonymous. The client was later found to be Gupta-owned company Oakbay.

Oakbay offered Glencore R2bn for the mine.

"We didn’t take it very seriously at that point. It lacked detail and understanding of Optimum. We were far more preoccupied with trying to resolve our issues with Eskom," said Ephron.

At the time, Glencore was locked in a battle with the utility over an addendum to its coal supply agreement, which then Eskom chief executive Brian Molefe refused to renegotiate.   

About two weeks after the Gupta’s initial offer, Ephron said, Glencore received a letter "out of the blue" from Eskom’s lawyers demanding the payment of backdated penalties of about R2bn - the same amount offered for the purchase of the mine.

"What the letter purported was that all the coal that had been supplied by Optimum from March 2012 to May 2015 had been rejected. In other words, the value of the penalties that were implied by the letter represented the full value of the coal supplied for the period 2012 to 2015," said Ephron.

"Essentially, they wanted a refund of all the money they paid to Optimum for the supply of coal in that period."

Eskom then added to the pressure on Optimum by withholding payment for coal, forcing the company into business rescue.

The second offer from Oakbay came shortly afterwards, when the Guptas offered Glencore R1 per share and "certain financial considerations".

The third offer was for R1bn - half the original amount. This time, the Guptas wanted all the assets under Optimum Coal Holdings, which included the lucrative Richards Bay Coal Terminal.

After Glencore turned down the offer, the department of mineral resources, at the time under minister Zwane, issued Section 54 suspension notices on Optimum for contravening safety regulations.

Ephron called the notices "frivolous", explaining that some of the issues the ministry’s inspector found was that an excavator operator did not have a licence, that a mining truck operator was not using a seatbelt, and that four dump trucks were found without first-aid kits.

This resulted in all operations at the mine grinding to a halt.

"On November 29 we held a conference call, an internal Glencore conference call. We decided that we would continue funding the business and take it out of business rescue. The offer we had on the table from Oakbay of R1bn was not acceptable," said Ephron.

Weeks later, Ephron and Glencore CEO Ivan Glasenberg were summoned to a meeting with the Guptas in Zurich. Present at the meeting were Rajesh Gupta, Salim Essa and Zwane.

"The meeting was opened by Zwane who expressed concern that the mine should not enter liquidation. He said the best outcome would be for Glencore and Oakbay to reach a deal," Ephron said.  

Glencore eventually agreed on a sale for R2.15bn, but the Guptas were short of about R600m.

Eskom later agreed to give Tegeta - the mining company under Oakbay which purchased Optimum - R659m as prepayment for coal. Their reason was that Tegeta needed money upfront to meet production requirements. But it is believed that the money may have been used to buy Optimum.

The inquiry will continue on Thursday with testimony from former finance minister Trevor Manuel.