Glencore has placed its Optimum Coal business into the local version of bankruptcy proceedings in a dispute with state-owned utility, Eskom.
“Optimum has over the last six months taken various steps to restructure its operations and reduce its costs, including downscaling its operations and reducing its production,” said Glencore in a press release. “Optimum has, however, continued to suffer financial hardship as a result of its agreement with Eskom.”
The mine is contracted to supply 5.5 million tpa to Eskom under an agreement signed in 1993. According to Glencore, this has resulted in Optimum supplying coal as “significantly less than the cost of production for a number of years.”
South African coal prices has plunged 23% this year due to the global oversupply of the fuel. The industry has already lost over 35 000 jobs over the past two years. Meanwhile, Glencore’s shares have fallen 32% this year.
Efforts to renegotiate this agreement had been underway but were terminated by Eskom in June. The utility then served notice on Optimum in July, asserting its rights to claim significant historical penalties from Optimum and to impose future penalties.
“While Optimum is disputing the Eskom claims, the continued financial hardship of Optimum means the Optimum cannot continue operating the mining and supplying Eskom on this unsustainable basis,” the company continued. “The directors have therefore resolved to commence business rescue proceedings, which allows for independent parties to assess Optimum’s financial position and contractual obligations and determine how best to rescue Optimum.”
Should a revised supply agreement with Eskom be concluded, the company said that it thought there was a reasonable prospect of rescuing Optimum.
Written by Jonathan Rowland.
Read the article online at: https://www.worldcoal.com/mining/05082015/glencore-puts-optimum-coal-business-into-bankruptcy-2684/