Optimum Coal Mine latest developments

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Mineral Resources and Energy

28 February 2018
Chairperson: Mr S Luzipho (ANC)
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Meeting Summary

This meeting was called upon the request of the National Union of Mine Workers - Optimum Mine branch. There was a strike at Optimum Coal Mine in Mpumalanga following the failure of the mine to pay the workers’ salaries. The management at Optimum Mine declined the invitation to attend the meeting. Conspicuously missing was the Department of Mineral Resources Director General as accounting officer and senior management which prompted Members to refer to the delegation as the "sacrificial lambs".

Members asked the Department if they were aware the company was being sold; if Optimum Mine had engaged DMR about the need to appoint a business rescue practitioner; if DMR had determined there was a need for a business rescue practitioner; had DMR engaged the company on its future prospects?

The Committee was unhappy about the DMR responses, especially on whether Optimum Mine was viable and whether it was in the process of being sold. It emerged at the meeting that four other mines owned by Tegeta were facing similar problems. Due to the unsatisfactory answers from DMR, the Committee resolved to meet with senior management from both Optimum Mine and DMR, including the business rescue practitioner appointed by the court to oversee the rescue.

Meeting report

The Chairperson acknowledged a number of new developments including the appointment of a new Minister of Mineral Resources, Gwede Mantashe, who was not new to the industry. He extended his condolences to the eight police officers who had lost their lives in Ncgobo. He also bemoaned the high rate of fatalities on the roads in the country. He made reference to the Budget unveiled the previous week and said it was important to evaluate what it meant for DMR and the mineral resources sector.

A letter had been received from the National Union of Mine Workers (NUM) concerning the situation at Optimum Coal Mine (OCM) in Mpumalanga and subsequent to that letter there was industrial action. What prompted the Committee to set up the meeting was that it was apparent there was no guarantee on the status of the mine and, therefore, the workers were not guaranteed employment, and they were not even sure if they would receive their salaries. When the Chief Executive Officer of Optimum Mine met with the workers, he could not give assurances about their concerns. When payday came, the workers were not paid. He recalled the Aurora Grootvlei Mine in Springs where workers went for months without pay. It was important not to repeat that situation where the mine was liquidated, assets were stripped and the workers were given nothing. The matter ended up in court where the court ruled that the company directors had to pay R1.2 billion.

NUM was present at this meeting and DMR had been invited to state whether it had undertaken any intervention on the matter and to provide information that might be helpful in resolving the problems at Optimum Mine. The Optimum Mine directors and the CEO had been invited and initially they had agreed to attend - only for information to filter through that the company was now under business rescue and the business rescue practitioner had just been appointed. Apparently, he had refused to grant permission to the directors and CEO to attend the meeting. The business rescue practitioner himself said he could not attend because he was only just beginning to familiarise himself with the issues at the mine. The CEO had called saying that they would not be able to attend. The Chairperson had informed the CEO that the Committee would take whatever decisions deemed necessary and that the Optimum Mine management and the directors were depriving themselves of a voice as they would not be able to provide mitigation for themselves. Their absence would not stop Parliament from taking a decision. Information had, however, come through that the workers had now been paid. The Mpumalanga Provincial Government had sent a notice to the Committee stating that the Optimum Mine issue was one that affected the province, and they requested the relevant Member of the Executive Council (MEC) to attend the meeting. MEC for Finance, Economic Development and Tourism, Mr Sikhumbuzo  Kholwane, was welcomed to the meeting.

Mr J Lorimer (DA) asked if the business rescuer was asked to attend the meeting.

The Chairperson answered in the affirmative and said the business rescuer had also declined the invitation stating that he was only just familiarising himself with the situation at the mine.

Mr Lorimer asked for the correspondence and if the Committee had insisted that they come.

The Chairperson replied that the CEO had earlier indicated that he was coming but that the letter from the business rescuer had just been received saying that he would not be attending. It was now up to the Committee to decide what to do in the situation. He asked NUM to explain what was happening at the mine. There was a need to clarify matters as information received indicated that more mines run by the same owners were facing similar problems.

National Union of Mine Workers (NUM) briefing on Optimum Coal Mine latest developments
Mr Goodwill Mthombeni, Chairperson of NUM Optimum Branch, introduced the NUM Deputy General Secretary, Mr Makgabo Mabapa, and the NUM Optimum Branch Secretary, Mr Richard Mguzulu. They were there to present the facts and not to misrepresent anybody else. He invited Mr Mabapa to speak.

NUM Deputy General Secretary, Mr Makgabo Mabapa, said they had written the letter to the Committee because they could see that their future was bleak. Since Tegeta took over the running of the mine in 2016, the situation at the mine begun to deteriorate severely. The mine machinery was no longer maintained, safety clothing for the workers was in short supply and it was becoming evident that the mine could close at any time. They realised they could no longer keep quiet about the situation at the mine as they were going to be negatively affected. The mine still has a lot of coal and its lifespan is projected to reach the year 2032. They had made representations to management to give assurances that their jobs would be safe after the announcement that the Bank of Baroda would be relocating from South Africa. The Bank of Baroda is still operating but the workers were not paid on their usual pay day on the 23rd of the month. However, the workers were in a better position than the suppliers and contractors, some of whom were already collapsing as they were last paid in October 2017 and the payments were not made in full. Mine operations were also affected because the contractors provide services at the mine. There was also a concern about the projects started by the former owner, Glencore, such as the building of clinics which have now ground to a halt. The mine was sold as a going concern so the new owners were supposed to complete those projects. Two weeks ago DMR visited the company to check the mine’s compliance with regulations and it was discovered that the mine had breached regulations. It was clear that the company was not going to rectify the breaches identified by DMR.

NUM Chairperson of the Optimum Branch, Mr Goodwill Mthombeni, said that after the mine was purchased by Tegeta, the workers approached management about implementation of the Social and Labour Plan (SLP) and they were informed that there were plans to sell the mine to a Swiss based company called King Charles. However, a check revealed that this was a clothing company that had no experience in the mining sector. The workers were astounded that DMR could allow the sale of the mine to a company that had no track record in mining. The workers were still unsure if those plans to sell the mine to King Charles are still on track. Information was also circulated that R400 million had already been deposited even before a due diligence appraisal of the mine had been done which indicated to the workers that the sale was not genuine. It did not make sense for an investor to invest such a huge sum of money without doing the ground work of ascertaining the sustainability of the mine. The workers raised this with the DMR regional manager. On 19 February, it was announced that the mine had been placed under business rescue which surprised the workers because this can only be done if a business is in financial distress which was not the case with Optimum Mine. They requested the financial statements which showed that in fourteen months, the mine had made R2.2 billion. With the financials apparently looking healthy, the business rescuer could not explain why the mine had been placed on a rescue plan. All he could say was that he had been appointed by the court. They asked the Committee to assist them as they were only interested in securing employment security for the workers

NUM Optimum Branch Secretary, Mr Richard Mguzulu, said they could confirm that it was not just Optimum affected but there were other Tegeta-owned mines that were affected as well and these include Koornfontein. The Union had received information from the Optimum Mine owners about the liquidators that had been appointed by the Board of Directors. NUM also received a Section 189 notice that 1 722 out of 1 812 employees at Evander Gold Mine also in Mpumalanga would be retrenched. The Mpumalanga Provincial Government had also been briefed.

Department of Mineral Resources briefing
Ms Modilati Malapane, Acting Chief Director: Mineral Regulation Central Region, who also sits on the Mineral and Petroleum Section 52 Committee that looks at retrenchments nationally. She was not going to dwell on the presentation as most of it was just providing background and she wanted to go directly to what had been raised. A section 11 approval was granted authorizing Glencore Operations to transfer Optimum Coal Mine to Tegeta in April 2016. Tegeta owns Optimum Coal, Koornfonten, Brakfontein and Idwala Mines. Optimum has two open cast operations, two underground operations and two processing plants in Mpumalanga.

DMR has a responsibility to monitor compliance and Optimum was issued with a Section 93 order for non-compliance, especially non-adherence to the commitments made in the approved Social and Labour Plan (SLP). Optimum was issued with a notice in terms of Section 31L of the National Environmental Management Act (NEMA) due to its failure to adhere to the rehabilitation plan commitments. These resulted in follow-up meetings where Optimum Coal was given an opportunity to respond. DMR explained to Optimum the administrative processes that follow a notice and the DMR expectations of the company.

Tegeta's response was that since the Bank of Baroda left the country it was impossible for them to do business and that they would not be in a position to pay employees their salaries. Further, Tegeta could not be paid for business supplied to Eskom because of the same banking challenge. However, the employees have since been paid their dues, but it was not clear if they would receive their next payment. The Optimum Mine Manager reported to DMR that the employees had gone on strike demanding to know the status of the mine and if they would be paid at the end of February.

Ms Malapane said that during the same meeting, the CEO reported that all the contractors had been paid so it was surprising to learn from the Union that they have not been paid. In terms of the Act, they are also regarded as employees of Optimum. The company also reported that it had issued a Section 189 notice of the Labour Relations Act and that it was still in consultation with interested and affected parties. However, the company never informed DMR as required by Section 52 of the Act and that they are in the process of selling the company. It was clear that the challenges raised by management were not only affecting Optimum Coal, but other operations may also be affected. It was, therefore, important for Tegeta to work with all the affected stakeholders to remedy the situation. The Department remained committed to ensuring the security of employment in line with the objectives of the MPRDA.

There was concern about this situation in Mpumalanga as its municipalities would have to deal with the fallout. The Section 52 Committee would have to sit and discuss a way forward. The CEO reported that they had issued a Section 52 and yet DMR had not seen it and they must submit it afresh. On the salaries, it was important for the Department of Labour to intervene because history has shown that companies often flouted labour laws and do not respect the Basic Conditions of Employment Act. DMR would continue following up on the Section 93 order. On the mine sale, DMR opinion was that no sale should be allowed to be done irresponsibly. It was important to establish if the plan of the new owners would bring sustainability to the mine. When business rescuers are appointed, the process normally takes too long and by then a lot of damage could be done and that was why it was comforting for DMR to hear that the Committee was going to take a decision. DMR will do what is required of it but it also needs to be guided by the Committee.

Mr Ndivhudza Mahwasane, DMR Director of Mine Surveying, said that Optimum does not have challenges that are different from any other mine. When normal inspections are done, Sections 54 and 55 notices are given but it was not something that was out of the ordinary. Operationally, the Optimum Complex, including Koornfontein, compared to all the mines in the area, is one of the most viable. It, therefore, was surprising that a mine with more than 15 years of reserves was being placed under business rescue. It did not make sense to give a viable operation to a business rescuer rather than a company that could actually run the mine. It appears as if the problem is not money but the banking facility. Business rescuers take long without actually conducting any business and by the time they are finished with their processes there may be nothing to save. If a mine remains shut for one month without operating, the machinery becomes affected and it becomes difficult to restart operations.

The Chairperson asked the MEC to give his views on the matter.

Mr Sikhumbuzo Kholwane, Mpumalanga MEC for Finance, Economic Development and Tourism, said he was not there to provide solutions or answers but simply to express the concern of the Provincial Government because the province would be affected by what was happening at the mine. The situation had the potential to exacerbate the problem of unemployment which would also affect the economy of the province. He disclosed that the only mine that was remaining was Brakfontein. The engagements that the Provincial Government had had with the stakeholders pointed to no problems with the operations but that the problem was the banking facility. All the previous banks withdrew their facilities when the previous owners left. The mine was having trouble transacting and it was creating a lot of problems. However, as a Provincial Government, it had no legal responsibilities on the matter apart from bearing the brunt in terms of social ills, such as the effects of unemployment.

The Chairperson confessed that initially he did not understand what the challenge was, but it seemed to be a huge albatross that was completely unanticipated.

Mr Lorimer asked NUM about the timeline of the challenges. NUM had indicated that when Tegeta took over the mine, it stopped spending on machinery early on and even stopped supplying protective clothing to the employees. He asked if the NUM had drawn this to the attention of DMR and exactly when they had done that. He asked if the employees had been paid for the month of February. He asked how many workers faced the prospect of unemployment and how many are NUM members. When he had previously enquired about the clinic, DMR had informed that the clinic project ground to a halt because of a legal dispute. He sought clarification on the matter. He asked when did Minister Zwane go to the mine and asked the workers to support the take-over by King Charles from Switzerland and who from DMR had accompanied him. Who at DMR had NUM delivered its letter about the situation at the mine? Lastly, was there no problem at Brakfontein mine?

Mr Mguzulu replied that the permanent employees had been paid the day before, but the contractor employees had not been paid. There were 522 permanent employees with 416 of them being NUM members. Concerning the clinic, the mine still owed the builder about R900 000 and that was what had delayed the handover of the clinic. It was a small amount that was still outstanding. The then Minister Zwane had visited the mine after Tegeta had already assumed ownership of the mine. He assured the employees that everything that was contained in the SLP was going to be implemented as the company had been bought under Section 197. Among the DMR officials who accompanied the Minister was the Regional Manager, but it was a big team that accompanied him. As far as the union was concerned, there were no problems at Brakfontein as yet.

Mr Mthombeni regretted that he did not have a copy of the letter he submitted personally to the DMR Regional Manager and the Office of the Minister in Pretoria but it was in September 2017.

NUM Deputy Secretary General, Mr Mabapa, replied that in 2015, the previous owner, Glencore, issued a Section 189 and during that process, Tegeta consulted with NUM from the regional offices to the head office and when the Competition Commission wanted to grant a Section 11, they consulted NUM. At that stage when the Section 198 had been issued, the workers were facing retrenchment and NUM accepted the offer by Tegeta to buy the mine. More than 1000 employees were to be retrenched and Tegeta offered to keep more than 500 employees. Other stakeholders like Eskom were also involved in the negotiations. He confirmed that Koornfontein, Brakfontein and other mines were also affected. It was the NUM branch at Optimum that had raised the concern, but the other mines are equally affected. The NUM branch officials at Shiva and Evander mines had recently been in contact and requested that their challenges be raised at this meeting.

Mr M Mandela (ANC) said he would restrict his questions to the matters raised in the presentation. On the Section 93 order for non-compliance, he asked what measures the DMR had undertaken to ensure compliance by Optimum. He asked what measures were being undertaken to avert the disaster looming for the mine workers and their families. He asked what initiatives were being taken by the owners and management to avert the looming disaster. What institutional mechanisms had been put in place to gather an accurate assessment of the situation and what was the oversight role that had been played by the DMR? Did DMR have any suggestions on how the mine could turn around the situation?

Ms Malapane replied that the purpose of the Section 93 was to inform the company that they had to come up with measures to remedy the breaches and draw up an action plan. However, they have not yet drawn up an action plan. The mine only communicated to DMR about the challenges they were facing. DMR would continue to engage with them on drawing up an action plan. Section 93 allows giving time to an affected company to come up with mitigating measures and only when they fail to do so, can operations be suspended. She realised that there was company non-compliance in terms of communication with the union because it appeared the union was seeking information from management and the union has a right to be given full details of the happenings at the mine. When the CEO communicated with DMR, he said the company had submitted a Section 52 notice to the Minister but nobody knows about it at the DMR. Legally, however, it is only the board that can deal with these matters and not DMR officials. The retrenchments are the responsibility of the board. The board had since instructed the Section 52 Committee to address the Optimum management about these. DMR would try to ensure that the union is fully engaged in all matters affecting the mine.

Mr Mahwasane, DMR Director: Mine Surveying, said the DMR conducts routine inspections because there are a lot of mines in Mpumalanga and only when problems are detected are follow-ups made. There were challenges with the rehabilitation of the mine with the cost estimated to be around R1.5 billion. At the last assessment of the mine, the liabilities were estimated to be around R1.2 billion and at Koornfontein the liabilities were estimated at R300 million. There was a possibility that the problem could be much broader than just the banking facility. The Future Forum was actually designed to detect a problem before it happens, so NUM should have foreseen this if it had been utilised.

Mr Mguzulu responded that the CEO at Optimum does not recognise Future Forum and that was why they wrote to the Minister so that he could intervene. The company does not even present them the financial statements claiming that they are not audited. Since Tegeta took over, no audited financial statements had been presented. All that the CEO says is that they are making a profit.

Mr Mabapa observed that through the Section 189 process, mines stop complying with the legal requirements and the DMR should do more during the process. Unions have limitations as they do not have the power to ensure compliance. Union members even stopped attending the Future Forims because what was agreed upon was never implemented. DMR needed to take more interest in the Future Forums to ensure that companies comply with the regulations.

The Chairperson said he found it odd that DMR was asking questions that it was supposed to answer and it was directing them to the Committee. It would be important to discuss the advantages and disadvantages of having a business rescue practitioner but perhaps in the future. DMR should have given guidance and assessed the situation at Optimum mine if it was necessary to have a business rescue practitioner there. The Committee needed answers about exactly what was happening at Optimum but DMR was not providing those answers. They were not even providing accurate information on whether the mine was being sold or not. It was not even clear what intervention measures DMR had undertaken at Optimum Coal. The Department had not provided the Committee with any clear assessment nor had it provided any possible solutions. He was not getting forthright answers. He was not sure if the matter was even beyond the DMR. The DMR delegation at the meeting did not even have the authority to make binding decisions as they were not the accounting authorities. The Director General and Deputy Directors General were not present at the meeting. He suspected that the matter was not just a mere operational matter but one that required even political intervention. He felt it would be appropriate to send back the DMR officials so that they could return with concrete answers but first he wanted to listen to the opinions of the other Members.

Mr A Pikinini (ANC) said the first major issue was non-compliance and the second one was the absence of a bank. He asked what DMR had done about those issues but he was sceptical that the Committee was going to get satisfactory answers. He suggested calling the Optimum management, particularly the CEO, to come before the Committee so that they could explain exactly what was happening at the mine. He also suggested calling the Director General and the business rescue practitioner.

Mr Lorimer agreed and said the DMR officials present at the meeting were mere sacrificial lambs. They were not the people making the decisions and yet they were sent before the Committee. The current and the former DG should come before the Committee to clarify matters. The question he had through all the events that had unfolded was where was the DMR? It was obvious to the union from early on that the new owners were not being serious about compliance. He wanted to know all the meetings that DMR had had with Tegeta, when they became aware of these challenges and what they had done about them. He could not believe that it had taken two years and only now DMR was beginning to ask questions and swing into action. It was important to know what had happened over the two years to prevent it from happening again. The livelihoods of a lot of people were at risk. He did not believe that the only problem at Optimum was that they did not have a bank account. If the mine had made R2.3 billion then the money had gone somewhere and every month when they sell coal to Eskom, the money goes somewhere. He asked how they were handling that money. If Optimum could handle money coming in, how could they fail to handle money going out? It was obvious from the very beginning that when they took over the mine, they were not going to spend money on anything and the issue of the bank was just a cover up. They were running away from doing the Social Labour Plan and spending money on the mine. They went into the mine to take out as much as they could and the workers and contractors are now potential casualties. It was important to ensure that as little damage as possible was done. He supported the idea of DMR returning to the Committee with people who could answer the questions. He had not even gone into the rehabilitation a matter about which DMR had flatly lied. DMR was asked if Tegeta had tried to access the rehabilitation fund and they said no even though there is a letter at DMR saying they could in principle access the funds. It was important to have another meeting with the right people and quickly.

Mr Mandela said there were a lot of uncertainties. The workers had been paid but only for February so there was uncertainty about the coming months. It was unclear what business guarantees were being put in place by the business rescue practitioner. The Department needed to ensure that Optimum was held accountable for its commitments particularly to the employees. He asked about the status of the negotiations amongst the mine owner, workers and the unions. It was important to know what the social, political and economic impact would be in the case of the mine shutting down.

Adv Seapei Sekgetho, DMR Acting Mpumalanga Regional Manager, said they were not aware of the mine being sold but they had a meeting with the CEO on 21 February where he indicated their intention to sell the mine. Processes, however, require that whenever that happens, a Section 11 application has to be submitted to DMR so the Minister can give his consent. No such application had been submitted to DMR.

Ms Malapane said DMR had not gone so far as to enter into negotiations. She conceded that it was not possible to answer most of the questions but the concerns had been noted and they would be able to respond later.

Mr Mguzulu said a solution to the problems would be to get a new shareholder at the mine and new banking facilities. The mine closure would have an impact on the electricity power supply to the country because Optimum supplied the Hendrina Power Station in Mpumalanga. He confirmed that the CEO had communicated to the union in October 2017 that there were plans to sell the mine and that a deposit had even been made, so it was surprising that DMR had not yet been informed.

MEC Kholwane said he had been hoping for answers but what he was now foreseeing was a disaster. The unfortunate thing was that the province did not have the legal framework to do anything. They were heavily reliant on the National Department. They had just seen the media reports. No one had even the courtesy to inform the Provincial Government about that was going on so they could prepare – because the impact would be felt by the fiscus of the province. When industrial action took place, the road which belongs to the province was blocked and property belonging to the province was burnt.

Mr Mthombeni said the union was of the view that there was no need for a business rescue and that Tegeta should withdraw and allow another company to run the mine.

The Chairperson said the reason the Committee accepted the union’s letter request to hold the meeting with DMR and the Optimum Mine management to establish certainty and plot a way forward but this certainty was not forthcoming. He asked DMR to present itself to the Committee the following week to provide answers on:
• The situation at Optimum Coal
• Establish cases similar to Optimum Coal
• Report on what DMR had done so far
• Establish if there was a need for a business practitioner at Optimum
• If DMR had met with the Optimum Coal Mine Board of Directors and state the information they provided
• Establish if the company was being sold
• Establish the number of workers that would be affected in case the company being liquidated
• Establish the collateral available should the company go under
• Provide information if DMR had met with all affected parties including labour.
He said DMR senior management and the DG should be at the next meeting.

Mr Lorimer asked what would happen in the meantime and if the mine would continue to operate

The Chairperson said industrial action was already on.

The meeting was adjourned.

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