ATC200826: Report of the Portfolio Committee on Mineral Resources and Energy on the Engagements with regards to Optimum Mine held in Parliament on 23rd June 2020 dated 25 August 2020

Mineral Resources and Energy

Report of the Portfolio Committee on Mineral Resources and Energy on the Engagements with regards to Optimum Mine held in Parliament on 23rd June 2020 dated 25 August 2020.                      

 

The Portfolio Committee on Mineral Resources and Energy (PCMRE), having held meetings with stakeholders’ reports as follows:

 

1.         Introduction

 

On the 23rd of February 2018 the Committee received briefings from the Management of Optimum Coal Mine, the then Department of Mineral Resources (DMR) which is now known as the Department of Mineral Resources and Energy in the 6th Parliament (DMRE) and National Union of Mine Workers (NUM) on the latest developments at Optimum coal mine in Mpumalanga, where workers were on strike to demand the payment of outstanding salaries, after receiving a letter from Mr R Mguzulu (NUM Branch Secretary) requesting an intervention on the issues negatively affecting the mine.  The Committee understood from the letter that workers were also demanding answers about the future of the mine as creditors of the mine had applied to the High Court in Pretoria to either place Optimum on business rescue or have it liquidated, to settle its debts.

 

During the fifth Parliament, the department (DMR), union representatives and the business rescue practitioners (BRP) were invited by the Portfolio Committee on Mineral Resources (PCMR) to address the Committee on issues affecting the mine (Optimum). Subsequent to the previous briefings, The Speaker of the National Assembly (NA) referred the matter of Optimum and Koornfontein Business Rescue process to the Committee (PCMRE) on 11 September 2019 after she received a complaint from NUM branch Secretary, Mr Mguzulu requesting intervention on the business rescue process affecting Optimum and Koornfontein mines.

 

On the 23rd of June 2020 the Portfolio Committee of Mineral Resources and Energy received briefings from the   department of Mineral Resources and Energy and the   Business Rescue Practitioners (BRP) regarding an update on Optimum mine. The report outlines the process undertaken by the Committee thus far and possible recommendations to the House.

 

2.         Background

 

Optimum Colliery was awarded a contract in 1968 by Eskom to provide coal for the Hendrina power station. The mine began as an underground operation and produced its first coal in 1970. In 1971 the mine added an Opencast operation due to the shallow depth of the coal seams. The underground operation was progressively phased out and replaced by opencast mining by 1982. During 1981 it was decided that Optimum Colliery would become a multiproduct mine, supplying the Hendrina power station as well as the export and inland markets. The mine was owned by Ingwe Coal Corporation, which was a wholly owned subsidiary of BHP Billiton. In 2014 Glencore assumed ownership of Optimum Coal assets when it purchased BHP Billiton Energy Coal South Africa from BHP Billiton.

 

On the 4th of August 2015, the board of directors and management of Optimum Coal Holdings, the parent company of Optimum Coal Mine resolved to place the company in Business Rescue. This was as a result of historical operational and financial difficulties and extremely difficult coal market conditions. The mine as well as the lucrative export allocation at the Richards Bay Coal Terminal was subsequently purchased by Tegeta Exploration Resources in 2016.

 

The National Union of mineworkers (NUM) leadership stated that since Tegeta assumed ownership of the mine in 2016, things started falling apart, for example, mining equipment was not properly maintained and social commitments of the mine were neglected. At that moment there was no Personal Protective Equipment (PPE) at the stores. It became clear to the NUM leadership that the mine could close anytime. The mine has sufficient reserves of coal. It’s life span is estimated to last up to 2032.  NUM has tried several times to engage the Management on the deteriorating state of the mine.

 

There was a challenge with the Bank of Baroda, which was in the process of winding down its business in the country, which effectively denied the mine access to any banking facilities.  The workers did not receive their salaries on the 23rd of February 2018 as per company normal schedule. However, the union had noticed that the Bank of Baroda was still operational. The union requested Management to explain its future plans for the mine, but nothing happened (there was no response). Many creditors of the mine have not been paid. The contractors have also not been paid since October 2017 as a result their employees have not been paid. When contractors complained, their contracts were terminated. The unfinished Social and Labour Plan (SLP) projects started by Glencore were not pursued by the new owners despite prior undertaking to take them over when DMR issued a mining licence.

 

The DMR visited the company and discovered that the company was not complying at all with the SLP. Everything came to a standstill in the year 2016. The terms of the employees trust Employee Share Ownership (ESOP shareholding) are not being adhered to; no bursaries have been awarded by the new management. DMR issued a directive to the company to come up with plan to address the above compliance shortcomings in two months. It is the view of the NUM that there is no way the company can rectify all the issues identified by DMR as non-compliant.

 

NUM reported that after sale to Tegeta, things started to deteriorate. Before the new company took over, they assured workers that since the mine was bought under section 197 as a going concern, everything will be normal as under the previous owners. But with Tegeta, there is no sustainability. Workers are 9.93% shareholders in Optimum through the ESOP. At a meeting on 23 September 2017, former Minister Zwane asked NUM to support Tegeta in getting banks to keep banking accounts open for the company. He further assured the union that all the ESOP conditions will remain intact. Subsequent to the above events, the employees were informed that Tegeta is in the process of being sold to a company named Charles King.

NUM leadership indicated that it wrote a letter to the DMR in September 2017. It was hand-delivered to the registries in both the Regional and the National DMR offices, but there has been no acknowledgement of the letter or reply to date. The letters expressed NUM’s concern that the DMR would consider allowing someone without a background in mining to take over the mine. Charles King is a Swiss Company specialising in shoes and fashion.  The union was further informed that a deposit of R400 million has been paid already, even before conducting due diligence, this appeared to be a fake sale.

 

NUM also mentioned the dismissal of the DMR Regional Manager, Mr Aubrey Tshivhandekano, who was dismissed because of delivering a notice of non-compliance with the SLP by the company (Optimum). The union could not go into details as the case was still pending.

 

The business rescue practitioner was appointed on the 19th of February 2018. The workers requested to see the financial statement, but they were told they had not been audited. During the 14 months’ period, since the 2015/16 business rescue process started, Optimum produced revenues to the value of R2,2 billion. So it is clear that this is not a distressed company from an operational point of view. Why is it under business rescue then? However, the main interest of NUM was job security, that is the main reason the union wrote to the Committee.

 

NUM leadership further indicated that it was not only Optimum that is affected but also Koornfontein colliery (next door) and Shiva Uranium in North West which have been placed under business rescue. There was a lot of pressure on NUM leadership because workers are concerned about retrenchment if this matter is not dealt with accordingly.

 

1. Presentation by the DMR

The department (DMRE) explained that Optimum permanent employees were eventually paid for February 2018, but there were lingering uncertainties about March salaries. NUM had stated that contractors had not been paid since October 2017, that is something the DMR was not aware of. In terms of Section 101 of the MPRDA if a mine appoints a contractor, the mine is still responsible for compliance with the Act.

 

In addition, even if Section 189 of the Labour Relations Act has been applied (to give notice of possible retrenchments). The DMR has not received any notification from the mine under Section 52 of the MPRDA (which requires formal steps when retrenchment is contemplated). There are also concerns that the company is not complying with the Basic Conditions of Employment Act. She said section 11 approval was granted authorizing Glencore Operations South Africa (Pty) Ltd to transfer Optimum Coal Mines to Tegeta in April 2016. Tegeta owns Optimum coal, Koornfontein, Brakfontein and Idwala (Vierfontein Colliery). Optimum has two open cast operations, two underground operations and two processing plants in Mpumalanga.

With regards to compliance monitoring, Optimum was issued with S93 order in terms of the MPRDA due to non-compliance with the material terms and conditions attached to their mining right; in particular, non-adherence to commitments made in relation to the approved Social and Labour Plans (SLP). A notice in terms of S31L of NEMA was also issued to Optimum due to their failure to adhere to the ENVIRONMENTAL rehabilitation plan commitments. These resulted in follow-up meetings where Optimum Coal was given an opportunity to respond to the issues raised.   

                                                                                                                                                                                                                                                                                     Regarding salaries, it was indicated that the Department of Labour should intervene. The Department explained to Optimum the administrative processes to follow after the [Section 52] notice is served and all relevant expectations of the department from the company. The company indicated that since the Bank of Baroda has left the country it is impossible for it to do business. The company indicated it would not be in a position to pay employees’ salaries due to the bank’s departure. The company further stated that they could not receive payments for coal supplied to Eskom due to the banking issue.

DMR reported that the mine Manager from Optimum highlighted the following:

• Employees were on strike demanding to know the status of the mine.
• Employees wanted to know if they would be paid come month end of February and that prior payments were up to date.
• That the company had issued a notice in terms of S189 of the Labour Relations Act and that they were still under consultation with Interested and Affected Parties, however the company never informed the Department as per the requirement of S52 of the Act, that they are in the process of selling the company.

DMR indicated that it was clear that the issues raised by management were not affecting Optimum coal alone, other operations may be affected. It was therefore important for Tegeta to work with all the affected stakeholders in order to remedy the situation. The Department assured the Committee that it remained committed to ensuring the security of employment in line with the objectives of the MPRDA.

It was indicated that Optimum is a very viable mine which has reserves of 15 years. The problem is not money, but banking facilities. Business rescue can be a prolonged process, the equipment and all infrastructure depreciates if left in a bad condition. It is important to keep working on a mine continuously, every day, or it deteriorates (business rescue process, presents a risks of work stoppage in the mine). There is a worry that any intervention will come too late.

 

1. Remarks by MEC Kholwane

The MEC of Finance, Economic Development and Tourism in Mpumalanga, Mr E Kholwane commented on what was happening in the Province. He was concerned that there was a lack of communication between stakeholders. His fear was the possible loss of jobs as it would impact badly on the fiscus of the Province. The way the community expressed its frustrations, it usually results in the burning of tyres thus damaging the roads which belong to the municipality and the Province and not the mines. The DMR leaves the provincial government to deal with the resulting social consequences resulting from the mine failure and increased the unemployment rate. Brakfontein mine in Delmas mines are from the same stable, with the same problems. There was no problem with the mine operational capability.He believed that the issue at Optimum coal has to do with the banking facility more than anything as the mine cannot transact.

 

1. Listening to all the presentation above, The Committee resolved that, the department of Mineral Resources and Energy should come back to the Committee and respond to the following questions: 

• What does DMR know about the situation in Optimum Coal Mine in Mpumalanga?
• When did the Department become aware that the mine was failing to maintain its equipment and provide safety equipment and failing to honour its commitments (the payments required) in terms of its Social and Labour Plan commitments?
• When and what active steps were taken to correct the situation?
• Has the Department interacted with local and provincial authorities to prepare them for dealing with the unfolding crisis?
• Are there any other cases that the Department knows of that are similar to Optimum Coal, and if so, what steps are being taken to deal with such problems?
• What has the department done in previous situations where a mine has been taken over by a business rescue practitioner to ensure that the mining laws are fully complied with?
• When did the need for a business rescue practitioner arise and when was the DMR advised that the mine was in business rescue?
• Has the Department met with the Directors of the mine who made the decision on business rescue and what was the feedback?
• Is the company to your knowledge being sold? How many workers or employees will be affected if the company fails?
• What collateral is there (available) in the event this company fails? Is this sufficient to cover environmental liabilities?
• Has the Department met with labour and other affected stakeholders?
• The Committee was concerned that there was a need for determined leadership from government to avert a potential disaster if the mine fails. As custodian of the mineral wealth of the nation, the DMR needs to ensure that such leadership and co-ordination was in place.

 

3.    Members in attendance

 

Name of Member	Political Party
Mr S Luzipo Mr M G Mahlaule Mr J H Bilankulu Ms V T Malinga Mr M J Wolmarans Mr S M Kula	African National Congress (ANC)
Mr K H Mileham Ms C Phillips	Democratic Alliance (DA)
Ms N Hlonyana Mr D Mthenjane	Economic Freedom Fighter (EFF) (Alternate)
Mr M Nxumalo	Inkatha Freedom Party (IFP)

 

4.         Submission by Department of Mineral Resources and Energy

 

On the 23rd June 2020 the department of Mineral Resources and Energy presented an update on the mine.  The department presented on the background of Optimum coal mine and its purchase by Tegeta, it further detailed the Environmental Management Programme (EMP) of Tegeta’s as well as the Social and Labour Plan (SLP) commitments which had to be activated. The SLP for 2018-2022 was long overdue and there was non-compliance in its implementation of Human Resource Development programs and Local Economic Development projects were incomplete.

 

On the EMP, the environmental liability was estimated to be R1.86 billion in 2019 while the Environmental Rehabilitation Trust only had R1.75 billion implying a shortfall of R112 million. The rehabilitation plan encompassed 8 539 hectares of which 1 281 hectares was unavailable yet in February 2018 only 17 hectares has been rehabilitated. The department then spoke to the remedial action being taken by the Department. The company continued to be under business rescue and continued to be non-compliant on its EMP and SLP. 

 

5.         Submission by Business Rescue Practioners (BRP)

 

Mr Bouwer Van Niekerk, a BRP lawyer, said it was important for the Committee to understand the state of the mine which the BRP found when it started its work. He said, there was a need for a capital injection since Tegeta took over operations. He said the end game could not be a company turnaround because the company could not access transactional banking facilities and the possibility of this occurring in the future was non-existent, so there was a need to sell the mine or operate it and pay off substantial creditors.

 

He explained that the selling process had been undertaken over the past two years, there were three bids on the table. The difficulty was funding assurances, as Optimum was a big mine and Covid-19 had further complicated the selling process. He reported that an alternative plan to ramp up production of the mine was also being considered because the maintenance costs were substantial. He stated that an alternative proposal from a large creditor which entail converting its debt into equity was expected. If this was received, then a BRP plan could be published.

 

1. Observations

 

Having listened to the presentation the Committee observed the following:

 

• The role of the department is constrained by the provisions of the Company’s Act, which relies mainly on the judicial process and regulate the process that has to be followed by the BRPs, this minimizes the influence of the department (DMRE) in resolving the current problems faced by the mine.

 

• The staff which had been retrenched (without being paid), however according to chapter 6 they will be the first to be paid, if the mine was sold.

 

• There was confusion with regard to the ownership of Optimum mine, however, according to the report by the BRP, Tegeta is still the owner of the Optimum mine.

 

• There is no clarity with regards to how long it would take to hand over Optimum mine, as a section 11 (MPRDA) approval is required and the process is normally extensive (takes time).

 

• The Companies Act requires that a plan is published within a specific time frame, but in the Optimum case the BRP is faced with a number of challenges, this discourages potential bids given the amount of finance required.

 

• The BRP had to engage with creditors as part of the BRP process and in the case of Optimum, Optimum had no secured creditors so raising funds using mining assets as security was problematic for creditors.

 

• Optimum is a valuable asset considering its mining assets as well as the Richards Bay export allocation, if the BRP process was not successful, a substantial amount of money would be lost in the event of a liquidation.

 

• Unavailability of banking facilities, continue to present operational viability for the mine.

 

1. Recommendations by the Committee

 

The Portfolio Committees having heard the presentation recommends the following:

 

• The department of Mineral Resources and Energy (DMRE) as the custodian of mineral rights should be the lead agent when deciding on the future of the mine not the BRPs.
• The Department of Mineral Resources and Energy should ensure that compliance issues negatively affecting the mines are resolved as a matter of urgency so that workers can receive their outstanding salaries and be able to go back to work.
• The Department of Mineral Resources and Energy should continue to ensure full compliance of the mine with all its legal obligations as they pertain to the payment of wages as well as all the Social and Labour Plan provisions.
• The MPRDA should not be superseded by the Company’s Act during the business rescue process, the department should explore measures to harmonise the above legislations in a manner that facilitate effective interventions by the DMRE in regulating mining operations and transfers of mining assets.
• The Department of Mineral Resources and Energy should continuously monitor developments in the mine, and keep the Committee up to date.
• The Department should present the audited financial statements pertaining to the period when the mine was under the business rescue process to the Committee.

 

Report to be considered.