Glencore's Optimum Coal Operation Said to Draw Buying Interest

  • Low coal prices drove Optimum into business rescue in August
  • South African power utility wants to keep supply contract

Glencore Plc’s Optimum Coal unit, which went into “business rescue” in August citing an unprofitable deal to supply South Africa’s power utility with the fuel, may be sold, with at least one offer being considered, according to three people familiar with the situation.

“The business-rescue practitioners are considering all options that are acceptable to Eskom and all stakeholders,” Piers Marsden, one of the people overseeing the process, said by phone. Business rescue is the equivalent of bankruptcy protection.

Eskom Holdings SOC Ltd. said in June it wouldn’t renegotiate a contract to supply 5.5 million metric tons of coal annually despite Glencore saying that it was at prices that have been “significantly less than the cost of production for a number of years.” Prices for the fuel in South Africa have declined 43 percent since the start of 2014 to $47.05 a ton.

Whoever buys the assets will have to continue supplying Eskom, Khulu Phasiwe, the utility’s spokesman, said by phone. Optimum business rescuers had suspended the supply deal and then reinstated it until the end of November. Eskom plans to meet with the rescuers Tuesday to discuss the situation.

“We have not been formally informed about any sale,” Phasiwe said. “Whoever comes, hopefully they will buy everything including this contract we have.”

Glencore has a 68 percent stake in Optimum, according to the producer’s most recent annual report. Deputy President Cyril Ramaphosa’s Shanduka investment group, which is being bought by Pembani, also holds a stake. The sale hasn’t yet been concluded.

Glencore Coal South Africa Chief Executive Officer Clinton Ephron and Pembani spokeswoman Charlene Nyembe declined to comment.

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