The Week's Essay: Big deal over "strange" meeting

Published by MAC on 2019-09-09
Source: Mail & Guardian [South Africa]

South Africa's latest coal controversy

 

Big deal over ‘strange’ coal mine meeting

by Sabelo Skiti, Thanduxolo Jika

Mail and Guardian (South Africa) 2019

6 September 2019

Fired up: Seriti Resources, headed by Mike Teke, wants to buy a business,
which, if it goes through, will land the company 32.5% of coal sales to
Eskom.

Seriti Resources’s second big coal mine purchase in as many years has been
dogged by controversy about a meeting between the company, the sellers
(Australian mining house South32) and the government.

Seriti chief executive Mike Teke and director Lefa Mbethe and a team from
South32 met senior department of mineral resources and energy (DMRE)
officials three weeks ago — a full week before the Australian giant
announced to shareholders that Seriti had won exclusive rights to
negotiate to buy its coal business, South African Energy Coal (SAEC).

It has been speculated that, should the deal be concluded, Seriti would
become Eskom’s second-biggest coal supplier, at 32.5% — about 39-million
tonnes — of the state-owned utility’s coal procurement spend.

The deal has attracted criticism of advantage and political patronage,
because no other bidder was granted the same courtesy of a meeting
department officials.

An observer with intimate knowledge of the deal said the “strange” meeting
should be seen in the context of Teke being one of the donors for
President Cyril Ramaphosa’s campaign for the December 2017 ANC
presidential race, which he won at Nasrec in Johannesburg.

A department source said: “It is strange that they went to [the
department] and the other second bidder was not invited to such a meeting.
Does this mean people must first donate before they can get contracts?”

A mining insider said: “It does not make sense because the transaction is
still subject to competition commission approvals and both parties are
familiar with the department as they already own mining assets.”

Speaking in general terms, an attorney at SWVG Inc experienced in mining
matters including acquisitions, said it was impossible to establish
whether any meetings held with the department in which a seller and
purchaser is present is above board.

“It would seem in instances where a tender/bidding process is still open
that such meeting would not be proper, as what would be the purpose of
having such a meeting?

“If, however, there is an exclusive party who bid, it may well be that a
meeting with the buyer and seller with the DMR [department of mineral
resources] may be to determine implementation and other aspects which by
law require the DMR’s input and involvement.”

In these cases once a deal between seller and buyer has been reached, and
the Competition Commission approves the transaction, the DMR as regulator
has to approve an application in terms of section 11 of the Minerals,
Petroleum Resources and Development Act (MPRDA).

Seriti and the government have downplayed the meeting, describing it as
just a courtesy call.

Seriti’s spokesperson, Charmane Russell, said the donation and the sale of
the mine were “completely separate” matters.

“Mike Teke’s donation was done in his personal capacity, with no reference
at all to Seriti,” she said.

“I can confirm that a delegation led by South 32 did meet with
representatives of the DMRE this week. This is in relation to South32’s
announcement that it had entered into an exclusivity agreement with Seriti
in respect of the acquisition of the SAEC assets.

“This was a courtesy meeting, as is appropriate — and not unusual — when
companies are considering transactions of this nature.”

Russell added that no agreement had been concluded, and that Teke, as
Seriti’s chief executive, had attended the meeting on behalf of the
company’s board and shareholders.

Department spokesperson Ayanda Shezi said the companies requested a
meeting with department “as [the] regulator of the industry, to provide an
update on the proposed sale”.

“This is standard practice.

"Once a section 11 application is received by the department, only then
does the department interrogate the proposal to ensure it complies with
provisions in the MPRDA and Mining Charter. At this stage no section 11
application has been made to the department,” Shezi said.

South32 did not respond to repeated requests for comment.

The multibillion-rand deal is the second major transaction Seriti
Resources is involved in after the company concluded the purchase — for
more than R2.5-billion — of Anglo American’s coal assets in South Africa.
These include the New Denmark, New Vaal, and Kriel collieries, which
supply the Tutuka, Lethabo and Kriel power stations respectively.

Should they be successful in their bid for SAEC, the new players will also
supply the Duvha and Kendall power stations through their respective
Wolverkrams/Ifalethu and Khuthala collieries.

Although Seriti’s acquisitions benefit from global mining giants South32 —
formerly part of BHP Billiton — and Anglo’s loss of interest in
depreciating coal assets, they still carry some value because they are
tied to multibillion-rand contracts with Eskom.

Media reports put the value of SAEC’s supply contracts with Eskom at
R5-billion a year, but to conclude the deal Seriti will have to pay
upfront about $739-million [R11-billion] to the department to replace
South32’s rehabilitation fund liabilities.

Eskom, which would not confirm the value of SAEC’s supply contracts, said:
“In terms of the coal supply agreements [CSAs] between Eskom and South32,
any cession of CSAs to Seriti will require Eskom’s consent.

“The consent request will trigger a due diligence exercise [DD] on Seriti
to ascertain whether Seriti is able to assume the rights and obligations
of South32 under the CSAs.”

Eskom’s spokesperson added that: “An appropriate recommendation would be
made to the Eskom board based on the outcome of the DD. All external
approvals such as Public Finance Management Act approvals will be obtained
as necessary.”

Seriti will also be required to provide similar cash guarantees for
security of supply to that provided by South32 under the CSAs.

Teke, an experienced mining industry executive and former president of the
Chamber of Mines, donated R600 000 in two deposits to the Ria Tenda
Trust’s Standard Bank account in January and February last year. These and
other donations came to light when bank statements belonging to three
trusts in which campaign donations were made public.

The donations have stirred up a hornet’s nest since the release of public
protector Busisiwe Mkhwebane’s report in July about a R500 000 donation
from the corruption-tainted company, Bosasa, to the CR17 campaign [iniated
by South African president Cyril Ramaphosa in 2017].

In her report, Mkhwebane said there were a series of complex transactions
to disguise the “laundering” of more than R400-million donated to the CR17
campaign. Ramaphosa has disputed the findings and has since taken
Mkhwebane’s report on review.

Opposition parties and a faction in the ANC have criticised the donations,
saying that monopoly capital was buying its way into government deals.