Glencore moves to buy S.Africa's Optimum Coal

City A.M. Reporter
Commodity trading giant Glencore has confirmed it aims to take a controlling stake in South African coal miner Optimum Coal Holdings with its local partner, prominent local politician-turned tycoon Cyril Ramaphosa.

The deal would be worth around $1bn (£613m) at OCH's current share price.

This would be Glencore's most significant purchase since its record share listing, when it sacrificed its fiercely protected privacy to gain the balance sheet firepower for making acquisitions.

Optimum, a mid-size producer with large export capacity at Richards Bay Coal Terminal and reserves, attracted keen buying interest from local and international companies since BHP Billiton originally put the mine up for sale.

South African coal is a key source of supply to both the European and Asian markets, particularly India - South Africa ships around 30 per cent of its coal to India and increasingly, to China.

But competitors of Glencore - including some of the world's biggest commodity and energy traders - who had also looked at buying OCH, said earlier this week that they were uninterested because the mines were saddled with long-term marketing agreements.

"Where's the value if the marketing agreements are still in place?" one senior executive at an international trader said.

"We looked at it, we were approached earlier this year and we said 'no'," he added.

Unless these agreements could be bought out or broken, there was no value they could see in OCH's assets, sources at several firms said.

But Glencore will not touch the marketing contracts which BHP Billiton and Mercuria Energy have for coal from both the Optimum and Koornfontein mines .

"The lifespan of the assets is materially in excess of the lives of the existing contracts and the acquisition price represents a great value acquisition for the long term," a source close to the proposed deal said.

The acquisition of South Africa's sixth-largest coal producer would give Glencore access to two operating assets, the Optimum Collieries and Koornfontein Mines, as well as 8m tons of coal export entitlements from the Richards Bay Coal Terminal.