Lily Mine Update; Optimum Mine Update: DMRE & BRP briefings

Meeting report

Business rescue plans for Lily gold mine

The Chairperson said it was the responsibility of the Committee to ensure that management who were responsible for the activities at Lily Mine, were the invited to the meeting. The Committee had received a letter from Mr Fred Arendse, Executive Director: Vantage Goldfields, and had decided to give him a hearing. The Chief Executive Officer (CEO) of Lily Mine at that time was not available for the meeting, and had that the Committee should deal with the business rescue practitioner (BRP), as the CEO had no powers.

Mr Arendse provided a background history to the current state of Lily Mine, explaining who Siyakhula Sonke Empowerment Corporation (SSC) was, and the Vantage GL-Flaming Silver SPV transaction timeline with Vantage South Africa (VGSA), highlighting the date of 25 March 2019, when the transaction was supposed to have been completed.

He said VGSA had continually frustrated efforts to sell the mine to allow operations to start by reneging on agreements, promises and undertakings. The BRP was conducting an abnormally protracted process and lacked independence, as witnessed by their filing of supporting affidavits in VGSA’s defence in the Arqomanzi matter, while not doing the same in support of the Flaming Silver case. VGSA’s real reason for reneging on the R10m Flaming Silver deal had been to accept a R50m deal from Real Win Investments. He listed a number of transactions for Lily Mine that had been cancelled, and addressed the existing company structure around Lily and Barbrook Mines.

He then spoke to the latest offer from ArqoManzi and the new amended rescue plans, as well as Vantage GL’s assets and investment strategy.

In conclusion, he said that for four years VGSA had had no intention of concluding the business rescue plan in order to avoid prosecution by keeping the evidence buried underground. The chances of the Lily Mine Company being rescued were slim under the current BRP. Lily Mine was an extraordinary matter that required extraordinary intervention, and asked the Committee to assist the Department in holding the BRP accountable to rescue the mines.

Discussion

The Chairperson said the Committee’s focus would be on the retrieval of the bodies, and the challenges related to that.

Mr K Mileham (DA) said it was important to get to the bottom of the accident. At Vantage, it appeared that different directors supported different investors. He asked who Mr Arendse represented in the presentation. Who was auditing the transaction process, and what was the Department of Mineral Resources’ (DMR’s) role was in the business rescue proposal. Should the transaction matters not be dealt with by the courts?

Ms N Hlonyana (EFF) said she did not fully understand what had happened. She asked the DMR how far they were towards reopening the mine, adding that someone had to go to jail for what happened at the mine.

Ms V Malinga (ANC) said there was a collective confusion in the Committee on the matter. What did Mr Arendse want the Committee to do?

Mr D Mthenjane (EFF) asked Mr Arendse which company he was representing, because there was confusion on his standing, as he was involved with Vantage. Which company had got the section 11 rights that had been lost at the BRP offices? He asked what Mr Arendse’s interest was -- the retrieval of the bodies or to make money.

Ms C Phillips (DA) said the presentation was confusing. What actions would he propose and what actions did he want the Committee to do to resolve the matter?

Mr S Kula (ANC) said he was confused as to who Mr Arendse represented. As the issue was before the courts, he asked what intervention Mr Arendse wanted from the Committee.

The Chairperson said that in Mr Arendse’s first letter, he had requested to appear before the Committee as the CEO of Vantage GL, but the Committee had an issue with that because the Committee’s main focus was the incident at Lily Mine, of which he was a director, and the Committee could not prescribe who should represent the company. He had now been invited because he was raising issues as the CEO of another company, and the Committee would have heard his views as part of its oversight visit to Lily Mine, but the Covid-19 lockdown had intervened. Rather than wait for when an oversight visit could happen, he was now being invited to address the Committee in a virtual meeting.

From a commercial point of view, it would be difficult for the Committee to deal with those transactions, but it could intervene on the issue of what best could be done regarding Lily Mine. Mr Arendse had not been invited as a director. What was a concern for the Chairperson was when Mr Arendse had joined Vantage as a director, and what the logic was behind joining a company in crisis. Who was the final owner of Lily Mine -- VGSA or Vantage Australia? Who had decided the price of the mine? He asked Mr Arendse what the real problem was.

How would the DMR ensure that the Lily Mine matter was a clean process, and what was its view on other matters that had been raised with the Department?

Department’s comments

Adv Thabo Mokoena, Director-General (DG): Department of Mineral Resources and Energy (MRE), said the Department was guided by the law and the regulations, and was the Regulator in this instance. It had therefore executed its mandate -- an inquiry had been conducted and it had presented recommendations on what was expected to happen. The Department had been involved from the beginning and engaged with all relevant parties as far as it could. It could not, for example, be involved in transactional issues between private parties. He acknowledged that frustration was starting to set in, but the Department had to ensure that there was compliance with the law. It had received a section 11 application which had been processed in a short time. After that, however, the parties had taken each other to court, so its role was limited. It could only urge parties to settle out of court. If it took the court route, the matter could take ten years to finalise. A plan had been published on the previous day, and the Department’s role was regulated.    

Mr Arendse’s response

Mr Arendse said he was at the meeting in his capacities as a director of VGL and of Flaming Silver. He was not representing ArqoManzi, the company that had made the bid on which the new amended plan, published the previous day, had been made.

He said the audit was one of the issues he had raised as a director.

He had been appointed a director of VGL in 2018 because of an investment of R32m in Lily Mine.

His interest in the mine was commercial, but the challenge they were having was getting the mine back into production so workers could be employed to earn a livelihood, and for the mine to benefit the community.

Regarding litigation, the matter had been taken to court, but unfortunately this was a very long process.

He said the real issue was that there were parties to the court case that did not have the same interests. On the one hand, there were those he represented who wanted the mine to open, and on the other hand there was VGSA that did not want the mine opened. This was why he had given the background, to allow the Committee to understand the situation.  

He agreed with the comment that matters were a mess. It was a co-ordinated mess, and as a result thousands of people were suffering. He did not want the Department or the Committee to get involved in commercial transactions, but the result of what was being experienced was affecting employees who had lost their jobs as a result of the accident.

Regarding the question on section 11, he said SSC Flaming Silver had applied for a section 11 approval, and therefore he had provided that background information.  

He was not approaching the Committee in terms of a commercial transaction, but the net effect of the lack of a transaction was that people were suffering at the hands of the very people who had caused the accident. His party had not caused the accident and were trying to open the mine.

He understood the Committee had limitations, but this was an extraordinary matter, and he was appealing to the Committee to assist the Department to bring the matter to a conclusion. There had been a five-year delay in the process, leading to thousands of people suffering as a result. The opening of the mine would bring employment to vulnerable communities.

Chairperson’s conclusion

The Chairperson said he would make an application for the Committee, as two teams, to undertake an urgent oversight inspection visit to Lily Mine. Prior to that visit, he asked the Committee that as Chairperson, he be allowed to develop a report for discussion by the Committee on the Lily Mine issue and on what had to be done, and provide possible Committee recommendations. The Committee would not be dealing with the commercial transaction, but on the challenges and delays in the retrieval of the bodies.

Optimum Mine: status update

Adv Mmadikeledi Malebe, Deputy Director General (DDG): Mineral Regulation, DMRE, gave a background to the Optimum coal mine and its purchase by Tegeta, and referred to Tegeta’s environmental management programme (EMP) and the social and labour plan (SLP) commitments which had to be resumed.

The SLP for 2018-2022 was long overdue, with non-compliance in the implementation of the human resource (HR) development programmes, and incomplete local economic development projects. On the EMP, the environmental liability had been estimated at R1.86b in 2019, while the Environmental Rehabilitation Trust had R1.75b, implying a shortfall of R112m. The rehabilitation plan encompassed 8 539 hectares, of which 1 281 hectares were unavailable, yet in February 2018 only 17 hectares had been rehabilitated.

She then described the remedial action undertaken by the Department. The company continued to be under business rescue, and continued to be non-compliant on its EMP and SLP. 

Mr Bouwer Van Niekerk, one of the BRP practitioners at Optimum colliery, said it was important for the Committee to understand the state of the mine which the BRP had found when it started its work. There had been a need for a capital injection since Tegeta took over operations. The end game could not be a company turnaround, because the company could not get 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. Sales processes had been undertaken over the past two years, with three bids on the table. The difficulty was funding assurances, as Optimum was a big mine and Covid-19 had made selling it a bit more problematic. An alternative plan to ramp up production of the mine was also being considered because the maintenance costs were substantial. An alternative proposal from a large creditor converting its debt into equity was expected. If this was received, then a BRP plan could be published.

Discussion

The Chairperson asked what the role of the Department would be if all the mines went into BRP.

Mr Mthenjane said the presentation gave rise to more questions than answers. He did not see any help forthcoming from any BRP. It seemed that BRPs were there only for their own self-interest.

Mr M Wolmarans (ANC) asked about the BRPs being paid via invoices, rather than receiving salaries. His impression was that employees were not getting their salaries while the BRPs were getting money, and he wanted this clarified.

Mr M Nxumalo (IFP) said his concern was that BRPs were seen as not rescuing businesses so that they could continue collecting revenue for themselves. They were not producing results, and he wanted to start a debate on the reason for the BRPs’ existence.

Ms Malinga asked what caused mines to go into BRP, because then the Department ceased to be in control. What was happening to miners who had not been paid?

Ms Hlonyana said she did not understand why the company was not complying when the BRP was in place. There appeared to be no clear plan on what route would be taken, and Members were left confused. What was the Department’s plan of action, and how were such issues dealt with legally? How long would the Department sit and accept what was happening?

Mr Mileham asked who owned Optimum currently. He said the possibility of a creditor turning its debt into equity would not result in a capital inflow. Were there not other parties interested in purchasing the assets, and operating the mine as a going concern?

Mr M Mahlaule (ANC) asked why the BRP was only now thinking of suggestions on the mine, when it had been appointed since March 2018. It was time that BRPs were put under scrutiny on what they did, as they were there to rescue a business within a time frame. Currently, the appointment of BRPs appeared to result in non-rescues. What was the time frame for BRPs on the Tegeta Optimum mine, and what was their role? He said that when municipalities were collapsing, administrators were appointed who drew salaries, and did not invoice their work. 

Department’s response

On what the Department was doing, Adv Mokoena said that Adv Malebe had already presented on what happened when mining companies failed to comply with mine works programmes. Whenever there were non-compliance issues, the Department had applied the law.

The Department was responsible for two BRPs. The first was Koornfontein mine, where the Department had engaged with the BRP on a weekly basis to seek clarity on the processes, and the BRPs were regulated by the Companies Act. The Koornfontein mine BRP had been done, but what was frustrating for the Department was that when one step forward was taken, the parties ran to the courts. When the Department pushed the BRPs, the BRPs indicated where they were at, but they faced challenges raised by parties which had taken the BRPs to court.

The Department was finalising the processing of section 11 of Koornfontein, and were now busy with Optimum

On Mr Mahlaule’s question on municipal administrators getting a salary compared to BRPs invoicing for their work, he said this was also regulated by the Companies Act, and therefore the Department had no say in the remuneration of BRPs. If there was a need to amend the law, the Committee was empowered to do that. The Department also had to raise a concern that there was a gap in the law.

Mr Van Niekerk said the current staff were being paid, although the majority of staff had been retrenched. However, they would be the first to be paid, according to chapter 6, if the mine was sold.

The BRP raised invoices and were not paid a salary because they were governed by the Companies Act and regulations. He said the BRP had not taken any fees for this year.

The BRPs had sold the Koornfontein mine and had ensured that former employees were re-employed in the new mining operations, and creditors had been paid off.

On whether resources had been depleted so as not to pay employees, he replied in the negative. He said there were vast resources of coal and the challenge was not the mine having limited resources, but rather to get capital invested in the mine.

He agreed that debt converted into equity was not a capital inflow, but the major creditor involved had set aside R300-R500 million to restart mining operations.

He said Optimum Mine was still owned by Tegeta. Charles King had sought arbitration that it had bought Tegeta’s shares in Optimum, but this had failed and Tegeta was the 100% shareholder of Optimum.

On how long it would take to hand over Optimum mine, he said voting on a business plan could happen within four to six weeks, but it needed section 11 approval, and this would take time.

Regarding time frames, the Companies Act specified that a plan had to be published within a specific time, but in the Optimum case the BRP had been faced with dozens of challenges designed to disrupt and delay proceedings. The BRP had called for bids, but not many parties had been interested because of the amount of finance required.

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

As to why there was a business rescue, he said Optimum was a valuable asset through its mining assets, and the Optimum coal terminal had an export allocation, and if the BRP process was not successful, a substantial amount of money would be lost through the liquidation of the mine.

Chairperson’s comments

The Chairperson said the issue of Optimum and other mines had arisen because the Gupta family bank accounts had been frozen, and they did not have banking facilities. The question that had been asked since the beginning was that when a BRP was brought in, where was Optimum going to bank -- to own mining rights and mining licences meant one had to have a bank account. At what point had the banking facility requirement lapsed? At what point had a BRP been appointed?

One of the Department’s requirements to retain mining licences was that specific regulations on issues like mine health and safety, and rehabilitation, had to be complied with. There had been non-compliance on these issues, yet a decision on converting debt to equity had been taken. Where had the Department featured in the taking of this decision? He asked for a list of names of creditors. He said one of the conditions for operating a mine was adherence to fair labour practices. Could more information on worker retrenchments be provided? If the Companies Act was a problem for the Department, had it engaged with its counterparts in the Department of Trade and Industry on the possible disharmony between the Companies Act and the Mineral and Petroleum Resources Development Act (MPRDA)?

He said that the moment companies went into BRP, it seemed as if the Department’s authority and power collapsed. Who did the books of a company when a company went into BRP? Who authorised the working life of the mine? What did the Department do about workers who were unemployed and had not been paid? Who were the creditors of the mine? Was the Department outside of its authority? It seemed the BRP was the most untouchable creature.

He would compile a report, and the Committee could then have a discussion to develop its stance on Optimum mine. Members should forward any other questions they had for the Department to answer.

Third Quarter Committee Programme

The Chairperson said he had received a letter from Mr Mileham requesting that an urgent meeting be held on the shortage of diesel fuel in the country, and deal with the nuclear issue. The process that had to be followed for an item to be added to the agenda included the Committee having agreed to it, and the Chairperson had to sign a letter of approval to indicate that he knew about the meeting. Such a meeting was subject to the availability of virtual meeting slots. Even if a date was confirmed, it was still subject to approval of a virtual slot.

Mr Mileham said the nuclear programme issue was not urgent, but the diesel matter was.

Mr Mahlaule said that in media reports on the diesel issue, the Department had acknowledged that there were sufficient diesel supplies, and this was enough to take away the urgency of the matter. He said the PetroSA and Lily Mine issues remained urgent matters.

The Chairperson said he had assumed the nuclear programme was regarded as urgent. He asked if he, as Chairperson, could write to the Department on the issue of the diesel availability inland, and ask them for their view on the matter and what actions were being taken. The matter could then be taken up as a matter arising from the minutes if the diesel supply was still an issue when Parliament re-opened for the third quarter. He tentatively suggested 28 July for the diesel issue, and 29 July for the nuclear programme.

Mr Mileham said the reason for the urgency in his letter of 9 June was not about the availability of the product, but its distribution. Large parts of the country were not getting diesel, especially the agricultural sector. It was a real crisis which the Department and Minister had said would be resolved by the end of May, yet it was not resolved at the end of June. The matter should be included in the discussion at the meeting on 28 July on strategic stocks. He would be raising the lack of urgency in dealing with his concerns with the Chair of Chairs.

Member demands apology

Turning to another matter, he said that the Chairperson and Mr Moloto Mothapo, Parliamentary Head of Media and Communications, had issued a press statement on Monday of the previous week on the Parliamentary website, which had been picked up by media sources, which had stated that he was underhanded and dishonourable. He had complained to the media department, and had received an apology from Mr Mothapo. He was now requesting a formal apology from the Chairperson and Mr Mothapo.

The Chairperson said he would not give an apology, because he had written the statement on behalf of the Committee in his capacity as its Chairperson, and Mr Mileham could write to the Committee on the issue because he was asking on the wrong platform.

Mr Mthenjane also said it was not the right platform.

Mr Mileham said he was expecting an apology, and if no apology was forthcoming, he would take the matter further.

Mr Nxumalo asked if the Committee was meeting the following day with the Department of Public Enterprises in a joint meeting.

The Chairperson confirmed the joint meeting for the following day.

Mr Wolmarans said the issue raised by the article could be discussed by Committee, but that the Chairperson should not be singled out.

The meeting was adjourned.