Funds are being sourced from the Central Energy Fund (CEF) so that its subsidiary African Exploration Mining Finance Corporation (AEMFC) can acquire Optimum mine, formerly owned by the Gupta family, mineral resources minister Gwede Mantashe said.

In a reply to a parliamentary question from the DA’s James Lorimer, Mantashe said AEMFC, which was part of a consortium to acquire the mine, would be contributing R500m.

This money would come from a shareholders loan intended to be sourced from the CEF and subject to necessary Public Finance Management Act (PFMA) approvals being obtained.

Optimum, formerly owned by the Guptas’ mining company Tegeta, has been in business rescue for more than a year without any resolution, which has put the mine and employees who have not been paid since October 2018 at risk.

Business Day reported earlier this week that AEMFC had entered into the transaction without the knowledge of the Treasury or permission from the energy minister.

Under the PFMA, a state-owned enterprise (SOE) must inform the Treasury in writing and obtain the permission of its executive authority prior to entering into any partnership or joint venture.

In February, the AEMFC announced that it had been awarded a two-year mining contract under the supervision of the business rescue practitioners for which it would provide R1bn in post-commencement funding.

The state-owned mining company was part of a consortium that included empowerment group Lurco, which has partnerships with several companies in mining and related operations, and Sycamore Corporation, a UK-based financier.  

According to Lurco, the companies will each provide 50% of the funding.

Mantashe in his parliamentary response said R1bn was raised from Sycamore Capital Corporation for the acquisition.

Asked what risks the agreement held for AEMFC, the minerals minister said ordinary mining business, financial and operational risks. There was also the question of whether there was a market for the coal and whether the operation would be profitable.

Mantashe said environmental rehabilitation liabilities were another risk, just like any other mining operation.

AEMFC would conduct a due diligence so that it could apply suitable business strategies to mitigate against any risks, prior to the final commitment, he said.

“This is … an opportunity that has availed itself through an open business rescue process which AEMFC as a commercial enterprise, albeit state-owned, has sought to pursue, not only as a potential for its own growth, but also as a means to support Eskom as a sister SOE, in securing energy supply to the South African economy,” Mantashe said.