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03 February 2011 23:12

Optimum Coal interim results: Mike Teke - CEO, Optimum Coal

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Alec Hogg is a writer and broadcaster. He founded Moneyweb

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    ‘I don’t disregard my environmental responsibilities.’


    ALEC HOGG: Mike Teke, the chief executive of Optimum Coal, is with us in the studio. Mike, you’ve had a rough ride from Moneyweb over the past year since you got listed.

    MIKE TEKE: Indeed I have, I have.

    ALEC HOGG: Well, your financial results are showing that maybe you’ve got  a lot of money in your back pocket – and I guess David Shapiro would say that’s good, because that’s good entrepreneurship. But your numbers are good, very strong. The business of Optimum Coal seems to be rolling along well, but what happened? The share price was extremely volatile this year. It got down to below R24 in October – that’s only four months ago – and it's back to finally above your listing price of R32. You're at nearly R34 today.

    MIKE TEKE: We at some stage touched R23.50, and it didn’t worry me at all. I always believed in the story. I always believed in the asset that we had at that time; we had Optimum Collieries and we had just bought Koornfontein Mines. Today we are talking about a portfolio of an opencast business that is Optimum Collieries with three opencast areas and one underground area, and Koornfontein Mine, which is a 100% underground mine. So that portfolio gives you good operational risk and control. And at the end of the day this is a business to go into.

    ALEC HOGG: Well, the coal price certainly has been going in the right direction. Are there any concerns, though, for guys like you? The whole clean-energy focus that we are seeing in our country and elsewhere, does it keep you awake at night?

    MIKE TEKE: It does keep me awake at night. I don’t disregard my environmental responsibilities. In the first place, if you look at when we took over the business, we had to build a water treatment plant, we had to spend R600m to ensure that our environmental responsibilities are fulfilled.

    ALEC HOGG: R600m?

    MIKE TEKE: Ja, we spent R500m when we built a water-treatment plant, simply because when you mine opencast you have a lot of water and how do you handle that? You must make sure that you treat that water.

    ALEC HOGG: What I mean about staying awake at night – what if wind energy, what if there were to be a breakthrough in solar energy or wave energy? Those kind of things – if they were to happen – would be some threat to coal.

    MIKE TEKE: You keep watching all those things. Eskom would have stopped building power stations as well. They would have built something else. They are building two coal-fired power stations, and they will still need coal for the coming future. If you look at India, the investment in the coal-fired power stations – I mean, it's been phenomenal. And at the moment the Asian markets are looking for coal.

    ALEC HOGG: Even if we have a big breakthrough, then we've still got to keep those power stations going.

    MIKE TEKE: Yes.

    ALEC HOGG: Mike, the big question mark often – and I'd like to pick up with you on Eskom in just a moment – but the big question mark for many exporters and particularly for coal exporters is the poor performance of Spoornet, the state-owned railway operation. Are you finding that they are getting any better?

    MIKE TEKE: I’ll give you a picture. Alec, in the past five to ten years we have never seen the TFR touching 70m tons per annum at Transnet Freight Rail. They haven't touched 70m tons per annum. Yesterday they said at the coal conference that they are definitely going to do 70m tons this year. We are looking forward to that.

    ALEC HOGG: Do you believe it?

    MIKE TEKE: I would like to believe them, I’d like them to improve their efficiencies. Richards Bay Coal terminal, where Optimum is a shareholder, sits at 91m tons capacity, and we’d like them to match that. And they are saying they can do 81m in 2014 and beyond that they can consider going to 91m. So I am concerned. I’d like them to improve on their efficiencies, number one. Number two, I’d like them to sort out the leadership side of the business. They’ve appointed a chairman now – at least it's permanent – and Mafika Mkwanazi knows the business. They must now accelerate their appointment of a CEO.

    ALEC HOGG: Mafika’s departure, you remember, some years ago, was really very strange. It looked more political than anything that he might have done wrong. But it's nice to see that somebody, as you say, who knows the business and is highly respected…

    MIKE TEKE: He's a  highly respected individual, and I think he’s going to improve the operation of TFR. And it's critical to our business. You know, a bulk commodity business, if you are in coal, iron ore, all those businesses, if you need rail it must be there so that you are able to compete globally.

    ALEC HOGG: Mike, what about this dispute that you have with Eskom?

    MIKE TEKE: We are in dispute with Eskom. We went to arbitration in August. John Myburgh postponed the arbitration and it will be taking place In March, and we hope by that time the plan is to complete it by April. At this point in time we have continued to supply coal to Eskom. We haven't stopped. Our commitment is 5.5m tons per annum. My discussion with the CEO of Eskom, for instance, continues with Brian Dames. We are trying our best to try and ensure that maybe we can get a solution before we go to arbitration. But the relationship is positive.

    ALEC HOGG: Mike Teke from Optimum Coal, a stock that you could have bought in October, as he said, at R23.50 – and today it's at R34/share. The way the rand is going and the way that the coal price is going internationally, it's unlikely to stop there.
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