Glencore could walk away from South Africa smelter rescue talks over conditions

Glencore’s South African ferrochrome unit could walk away from talks with the government over a discounted electricity package due to what it sees as unfavourable conditions, an executive said on Thursday.

Glencore has said it requires reduced tariffs to keep its loss-making smelters open and avert job cuts. The government is keen to save the smelters, which employ thousands and are major customers of the state-owned electricity supplier Eskom.

Eskom on February 27 offered the country’s two biggest ferrochrome firms, including the Glencore unit, heavily discounted electricity in a bid to rescue their troubled operations.

The offer, to reduce electricity tariffs from 1.36 rand ($0.0808) to 0.62 rand per kilowatt hour, is subject to approval by South Africa’s energy regulator under conditions that are yet to be made public.

But Glencore Ferroalloys CEO Japie Fullard warned the company could walk away from the talks, saying some conditions of the package deal were not acceptable to the company.

“The terms and conditions, the way that it is now, I unfortunately will not be in a position to sign,” Fullard said at a mining conference in Johannesburg.

“So that means, if they do not come to the party, we are going to walk away from the 62 cents (deal),” he added.

Smelters battling high costs

Fullard said representatives of the ferrochrome firms were meeting government representatives late on Thursday.

Glencore on March 2 deferred lay-off procedures at its ferrochrome until March 31 to allow ongoing negotiations. As many as 1,500 jobs would be cut if no agreement is reached on the electricity tariff package, Fullard added.

Samancor Chrome, the other ferrochrome producer which was offered discounted electricity, has said it is going ahead with plans to lay off workers.

The firm said while the reduced tariff addressed electricity cost pressures, the terms and conditions attached to the offer posed “a threat to the long-term viability of the ferrochrome industry”.

Neither Glencore nor Samancor have disclosed the conditions as negotiations are ongoing.

South African smelters are battling high electricity costs, which have risen tenfold since 2008, amid growing competition from Chinese producers. Only 11 out of a possible 66 smelters are still operational in the country.

($1 = 16.8380 rand)

(By Olivia Kumwenda-Mtambo, Nqobile Dludla and Nelson Banya)