Optimum is contracted to supply 5.5 million tons per year to Eskom, South Africa’s electricity provider, based on an agreement signed in 1993. This agreement has resulted in Optimum supplying coal to Eskom at a cost significantly less than the cost of production for a number of years.
Eskom served a notice on Optimum in July in which it asserted its rights to claim significant historical penalties from Optimum and to impose future penalties. Eskom is enforcing specifications in the supply agreement, which Optimum is unable to meet on a sustainable basis and the penalties would result in Optimum supplying coal to Eskom for an effective price of R1 ($0.08) per ton.
