Exxaro on Friday dumped troubled Group Five just days after the construction and engineering company imploded and filed for bankruptcy. Photo: Reuters

JOHANNESBURG – Diversified mining group Exxaro on Friday dumped troubled Group Five just days after the construction and engineering company imploded and filed for bankruptcy. 

Johan Meyer, Exxaro’s head of projects and technology, said on Friday that the group had decided to terminate its agreement with Group Five Construction subsidiary Group Five Projects. “It is indeed a sad day, as more than 750 contract workers will be impacted by this decision,” Meyer said.

Group Five, whose shares were priced at R45 five years ago, traded at 89 cents before their trade was suspended last Tuesday after 45 years on the JSE.

Exxaro said it had appointed Group Five Projects last April to construct a small coal plant as part of the Grootegeluk Plant 6 (GG6) expansion project at its flagship Grootegeluk mine near Lephalale in Limpopo.  

The GG6 expansion is a R4.8 billion, 1.7 million-ton-a-year project. The first semi-soft coking coal is expected to be produced in the 2020 financial year. 

The project is expected to help Exxaro supply the Medupi power station.

Exxarro said that, barring unforeseen incidents, the Group Five Projects’ scope was due to be completed at the end of May. It said the decision to terminate the agreement would result in a delay in the project.

“Exxaro has notified Group Five of its decision and has embarked on discussions to mitigate the business impacts arising from this very sad situation. In the meantime, Group Five Projects workers and subcontractors have moved off-site,” the company said.

Group Five has grappled with dire financial straits, with the company acknowledging an estimated cash flow shortfall of R2.39bn for 2019, after it suffered negative cash flows from operating activities of some R800 million in 2018.

Group Five directors said last week that certain projects were under-priced, which resulted in these projects being loss-making.

Its cash flow difficulties were exacerbated when more than $100m (R1.44bn) in guarantees relating to its Kpone gas- and oil-fired power project were called in late last year. 

The $106.5m contract guarantee became payable in November, while R350m of additional loan finance could not be secured.

Last week, Group Five said R3.6bn was estimated to be enough to fund working capital requirements until December 2019. This included R230m to pay severance packages to an as-yet-undetermined number of employees, and the money required to make debt payments to lenders that had provided a R650m loan last April.

On Friday, Group Five business rescue practitioners Peter van den Steen and Dave Lake said: “We are in the process of assessing all contracts. Teams and clients will be informed of the status of each project and the way forward as a matter of urgency.

“We have confirmed with teams that sites should not be de-mobilised until there has been engagement from Group Five representatives, and that the safety and stability on project sites are our priority.

“We are committed to manage this process in an orderly fashion, as we do understand this is a very uncertain time for all stakeholders.”

Exxaro rose 0.62 percent on the JSE on Friday to close at R165.31.

BUSINESS REPORT