Black-owned mining company Exxaro, which has succeeded in negotiating a $210-million cut in the purchase price of Total Coal South Africa, continues to be statutorily obliged to find a black economic-empowerment (BEE) partner as a government condition for the transfer of ownership of the company.

While it is most unusual to be able to change an acquisition price, the price lowering highlights the extreme changes that have occurred in commodity markets over recent months, Investec Securities comments n a note.

But it comes with Exxaro also being committed to creating, on arms-length commercial terms, a new broad-based black economic-empowerment participation in the investment, in addition to the existing Mmakau Mining’s BEE involvement and its own black-control credentials.

The JSE-listed company’s 52% black ownership has been sufficient to confer BEE status on others but insufficient to free it from the obligation of providing fresh empowerment credentials to these formerly French-held coal assets of the Mpumalanga coalfields.

“The new BEE’s got to be sustainable. It must also have the potential to grow and become an organisation that is as big as, or bigger than, we are,” Exxaro CEO Sipho Nkosi said in response to MiningWeekly.

Engagement with various role-players and potential BEE partners is already under way.

The revised purchase price – which brings the buy in line with current and expected future coal prices – is cash of $262-million and not more than another $120-million in deferred payments stretching to 2019, which are coal-price dependent.

The transaction is being funded through a combination of cash on hand and current corporate debt facilities.

All the dollars required have been accumulated and any deferred payments will be based on average Richards Bay prices between now and 2019.

The deal gives Exxaro access to an additional four-million tonnes of coal a year Richards Bay Coal Terminal (RBCT) entitlement by virtue of having taken ownership of the currently marginal Dorstfontein and the profitable Forzando coal mines, in Mpumalanga.

The additional RBCT entitlement will immediately take Exxaro’s export potential from 3.9-million tonnes a year to eight-million tonnes a year and then to ten-million tonnes a year once the rail capacity reaches the planned 91-million-tonne level.

The company’s coal portfolio is upped by 12% on 2013 production, with new brownfield and greenfield projects requiring the additional RBCT entitlement once production starts.

Access to the additional export allocation will enable Exxaro to reconfigure by increasing the scale of existing operations or changing planned projects to multiproduct mines.

Exxaro has bought 100% of Total’s shares, which still leaves 26% in the hands of existing BEE shareholder Mmakau Mining, a situation which will remain until another BEE arrangement materialises in the course of establishing the future empowerment credentials.

Mmakau’s position might well continue into the future: “That’s our position as things stand today,” said Nkosi.

Total also owns the greenfield Eloff project as well as 49% of the closed Tumelo coal mine, with Mmakau Mining holding the majority stake.

ife of the operations is 20 years, with about 395-million tonnes in run-of-mine resources.

The transaction, announced as long ago as July 28 last year but more than a year in the making, is designed to tilt the heavily domestic market-orientated Exxaro towards greater coal exportation potential.

Despite the low coal prices, the resilient Exxaro remains in a position, finally, to implement the Total deal following the BEE-tied granting of approval by Mineral Resources Minister Ngoako Ramatlhodi, under Section 11 of South Africa’s Mineral and Petroleum Resources Development Act 28 of 2002.

The original price tag for the Total assets of $472-million, which was considered high even when coal’s fortunes were far better, has been cut to an upfront cash payment of $262-million, plus a maximum additional amount of $120-million structured as a series of deferred payments.

If made, the deferred payments will be in tranches based on average Richards Bay API4 coal prices between now and 2019.

If the AP14 coal price is between $60/t and $80/t, tranches of $10-million, $25-million and $25-million will be paid by Exxaro from this year to 2017.

If, in 2018 and 2019, the AP14 coal price is between $60/t and $90/t, $25-million and then a final $35-million will be paid, totalling $120-million.

Should prices be lower, none of the deferred payments will be due.

Exxaro CEO-designate Mxolisi Mgojo, who takes over from Nkosi in March, said in response to a Mining Weekly question that the company had begun to apply its mind to the kind of BEE structure that would be appropriate.

“What we can confirm is that we made it clear to the Minister that whatever transaction we’re going to be putting in place has got to be on a commercial basis and, therefore, that is the under-standing,” Mgojo added.

Exxaro, which recently disposed of its New Clydesdale colliery and is currently in the process of selling the Inyanda coal business and liabilities, is expected to dispose of more, which could provide the platform for the required new BEE deal.

Even under the current poor market conditions, there has been an appetite for the funding of the deals and the company is confident of concluding the upcoming BEE transaction, for which govern-ment has not set any deadline.

“If it takes a year or more, so be it, but it is import- ant that we do the right deal,” Mgojo commented to Mining Weekly.

Meanwhile, all conditions pre-cedent to the acquisition of Total have now been fulfilled under the reduced purchase price.