Up to Seriti to resolve coal supply contract with Eskom – South32

6th November 2019

By: Marleny Arnoldi

Deputy Editor Online

     

Font size: - +

JOHANNESBURG (miningweekly.com) – Coal mining company Seriti Resources has concluded agreements to acquire South32’s majority shareholding in South Africa Energy Coal (SAEC) for R100-million in cash and further deferred payments of up to R1.5-billion a year to 2024.

Seriti will buy South32’s 91.8% shareholding, while the remaining 8.1% interest will continue to be held by black-owned consortium, Phembani Group.

The 91.8% shareholding will be split between Seriti’s subsidiary Thabong Coal, which will hold 81.3%, and the company’s community trust and employee trust, which will each hold 5%.

In addition to the cash consideration of R100-million, South32 will receive 49% of the free cash flow generated by SAEC once the transaction is concluded up to March 2024. This payment is, however, capped to R1.5-billion a year.

Seriti expects the transaction to close in 9 to 12 months, following approval from local and foreign competition authorities, Mineral Resources and Energy Minister Gwede Mantashe, the Richards Bay Coal Terminal and power utility Eskom.

Eskom’s approval relates to the change of control of SAEC and the lossmaking Duvha coal supply agreement between the State-owned power utility and SAEC.

Additionally, the Department of Mineral Resources and Energy needs to accept the substitution of rehabilitation guarantees by Seriti, originally provided by South32.

SAEC has four coal mining operations, namely Khutala Colliery, Klipspruit Colliery, Middelburg Colliery and the Wolvekrans Colliery, in Mpumalanga, as well as three processing plants.

South32 COO Mike Fraser explained that the Wolvekrans colliery in particular has been making a loss owing to coal being sold to Eskom at an “unsustainably low price”.

He added that it was now up to Seriti to renegotiate a price with Eskom on the ten-million-tonne-a-year Duvha supply contract. “If not solved, it could take down any company, but the increased cost would still be on the right side of Eskom’s cost curve.”

Eskom’s Duvha power station established a long-term coal supply deal in 1995 with what is now known as the Wolvekrans Colliery. Because of the two-billion-ton coal resource there, it was agreed that Duvha would be supplied by Wolvekrans up until 2034.

Previously, Fraser said perhaps Seriti could sign a deal with Eskom on New Largo, which would help to lift overall tons and bring costs down.

New Largo is a project Seriti bought as part of a consortium with the Industrial Development Corporation and Coalzar, in 2018, for R850-million from Anglo American. The project has long been associated with Eskom’s Kusile power station, which it is meant to supply.

New Largo has the potential to produce 12-million tonnes a year of coal, which will be stipulated in its revised feasibility study. The study should be published early next year.

Seriti CEO Mike Teke noted that financing for New Largo would be complex, owing to the soft initial markets for thermal coal at the moment. Additionally, South African banks have reduced their appetite to finance greenfield coal projects.

Alternative funding options include signing large-scale equipment financing deals with international heavy moving equipment players.

Meanwhile, Teke commented that the finalisation of the SAEC transaction would be a significant milestone for Seriti in its ambition to become a black-owned and controlled mining champion.

Seriti currently produces 24-million tonnes a year of coal for Eskom. This will increase to 50-million tonnes a year, with the addition of SAEC’s operations, and result in Seriti becoming the second-largest coal producer in the country after Exxaro.

“The SAEC acquisition will enable us to offer further secured, long-term coal  supply  solutions to  Eskom as a demonstrable commitment to sustainably supporting South Africa’s energy needs,” said Teke.  

He added that the combination of Seriti and SAEC’s energy coal businesses would realise further operational and technical efficiencies, enabling Seriti to better service its customers by offering competitive energy solutions.

South32 CEO Graham Kerr commented in a statement that the company had run an exhaustive and competitive process to determine a suitable buyer for SAEC, that would be able to unlock the potential of SAEC’s domestic and export operations, as well as its untapped resource base.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

Comments

The content you are trying to access is only available to subscribers.

If you are already a subscriber, you can Login Here.

If you are not a subscriber, you can subscribe now, by selecting one of the below options.

For more information or assistance, please contact us at subscriptions@creamermedia.co.za.

Option 1 (equivalent of R125 a month):

Receive a weekly copy of Creamer Media's Engineering News & Mining Weekly magazine
(print copy for those in South Africa and e-magazine for those outside of South Africa)
Receive daily email newsletters
Access to full search results
Access archive of magazine back copies
Access to Projects in Progress
Access to ONE Research Report of your choice in PDF format

Option 2 (equivalent of R375 a month):

All benefits from Option 1
PLUS
Access to Creamer Media's Research Channel Africa for ALL Research Reports, in PDF format, on various industrial and mining sectors including Electricity; Water; Energy Transition; Hydrogen; Roads, Rail and Ports; Coal; Gold; Platinum; Battery Metals; etc.

Already a subscriber?

Forgotten your password?

MAGAZINE & ONLINE

SUBSCRIBE

RESEARCH CHANNEL AFRICA

SUBSCRIBE

CORPORATE PACKAGES

CLICK FOR A QUOTATION