Black-owned Seriti buys Eskom mines from Anglo
Newly formed Seriti Resources draws hope from due diligence work in its plan to reopen the closed mines
Newly formed Seriti Resources, a 79% black-owned company, would use its R2.3bn purchase of coal mines from Anglo American as a stepping stone towards creating a South African mining champion, Seriti CEO Mike Teke said.
Anglo hopes to conclude the sale of three operational coal mines supplying power utility Eskom, as well as four closed mines to Seriti, making it the second-largest supplier to the state-owned company, generating about 25-million tonnes of thermal coal a year.
Seriti wanted to see if it could reopen the closed mines, drawing hope from the due diligence work it had done on the assets, Teke said. Seriti would fund the purchase by equity contributions from the four groups behind the company as well as bank debt.
The R2.3bn had been set for January 2017 and could change by the time the deal was finalised by the end of the year or early 2018, Teke said.
Seriti was in talks with Anglo for the purchase of the New Largo coal mining project to supply Eskom, along with other interested parties. Anglo is running a separate sales process on the project, which would cost about R20bn to build. Seriti was interested in other Anglo assets in SA that could be sold.
"We are interested in building a massive mining company in this country. This doesn’t end here," Teke said.
Among the Anglo assets in SA that could come up for sale are its export-focused thermal coal mines and its 69.7% stake in Kumba Iron Ore, the largest miner of the steel ingredient in SA, as well as its 40% stake in a manganese mining venture with South32.
New Largo was stalled by Eskom’s demands for 51% black ownership of the asset to comply with its desire to have coal sourced from majority black-owned companies. Four big companies with long-term supply contracts operate Eskom-tied mines, providing up to 80% of its 120-million tonnes of coal consumption a year.
"We are not surprised that Anglo American is ‘pleased’ to have agreed this sale and have no doubt that it will be very much hoping that completion occurs as soon as possible, or certainly, as far as possible ahead of SA’s 2019 general elections," Shore Capital Mining analyst Yuen Low said.
"Thermal coal provision to Eskom has increasingly been becoming a politically charged hot potato, a situation which we think could otherwise have intensified," Low said.
Eskom had been notified of the talks between Anglo and Seriti and its approval of the buyer was one of the conditions precedent for the transaction, including the Department of Mineral Resources’ approval of a transfer of mining and mineral rights to Seriti as well as approval from the competition authorities, said Anglo’s Norman Mbazima — who is overseeing the restructuring of Anglo’s South African assets.
The well-flagged sale of the New Denmark, New Vaal, Kriel collieries and four closed mines by Anglo is part of the miner’s strategy to dispose of assets to reduce debt and narrow its focus to four pillars of assets, including platinum, diamonds, copper and certain bulk commodities, such as metallurgical coal and iron ore.
"This transaction forms part of our ongoing commitment
to reshape and upgrade our global asset portfolio, recognising appropriate value and further demonstrating Anglo American’s long-standing support for the development
and sustainability of SA’s mining industry," said Anglo CEO Mark Cutifani.
Seriti is jointly owned by Teke’s Masimong Group Holdings; Thebe Investment Corporation; Zungu Investments Company, headed by Sandile Zungu; and Community Investment Holdings Projects. Seriti intends bringing employees and communities into the structure as shareholders.
Anglo has said it might sell its 69.7% stake in Kumba Iron Ore as well as its 40% stake in the manganese venture it shares with South32 in SA. With the soaring iron ore and coal prices, Anglo appears to have pulled back in its haste to sell Kumba or its export-focused thermal coal mines in SA.