Seriti Resources grows its coal portfolio even further

Publication: Mining Review Africa.
Author: Guest Contributor.

Black-owned and controlled coal mining company Seriti Resources has concluded an acquisition agreement with South32 to acquire South 32’s 91.835% shareholding in South Africa Energy Coal.

Located in the coalfields of Mpumalanga, SAEC includes four collieries – Khutala Colliery, Klipspruit Colliery, Middelburg Colliery and the Wolvekrans Colliery – as well as three processing plants, producing energy coal for the domestic and export market.

Included on the Seriti Resources side of the transaction are two trusts which will acquire equity on behalf of employees and communities. The remaining 8.165% interest in South Africa Energy Coal (SAEC) is held by a black economic empowerment consortium led by the Phembani Group.

The purchase price includes an up-front cash payment of approximately R100 million. In addition, South32 will receive 49% of the free cash flow generated by SAEC from the date the transaction is concluded until March 2024. That component will be limited to a maximum of R1.5 billion a year.

Fulfilment of the transaction is subject to the following conditions being met:

  • Approval from South African and certain foreign competition authorities;
  • Approval from the Minister of Mineral Resources and Energy (DMRE) in terms of Section 11 of the Mineral and Petroleum Resources Development Act;
  • Approval from Richards Bay Coal Terminal;
  • Consent from Eskom for the change of control of SAEC and agreement in relation to the Duvha Coal Supply Agreement between Eskom and SAEC; and
  • Confirmation from the DMRE that it will accept the substitution of rehabilitation guarantees provided by South32 with rehabilitation guarantees provided by Seriti.

Subject to the conditions being satisfied, the transaction would be expected to close in nine to twelve months.

“Finalisation of this transaction will be a significant milestone for Seriti in our ambition to become a black-owned and controlled mining champion,” says Seriti Resources CEO Mike Teke.

“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. The combination of our energy coal businesses will realise further operational and technical efficiencies enabling us to better service our customers by offering competitive energy solutions.

“We remain fully committed to all our stakeholders and we welcome the participation of the SAEC employees and communities in this acquisition.”

South32 CEO Graham Kerr said: “We ran an exhaustive and competitive process and we believe Seriti Resources as an established operator is ideally positioned to unlock the potential of SAEC’s existing domestic and export operations, including its significant untapped resource base.

“The sale of our interest in SAEC will enable the business to continue to operate safely and sustainably into the future for the benefit of its employees, customers and local communities, consistent with South Africa’s transformation agenda.”

Seriti Resources, through its operating subsidiary, Seriti Coal, currently operates three large-scale, opencast and underground thermal coal mines, the New Vaal, New Denmark and Kriel mines, which it acquired from Anglo American, as well as various life extension coal resources and closed collieries.

Together with its partners, Seriti intends to develop its New Largo project into a large-scale, opencast coal mine capable of providing the base load fuel requirements for Kusile power station.

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Seriti to double coal production after agreeing terms with South32 for SAEC stake

Publication: Miningmx.
Author: David McKay.

SOUTH32 today concluded a binding agreement with black-controlled mining firm, Seriti Resources for the sale of its 91.8% stake in South African Energy Coal (SAEC), a business unit of the Perth- and Johannesburg-listed group that produces about 28 million tons a year (Mt/y) of coal, of which about half is to Eskom.

South32 will be paid R100m by Seriti Resources and receive 49% of free cash flow generated by the mines for a five-year period until March 2024 capped to a maximum of R1.5bn annually.

Phembani Group, a black-owned diversified industrial company, will retain its 8.12% stake in SAEC.

The purchase will be concluded with Seriti subsidiary Thabong Coal and two trusts representing employees and mine communities each holding a 5% stake in SAEC respectively – in line with the latest guidelines as set down in Mining Charter III.

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South32 sale hinges on a better Eskom coal deal

Publication: Business Live.
Author: Lisa Steyn and Karl Gernetzky.

Seriti Resources poised to become SA’s second-largest coal producer after Exxaro

A deal that could create the second-largest coal producer in SA now hinges on the renegotiation of a loss-making Eskom contract.

South32, an Australia-listed miner which was spun out of BHP in 2015, announced on Wednesday it had concluded a purchase agreement with Seriti Resources for its SA Energy Coal business for an upfront payment of R100m.

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Seriti Concludes Agreement With South32 On The Acquisition Of SAEC

6 November 2019, Johannesburg: Seriti Resources is pleased to announce that the company and South32 have concluded an acquisition agreement in terms of which Seriti will acquire the latter’s 91.835% shareholding in South Africa Energy Coal (SAEC), subject to certain conditions detailed below.

Included on the Seriti side of the transaction are two trusts which will acquire equity on behalf of employees and communities. The remaining 8.165% interest in SAEC is held by a black economic empowerment consortium led by the Phembani Group.

The purchase price includes an up-front cash payment of approximately R100 million. In addition, South32 will receive 49% of the free cash flow generated by SAEC from the date the transaction is concluded until March 2024. That component will be limited to a maximum of R1.5 billion a year.

Fulfilment of the transaction is subject to the following conditions being met:

  • Approval from South African and certain foreign competition authorities;
  • Approval from the Minister of Minerals and Energy (DMRE) in terms of Section 11 of the Mineral and Petroleum Resources Development Act;
  • Approval from Richards Bay Coal Terminal;
  • Consent from Eskom for the change of control of SAEC and agreement in relation to the Duvha Coal Supply Agreement between Eskom and SAEC; and
  • Confirmation from the DMRE that it will accept the substitution of rehabilitation guarantees provided by South32 with rehabilitation guarantees provided by Seriti.

Subject to the conditions being satisfied, the transaction would be expected to close in nine to twelve months.

Seriti CEO Mike Teke said: “Finalisation of this transaction will be a significant milestone for Seriti in our ambition to become a black-owned and controlled mining champion.

“The South Africa Energy Coal 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. The combination of our energy coal businesses will realise further operational and technical efficiencies enabling us to better service our customers by offering competitive energy solutions.

“We remain fully committed to all our stakeholders and we welcome the participation of the SAEC employees and communities in this acquisition.”

South32 CEO Graham Kerr said: “We ran an exhaustive and competitive process and we believe Seriti as an established operator is ideally positioned to unlock the potential of SAEC’s existing domestic and export operations, including its significant untapped resource base.

“The sale of our interest in SAEC will enable the business to continue to operate safely and sustainably into the future for the benefit of its employees, customers and local communities, consistent with South Africa’s transformation agenda.”

Queries:

Charmane Russell                              +27 11 880 3924 or +27 82 372 5816

Alan Fine                                             +27 11 880 3924 or +27 83 250 0757

 

MEDIA BRIEFING:

You are invited to attend a joint media briefing to discuss the Seriti and South32 transaction, to be hosted by Mike Fraser and Mike Teke.

Date:      6 November 2019

Time:     09:30

Venue:   South32, 39 Melrose Blvd, Melrose Arch

 

Notes to editors:

About Seriti:

Seriti is a broad-based, 91% black-owned and controlled coal mining company. Seriti, through its operating subsidiary, Seriti Coal Pty Ltd, currently operates three large-scale, opencast and underground thermal coal mines, the New Vaal, New Denmark and Kriel mines, which it acquired from Anglo American, as well as various life extension coal resources and closed collieries. Together with its partners, Seriti intends to develop its New Largo project into a large-scale, opencast coal mine capable of providing the base load fuel requirements for Kusile Power Station.

Seriti is co-owned by four anchor shareholders – Masimong Group Holdings (Masimong), Community Investment Holdings (CIH), Zungu Investments (Zico) and Thebe Investment Corporation (Thebe). It is Seriti’s philosophy that 10% of the equity in its mining operations be ring-fenced equally for the benefit of employees and communities through established unencumbered employee and community trusts.

As a responsible South African coal miner, Seriti has a proven track record in the acquisition, operation and development of large-scale opencast and underground coal mines. Guided by experienced board and management teams, Seriti maintains a principle focus on its long-term commitment to the domestic market and, in particular, the reliable and cost effective provision of coal to Eskom.

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Industry leaders debate challenges in South Africa

Publication: Mining Review Africa.
Author: Guest Contributor.

The mining sector in South Africa finds itself at an inflection point. As a primary sector within an economy that is struggling to grow, coupled with transformative global trends that have a prolific local impact.

This means that government and industry in South Africa must collaborate to align policies and overcome a myriad of challenges to stimulate the sector and drive long-term investment.

The 2019 Joburg Indaba in South Africa seeks to create an influential platform to stimulate robust debate among all industry stakeholders.

The Joburg Indaba is addressing key issues around the current economic and regulatory environment, including what must be done to invigorate the industry, encourage growth and employment by winning back investor trust and boosting foreign direct investment.

Anglo American leads the way for Responsible Mining

Speaking at the event, Anglo American Chief Executive Mark Cutifani, who was inducted into the SA Mining Hall of Fame this week, said

“The economic trajectory in South Africa remains unsustainable: We need to implement reforms urgently to create a better life for all and there’s no better place to start that than with the mining industry by creating a new paradigm that shifts us from merely sharing value to helping create enduring value for all.”

He urges that stakeholders begin by embracing ‘modern mining’ and new technology by navigating a transition that is sensitive to the financial and social complexities:

“Modern mining is the opportunity for SA to regain its competitive edge. The future of mining will be fundamentally different if we are going to be genuinely sustainable and SA has a leading role to play in the change that will take place globally.

“Technology is opening up opportunities for the industry to be more productive; it’s no longer about bigger trucks, but about being smarter, more precise, moving less waste material and having less physical impact.”

And these new technologies, alongside new and better people management techniques, will help the industry in another challenge – its drive to achieve Zero Harm (Every mineworker returning home, unharmed, every day) according to Minerals Council President Mxolisi Mgojo.

Exxaro shareholders reap rewards of a profitable coal business

2019 has seen 35 mining deaths – down 87% since 1993.

Seriti Resources CEO Mike Teke emphasized the need for parastatals to start operating optimally:

“I am not a climate change denialist; we have major environmental issues in SA, but our challenge as a continent is that we will continue to use coal for a long time while we progress to new technologies.”

Anglo American Platinum CEO Chris Griffith said this challenge could be partially alleviated by allowing miners to generate renewable energy sources themselves:

“We need Eskom to close down unreliable, expensive power stations and get investment into renewable power; Eskom needs to take drastic action – its sustainability is a key risk to our economy.”

He added that investors are sending the industry an important message:

“They want return on their investments. They are incredibly critical of us and our ability to generate returns. They are sending clear signals that they want us to generate money, not volume.”

South32 handpicks contender to acquire coal business

South32 COO Mike Fraser spoke to the enormous impact climate change will continue to have on the mining industry with the global shift towards a low-carbon economy:

“We are already seeing the impact on our coal market in terms of export prices out of SA.

“We face a number of other challenges in terms of community unrest, social pressure and the availability of power. If we don’t manage these they will detract from us delivering.

“Last year we saw an escalation of protests outside mines and an increase in illegal mining activity. We cannot continue to do business this way. Unrest will become more frequent unless we find a way forward; we need to remain committed to finding sustainable ways to address the concerns of communities.”

With a direct contribution of mining to GDP of R350.8bn and direct employment for 456 000
people (Minerals Council SA), mining is a sector that should be helping grow the economy, not disposing of assets and downscaling operations, noted ENSAfrica Director Ntsiki Adonisi-Kgame.

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Long-term contracts are cure for Eskom’s coal cost woes, says South32

Publication: Business Day.
Author: Lisa Steyn.

A move away for short-term supply contracts will lower costs and ensure quality

One of Eskom’s biggest suppliers has called on the state-owned power utility to return to long-term supply contracts to bring its coal costs down.

South32 COO Mike Fraser was speaking on Wednesday the 2019 Joburg Indaba about the government’s recent request for coal suppliers to consider cost reductions, to help out financially embattled utility and, in turn, the economy.

The diversified miner owns SA Energy Coal, which supplies more than 12% of Eskom’s coal needs. The company is, however, in the process of disposing of the assets, having signed an exclusivity agreement with Seriti Resources.

“As a major supplier of coal to Eskom, we acknowledge the recent request from the government for suppliers to support their cost-reduction efforts and will continue to work with them to manage their costs while we ensure that our operations are sustainable,” said Fraser.

“However we do believe the best way to reduce the cost of coal to Eskom is to transition back to long-term contracts. That will enable a reduction in the volume of coal moving on road at higher cost and often at variable qualities.”

He said there would still be a place for smaller spot market placement of coal contracts.

Long-term contracts fell out of favour under the leadership of former Eskom CEO Brian Molefe. At the release of Eskom’s annual results in August, public enterprises minister Pravin Gordhan bemoaned that Eskom’s coal costs had increased an “extraordinary” 17%.

Eskom’s sustainability and investability is one of the key risks facing SA’s economy and drastic action is needed, Fraser said.

The government’s proposal to unbundle Eskom into three different businesses — generation, transmission and distribution — “makes huge sense”, Fraser said.

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SA mines minister throws weight behind Seriti bid for South32 coal mines

Publication: Miningmx.
Author: David McKay.

SOUTH African mines minister, Gwede Mantashe, said he supported a bid for the coal mines of South32 by the Seriti Resources consortium, describing the transaction as a new national mining champion in-the-making.

“I’m not a shareholder in Seriti or South32, but if I can help establish a significant black mining company that is a national champion, they why not?” he said in a media roundtable in Pretoria on September 13.

Said Mantashe: “My dream remains to create a national champion. Why is it an issue that a black-owned business is a major supplier of coal when nothing is said when Glencore and Anglo American supplied all the coal?”

Seriti was selected from an initial bidders list of more than 50 companies for exclusive negotiations with South32 for its 92% stake in South Africa Energy Coal (SAEC), a business unit that produces about 28 million tons a year of coal.

Roughly half of this coal is supplied to Eskom which means that including the coal mines Seriti bought from Anglo American in 2017/18, it will supply about 40% of Eskom’s annual coal burn. South32 said Seriti was ideally positioned to enter into a business relationship with Eskom that would help the utility lower its overall primary energy cost.

However, Seriti Resources has been the subject of criticism.

BusinessLive, one of South Africa’s largest business publications, described the possible sale of SAEC to Seriti Consortium as “a confidence trick”. It added, in an opinion piece, that Eskom did not need SAEC coal given the abundant sources of coal in slurry that existed. According to BusinessLive, reprocessing the slurry would cut Eskom’s coal costs.

Mike Teke, CEO of Seriti Resources, said reprocessing slurry as a sole source of Eskom’s power needs was not yet technically feasible. Discards would result in higher ash content and damage to power station mills, he said.

“The use of fines, whether briquetted or packaged in any manner has been extensively tested and found useful in many environments. So, this story is not new. It is, of course, something that the industry will continue to investigate as part of its efforts to improve efficiencies,” he said.

“But based on available technology, the use of briquetted fines poses significant technical logistical and environmental challenges to coal suppliers and Eskom. Some of these relate to the high moisture content, problems in handling and agglomeration processes, and the actual combustion process itself.

“The best approach for pragmatists is to be complementary in mixing coal and fines to optimise energy generation,” he said.

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SA’s national interest played a pivotal role in Seriti winning the rights to SA Energy Coal

Publication: Miningmx.
Author: David McKay.

AFTER more than 18 months of bidding, Seriti Resources has emerged as South32’s chosen one: the company that has the right to buy control of its 28 million tons (Mt) a month in South African coal production of which half is sold to Eskom.

More than 50 companies bid for the assets, collectively known as South African Energy Coal (SAEC). In the end, it boiled down to two: Sibambene Coal, backed by Swiss commodities trader, Mercuria and Menar Holdings; and Seriti, a black-owned consortium headed by the former Minerals Council South Africa president, Mike Teke via his Masimong Group. Thebe Investment Group is also a shareholder, among others.

Teke is cautious about the process. Seriti has been chosen as the preferred bidder; it is not yet the de facto owner, he says. So in the next 12 months, his company has to conclude and finance the purchase of the asset which involves not only paying an upfront fee – still to be agreed with South32 – but also winning the support of Eskom.

Eskom has a seat at the table because it is the counter-party of coal sales agreements over domestic coal SAEC produces. A change in SAEC’s ownership requires Eskom’s signature.

The transaction also needs the support of the Department of Minerals & Energy and the Competition Commission, both of which should be forthcoming if Eskom agrees, making the state-owned power company kingmaker of the transaction.

Teke’s conservatism aside, there’s little to suggest Seriti will stumble from here. That’s because in selecting Seriti, South32 has massively derisked Eskom’s coal procurement.

But what does this mean?

In 2017 and 2018, Seriti bought for just over R3bn the Eskom-dedicated coal mines of Anglo American – worth about 21Mt per year in production – and the New Largo coal project, earmarked to supply Eskom’s Kusile power station. New Largo’s development is crucial. As a result, the interests of Seriti and Eskom are already closely aligned, even before Seriti’s purchase of SAEC.

With so much in common, Seriti is also perfectly positioned to negotiate the best possible deal with Eskom on existing SAEC contracts, especially a coal supply agreement from SAEC’s Wolverkrans Middelburg Complex (WMC) to Eskom’s Duvha power station. This contract is loss-making; grievously so, reading between the lines. Renegotiating this contract with Eskom is a far easier task for Seriti than it might be for another company, because of the existing business ties between Eskom and Seriti.

Another, broader, consideration is the impact Seriti’s ownership will have on the footprint of Eskom’s coal procurement.

Including supply of coal to Eskom by another company, Exxaro Resources, roughly 72% of Eskom’s total 120Mt per year coal burn will be in the hands of two companies. This may seem like the complete opposite of what’s intended by broad-based economic empowerment, but in these economically straitened times, it’s exactly what Eskom (and the country) needs.

Mike Fraser, COO of South32’s African division, believes it’s important that Eskom’s coal supply is more concentrated. The 17% increase in primary energy costs of the state-owned firm’s 2018/19 financial year was partly down to its previous policy of sourcing coal from as many different suppliers as it could manage. This was done in the interests of broad-based empowerment, but it’s meant that more coal is being supplied via haulage truck which is more expensive.

“Eskom needs to get coal off the road and on to the conveyor,” he says, referring to the fixed cost coal mine model Eskom used in the past where coal mines were built next door to power stations which all but removed transport costs. “This would certainly change the trajectory of Eskom’s coal costs,” said Fraser. Eskom said at its year-end presentation that double-digit coal costs were likely for the current financial year.

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Seriti’s bid for South32 coal mines leaves 50 suitors in the dust

Publication: BL PREMIUM.
Author: Lisa Steyn.

Australian company was inundated with expressions of interest before settling on Seriti

Seriti Resources pipped 50 others when it emerged as the exclusive bidder for Australian company South32’s SA coal mines.

South32 COO Mike Fraser told Business Day on Monday that the company had been inundated with expressions of interest in its SA thermal coal mines. It settled on Seriti as being best placed to make a success of SA Energy Coal, he said.

“People were nervous about seeing another Optimum here,” Fraser said in reference to the Optimum Coal mine which stopped producing a few months after it was placed into business rescue in February 2018, along with seven other companies affiliated with the controversial Gupta family.

“You want to do a deal with somebody with substance, with a large backing, that’s got the credibility, the wherewithal and will run the business with the same values as we run it,” he said. “There are a lot of people dependent on it.”

South32, which was spun out of BHP in 2015, said in August it had entered into an exclusivity agreement with Seriti and that the final details would be decided in coming weeks without external influence.

“There is no doubt in my mind that after going through this journey Seriti are best placed to run this business and make a success of it,” said Fraser.

From the outset South32’s preference was to sell the business to one, transformed, owner. “The future sustainability of the business is absolutely paramount. Cobbling together just another consortium to try to run this business I think would create risk.”

Seriti in 2018 acquired all of Anglo American’s Eskom-tied mines and will supply a third of Eskom’s coal needs if it finalises the acquisition of SA Energy Coal. There has been some concern in the industry that this might pose a risk to the utility, which is already struggling with operational and financial crises that have the potential to undermine SA’s fiscal position.
“I think a lot of people who want a slice of the cake are probably going to complain about it. But if we really put our SA hat on, I think this is a good deal for SA,” Fraser said.

Each operation is subject to individual long-term contracts with Eskom, and so was not interfering with competition on any new coal contracts that get awarded.

“If Eskom places any new contracts they can place them with whoever they want to,” Fraser noted.

The competition issues will still have to be worked through by the Competition Commission. After signing the exclusivity agreement with Seriti South32 has had discussions with Eskom and the department of mineral resources & energy, and both were happy for the deal to progress, subject to the necessary approvals, Fraser said.

While South32 does not see a future for itself in thermal coal, which is mainly used by power stations, it said there were growth opportunities in the domestic market for a large black-owned miner such as Seriti. This would mainly take the form of investing in replacement tons to feed Eskom power stations.

“If you look at the resource base that SA Energy Coal has of 4.5-billion tons, there is a lot of coal,” Fraser said. “I don’t see SA building any new coal-fired power stations, and they might even retire some, but I think for the next 20 to 30 years you will need to burn 120-million tons of coal a year at least. That’s got to come from somewhere.”


Seriti Seriti Resources may turn to equipment makers as coal IPOs shunned

Seriti Resources may turn to equipment makers as coal IPOs shunned

Publication: fin24.
Author: Paul Burkhardt, Bloomberg.

Seriti Resources, which is poised to become South Africa’s second-biggest coal producer, may take funding from equipment suppliers and hold off on a listing as the fuel is being shunned by financiers because of its environmental impact.

Closely held Seriti has entered into exclusive negotiations to buy South32’s thermal coal assets after starting production in 2017 with mines it bought from Anglo American. It plans to develop the New Largo operation next to Eskom’s 4 800-megawatt Kusile power plant.

The company may seek less traditional funding options because pollution concerns have led South Africa’s biggest banks to limit lending to coal projects and the country’s political and economic instability could also deter investors from buying shares.

“We see the project financing ability of new coal projects, forget about the actual stations themselves, frankly becoming harder and harder,” chief financial officer Doug Gain said in an interview at the Seriti offices in Johannesburg on Monday. “There are challenges and those challenges will continue to grow.”

Seriti will wait until next year, when it has determined how much money it needs to develop New Largo before deciding on whether to list or to seek alternative funding options, according to Gain.

Equipment Funding

It has been approached by heavy earth-moving equipment suppliers interested in providing funding in exchange for securing contracts to supply the trucks and diggers needed for the project, Gain said, declining to identify the companies. Some of the world’s biggest equipment suppliers to coal mines include Caterpillar, Atlas Copco and Sandvik.

“We think that the large equipment manufacturers see an opportunity in the, call it the shrinking ability of coal companies to raise capital, to provide capital themselves behind their fleets,” he said.

Currently, Seriti supplies state-owned Eskom with coal at three of its power plants and Kusile could operate until 2070. If the acquisition of South32’s South Africa Energy Coal unit is completed, the company will roughly double output to about 50 million tons a year and add about 17 million metric tons of export capacity. Only Exxaro Resources would be bigger in South Africa.

When Anglo owned New Largo, it estimated the mine would produce about 570 million metric tons of coal for Kusile over 47 years. Cost estimates to develop the mine have come down, “but they’re still substantial,” Gain said.

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