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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Seriti South Africa will rely on coal for decades, key miner says

South Africa will rely on coal for decades, key miner says

Publication: Moneyweb.
Author: Paul Burkhardt, Bloomberg.

Eskom continues to rely on the fuel for power generation.

Seriti Resources, poised to become Africa’s second biggest coal producer, is betting that South Africa will rely on coal for decades even as Africa’s biggest emitter of greenhouse gases implements carbon taxes and is under pressure to improve air quality.

The most-industrialised economy on the continent will soon release an energy blueprint to outline the sources it will get its power from in the future. The carbon tax, designed to incentivise a move away from the coal that accounts for almost all power generation, could eventually cost state-owned power utility Eskom about R11.5 billion a year.

“When you operate in the coal-mining space the impression created is like you’re an environmental denialist. We are not,” Mike Teke, Seriti’s chief executive officer, said in an interview at the company’s headquarters in Johannesburg on Monday. “We operate in a developing economy” where alternatives will need to be phased in gradually, he said.

Some government forecasts are in line with Teke’s view. While coal-fuelled plants will decline to less than half of the country’s total installed power generation capacity by 2030, it will still contribute more than 65% of energy production as the plants run around the clock while renewables depend on sun and wind availability, according to last year’s draft of the Integrated Resource Plan. A final version is expected within weeks.

Eskom’s appetite for the fuel hasn’t fluctuated much over the last decade, with the utility burning 116 million metric tons in 2018. The state company is facing growing competition from privately owned renewable power generation.

While Eskom is scheduled to close six of its 15 coal-fired plants by 2030 it’s two newest plants, which are yet to be completed, will produce 4 800 megawatts each, placing them among the world’s biggest coal-fired facilities.

Seriti is in talks to buy the South African coal assets of South32 to bring its production to about 50 million tons a year. It could potentially grow its customer base from one — supplying Eskom’s power stations — to international clients as it will have the right to export 17 million tons of coal a year through the Richards Bay Coal Terminal.

“South Africa as a coal exporter remains from a cash-cost perspective very, very, competitive still versus its peers in Australia and elsewhere,” said Seriti chief financial officer Doug Gain.

Continental champion

Further expansion of the business may follow with multinational mining companies lightening their exposure to South African coal. More mines may become available, he said.

“We do see the multinationals looking to shorten their exposure to South African assets as other jurisdictions across the world become more friendly and more attractive and frankly easier to invest in,” Gain said. “That brings to the secondary market, opportunities to acquire assets that are very well capitalized and very well run.”

Seriti’s growth plans include the development of the New Largo mine, an estimated 585 million-ton coal resources located near Eskom’s Kusile power plant, which could run until 2070.

Outside of the primary focus of domestic thermal coal and export options from South32 assets, Teke anticipates opportunities elsewhere in Africa and perhaps beyond.

“We want to build what we call a continental champion,” he said.

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Eskom could soon get new top coal supplier as South32 picks bidder

Publication: Business Day.
Author: BL Premium.

Seriti Resources, which has been scooping mining assets over the last two years, could become the biggest coal supplier to power utility Eskom as the black-owned miner tries to hammer out a deal to buy the domestic coal assets of global diversified mining company South32.

On Thursday, South32 said Seriti was the exclusive bidder for its local coal assets, giving the company the space to strike a deal without interference from other parties. Seriti was incorporated in 2017 and acquired Anglo American’s Eskom-tied coal mines which supply about 24-million tons or 20% of Eskom’s coal.

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South32 hand picks contender to acquire coal business

Publication: Mining Reivew Africa.
Author: Guest Contributor.

91% black-owned and controlled coal mining company Seriti Resources has entered into exclusive negotiations for the sale and acquisition of South32’s South Africa Energy Coal (SAEC) business following a comprehensive and competitive bid process.

As confirmed by South32, Seriti’s offer includes an up-front cash payment with a deferred payment mechanism whereby both companies will share in any commodity price upside for an agreed period.

The operational experience and sector expertise that Seriti would bring to these assets offers a strong base for the long-term sustainability of SAEC, to the benefit of all stakeholders.

Mike Teke, CEO of Seriti, comments:

“This is an exciting step forward for Seriti, and we look forward to continued engagement with South32 as we work together towards concluding a binding agreement. Should a sale agreement be reached, these assets would become a further important anchor of Seriti’s domestically focused coal business.”

“This would be a further significant investment in the South African mining sector by South African investors, backed by a proven track record of responsible operation.”

Through its operating subsidiary, Seriti Coal Pty Ltd, Seriti 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 – Community Investment Holdings (CIH), Masimong, Zungu Investments (Zico) and Thebe. It is Seriti’s philosophy that 10% of its equity be ring-fenced equally for the benefit of employees and communities through employee and community trusts.

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Seriti in pole position for South32’s SA coal assets

Publication: Business Day.
Author: Lisa Steyn.

Mike Teke’s Seriti Resources has emerged as the exclusive bidder for South32’s SA coal mines, the Australia-listed miner announced on Thursday.

South32, a diversified mining company that was spun off from BHP in 2015, announced in 2018 its intention to sell off its SA thermal coal business. On Thursday, with the release of its annual results, the company announced that Seriti Resources was the exclusive bidder for SA Energy Coal.

Seriti is headed by Teke, who was formerly CEO of Optimum Coal, and it owns Anglo American’s old Eskom-tied coal mines.

SA Energy Coal assets include the Khutala and Klipspruit collieries and the Wolvekrans Middelburg Complex. Should a deal ultimately be concluded, Seriti would be catapulted into the position of SA’s second-largest coal producer, with Exxaro Resources ranking first by a small margin.

An exclusivity agreement gives Seriti the space to negotiate a sales agreement without the interference from external parties. Beyond that, the deal could still take another six months to a year to conclude while the parties obtain the necessary approvals from Eskom, the department of mineral resources and energy, and the competition authorities.

“Our announcement that we have entered into exclusive negotiations with Seriti is an important milestone and we expect to provide a further update to the market in the December 2019 half-year,” South32 CEO Graham Kerr said in a statement.

South 32 did not say what the offer price was, as it is still subject to negotiation.

The construct of the proposed deal is noteworthy as it “includes a modest upfront cash payment with a deferred payment mechanism, whereby both companies will share commodity price upside for an agreed period,” South32 said.

The commodity upside relates to the export price of coal, which is the source of most of SA Energy Coal’s free cash flow.

Considering this, South32 recorded an impairment charge of $578m after tax for the year to end-June 2019, which severely affected the financial results.

As reported on Thursday, the company’s revenues were up 4% but, due to the impairment and weaker prices for certain commodities, profits dived 71% from $1.3bn to $389m in 2019 and basic earnings per share were 70% lower.

South32’s board has, however, resolved to pay a final dividend of 2.8 US cents per share.

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Seriti welcomes South32 announcement confirming exclusive negotiations in respect of acquisition of SAEC

Johannesburg, 22 August 2019: Seriti Resources welcomes the announcement by South32 Limited that, following a comprehensive and competitive bid process, the companies have entered into exclusive negotiations regarding the sale and acquisition of South32’s South Africa Energy Coal (SAEC) business.

As confirmed by South32, Seriti’s offer includes an up-front cash payment with a deferred payment mechanism whereby both companies will share in any commodity price upside for an agreed period. The operational experience and sector expertise that Seriti would bring to these assets offers a strong base for the long-term sustainability of SAEC, to the benefit of all stakeholders.

Mike Teke, CEO of Seriti, comments: “This is an exciting step forward for Seriti, and we look forward to continued engagement with South32 as we work together towards concluding a binding agreement. Should a sale agreement be reached, these assets would become a further important anchor of Seriti’s domestically focused coal business. This would be a further significant investment in the South African mining sector by South African investors, backed by a proven track record of responsible operation.”

Queries:

Charmane Russell +27 11 880 3924 or +27 82 372 5816
Alan Fine +27 11 880 3924 or +27 83 250 0757

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 – Community Investment Holdings (CIH), Masimong, Zungu Investments (Zico) and Thebe. It is Seriti’s philosophy that 10% of its equity be ring-fenced equally for the benefit of employees and communities through 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 provision of coal to Eskom.

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New Denmark Colliery Officially Hands Over Grade R Block

On Wednesday, 14th August 2019, New Denmark Colliery hosted a handover ceremony for the newly built Grade R Block at Ulwazi Primary School in Thutukani, Standerton. This project was funded by NDC as part of its corporate social responsibility programme. The ceremony was attended by representatives from the school, Seriti, Komatsu and the Department of Education.

As part of improving the learning environment, NDC invested an amount of R3, 782, 491.51 for the infrastructure project which comprises of 2 classrooms, an ablution facility, a kitchen and an official play area. Through this facility, NDC hopes the newly built block will add value to the learning of Grade R learners. Executive Mayor Cllr Lindokuhle Dhlamini emphasised the importance of education in building a strong and productive economy and nation. The Executive Mayor also pledged his commitment to supporting NDC with various CSR initiatives.

Seriti Coal’s CSR programme is aimed at assisting previously disadvantaged communities and includes six pillars including, Education, Portable skills training focusing on youth, Support to host municipality, Health and Sanitation, Poverty Eradication, and Enterprise and Supplier Development. The Chief People Officer, Thabo Masike thanked all the partners for a successful collaboration and added that government requires assistance to eradicate social ills in South Africa. “Seriti Coals aims to leave a lasting legacy” he added.

Circuit Manager Sofie Bohata from the Department of Education emphasised the importance of investing in early childhood learning. It is our duty through such partnerships to ensure we provide conducive learning environment for our children, said Sofia Bohata. This CSR initiative was a collaborative effort with Komatsu, which donated books and furniture. Komatsu’s Transformation Director Dinah Williams thanked Seriti Coal for the partnership and pointing Komatsu to areas in need. She advised the community to treasure the infrastructure as it is a legacy for their children.

Ulwazi Primary School is situated in Thutukani within the Lekwa local Municipality and it caters for approximately 498 learners. The school comprises of 10 classrooms and each accommodates 49 learners.