Mike Teke’s Big Expansion Plans For Seriti

Seriti Resources snapped up a number of coal mines from Anglo American recently, and is also eyeing Optimum Coal. Financing, however, may prove to be a challenge. Mike Teke, the former president of the Chamber of Mines, was somewhat elusive on 1 March when asked if the consortium he now heads, Seriti Resources, would take the opportunity for an initial public offering; a listing, in other words.

“It’s too early to talk about this,” he said. “We will see what our options are before making a decision. For now, the aim is to bed down the mines we have bought.”

These mines, purchased from Anglo American, are New Denmark, Kriel and New Vaal, and supply a total of 24m tonnes a year to Eskom, which generates a quarter of South Africa’s power from the coal.

Seriti bought the mines from Anglo for a whopping R2.3bn and, in a separate transaction, New Largo – a thermal coal-mining project. And herein lies a problem: without New Largo, Eskom will battle to operate its new power station, Kusile, which is being built in Mpumalanga and which is projected to have a capacity of 4 800MW.

So there’s a lot riding on Seriti’s ability to correctly capitalise itself. Its backers are well heeled, certainly. In addition to Teke’s Masimong Holdings, there is Anna Mokgokong’s Community Investment Holdings and Zungu Investment Company, which is owned by Sandile Zungu, a veteran of black economic empowerment.

But the capital expenditure required for New Largo has been put at a staggering R20bn.

On the other hand, there’s a brain-teaser linked to the former Anglo mines. According to Doug Gain, CEO of Masimong Holdings, Eskom is contractually bound to supply the sustaining capital in terms of the coal sales agreement that Anglo has transferred to Seriti.

Whether the utility will be able to deliver on these capital commitments is another story.

Exxaro Resources, for instance, has been waiting for a considerable time for the R1.8bn Eskom promised to plough into its Matla colliery in order to keep supply at the contractually stated 10m tonnes/year.

There’s also the question of Optimum Coal Mine. This is the thermal coal mine owned by the Gupta family’s Tegeta Resources and Exploration. Deprived of capital, the mine is now in business rescue.

Teke told finweek he was most anxious to buy Optimum, and one can see why; setting aside for a moment the potentially onerous rehabilitation obligations, finance for Optimum may no longer exist if, as has been speculated, the rehabilitation fund was raided.

The fact of the matter is that Optimum’s coal sales agreement with Eskom expires in December. Whoever owns the mine will no longer be contractually bound to Eskom and can dictate terms. The owner may, for instance, decide to supply the export market, making use of the entitlement Optimum Coal Mine (the company) has through Richards Bay Coal Terminal, equal to 6% of total capacity.

The much-trumpeted sale of the export entitlement by Tegeta to the clearly fictitious Charles King, a company with an address in Lausanne, Switzerland, never happened, sources told finweek. “There is coal in the ground,” said Teke when asked if Optimum was worth operating again after being in the hands of the Guptas for two years. Indeed there is. Optimum has a massive footprint of some 32km from end to end, equal to 37 000ha of Mpumalanga land, according to a report by BusinessLive. Moreover, Teke was the CEO of Optimum Coal before it was bought by Glencore. “This man knows Optimum,” said Mokgokong.

But it will all cost money. Teke says the Industrial Development Corporation is part of the New Largo deal and will obviously lend into the project’s development; it may even commit some of its balance sheet to Optimum, even though it is in court claiming R300m it had lent to the Gupta family. Thebe Investment Corporation is another Seriti shareholder. But there are limits, especially given Teke’s ambition that Seriti acquire other commodities. (Last year he told finweek that Seriti could become a national mining champion in the mould of Anglo American.) Expect to see Seriti “on the boards” sooner rather than later.