Seriti in pole position for South32’s SA coal assets

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.