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.”