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Anglo sells its last Eskom-tied coal mine

BUSINESS LIVE / 29 JANUARY 2018 - 09:58 / ALLAN SECCOMBE

The sale of its undeveloped New Largo project marks the end of Anglo American’s decades-long role as major coal supplier to the utility

Anglo American has drawn a firm line under one of the most uncertain businesses in its portfolio, agreeing to the sale for R850m cash of its last Eskom-linked coal operation in a business that has become increasingly political as the power utility pushed for 51% black ownership of its coal suppliers.

Anglo American plans to completely exit its coal business, CE Mark Cutifani says.

Picture: REUTERS/SIPHIWE SIBEKO

The sale of its undeveloped New Largo project, the subject of a lengthy debate between Anglo and Eskom over the ownership structure and funding, marks the end of Anglo American’s decades-long involvement in a core business that marked it out as major coal supplier to the utility.

“The sale delivers on our long-standing strategy to exit our Eskom-tied coal assets and marks another Anglo American led step-change in the sustainable transformation of the South African mining industry, supporting both Eskom and the country’s transformation objectives,” said Norman Mbazima, deputy chairman of Anglo American SA.

Seriti Resources, Coalzar and the state-owned Industrial Development Corporation (IDC) teamed up to buy the New Largo project as well as the shuttered old New Largo mine for R850m, leaving Anglo with its export thermal coal mines in SA.

Norman Mbazima. Picture: SUPPLIED

Seriti, which is 79% black owned, has already agreed to buy from Anglo three operational thermal coal mines supplying Eskom as well as four closed mines for R2.3bn, pushing the newly formed company into second place of Eskom’s top coal suppliers, with annual output of more than 25-million tonnes. The sale is yet to be concluded, with approval from Eskom for the new buyer yet to be obtained.

Mike Teke, a seasoned coal miner who was CEO of JSE-listed Optimum Coal before it was bought by Glencore, heads the management team of Seriti and has spoken of it becoming a major mining company.

He was unavailable for comment on Monday, raising speculation that there was more to the transaction than Anglo put in the public or that Seriti was involved in a further deal, pulling all the coal assets into a single entity that could be listed. There is a possibility Seriti could be involved in South32’s plans to separate its South African coal division into a stand-alone business, increasing its local ownership and possibly listing it.

It is not clear how the estimated R20bn to build New Largo will be funded.

Eskom, which has come under severe financial difficulties through mismanagement and ratings downgrades making debt expensive, burns about 120-million tonnes of coal a year. Eskom is in no position to fund New Largo.

Eskom has forced a demand on its suppliers that they be 51% black owned, one of the key sticking points in the discussions around the construction of New Largo to supply the Kusile power station.

Anglo, under the leadership of Mark Cutifani, has made clear it would not be the minority partner in its coal assets.

South32 CEO Graham Kerr has also raised the 51% ownership demand from Eskom as a key reason in the diversified miner’s decision to spin out its South African coal mines.

Eskom’s stance conflicts with the Mining Charter, which stipulates mining companies must have 26% black ownership to qualify for mining rights.

“Thermal coal provision to Eskom has increasingly been becoming a politically charged hot potato, a situation which we think could otherwise have intensified,” Shore Capital analyst Yuen Low said recently.

Eskom’s black ownership demand was intended to force transformation on the coal- mining sector, but the exodus of multinational coal-mining companies sent the wrong message to investors, said an analyst.

Supplying Eskom was a low-margin business, with companies operating cost-plus mines under long-term contracts with the utility, which in the past had contributed to the cost of building mines.

Anglo’s supply to Eskom fell 9% during 2017 to 26-million tonnes from 28.7-million tonnes the previous year. Anglo realised $21/tonne on domestic sales, compared with an average $76/tonne for its export sales.

Anglo had put its Kumba Iron Ore subsidiary and its minority stake in the manganese venture with South32 up for possible disposal, but both assets have become important sources of cash and both sales have been put on the back burner.

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LINK : https://www.businesslive.co.za/bd/companies/mining/2018-01-29-anglo-offloads-the-last-of-its-eskom-linked-coal-assets/

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