Mercuria, S. African firms place bids for South32’s SAEC coal mines

Image courtesy of South32

Seriti Resources and a consortium backed by global energy trader Mercuria are among up to six groups to have submitted final bids for the South African coal assets of South32, four sources familiar with the matter told Reuters.

A consortium backed by South African miner Exxaro Resources dropped out of the race due to competition issues as the firm is already a major coal producer and supplier to state-owned power utility Eskom, three sources said.

Australian-based South32, a spin-off from miner BHP, had been operating SAEC as a separate business since April 2018 in preparation for a sale

While some international mining companies, including Anglo American, have reduced exposure to coal on environmental grounds, traders have not been deterred – sparking a race for quality assets needed for power generation.

South Africa’s government is also encouraging black-owned businesses to participate more in the economy.

Phembani Group, founded by MTN Group chairman Phuthuma Nhleko, has also refrained from submitting a binding offer for South32’s South African Energy Coal (SAEC) after conducting due diligence on the assets.

The Mercuria-backed coal-mining consortium, Sibambene Coal, was launched in March and is also partly owned by investment company Menar and some black-owned companies and trusts.

Seriti Resources bought Anglo American’s New Largo coal assets in 2017 and has said it is on the hunt for more, including South Africa’s Optimum Coal mine, formerly owned by Glencore.

South32, Seriti and Exxaro declined to comment.

A Sibambene spokeswoman said the country needed more investment in coal to ensure its energy security and to earn much-needed export income. “Unfortunately, Sibambene is not in a position to comment about South32 assets,” she added.

A preferred bidder will be chosen in coming weeks, a source with direct knowledge of the matter said.

SAEC recorded underlying earnings before interest, tax, depreciation and amortisation of $353 million in 2018, South32’s annual report showed. BMO analysts place the net present value of SAEC at $750 million, before adjusting for asset level cash, debt or liabilities, which South32 does not provide.

Australian-based South32, a spin-off from miner BHP, had been operating SAEC as a separate business since April 2018 in preparation for a sale.

It comprises four mines and three processing plants, which are expected to produce 29 million tonnes in 2019.

Macquarie is one of the banks hired to run the sale, a source with direct knowledge said.

South32 has said it expects binding bids for SAEC by June 30. In its sale of the assets, it sought to “increase the local ownership of SAEC, consistent with our commitment to South Africa’s economic transformation”.

Chief executive Graham Kerr said in February the list of preferred bidders would be narrowed to four or six.

South Africa is the world’s seventh-largest coal producer, producing 257 million tonnes in 2017, according to preliminary data from the International Energy Agency.

(By Zandi Shabalala and Mfuneko Toyana; Editing by Veronica Brown and Dale Hudson)

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