Petmin now seeking growth closer to home
Petmin, a R1.15bn mid-tier mining company, dabbled in an international diversification programme several years ago, buying into exploration ventures in Canada and Turkey. It is now looking closer to home for growth.
The group recently announced plans to externalise its shares in the North Atlantic Iron Corporation ( NAIC) – likely to be 40% once it takes up options – by separately listing the asset in Toronto and Johannesburg and then unbundling to shareholders.
Bradley Doig, business development executive at Petmin, says the company doesn’t want to sacrifice cash f low from its profitable anthracite mine in KwaZulu-Natal (Somkhele) to some far-f lung North American venture that’s probably very cash hungry. Although promising, NAIC hasn’t captured the imagination of investors.
According to former chairman Ian Cockerill, there’s no trace of recognition of NAIC in Petmin’s share price at all. It’s therefore unlikely that Petmin will plough any more funds into Sivas, a copper development in Turkey, either.
These investments were made at the end of the mining bull market when even development and junior players thought they were bulletproof. The view now, however, is that the market will reward home-grown endeavours.
Thus, Petmin has turned to the local thermal coal market.
It already has some thermal coal production by means of a plant extension at Somkhele that allows it to treat ‘middlings’ coal – a grade of fuel that’s neither export nor domestic coal quality – which it sells to merchants who mix it with other grades and then onsell to Eskom.
Petmin now wants more of this business, especially as Eskom is something of a captive market. Eskom has estimated that there’s some 1.8bn tons to 2bn tons of coal supply shortfall from 2018 to 2040, so it’s desperate for supply.
Doig says the company has been approached by SA institutions that are prepared to finance an acquisition without recourse to Petmin – the debt will be carried by the asset – on the basis that Eskom is prepared to pay a premium for coal obtained through a BEE supplier. This is in terms of the Department of Public Enterprises’ insistence that new coal suppliers to Eskom must be 50% plus one share empowered.
“We would look for something at the 3m ton a year mark,” says Doig of a potential acquisition. “Something we can manage and understand, or is a brownfields expansion that needs some assistance with restructuring and capital.”