Pet­min now seek­ing growth closer to home

Finweek English Edition - - INSIDE - BY DAVID MCKAY

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.”



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