Un­listed coal min­ers forg­ing ahead

While most of the play­ers in the min­ing sec­tor are wor­ry­ing about the fu­ture, two un­known and un­listed coal min­ing com­pa­nies are in­vest­ing in new projects.

Finweek English Edition - - THE WEEK - By David McKay ed­i­to­rial@fin­week.co.za

alfl or the scep­ti­cism and dark fore­bod­ing in South Africa’s min­ing sec­tor, some brave souls con­tinue to find a way to in­vest, es­pe­cially in the en­ergy sec­tor where two un­listed com­pa­nies are driv­ing for­ward. One is Scinta South Africa in which Sandile Zungu of Zungu In­vest­ment Cor­po­ra­tion (Zico) is in­vested along with vet­eran ju­nior miner Humphrey Mathe, a founder in Tran­ter Re­sources, and fi­nan­cial ser­vices firm Bravura, led by Ian Matthews and So­raya Hay.

The other is Canyon Coal, which is jointly owned by Mer­cu­ria, a Sin­ga­porean trad­ing com­mod­ity house, and Me­nar Hold­ings, an in­vest­ment com­pany which is head­quar­tered in Lux­em­bourg and owned by Vus­lat Bayo­glu, a Turk­ish na­tional op­er­at­ing in SA’s coal sec­tor for the last 15 years.

Ac­cord­ing to Charl Fer­reira, an ex­ec­u­tive di­rec­tor of Zico In­vest­ments, Scinta’s plan is to be­gin ex­plo­ration work on a new coal min­ing prop­erty that it hopes will de­liver 4m tonnes per an­num (mtpa) of ex­port and do­mes­tic ther­mal coal at a cap­i­tal cost of R2.5bn.

The prop­erty, known as Davel, was pur­chased from South32 along with Ermelo Mines, which con­sists of a plant and in­fra­struc­ture, in­clud­ing a rail­way loop, and two dis­card dumps that Scinta hopes can be mined for short-term cash flow. Davel and Ermelo Mines were bought for R187m.

“There’s about 4mtpa to 5mtpa of Eskom-qual­ity coal in the dis­cards that we can de­liver to Cam­den power sta­tion which is linked by rail and is about 20km away,” said Fer­reira. “We have been dis­cussing the pur­chase of the South32 as­sets for about seven years,” he said.

Zungu is also a share­holder in Ser­iti Re­sources, the com­pany that suc­cess­fully bid for An­glo Amer­i­can’s Eskom-ded­i­cated coal mines ear­lier this year. Fer­reira said the Davel prospect and Ermelo Mines would not be in­cor­po­rated into Ser­iti Re­sources.

The devel­op­ment of Davel isn’t an im­me­di­ate goal, said Fer­reira. “Some 200 drill holes were com­pleted by BHP Bil­li­ton, the for­mer owner of the as­set de­merged into South32, so there is a lot of ge­o­log­i­cal data. But we will con­tinue to ex­plore the pro­ject whilst we mine the dis­cards,” he said.

The fund­ing of the R2.5bn pro­ject will be par­tially through eq­uity pro­vided by the In­dus­trial Devel­op­ment Cor­po­ra­tion (IDC) which will sup­port a third of the pro­ject cost, said Fer­reira.

Bayo­glu’s Canyon Coal al­ready pro­duces about 3.5mtpa of coal but there’s no in­ter­est in sup­ply­ing Eskom as he prefers to work through the net­work of Mer­cu­ria, which has the rights over some, but not all, of Canyon’s pro­duc­tion.

“There’s no­body there now who isn’t cap­tured,” he said, re­fer­ring to the widely held be­lief that key de­ci­sion-mak­ing at the state-owned en­tity, es­pe­cially in re­la­tion to coal pro­cure­ment, is cor­rupt.

Most of Canyon Coal’s cur­rent pro­duc­tion is split be­tween its Sin­gani (1.6mtpa) and Pha­lan­ndwa (1.4mtpa) op­er­a­tions. Of th­ese, Sin­gani and its third mine – Hakhano – are reach­ing the end of their eco­nomic lives, which raises the ques­tion about re­place­ment tonnes.

Bayo­glu isn’t per­turbed about main­tain­ing pro­duc­tion; in fact, it’s his am­bi­tion to take pro­duc­tion to 10mtpa, most of which will be through the devel­op­ment of or­ganic or brown­fields growth of re­cently ac­quired as­sets and projects. The largest of th­ese projects is De Wit­tekrans, a 118mt re­serve pro­ject near Hen­d­rina in Mpumalanga which is ex­pected to have run of mine pro­duc­tion of some 3.2mtpa. The pro­ject was pre­vi­ously on the books of Con­ti­nen­tal Coal, a now-de­funct com­pany that was once listed in Sydney un­til cash flow prob­lems amid the price cor­rec­tion for coal led to its demise.

All in all, Canyon Coal has four new projects on its hands with com­mis­sion­ing dates spread be­tween later this year to 2019. Asked how a rel­a­tively un­known, and more im­por­tantly, un­listed com­pany is able to hoover up so many projects, Bayo­glu said he wanted to give thanks to Glen­core.

“Back in the day, it was very hard to get new busi­ness as Glen­core was the dom­i­nant player in South African coal. The group is less in­volved now and it’s pro­vided a lot of room to pick up as­sets that are avail­able,” he said. There’s a none too salu­tary les­son for the coun­try’s min­ing sec­tor that a for­eign in­vestor is able to cap­i­talise on its lack of com­pet­i­tive­ness.

“We are in­vested in this coun­try and we be­lieve in the fu­ture,” said Bayo­glu. “Who wants to go to the Congo?”

“Back in the day, Glen­core was the dom­i­nant player in South African coal. The group is less in­volved now and it’s pro­vided a lot of room to pick up as­sets that are avail­able.”

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