South32 closes door on its SA coal business

Enters exclusive agreement with Seriti

SOUTH32 has closed the door on its South African loss-making local coal business that impaired $504 million (R7.68 billion) in the year ended in June, announcing Seriti Resources as the preferred bidder for the assets.

South32 said it had entered into an exclusive agreement with Seriti to bid for its South Africa Energy Coal business.

South32 chief executive Graham Kerr said the offer included a modest up-front cash payment with a deferred payment mechanism in which both companies would share commodity price upside for an agreed period.

Kerr said the transaction would be subject to final negotiation and execution of a binding sale and purchase agreement with a subsidiary of Seriti and entities holding equity on behalf of employees and communities.

Seriti is headed by former Optimum chief executive Mike Teke, who also served as the chairperson of mining lobby group the Minerals Council SA, formerly known as the Chamber of Mines.

Teke said the exclusive offer was an exciting step forward for Seriti.

In 2018 Seriti acquired coal mines from Anglo American.

South32 is a JSE, London and Australian-listed mining and metals company which was spun out of mining giant BHP Billiton in 2015.

It began managing the South African thermal business as a standalone to improve competitiveness and ensure ongoing sustainability in April last year in preparation for the sale.

In 2017 South32 announced its intention to broaden the ownership of the South African thermal coal business.

Kerr said South32 approved a R4.3bn investment to extend the life of the Klipspruit colliery by at least 20 years to improve South Africa Energy Coal’s competitiveness.

He said between the 2018 and 2019 financial years, the company invested $377m of capital expenditure, including $185m to advance the Klipspruit project, while it progressed the divestment process.

The South African thermal coal assets comprise Khutala colliery, the Klipspruit colliery and the Wolvekrans Middelburg Complex.

South32 finished the year with a net cash balance of $504m, having returned $938m to shareholders during 2019 financial year.

Kerr said the company delivered underlying earnings before interest, tax, depreciation and amortisation of $2.2bn for an operating margin of 34 percent and free cash flow of $1bn.

“We achieved record production at Hillside Aluminium, a 57 percent increase in volumes at Illawarra Metallurgical Coal and strong manganese ore production of 5.5 million tons, underpinning a 3 percent increase in group production volumes,” he said.

South32 shares closed 7.67 percent lower at R26.73 on the JSE yesterday.