South32 escalates talks to offload South African coal division


Image: South32

South32 has received an offer from Seriti Resources Holdings to acquire its South Africa Energy Coal business.

The company did not disclose a value of the proposed transaction, but indicated Seriti’s offer included a “modest” up-front cash payment with a deferred payment mechanism.

Seriti is a South African mining company co-owned by four black anchor shareholders, including Masimong Group, Thebe Investments, Zungu Investments (Zico) and Community Investment Holdings (CIH).

The company was incorporated to acquire the New Vaal, New Denmark and Kriel mines from Anglo American, as well as various life extension coal resources and closed collieries.

“When we announced our intention to broaden the ownership of South Africa Energy Coal in November 2017, our vision was that it become a sustainable, black-owned and operated business, consistent with South Africa’s transformation agenda,” Kerr said.

The divestment would reduce South32’s sustaining capital intensity, strengthen the balance sheet and improve margins, according to Kerr.

The South Africa Energy Coal business has cost South32 $US578 million ($851.8 million) in impairment charges and reduced the group’s profit after tax by 71 per cent to $US389 million in the 2019 financial year.

The charges resulted from South32’s historical investment in the operation, its assessment of Seriti’s current offer and the market outlook for thermal coal demand and prices.

“Looking ahead our portfolio will include industry leading positions in alumina and manganese, and we will continue to embed development options with a bias to base metals that have the potential to deliver meaningful growth in shareholder value,” Kerr said.

“Our announcement that we have entered into exclusive negotiations with Seriti is an important milestone and we expect to provide a further update to the market in the December 2019 half year.”

South32’s financial results ending June this year saw its revenue slide by four per cent to $US7.27 billion on the previous corresponding period, despite positive results across its Australian operations.

The company achieved a 57 per cent increase in production at Illawarra Metallurgical Coal in New South Wales, with the Appin Colliery continuing to ramp up towards historical rates.

Australia Manganese also operated its premium concentrate ore circuit at around 120 per cent of its design capacity, contributing to South32’s production of 5.5 million tonnes of manganese ore. This underpins a three per cent increase in the group’s production volumes.

South32 has also commenced a feasibility study at the Eagle Downs Metallurgical Coal following its acquisition of a 50 per cent interest in the project.

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