Anglo cashes R850m for its last Eskom-linked coal operation
Anglo American has drawn a firm line under one of the most uncertain businesses in its portfolio, agreeing to the sale for R850-million in cash of its last Eskom-linked coal operation. This was a business that had become increasingly political as the power utility pushed for 51% black ownership of its coal suppliers.
The sale of its undeveloped New Largo project, the subject of a lengthy debate between Anglo and Eskom over the ownership structure and funding, sees the end of Anglo American’s decades-long involvement in a core business that marked it out as major coal supplier to the utility.
“The sale delivers on our long-standing strategy to exit our Eskom-tied coal assets and marks another Anglo American-led step-change in the sustainable transformation of the South African mining industry, supporting both Eskom and the country’s transformation objectives,” said Norman Mbazima, deputy chairman of Anglo American South Africa.
Seriti Resources, Coalzar and the state-owned Industrial Development Corporation teamed up to buy the New Largo project as well as the shuttered old New Largo mine for R850-million, leaving Anglo with its export thermal coal mines in South Africa.
Another step-change in the sustainable transformation of the South African mining industry
Seriti, which is 79% black owned, has already agreed to buy from Anglo three operational thermal coal mines supplying Eskom as well as four closed mines for R2.3-billion, pushing the newly formed company into second place of Eskom’s top coal suppliers, with annual output of 25-million tonnes a year.
It was not immediately clear how the estimated R20-billion to build New Largo would be funded.
Eskom, which has come under severe financial difficulties through mismanagement of the company and ratings agencies’ downgrades making debt expensive, burns about 120-million tonnes of coal a year. Eskom is in no position to fund New Largo.
Eskom has forced a demand on its suppliers that they be 51% black owned, one of the key sticking points in the discussions around the construction of New Largo to supply the Kusile power station. Anglo, under the leadership of Mark Cutifani, has made clear it would not be the minority partner in its coal assets.
South32's CEO Graham Kerr has also raised the 51% ownership demand from Eskom as a key reason in the diversified miner's decision to spin out its South African coal mines.
Anglo has made clear it would not be the minority partner in its coal assets
Eskom’s stance conflicts with the Mining Charter, which stipulates mining companies must have 26% black ownership to qualify for mining rights. Eskom’s demand for a greater percentage of black ownership was intended to force transformation on the coal mining sector, which on the surface, it appears to be doing. But the exodus of large multinational mining companies from South Africa sends the wrong message to investors, an analyst said.