Seriti buys majority stake in South32's South Africa Energy Coal for R100mn

In a groundbreaking move, Seriti Resources has secured a majority stake in South32's South Africa Energy Coal for a whopping R100 million. This acquisition comes with an additional clause that South32 will receive 49% of the free cash flow generated by SAEC until March 2024, capped at a maximum of R1.5 billion per year. The deal, which has been in the making for quite some time, marks a significant shift in the energy coal landscape. CNBC Africa caught up with South32's Chief Operating Officer, Mike Fraser, and Seriti CEO, Mike Teke, to delve into the details of this game-changing transaction. The journey towards this acquisition began back in November 2017 when South32 announced a substantial investment of 4.3 billion rand in the Clips Road Extension project. It was during this period that the realization dawned upon South32 that energy coal might not be a strategic commodity for the company in the long run. This realization kickstarted the process of seeking a partner to broaden ownership in the coal business. One of the primary criteria for this partnership was to have a black-owned entity that could drive sustainable growth in the sector. After a meticulous selection process, Seriti Resources emerged as the frontrunner, leading to the formal announcement of the sale and purchase agreement in August of this year. One of the key elements of the deal is the impact it will have on the export market. With a 21% stake at Richard's Bay Coal Terminal, translating to approximately 16 million tonnes, Seriti Resources is set to become one of the significant players in the export allocation space. This strategic move diversifies Seriti Resources' portfolio, augmenting its existing mines that supply coal to Eskom with the inclusion of an export-oriented business. The acquisition of South32's South Africa Energy Coal not only boosts the size and scale of Seriti Resources but also solidifies its position as a major player in the coal mining industry. Currently supplying 25 million tonnes to Eskom, Seriti Resources, post-acquisition, will surpass the 50 million tonnes mark, when factoring in the existing production and the forthcoming projects under Seriti too. Addressing concerns about the future of coal in the wake of global transitions towards renewable energy, Mike Fraser emphasized that while there is a global shift away from coal due to climate change considerations, countries like South Africa are likely to continue relying on coal for the foreseeable future. He stressed the importance of maintaining a balance between thermal coal for immediate energy needs and gradually integrating renewable sources in the energy mix. The divestment of energy coal by South32 does not signal a complete exit from South Africa, as the company remains invested in manganese and aluminum projects in the region. Despite the environmental challenges associated with coal projects, both Seriti Resources and South32 remain optimistic about the demand for coal in South Africa and the broader African continent. As Mike Teke pointed out, with 16 coal-fired power stations in South Africa alone, coal still plays a significant role in the energy landscape. While acknowledging the inevitability of transitioning to renewable energy sources in the long run, the leaders underscored the continued demand for coal in the current energy mix. Looking ahead, the acquisition poses a new financial landscape for Seriti Resources, enabling the company to explore further opportunities for growth. Mike Teke emphasized that while the focus for Seriti Resources has been on consolidating its position in the coal sector, future acquisitions in alternative sectors like manganese could be on the horizon. On the other hand, South32 is gearing towards base metals, with strategic investments and exploration projects lined up to fuel its growth trajectory. In conclusion, the acquisition of South32's South Africa Energy Coal by Seriti Resources not only marks a significant shift in the energy coal sector but also sets the stage for enhanced sustainability and growth in the mining industry. The partnership between these two industry giants is poised to reshape the coal mining landscape in South Africa and beyond, strategically positioning both companies for a dynamic and evolving energy market.