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South32 to close South African coal unit sale with Seriti

South32 will provide up to $250mn in funds to smooth the sale of its South African energy coal business to mining group Seriti Resources

|Apr 2|magazine4 min read

South32 will pay $200mn across a decade to partly fund costs of the environmental clean up of the mines of its South Africa Energy Coal unit once they close, and a $50mn facility to pay for the costs of restructuring some loss-making mining sites, it said.

The deal would allow South32 to reshape its business by exiting the thermal coal sector at a time when many banks and insurers are scaling back financing for the sector because of global warming concerns, reports Reuters.

Miners typically guarantee a larger portion of funds to cover rehabilitation costs if a buyer is small, to assure governments they won’t have to foot the bill, said analyst Peter O’Connor, at Australian investment firm Shaw and Partners.

“It’s a step backwards to go forward, but the key here is that they (South32) need to do this deal, it has been a burden on them for so long, it makes a cleaner, simpler, leaner business,” O’Connor said.

Coal’s deteriorating demand outlook may play a larger part in future divestment and spin-off plans being considered by majors BHP Group, Anglo American Plc and Glencore, he added.

South32 announced the divestiture in November 2019 with Seriti initially providing a 100 million South African rand ($6.7 million) upfront payment and South32 receiving deferred payments based on future cash flows from the mines until March 2024, capped at 1.5 billion rand ($101.49mn) per year.

However, South32 agreed to drop the deferred payment plan and has downgraded the 100 million rand price to a nominal fee.

The sale to Seriti is expected to close before the financial year end, South32 Chief Executive Graham Kerr told a media call, as talks over terms of a coal supply deal with state-run South African power provider Eskom continue and it waits for approval from the South African Treasury.

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