Anglo's Coal-Mine Sales Said Slowed by South African Utilityby and
Pembani and Royal Bafokeng said to be among bidders for mines
Eskom wants to transform ownership model for coal mines
Anglo American Plc’s sale of its South African coal mines will probably run into next year as bidders struggle with attempts by state power utility Eskom Holdings SOC Ltd. to transform its relationship with coal suppliers, according to two people with knowledge of the matter.
Pembani Group, Sibanye Gold Ltd. and Royal Bafokeng Holdings Ltd. are on a shortlist of bidders for the operations that supply Eskom with more than a quarter of its coal, the people said. The suggestion by a senior Eskom executive last week that Anglo should cede its mining rights to the state and uncertainty over what sort of new off-take agreements the utility would give the new owners will draw out the sale process, they said. They asked not to be identified because the process is private.
“Uncertainty over who Eskom can buy coal from, how much Black Economic Empowerment ownership you have to have, all this uncertainty could make this a drawn-out process,” Ben Davis, a mining analyst at Liberum Capital Ltd. in London, said by phone. “There are huge hurdles to the sale.”
After losing 75 percent of its value to become the worst performer on the FTSE 100 Index last year, Anglo is selling more than half its mines around the world to save itself. The company that was formed in South Africa almost a century ago to benefit from Johannesburg’s gold-mining boom is disposing of its coal and iron-ore businesses, both of which have operations in the country.
Anglo’s coal business produces 50 million metric tons of the thermal type in South Africa, with 17 million tons being exported, according to its website.
The London-based company will have to work with Eskom on the planned sale because the utility owns part of the assets, Group Generation Executive Matshela Koko wrote in an opinion piece in Johannesburg-based newspaper Business Report on April 21. The company didn’t immediately respond to e-mails Tuesday seeking comment.
“Eskom technically owns part of, if not the majority of, operating assets and the mining infrastructure, while Anglo owns the mining rights and some of the surface rights,” and the companies will “need to engage in order to effect radical transformation through the potential new owners,” Koko wrote. He suggested Anglo cede its mining rights to a state-owned mining company.
“Any state-owned company running a large group of coal mines in any country would be an absolute disaster," Xavier Prevost, an analyst at XMP Consulting in Pretoria, said by e-mail. “Behind this is Eskom’s policy of economic empowerment,” he said. “All these delays would increment the possibilities of facing a market scarcity of coal for power generation."
Eskom is the biggest South African buyer of coal, using it to generate 83 percent of the electricity it produces for the continent’s most-industrialized economy. The utility has been forced to improve savings and reduce the amount it spends on coal after the energy regulator capped an electricity-price increase for the year that started April 1 to an average 9.4 percent, Fitch Ratings analysts said in a March 3 note. The agency assumed Eskom would be allowed an increase of about 12 percent.
Eskom “will now more vigorously shape and transform the industry,” Koko said. “This is important and Eskom is mandated to ensure optimal usage of national assets, especially where it has financed and developed the requisite infrastructure for this industry.” This will have an impact on the coal business’s structure “as the status quo cannot be justified and is not sustainable,” he said.
Anglo Chief Executive Officer Mark Cutifani told investors last week the company had appointed advisers, prepared due-diligence information and already engaged with potential buyers for assets including thermal coal in South Africa.
“We are progressing discussions, including the issues you raised about ownership, with key stakeholders like Eskom and government as well as potential interested parties in order to exit from our Eskom-tied mines,” Anglo spokesman Moeketsi Mofokeng said in an e-mailed response to questions. “Information regarding the various engagements and bidders cannot be disclosed at this stage as Anglo American is bound by confidentiality undertakings entered into with potential bidders.”
Sibanye is “assessing opportunities” that could include coal assets, though the process with Anglo seems to be at an early stage, James Wellsted, a spokesman for the company, said by phone. “It does seem as if it’s not just going to involve engagement with Anglo Coal, it looks like it’s going to involve engagements with Eskom as well and we don’t know what their requirements are right now.”
Pembani doesn’t comment on its “investments activities,” it said in an e-mail. A spokeswoman for Royal Bafokeng declined to comment.
The sale process could last “as long as Eskom wants to take,” Prevost said.