Anglo’s New Largo Project Considered in Coal-Mine Sale Package

  • Anglo considering a number of divestment options for assets
  • New Largo may provide 570 million tons of coal to Eskom plant

Anglo American Plc may sell its New Largo project in a package with three other coal mines that supply South Africa’s power utility, as the company moves forward with plans to scale down operations.

State-owned Eskom Holdings SOC Ltd. is discussing with Anglo the sale of the New Vaal, Kriel and New Denmark mines that provide fuel to the utility, according to acting Chief Executive Officer Matshela Koko. Eskom helped fund the development of some of Anglo’s mines, has interests in them and is in talks with the miner over the disposal of the assets.

“The sale includes Anglo disinvesting out of New Largo,” Koko said Tuesday in an interview in Johannesburg. Eskom’s discussions with the company include whether Anglo “lumps it” together with the three other mines, or sell it separately, he said, declining to provide more details.

The New Largo project is located in South Africa’s eastern Mpumalanga province near Eskom’s Kusile power plant, which will be the utility’s biggest once its completed. Anglo expects the mine to produce about 570 million metric tons of coal for Kusile over a 47-year period, according to a 2014 presentation. The company shortlisted bidders for several of the coal mines, two people familiar with the discussions said last month.

Options Considered

“We are considering a number of options for divestment, whether as individual assets or as packages of assets,” Pranill Ramchander, head of corporate communications for Anglo American South Africa, said in an e-mailed response to questions. “Anglo American has initiated a process to exit its Eskom-tied mines. Throughout this process, Anglo American has held discussions with and continues to engage both Eskom, government and potential bidders.”

Ramchander declined to comment on the estimated cost of the New Largo project. Anglo in 2013 estimated that its contribution to developing the mine would be about $700 million, or one-third of the cost, with Eskom funding the remainder.

Royal Bafokeng Holdings Ltd. was among companies that considered investing in the three Anglo mines, but withdrew after a review process, David Wilson, head of investments at the company, said in an e-mailed response to questions.

While Eskom and Anglo American’s Inyosi Coal unit, 27 percent of which is owned by black investors, in 2014 signed a memorandum of understanding to provide coal for the Kusile plant from the project, the utility plans to issue a request for proposals during the first half of 2017 for supply contracts. The process will be open to all companies, Ayanda Nteta, the utility’s acting fuel-sourcing manager, said in a Feb. 2 interview in Cape Town.

“The value of New Largo depends on how the project will be implemented,” Xavier Prevost, an analyst at XMP Consulting in Pretoria, said by e-mail. “The mine could produce as little as 4 to 6 million or as much as 14 million tons a year and also depends on whether it has a life contract with Eskom or not and if it will sell also coal to the inland market.”

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