Anglo American to sell South Africa coal operations for $164m

FTSE 100 miner Anglo American is to sell its Eskom-tied thermal coal operations in South Africa to Seriti Resources Holdings Proprietary, a company majority owned by historically disadvantaged South Africans, for 2.3bn rand ($164m).

The assets include the New Vaal, New Denmark and Kriel collieries, as well as four closed collieries, with the sale resulting in Seriti becoming the second largest provider of thermal coal to Eskom, a public electricity utility, supplying almost a quarter of Eskom's current annual coal requirements.

As part of the deal, the $164m will be adjusted for cash flows generated by the assets between 1 January and the completion date in order to determine the final payment to be made by Seriti.

The sale is subject to regulatory approval in South Africa is expected to close by the end of the year.

Anglo American chief executive Mark Cutifani said: "This transaction forms part of our ongoing commitment to reshape and upgrade our global asset portfolio, recognising appropriate value and further demonstrating Anglo American's longstanding support for the development and sustainability of South Africa's mining industry."

Analysts at Shore Capital said that the sale was of a “politically-charged hot potato”, a situation which could otherwise have intensified and will hopefully conclude well before the 2019 elections in South Africa.

South Africa has currently been rocked with political and economic unrest recently after president Jacob Zuma sacked respected finance minister Pravin Gordhan and rating agencies Fitch and S&P cut the country’s sovereign credit rating to junk status.

Analysts at SP Angel said that thermal coal prices paid by Eskom were at artificially low levels that have rendered the market for local thermal coal unattractive for all, but the cheapest of local miners.

It said that Anglo is also due to divest iron ore and manganese assets in the country and while its platinum and diamond mines are not yet up for sale, that could change given the political unrest.

Last month, Cutifani urged the South African government to end a “20-year rot” in the mining industry by issuing investor friendly legislation about black ownership of mining companies.

Seriti is majority owned by historically disadvantaged South Africans and is part of a policy by the government to remedy the socio-economic imbalances within communities.

Seriti chief executive Mike Teke said that the sale is significant step-forward in its vision to become “a black-controlled, broad based South African mining champion, and a coal player of significant size and scale”.

The deal “allows Seriti to achieve its strategic objective of preserving and operating strategic energy assets for the benefit of South Africa and its people. Our structure brings together an experienced team capable of operating and developing large scale thermal coal assets and provides a unique mining opportunity for black women”.