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Sipho Nkosi, CEO, Eyesizwe Coal
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Kumba BEE says debt can be borne
Allan Seccombe
Posted: Thu, 13 Oct 2005

[miningmx.com] -- EYESIZWE Mining, the lead investor in the newly constituted Kumba Resources, would repay R3.25bn in debt within seven years, said CEO, Sipho Nkosi.

Eyesizwe leads a consortium that will take a 55% stake in Newco, the new company that will house Kumba’s coal, mineral sands and base metal assets combined with coal assets of Eyesizwe.

In addition, Newco will have R800m in net debt. This will grow to R3.25bn if it agrees to buy Anglo American’s Namakwa Sands mineral sands unit and 26% of it Black Mountain and Gamsberg base metals mines.

Newco will also hold 20% of the Sishen Iron Ore Company (SIOC), which will be owned by a separately listed Kumba Iron Ore, which in turn will be majority owned by Anglo American.

“The 20% stake in the iron ore business is very important because it provides us with the strong cash base we need,” said Nkosi in an interview with Miningmx.
Iron ore... provides us with the strong cash base we need
“With that cash we can deal with debt, look after projects and ensure that our shareholders remain sustainable.”

“If we do all those things, and put money into the hands of our shareholders, we have a window of about seven years to repay the debt,” said Nkosi.

Unlike other empowerment deals where the broad-based beneficiaries like communities and women’s groupings only receive benefits, beneficiaries in this deal would start getting cash straight away, he said.

Of the cash generated by Newco, half would go to the empowerment consortium ‘BEE Hold’, with the balance pumped into mezanine debt and the other half to members of the consortium.

Some observers have questioned the timing of the deal saying it was at the top of the price cycle. As a result, repaying the debt might not be all that easy. Nkosi said he had no real concern.

“Being part of the Kumba board and the projections for iron ore prices that we looked into, I’m confident that we’re still in the money as far as this business is concerned,” he said. Projections for iron ore demand from China, India and Japan boded well for prices.

Coal prices would also be sustained. In fact, there was increasing pressure on state power utility Eskom to generate more electricity from its coal-fired plants, Nkosi said.

“Our coal assets are the most exciting for us. We know the future of coal in the coming months,” he said. Eskom’s use of poorer quality coal meant Newco would be able to tap into coal fields it normally wouldn’t use.
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Kumba and Eyesizwe currently have a “small component” of the coal export facility at Richards Bay harbour. “However, we are very hopeful that in the not too distant future there will be major changes there and we will have much bigger access.”

Nkosi, who is from Vryheid in KwaZulu-Natal, entered the coal industry by chance when approached by Anglo American. He had completed his bachelor of commerce degree at the University of Zululand and was working for Ford as a market analyst.

He was selected by Anglo American and Billiton to head up an empowerment grouping to acquire some of their assets to start a coal mining business.