[miningmx.com] – AMONG the merger and acquisition activity likely to take place this year in South Africa’s mining sector is the important sale of Anglo American’s domestic coal mines; the ones that supply Eskom.
But don’t hold your breath.
Analysts think the transactions will be complex, and possibly protracted, owing to onerous black economic empowerment requirements. Moreover, the mines won’t be sold for a fortune and, therefore, are not considered a priority transaction.
“I don’t think they’ll get much – even in rands – for these (South African coal mines), so I would think they’ll focus on niobium and phosphates as they should make more of a difference in terms of moving the needle on the debt,” said Hanre Rossouw, a portfolio manager at Investec Asset Management.
Anglo American said it hoped to raise $2bn by selling non-core and low profit assets with its niobium and phosphates business possibly attracting offers of $1bn – a level analysts believed was optimistic.
Mark Cutifani, CEO of Anglo American, was heavily criticised following his firm’s investor day update in December in which he unveiled a fresh wave of restructuring with up to two-thirds of assets set for closure or sale.
The criticism that followed, however, was based on the impression that the restructuring announced only 11 months earlier, following the group’s full-year results presentation in February, was yet to be complete. They also didn’t like Anglo’s steadfast refusal to sell shares to shore up the balance sheet.
The message to Cutifani was therefore to hurry up the sale process. Cutifani is due to provide details when he reports Anglo American full-year results on Tuesday (February 16). He told the Financial Times earlier this week that the group had been slow to complete its disposals.
Selling the South African coal mines is a tricky business, however. Eskom has demanded, in terms of the Department of Trade & Industry’s BBB-EE legislation, that new suppliers of coal – including mines that change ownership – must be 50% plus a share empowered.
Anglo’s coal mines, however, comply with the sector code of the Minerals & Petroleum Resources Development Act which only has a 26% empowerment.
So buyers of Anglo’s coal assets will have to be either black-controlled or have a cogent empowerment plan where they don’t control the overall business. This will affect valuation of the mines further (why buy a business you don’t control?).
James Wellsted, head of corporate affairs at Sibanye Gold, said he thought Anglo American was “keen’ to conclude the sale of the mines, but that BEE complexities had to be worked through first. He declined to give details.
Sibanye Gold’s CEO, Neal Froneman, told Miningmx in December that his company was an interested bidder for the mines as part of his firm’s dividend yield strategy.
Anglo supplies Eskom some 21.5 million tonnes a year from its South African mines, a level that Deutsche Bank said in a recent report was likely to stay unchanged in the 2016 financial year.
