[miningmx.com] – PETMIN, a R1.15bn mid-tier mining company, dabbled in an international diversification programme several years ago, buying into exploration ventures in Canada and Turkey. It is now looking closer to home for growth.
Earlier this month, the group announced plans to externalise its shares in North Atlantic Iron Corporation (NAIC) – likely to be 40% once it takes up options – by separately listing the asset in Toronto and Johannesburg, and then unbundling it to shareholders.
Bradley Doig, a Petmin director, says the company doesn’t want to sacrifice cash flow from its profitable anthracite mine in South Africa’s KwaZulu-Natal province – Somkhele – to some far-flung North American venture that’s probably very cash hungry. Although promising, NAIC hasn’t captured the imagination of investors.
According to Ian Cockerill, the group’s former chairman, there’s no trace of recognition of NAIC in Petmin’s share price at all. It’s therefore unlikely Petmin will plough any more funds into Sivas either, a copper development play in Turkey.
The investments were made at the end of the mining bull market when even development and junior players thought they were bullet-proof. The view now, however, is that the market will reward home-grown endeavours.
Thus, Petmin has turned to the local thermal coal market.
It already has some thermal coal production by means of a plant extension at Somkhele that allows it to treat “middlings’ coal – a grade of fuel that “s neither export nor domestic coal quality – which it sells to merchants who mix it with other grades and then on-sell to Eskom.
Petmin now wants more of this business, especially as Eskom is something of a captive market. Eskom has estimated that there’s some 1.8 billion tonnes (bt) to 2bt of coal supply shortfall from 2018 to 2040 so it’s desperate for supply.
Doig says the company has been approached by South African institutions who are prepared to finance an acquisition without recourse to Petmin – the debt will be carried by the asset – on the basis that Eskom is prepared to pay a premium for coal through a BEE supplier. This is in terms of the Department of Public Enterprises’ insistence that new coal suppliers to Eskom must be 50% plus one share empowered.
“We would look for something at three millon tonne a year mark,’ says Doig of a potential acquisition. “Something we can manage and understand, or is a brownfields expansion that needs some assistance with restructuring and capital.’
