[miningmx.com] – EXXARO Resources is to buy Total Coal South Africa (TCSA) for R4.97bn in a transaction that returns the group to its roots after last month saying it might write-off its entire R5.36bn diversification into iron ore.
Exxaro said in June that it could write-down its Mayoko iron ore project in the Republic of Congo (RoC) which was intended to add another limb to its operating porfolio that currently consists mostly of coal, and then investments in mineral sands and iron ore.
It followed up that announcement by stating two days later on June 26 that it intended to build a 2.2 million tonnes/year coal mine near Belfast in Mpumalanga province. The TCSA deal will take Exxaro’s investment in coal mining – the commodity on which the firm is founded – to R8.7bn, equal to 17% of its market capitalisation.
“The consolidation of ownership of coal assets within South Africa is a welcome opportunity,’ said Sipho Nkosi, CEO of Exxaro. Shares in the company 1.27% higher shortly after the announcement at 2pm CAT.
TCSA’s French parent company, Total Group, put its coal subsidiary up for sale in March saying at the time that the decision to sell was a view based on the quality of the assets and not a divestment from South Africa.
TCSA has a 74% stake in the Dorstfontein and Forzando coal mines which produce a combined 4.5mtpa of which just over 4mtpa is exported through Richards Bay Coal Terminal (RBCT). The balance of the shares in the coal mines is owned by Mmakau Mining.
It also has a 49% stake in the currently closed Tumelo coal mine, with Mmakau Mining holding the majority stake, and a greenfields project in Mpumalanga called Eloff. Total life of mine of the operations is 20 years with some 395mt in run-of-mine resources.
Interestingly, Exxaro said the addition of RBCT entitlement, and production, would give it flex to adjust its own portfolio such as accelerating brownfields and greenfields projects or converting existing domestic quality coal assets to multi-product quality in order to capitalise on the export coal sector.
“Access to additional allocation could enable Exxaro to reconfigure and expedite its development plans for current brownfields and greenfields projects in the Waterberg region by either increasing the scale of existing operations or changing planned projects to multi-product mines,” the company said in an announcement.
However, analysts wanting to understand how exactly buying assets in Mpumalanga province would liberate more production from mines and projects in another province – Limpopo – were frustrated by a confidentiality agreement signed between Exxaro and Total.
“It’s early days and it’s not appropriate to detail how Grootegeluk and Waterberg fit into these plans. If you could hold your horses,” said Exxaro CFO, Wim de Klerk.
There were also questions about the price tag associated with the transaction especially as TCSA booked a R55m loss in its 2013 financial year. “It’s a fair question,” said De Klerk who added: “We are very comfortable with the amount that we paid. We can’t give more details owing to the confidentiality with Total,” he said.
De Klerk said at Exxaro’s full-year results presentation in February that the company had earmarked the export coal industry as a growth area for the group notwithstanding the currently depressed price for thermal coal.
Exxaro’s net debt would increase to about R10bn once the deal with Total was consummated from about R4bn now. De Klerk said the transaction would be funded from debt facilities. There was no particular requirement to sell other assets, such as its 44% stake in Tronox, Exxaro’s New York-listed mineral sands investment.
Exxaro said on May 19 that it had raised R1bn in two bond issuances, the proceeds of which would be used for “general corporate purposes”.
