SOUTH32’s efforts to sell its 91.8% stake in South African Energy Coal (SAEC) have been delayed with the transaction “… now expected to complete following the end of the March quarter”, the mining group said today.
South32 announced it would sell its stake in the 28 million tons a year SAEC to unlisted coal producer, Seriti Resources, in 2019. Regulatory and transaction conditions were expected to take about 18 months to fulfill. South32 subsequently pushed out deal completion to the first quarter of this year.
A complicating factor in the proposed transaction is a coal sales agreement (CSA) between Eskom’s Duvha power station and SAEC’s Wolvekrans Middelburg Complex (WMC) which SAEC says is deeply unprofitable.
A hardship clause was signed between SAEC and Eskom with a view to renegotiating the CSA which was subsequently agreed. However, the parties could not get the buy-in of South Africa’s National Treasury which has a governance-related mandate to vet commercial deals Eskom wants to sign.
South32 said that “work is progressing” with Eskom that would “… underpin the sustainability” of SAEC. “A further update will be provided to the market at the conclusion of this work,” the group said.
It is understood that the new CSA will provide for Eskom making preparations to supply Duvha with coal from lower cost alternatives over time. As a result, the WMC supply contract will be extended four years to about 2024 but not to its fullest extent which is contained in an option agreement to 2034.
