Viability of South32 deal with Seriti Resources turns on Eskom agreeing to higher coal price

Mike Teke, CEO, Seriti Resources Pic: Martin Rhodes

THE viability of a transaction in which Perth-headquartered diversified miner, South32, is to divest of its unit, South African Energy Coal (SAEC), to Seriti Resources was in question without a new coal sales agreement (CSA) with Eskom.

This is one of the observations of a statement issued by Seriti CEO, Mike Teke, today in which he primarily criticised the motives of two unions – the National Union of Mineworkers (NUM) and the South African Federation of Trade Unions (Saftu) – which earlier this month filed affidavits with the SA Police Services against the new CSA.

Teke said a CSA from SAEC to Eskom’s Duvha power station “… has been a loss-making contract for a number of years and in the past two years those losses have become so great that the viability of the whole of SAEC’s business is in danger”.

Commenting on the affidavits, Teke said the complaints were “vague and lack[ed] foundation” and, in the case of the NUM, perplexing as the union had previously raised no objection to the prospect of Seriti signing a new CSA with Eskom when the matter was put before the Competition Commission.

“Mr Vavi’s political or personal agenda for becoming involved in this matter is unclear since we maintain that there is no evidence supporting his allegations,” said Seriti in reference to Zwelinzima Vavi, Saftu’s general-secretary and the former general-secretary of the Congress of SA Trade Unions.

“We take exception to the ill-informed and malicious rumours and unfounded speculation, not supported by any evidence which have been circulated and which are being pushed by unnamed individuals pursuing hidden vested interests,” said Teke.

Seriti said it would cooperate with the SAPS should the affidavits bear an investigation.

The CSA refers to an agreement between the Woverkrans Middelburg Complex (WMC) and Eskom’s Duvha power station held by SAEC.

Seriti was in 2019 judged the winning bidder for South32’s 91% stake in SAEC which the Australian group was selling, partly in order to cut its net carbon emissions. South32 had previously identified that a section of WMC was heavily lossmaking (the Ifalethu mine).

South32 subsequently triggered a hardship clause in the CSA with Duvha enabling a negotiation process to kick off with Eskom. This occurred after South32 had announced Seriti as the winning bidder for SAEC, a company that produces about 28 million tons of thermal coal annually.

South Africa’s National Treasury kicked back the new CSA proposal between South32 and Eskom, but agreed to an improved contract provided it was stop-gap such that after 2024 the coal supply contract to Duvha was opened to general bidding.

Teke maintains that at R550 per ton, the new CSA allows for its break-even. Its critics say, however, that compared to the previous sales price of R280/t, the inflation cannot be supported by Eskom which has experienced a decline in revenue at a time when it cannot service R450bn in debt.

Teke said today that coal supplied from WMC to Duvha was the most cost effective as it was supplied by conveyor whereas trucked coal would be more expensive. Critics argue that the near doubling in the CSA brings back among the worst of state capture abuses in South Africa’s coal sector in which coal supply to Eskom was routinely manipulated for personal gain.

“To attempt … to conflate a legitimate and exhaustively analysed commercial transaction such as this with regrettable past events of State Capture, without proper investigation or any evidence, is unacceptable,” said Seriti.

2 COMMENTS

  1. Mike Teke is right about the coal from the complex being cheaper because of the conveyor vs road transport.

    The problem is that Duvha PS opened in the late 70s and the dedicated mine has gradually worked its way away from the power station area, it has also gone into deeper ground with a higher strip ratio.

    The Middleburg Mines Complex was started by Randcoal as an export mine but eventually was roped into the Duvha supply chain. This is also a few kilometres from the Duvha PS.

    The original cost plus contract is long gone and a new contract needs to be agreed based on solid figures of mining costs and transport costs.

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