Coal Age

MAY 2019

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8 May 2019 worldwide news South Africa Awaits Coal Asset Sale By Gavin du Venage, South African Editor CAPE TOWN, South Africa—The sale of the South African coal assets of Australia-listed South32 is nearing completion, with final bids expected in June. This will be one of the largest coal transactions in the country to date. South32 was established in 2015 when it was spun out of Australian mining conglomerate BHP into a sep- arate listed entity, mostly consisting of BHP's South African assets. The sale of South32's coal divi- sion has been in the works since 2017, when CEO Graham Kerr announced the company had started a "process to broaden and transform the ownership of South Africa Energy Coal (SAEC)." SAEC includes four coal min- ing operations east of Johannesburg in Mpumalanga province; Khuta- la, Klipspruit, Middelburg and the Wolvekrans collieries. It also owns three processing plants, producing energy coal for the domestic and ex- port market. The Khutala Colliery is an under- ground room-and-pillar operation while the Klipspruit, Middelburg and Wolvekrans collieries are open-cast mines using dragline, as well as truck and shovel operations. SAEC can produce up to 30 million metric tons per year (mtpy) of thermal coal, or 10% of South Africa's total out- put. About 8 million mt are sold do- mestically and 12 million mt export- ed. Its principle domestic customer is Eskom, the country's energy utility. The sale is part of South32's drive to clean up its portfolio of grab-bag assets it inherited from BHP. BMO an- alyst Edward Sterck said in a note in April that SAEC's cost structure left it more vulnerable to cost fluctuations than rival producers such as Anglo American, Glencore and Vale. "Of this group, we estimate that South32 is the most sensitive to lower prices (-2% to FY2019 EBITDA at spot, -9% to FY2020), followed by Glencore (-3% to 2019, -4% 2020), and Anglo American (-3% to 2019, -4% 2019)," Sterck said. Last year, disruptions in coal pro- duction weighed on South32's earn- ings. The company reported a tough first quarter of 2018 at its coal assets, as volume dropped 13% from the previous quarter and, notably, export sales declined 40%. This was impact- ed by an incident that caused dam- age to the dragline at Klipspruit and reduced export coal production by 2 million mt, the company said. South32's South Africa Energy Coal division produces 30 million mtpy of energy coal or about 10% of South Africa's total output.

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