South 32 has followed Anglo American by taking the first step to reducing its involvement in the weak and underperforming South African economy by revealing a proposal to separately manage its coal operations in the country.
The move could see the company list the business in Johannesburg. South 32 shares fell 2.6% on the ASX yesterday to $3.30.
No financial details were released in yesterday’s statement.
South 32 CEO, Graham Kerr said in a statement yesterday “Establishing South Africa Energy Coal as a stand-alone business will enable us to improve the operation’s competitiveness and ensure its ongoing sustainability. This process will also allow us to further simplify our organisation and unlock additional value for shareholders,” he added.
“We will also seek to increase the local ownership of South Africa Energy Coal, consistent with our commitment to South Africa’s economic transformation, and may ultimately list the business on the Johannesburg Stock Exchange.” Shares in the South African Energy Coal (SAEC) business would be sold to black business.
South32 said in a statement to the Johannesburg Stock Exchange the statemen that SAEC required ongoing investment to sustain production and meet its take or pay rail domestic supply obligations. The restructure was aimed at “sustainably” improving its financial performance. It would have “tailored functional support, systems and governance processes”, the company said.
South32 is following in the footsteps of Anglo American which announced plans in April to sell its domestic coal mines to a black consortium, Seriti Resources, for 2.3 billion Rand. The transaction, which requires the transfer of the coal sales agreements between Anglo and Eskom for the New Denmark, Kriel and New Vaal mines, has not yet been completed.
South 32 said that once SAEC had been established as a stand-alone business, a process would begin to broaden its ownership. “This will present opportunities for Broad-Based Black Economic Empowerment entities, employees and communities, and could lead to a listing of SAEC on the Johannesburg Stock Exchange,” it said.
South African media reports say Mr Kerr has been outspoken lately regarding the political risk tied to its South African operations and earlier this year, took the Department of Mineral Resources to court in an effort to have a mining permit granted for the extension of its Klipspruit mine – which it also approved today at a capital cost of R4.3 billion Rand.
On the of the approval of the Klipspruit project Kerr said that the mine would now continue for another 20 years and ensure employment for 740 people. Some 4,000 jobs would be created during construction.
“The investment is expected to generate an internal rate of return on investment of more than 20% by unlocking 616 million tonnes of resource at the Klipspruit South and Weltevreden deposits, and fulfilling around half of our current rail obligations with Transnet,” he said.
