The black-empowerment consortium selected as the preferred bidder for Anglo American’s Eskom-tied coal operations is optimistic that the State-owned utility will approve the ceding of three coal supply agreements (CSAs) from Anglo to Seriti Coal by year-end.

The R2.3-billion transaction was announced in April and Eskom’s approval is the last outstanding condition, following the Competition Commission’s sanctioning of the deal and the Department of Mineral Resources’ approval of a Section 11 mining rights transfer.

The transaction involves the New Vaal, New Denmark and Kriel collieries, as well as four closed collieries and will result in Seriti Coal becoming the second largest provider of thermal coal to Eskom and the largest black run, operated, managed and controlled coal supplier.

Seriti Coal will supply 22% of Eskom’s yearly coal requirement, with the contractual tons to be supplied being 37-million tons per year (Mtpa).

In terms of the CSA the New Vaal colliery is contracted to supply 17.8 Mtpa to the Lethabo power station, New Denmark should supply 10.5 Mtpa to Tutuka power station, while the Kriel colliery is contracted to supply 8.5 Mtpa to Kriel power station. The Lethabo and Tutuka CSAs have a further 11 years to run, while the Kriel CSA expires in two years.

Black-owned groups Thebe Investment, Masimong, Zungu Investments Company and Community Investment Holdings own 25% apiece of Seriti Resources Holdings, which, in turn, holds, 90% of Seriti Coal. Employees and communities own the 10% balance of Seriti Coal. Seriti Resources is 79% black-owned.

Thebe Energy and Resources CEO Sizwe Mncwango tells Engineering News Online that as much as Seriti Coal had hoped that all requirements would be met before six months after the April 6 signature date, it remains “hopeful and positive that the transaction should be consummated anytime now and before end of 2017”.

Eskom spokesperson Khulu Phasiwe says the transaction should be approved by “December 2017 subject to the outcome of the due diligence and internal and external approvals that may be required”. He reports that it requires Eskom board approval and may also require external approvals in line with the Public Finance Management Act.

"Eskom’s consent is subject to the satisfactory outcome of a due diligence exercise. The due diligence is being overseen by a legal firm that is assessing Seriti’s capability to meet contractual obligations," Phasiwe adds.

Anglo spokesperson Ann Farndell confirms that the transaction is still in the process of being finalised and that the company is hoping for finalisation before the end of 2017.

The transaction has been funded through equity from the four members of the consortium, as well as through some debt from a banking institution.

Mncwango says that, when the contracts come to an end and the power station being supplied has reached by end of its life, Seriti Coal will commence a process, with Eskom, to achieve mine closure.

“However, if there is still enough coal resource on the ground we would certainly consider other options especially so if the power station has not yet reached its end of it useful life.”

He also confirms that Seriti Coal is “very keen” on New Largo, an Anglo project not included in the transaction. New Largo is seen as important for supplying coal to Eskom’s new Kusile power station, which is currently under construction in Mpumalanga.

“If similar opportunities come along our way, we are definitely eager to make further acquisitions in this space and play an even more significant leadership role in such a strategic sector of the economy. The Seriti transaction is, therefore, just the beginning of many more to come,” Mncwango tells Engineering News Online.