Optimum purchase 'not a priority' for Seriti

South African mining company Seriti Resources is not eyeing the Optimum coal mine owned by the Indian-born Gupta family that went into business rescue last month, but is focusing instead on developing the collieries it bought from London and Johannesburg-listed mining group Anglo American.

Seriti's core focus is on developing its newly acquired assets rather than pursuing new acquisitions, chief executive Mike Teke told Argus.

"It is not so much a question of being interested in Optimum. I used to run Optimum, so when the question arose, I said I could assist in resuscitating the mine and retaining the jobs that this country so desperately needs," Teke said.

Optimum coal mine and terminal, as well as the Koornfontein mines, entered business rescue proceedings last month after the Gupta family fled the country. The Guptas have been implicated in a widespread corruption scandal that led to former South Africa president Jacob Zuma's resignation in the middle of February.

Optimum mine is non-operational at present because of a lack of the necessary equipment and the non-payment of workers' salaries for March. Meanwhile, the mine's rescue has been stalled by a court application to have the appointed business rescue practitioners removed that was filed by one of Optimum's creditors, Derko Mining and Exploration.

Seriti has not had any dealings with the appointed business rescue practitioners, Teke said.

"Yes, I am interested in Optimum. But I do not want to be distracted at the moment from developing our three new assets by chasing a lot of things at the same time," he said.

"If opportunities arose and there were assets that complement our strategy, for example one that allows Seriti to expand into the export market, then we would consider it," he said.

In that respect, Optimum could be ideal, Teke said. Optimum Holdings has an 8mn t/yr export allocation at the Richards Bay Coal Terminal (RBCT).

But for now, Seriti is focusing on developing its New Vaal, New Denmark and Kriel mines that are tied to state-owned power firm Eskom, along with four closed collieries that it bought from Anglo for 2.3bn rand ($164mn at the time). The deal was agreed in April 2017 and completed on 1 March.

Eskom-tied mines operate under a cost-plus model, whereby a coal supply agreement applies that obliges Eskom to provide a certain amount of capital to the mining firm for infrastructure investments and life-of-mine extensions.

But Eskom is facing severe financial difficulties and narrowly avoided defaulting on its debt obligations in February when it was bailed out by African investment fund PIC and the country's Government Employees Pension Fund, which granted the company a R5bn ($427mn) short-term loan.

"I know that Eskom has gone through difficult challenges, but I am comfortable that it will be able to meet its obligations," Teke said.

Under existing supply agreements, Seriti provides 24mn t/yr of coal to Eskom, which represents around 23pc of the utility's annual demand and a quarter of the nation's power generation. Of Seriti's three mines, New Vaal is the largest, producing 17mn t/yr, while the other two produce around 5mn t/yr each.

Both New Vaal and New Denmark have sufficient resources to supply Lethabo and Tutuka power plants, respectively, until 2039, while the Kriel colliery can meet its associated power plant's demand until 2029. Kriel is contracted to supply Eskom for two more years, while the existing coal supply contracts for New Vaal and New Denmark expire in 11 years.

Teke is confident that Kriel's coal-supply agreement with Eskom will be extended, he said. And he dismissed the risk posed to Seriti's business by potential closures of old coal-fired power plants. There are other power plants in South Africa that are much older than those that are being supplied by Seriti and, besides, many power plants have been refurbished, he said.

Anglo in January sold its New Largo and Old New Largo colliery with a total 585mn t reserve to Seriti, along with local firm Coalzar and South Africa's development finance vehicle IDC, for a cash consideration of R850mn.

Largo's main advantage is that it is so well-positioned to supply Eskom's new Kusile power plant, Teke said.