Posted: 1999/09/27 12:29 PM GMT+2
Canadian miner in NewCoal bid
NewCoal, the black empowerment mining initiative backed by Anglo American and Billiton, is at last gathering pace. The mining groups announced last week that three bidders or potential "primary investors" for NewCoal had been short-listed. However, it is unlikely control of NewCoal will be in new hands by the year-end ? the completion date set in May by Rick Mohring, the former Ingwe director who is driving the process. By all accounts, the two London-listed mining houses are taking pains to see the empowerment venture succeed. Seemingly, none of them want a repeat of the JCI debacle during 1997-98 in which black empowerment candidate Mzi Khumalo resigned from the group partly owing to his public falling out with partner Brett Kebble.
This latest black empowerment endeavour now boils down to three short-listed bidders: Eyesizwe Mining, Ilanga Mining Corporation and the Sebenza Consortium, selected from a list of about 21 interested parties. Peter North, a banker with RMB Resources (adviser to the vendors), says the short-listed companies were able to prove an ability to play an active role in the executive and operational management of NewCoal. A willingness to interact on a strategic level and exhibit a capacity to raise the required finance were other crucial elements in selecting the short list, he adds.
North says Anglo American and Billiton are seeking "fair value" for the NewCoal assets, but declines to talk figures. He notes, however, that both groups are led by "hard-nosed" boards so the bidders can expect no favours. Access to the data room is expected to be made available from this week in which details of the NewCoal assets will be put on the table. The assets include the Matla, Arnot, Glisa and New Clydesdale collieries which produce 18-million tons a year of coal. Of this, Eskom buys up to 16-million tons of this coal; the balance is exported. In addition to a 800 000 tons a year throughput entitlement at Richards Bay Coal Terminal, NewCoal also has an interest in the proposed South Dunes terminal project and some 5-billion tons of coal reserves.
Control of NewCoal will make the successful bidder the fourth largest coal producer in SA. As a result, competition for the assets is keen. Of the three bidders, Ilanga Mining Corporation appears particularly strong. Ilanga Mining is a consortium of interests created specifically to bid for NewCoal, but with intentions to build a black-led mining house which extends beyond coal mining. Majority control of Ilanga Mining rests with Mmakau Mining, the outfit chaired by Brigitte Radebe. Mmakau Mining has already chalked up one victory having been part of a successful bid for interim management control of Alexkor, the state's ailing diamond miner.
Benjamin Trisk, former Premier Group Holdings executive general manager, is the cement which holds Ilanga together. Trisk represents the minority interests of First Quantum Minerals, a junior mining company currently listed in Vancouver but which is switching to the Toronto Stock Exchange. Although First Quantum is a Canadian junior its interests are African, Trisk says. The company has existing operations in Zimbabwe and Zambia and believes that in Mmakau Mining, there is a black business which a "shovel in the earth".
Ilanga also intends giving minority interests in the underlying NewCoal assets to Union Alliance Holdings which represents 12 unions ? nine Cosatu affiliates and three Nactu members. The Mineworkers Investment Trust and the Royal Bafokeng, the north west province community which negotiated a seat on the board of Impala Platinum (and is currently discussing a joint venture with Anglo American Platinum Corporation) will also have a portion of the underlying NewCoal assets.
First Quantum Minerals currently has just under 30% control of Ilanga, but this will be brought down as black business wields greater control of the group, according to Trisk. Interestingly, Ilanga is drawing on the expertise of Ken Trueman, former MD of Anglo American Coal Corporation (Amcoal), now a unit of the Anglo American group. First Quantum is headed by Philip Pascall, former director of SA mining and engineering project firm Bateman.
Although the remaining bidders cannot appear to match the management depth of Ilanga, they have their own advantages. Sebenza Mining is the only bidder with a coal mining track record (in the sense that it is currently operating in the SA coal industry). In addition to opening a boxcut at Matla, Sebenza has co-operated with Anglo American on a feasibility to mine the Zondagsvlei reserve outside Ogies. Chairman Peter Davidson says Sebenza will sub-contract the physical mining of NewCoal (it has sub-contracted out the Matla job to Stocks Mining). The company has a combined coal mining experience of 35-years at the management level. Eyesizwe Mining is led by Sipho Nkosi who has spent 12-years in coal mining at both Anglo American and Billiton. He has marketing expertise having sold coal into the Indian and South American markets.
International coal markets are not inviting for new entrants
Peter North, of RMB Resources, says Anglo American and Billiton are not waiting for "a right time" to conclude the NewCoal deal. Cynical suggestions are that the sale of the assets could be delayed long enough to coincide with a recovery in the coal market. This would make the NewCoal assets more expensive to buy. There seems little prospect of this as there is little prospect of the coal market recovering in the short term.
According to the Financial Times, heavy competition between Australian, SA and Indonesia coal exporters is driving thermal coal exports to their lowest levels for more than 20-years. Analysts believe that if the spot market does not recover before the annual long-term contract price negotiations begin later this year between Australian coal exporters and Japanese electricity generators, contract prices may be lower again next year.
However, Billiton's financial director Mick Davis, who is also chairman of Ingwe, Billiton's coal unit, believes the sale of Shell's coal assets to major rival players could help the stability of the world coal export market. At the moment, smaller operators cannot afford to rein in exports and sell their coal at ever falling margins. But the consolidation of a significant portion of world output, as should occur when Shell sells its Australian and South American operations, will give the larger players greater ability to ratchet down exports in response to world market conditions.
At the moment, coal spot exports are thought to have fallen below $20 per ton ($/t). In its report, the Financial Times said Ingwe had offered bituminous coal at a reported price of $19,25/t to Kepco, the South Korean electricity generator. Similarly, Australia's Dartbrook Coal reportedly won part of the 360 000 ton Hokkaido Power tender at a price of $21/t.
The current long-term contract thermal coal price between Australia's thermal coal exporters and Japanese power utilities for the 1999/ 2000 year is $29,95/t. This contract is already 13% lower than the 1998/99 level of $34,50/t and compares with the recent spot price of around $20/t. Australia exports 84-million tons of coking coal, mainly to Japan, Europe and Korea, and 86-million tons of thermal coal, mainly to Japan, Korea and Taiwan. This is almost three times as much as the world's second largest coal exporter, SA. |
