Total agrees to sell South African coal subsidiary to Exxaro

Out-Law News | 29 Jul 2014 | 3:56 pm | 2 min. read

Total SA is to sell its Total Coal South Africa Proprietary Limited (TCSA) subsidiary to South African resources group Exxaro for $472 million.

Exxaro, which is the fourth largest exporter of coal from South Africa, said it has entered into a binding sale and purchase agreement for the 100% acquisition of TCSA, subject to approval by South African authorities.

TCSA is the country’s fifth largest coal producer. Exxaro will also acquire TCSA’s allocation of export marketing rights at the country’s Richards Bay Coal Terminal (RBCT), which is the single largest export coal terminal in the world with a design capacity of 91 million tonnes per annum (Mtpa).

Exxaro currently leases RBCT export rights from other operators in the industry to meet its requirements. Exxaro said the TCSA deal could also pave the way for the group to “reconfigure and expedite its development plans” for current brownfield and greenfield projects in the country’s Waterberg region, “by either increasing the scale of existing operations or changing planned projects to multi-product mines”.

“The acquisition provides Exxaro with an opportunity to acquire a large-scale, operating coal business in South Africa which has an estimated remaining life of mine in excess of 20 years,” Exxaro said.

India and China are currently the main destinations for TCSA’s coal exports. TCSA also provides supplies to South Africa’s domestic coal market. According to Exxaro, TCSA recorded combined coal sales of around 4.5 Mtpa as of the end of 2013.

TCSA has a 74% direct shareholding in the Dorstfontein and Forzando mines, in the Witbank coal basin in South Africa’s Mpumalanga province. The remaining 26% stake in the mines is owned by Mmakau Mining Proprietary Limited (Mmakau).

TCSA also holds a 49% stake in the Tumelo coal mine, with the remaining share held by Mmakau. Tumelo is currently not in operation. In addition, TCSA has a 51% stake in the potential Eloff greenfields project, an undeveloped domestic thermal coal resource in Mpumalanga province.

Exxaro said the acquisition of TCSA “significantly increases the scale” of its coal portfolio and strengthens the group’s position as “one of the premier coal producers in South Africa”.

Exxaro sees its investment in coal assets as a “core part of its diversified mining portfolio”. The group said it “will be able to leverage its extensive experience in coal mining to unlock additional value from existing TCSA operations and the Eloff greenfields project”.

The development of infrastructure in the Waterberg region has been designated as a priority in South Africa’s National Development Plan, which is the country’s socio-economic blueprint up to 2030.

Exxaro said it is “anticipated” that coal from Waterberg can be used to replace “the rapidly diminishing thermal coal” being supplied to national power utility Eskom from existing Mpumalanga coal mines.

Exxaro currently owns the only operating coal mine in Waterberg, Grootegeluk, and has other potential greenfield projects that it plans to develop in the region, including its large-scale Thabametsi project. Exxaro said the development of coal assets in the region has “historically been limited”, due in part to a lack of freight rail infrastructure.

Total’s president for gas and power Philippe Sauquet said the sale of TCSA was part of the group’s 2012-14 asset sale programme and in line with Total’s objectives to focus on its core activities and to actively manage its portfolio.

Sauquet said: “While Total has made the necessary investments to position TCSA for growth in the medium term, Total believes TCSA will have the opportunity to maximise its long term potential with a new strategic coal investor." However, Sauquet said it remained “committed to South Africa through its activities in marketing and refining, solar and deep offshore exploration”.