Junior miner Wescoal and a partner will acquire the closed Arnot coal mine from Exxaro, with a plan to restart production before the end of 2019 and supply Eskom.
Through investment in a holding company, and for no monetary consideration, Wescoal will indirectly acquire a 50% stake in Arnot while its partner, Innovators Resources, will hold the other half.
The shareholders of Innovators Resources include former employees of Exxaro Mpumalanga Coal who were retrenched during the shut-down of the Arnot mine in 2015. It was their initiative to restart the colliery, which has created the opportunity for Wescoal to become a partner.
Wescoal and Innovators Resources interest is subscribed for in Arnot HoldCo, whose only asset is its shareholding in Arnot OpCo, which in turn holds one asset only, namely the Arnot Mine.
Exxaro shut down the Arnot colliery after the coal supply agreement with Eskom came to an end and the power utility refused to invest further in cost-plus mines.
In the past Eskom developed Arnot and other collieries in conjunction with miners so as to ensure a steady and affordable supply of coal. The idea being that the coal was sold at cost, plus a modest margin.
The decision has come back to bite Eskom, which is now struggling with an inadequate supply coal for its power stations.
Wescoal said it intends to respond to an Eskom-issued request for coal supply to the Arnot Power Station, due for submission by April 2. The mine is adjacent to Eskom’s Arnot Power Station and coal will be delivered through a conveyor belt, resulting in a cost competitive advantage with minimum carbon tax impact, the company said.
The transaction will now fast track the restart of mining at Arnot but still requires necessary approvals, such as the transfer of mining rights by the department of mineral resources, interim Wescoal CEO Humphrey Mathe said in a statement.
The Arnot coal mine assets are valued at R15m, but Wescoal and Innovators Resources will acquire them at no cost. They will, however, take on all rehabilitation obligations, environmental and environmental closure liabilities, social and labour plan obligations and health and safety responsibilities related to the business.
Wescoal said there are also additional coal resources within the Arnot Mine mining right area, which could potentially be mined in future but would be subject to certain rights, legal permissions and engagements with Eskom.
Mathe said the transaction is in line with Wescoal’s strategy of securing additional resources and strategic interests in coal and key logistics infrastructure. “We have actively sought out acquisitive value-enhancing opportunities, such as this extensive coal resource base,” Mathe said.
Wescoal said shareholder participation by employees and affected communities will subsequently change the shareholding through trusts, which are in the process of being established.
“This is a significant broad-based empowerment transaction which will secure employment and provide employees and communities around the mine with equity participation as outlined in Mining Charter,” said Mathe.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.