August 2014

South Africa-based coal producer Exxaro said Monday it has entered into an agreement with Total, S.A. to acquire 100 percent of Total Coal South Africa Proprietary Limited and its related export marketing rights under primary Richards Bay Coal Terminal for $386.5 million.

According to the terms of the deal, the JSE-listed company said it will also pay all current outstanding loan claims of $85.5 million against TCSA, bring the total purchase price to $472 million. However, the company said this amount might change depending if the claimant Total Finance decides to extend its suits close to closing date.

A purchase price adjustment has also been included in the deal, allowing for equity consideration, which will be increased by 3 percent per annum from January 1, 2015 until the deal is completed.

The equity consideration will further be reduced for certain leakage payments that may be paid by TCSA to any member of the Total group between the agreement date and closing date.

The terms of the deal provide that all risk and reward inherent in TCSA will transfer to Exxaro from January 1, 2014.

Exxaro plans to finance the acquisition using its existing corporate debt facilities, which have been reserved for the acquisition.

Once the deal is completed, TCSA will be incorporate as a subsidiary of Exxaro.
The deal provides Exxaro with a large-scale operating assets in the South Africa’s coal industry by combining the assets of the second and fifth largest coal producers in South Africa-TCSA is estimated to have 1,498Mt gross tonnes in-situ and 395Mt of run-of-mine resources or an estimated remaining life of mine in excess of 20 years, while Exxaro’s current production is almost 40 million tonnes per annum (Mtpa), which will significantly increases the scale of Exxaro’s coal portfolio and further entrenches Exxaro as one of the premier coal producers in South Africa.

TCSA has a majority interest in two main operating complexes, Dorstfontein and Forzando, located in the Witbank coal basin in South Africa’s Mpumalanga province. The majority of TCSA’s production is export coal, which is shipped via RBCT to international markets, mainly India and China. TCSA also sells its production into the South African domestic market.

Exxaro’s understanding of geological and mining conditions in the region will allow it to leverage its extensive experience in coal mining to unlock additional value from the existing TCSA operations and the Eloff greenfields project which is in proximity to its existing Witbank operations.

Exxaro sees its investment in coal assets as a core part of its diversified mining portfolio and this deal is closely aligned with its long-term growth strategy.
Exxaro has interests in the coal, titanium dioxide, ferrous and energy markets and current business interests in South Africa, Botswana, Republic of the Congo, Inner Mongolia and Australia.

TCSA has a 74 percent direct shareholding in the Dorstfontein and Forzando mines. The remaining 26 percent of the Dorstfontein and Forzando mines are owned by Mmakau Mining Proprietary Limited.

TCSA recorded combined sales of approximately 4.5 million tonnes per annum in the year ended last December.

TCSA also owns a 49 percent interest in the Tumelo coal mine, with the remaining shareholding held by Mmakau, which is currently not in operation, and holds a 51 percent interest in the potential Eloff greenfields project, an undeveloped domestic thermal coal resource in Mpumalanga province.

Exxaro is currently the fourth largest exporter of coal from South Africa and the deal will provide it with access up to an additional 4.09Mtpa of primary phase 1 – 3 RBCT entitlement.

Exxaro currently leases entitlement from other operators in the industry in order to meet its export requirements. The acquisition will allow Exxaro to utilize Exxaro-controlled entitlement to meet its export requirements in future.

Exxaro believes that the deal will allow it to optimize production at its existing operations through the reconfiguration of production in order to maximize the value of its portfolio. Access to additional allocation could enable Exxaro to reconfigure and expedite its development plans for current brownfields and greenfields projects in the Waterberg region by either increasing the scale of existing operations or changing planned projects to multi-product mines.

Furthermore, the development of infrastructure in the Waterberg region has been designated a priority in the South African National Development Plan. It is anticipated that coal from the Waterberg can be used to replace the rapidly diminishing thermal coal being supplied to Eskom from existing Mpumalanga coal mines. Development of the Waterberg region coal assets has historically been limited due to, among others, the lack of expansion of rail capacity supplied by Transnet Freight Rail. Exxaro currently owns the only operating coal mine in the Waterberg region, Grootegeluk, and has various other potential greenfields projects that it plans to develop in the region, including its large-scale Thabametsi project.

Having access to additional primary RBCT export allocation will facilitate Exxaro’s commitment to the development of these projects, potentially as multi-product mines.

Copyright © 2014 ImeK Media, LLC. All rights reserved.