Encouraged by thermal coal price growth, miners are reviewing expansion plans and raising capital for new projects and acquisitions. M&A activity is increasing, as are valuations and divestment.
In 2021, AME expect
macroeconomics will also remain a major contributor to deal activity. Towards
the end of last year, the global stock markets were buoyed by progress on
COVID-19 vaccines, increased government stimulus measures and the outcome of
the US presidential election. As global economic activity continues to pick up this
year and thermal coal prices increase, AME expect to M&A activity continue
to pick up.
Glencore
Snaps up Cerrejón
Glencore
will become the sole owner of the Cerrejón thermal coal mine in Colombia by
buying out partners BHP and Anglo American. This boosts its coal assets at a
time when others are looking to exit the sector.
Based
on expected operating performance, current coal prices and assuming the closing
happens as planned, Glencore will likely pay only US$230m, making the
estimated investment payback period less than two years from closing.
Glencore
has been involved with Cerrejón for more than 20 years. The deal would replace
coal output lost when Glencore decided in February to mothball production
at Prodeco, another Colombian coal mine.

Subject
to the satisfaction of customary competition and regulatory requirements,
Glencore will assume full ownership and operating control of Cerrejón.
Completion is expected to occur in the first half of the 2022.
Cerrejón
is one of the world’s largest surface mining operations, extracting
high-quality thermal coal for the export market. Glencore sees production
volumes at the mine declining materially by 2030. The mine produced 12.4Mt of coal in 2020. Despite
the expected fall in output, the acquisition of Cerrejón will boost Glencore’s
thermal coal production to about 125Mt this year, from earlier guidance of
110Mt.
Cerrejón Mine Production

Seriti
Wraps Up South32 Acquisition
South
Africa’s Seriti Resources has confirmed that all conditions precedent to its
acquisition of South32 SA Coal Holdings Pty Ltd (SAEC) have been fulfilled, and
the sale is expected to be completed on 1 June 2021.
The
new shareholders of 100% of SAEC will be Seriti Resources (90%), and the SAEC
Employee and Community Trusts (5% each).
This transaction secures reliable, and cost-effective thermal coal
supply to Power Generator Eskom. Eskom
and Seriti have agreed to a number of proposals to improve the long-term supply
of thermal coal to Eskom, including commitments for continued supply from the
Kriel and New Largo thermal coal mines.
Seriti
Resources operates three large-scale, opencut and underground thermal coal
mines, New Vaal, New Denmark and Kriel , which it acquired from Anglo American.
Seriti intends to develop its New Largo thermal coal project into a
large-scale, opencast coal mine capable of providing the baseload fuel
requirements for Eskom’s Kusile power station.
New
Hope/Golden Energy Eye Mt Arthur
The
rebound in coal prices is encouraging Australian coal miner New Hope to re-run
the ruler over expansion plans and raising capital for acquisitions. New Hope Corporation, raised about US$152m late last month which may be used for further growth expansion and
opportunistic M&A activity.
Stanmore
Resources majority owner, Golden Energy, will increase a loan facility to US$70m, partly to help the Australian coal miner advance its Isaac Plains
project. New Hope and Golden Energy are
seen as potential suitors for some of BHP Group's Australian coal assets,
including the Mt. Arthur thermal coal mine. BHP had announced its intention
to sell off its thermal-coal operations by the end of 2022.
New
Hope however is seeking new M&A opportunities at the lower end of the cost
curve, with value-creating from day one and have long term approvals in place.
Mt. Arthur's operating licence is set to expire in 2026 although BHP has
applied to extend it. Another
prospective bidder for the BHP asset is a coalition of activist investor
Elliott Management and coal miner Peabody.
Anglo
Spins-off Thungela
The
demerger of Anglo American’s South African thermal coal assets was completed on
7 June. Anglo will provide an initial cash injection of US$180.5 million to the
spin-off company, Thungela Resources Limited, and sell and market its products
for at least three years.
The
demerger of Thungela comes at a time of significant gains in South African
thermal coal prices, which have increased by 25% to US$113/t this year. Thungela holds 90% of the thermal coal
operations in South Africa, with the remaining 10% held collectively by an
employee partnership plan and a community partnership plan. The miner has 137Mt of reserves and 756Mt in
resources, along with seven operations — four open-pit and three underground.
Exxaro - Overlooked Colliery Sale
South Africa’s black empowered coal mining company Exxaro sold three non-core
coal mines Dorstfontein, Forzando and Tumelo, collectively known as Exxaro Coal
Central, to Overlooked Colliery, a 100% black-owned coal mining company. Exxaro
will retain all coal export entitlement through the Richards Bay Coal Terminal.
The transaction, which is expected to close in the second half of 2021, is
awaiting approval from the Competition Commission and the department of mineral
resources and Energy.
Overlooked is a privately held entity which operates the Overlooked
Colliery as well as the Weltevreden and Halfgewonnen Collieries which it
recently acquired from Sudor Coal. Overlooked currently produces 2.4Mtpa and
plans to double that to 4.8Mtpa by 2022.
Exxaro, the largest supplier of thermal coal to Eskom, has embarked on a
strategy that will see it slowly diversify away from coal and into greener
alternative energy technologies.
Thermal Coal Exits
It is quite clear that stakeholders – including
financiers - are facing significant pressure to meet Environmental,
Sustainability and Corporate Governance (ESG) standards. Thermal coal exits by the larger global miners be it as a result of bank,
shareholder or activist pressure will continue. This theme is being played out
across the globe and is evident in the exits from thermal coal by BHP, Anglo
American, South32 and Exxaro particularly in South Africa. South African
divestments are being driven by the governments Black Economic Empowerment (BEE)
policy.
However, emerging markets still require an efficient and cheap
energy source to assist in their industrialisation drives - the developed
countries having gained significant benefit from thermal coal in their
industrialising - and despite pressure, Africa, India and China will still be
reliant on thermal coal for years to come.
Capital Reallocation
Access to project
development capital has become a key enabler of deals, and the capital
landscape for thermal coal projects is changing, largely due to
decarbonisation. AME are seeing an accelerating trend of commitments to net
zero beyond Europe. Major global corporations are increasingly announcing
carbon-neutral targets as part of their ESG programmes.
Private equity,
pension and sovereign wealth funds, as well as banks and insurers, continue to
announce climate priorities. These initiatives will lead investor classes to
reallocate capital between asset groups. Ultimately, they will dictate which
mergers and acquisitions get done and by whom.