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Seriti may turn to equipment makers as coal IPOs shunned

Potentially delaying the listing.

Seriti Resources, which is poised to become South Africa’s second-biggest coal producer, may take funding from equipment suppliers and hold off on a listing as the fuel is being shunned by financiers because of its environmental impact.

Closely held Seriti has entered into exclusive negotiations to buy South32’s thermal coal assets after starting production in 2017 with mines it bought from Anglo American. It plans to develop the New Largo operation next to Eskom’s 4 800-megawatt Kusile power plant.

The company may seek less traditional funding options because pollution concerns have led South Africa’s biggest banks to limit lending to coal projects and the country’s political and economic instability could also deter investors from buying shares.

“We see the project financing ability of new coal projects, forget about the actual stations themselves, frankly becoming harder and harder,” Chief Financial Officer Doug Gain said in an interview at the Seriti offices in Johannesburg on Monday. “There are challenges and those challenges will continue to grow.”

Seriti will wait until next year, when it has determined how much money it needs to develop New Largo before deciding on whether to list or to seek alternative funding options, according to Gain.

Equipment funding

It has been approached by heavy earth-moving equipment suppliers interested in providing funding in exchange for securing contracts to supply the trucks and diggers needed for the project, Gain said, declining to identify the companies. Some of the world’s biggest equipment suppliers to coal mines include Caterpillar, Atlas Copco and Sandvik.

“We think that the large equipment manufacturers see an opportunity, call it the shrinking ability of coal companies to raise capital, to provide capital themselves behind their fleets,” he said.

Currently, Seriti supplies state-owned Eskom with coal at three of its power plants and Kusile could operate until 2070. If the acquisition of South32’s South Africa Energy Coal unit is completed, the company will roughly double output to about 50 million tons a year and add about 17 million metric tons of export capacity. Only would be bigger in South Africa.

When Anglo owned New Largo, it estimated the mine would produce about 570 million metric tons of coal for Kusile over 47 years. Cost estimates to develop the mine have come down, “but they’re still substantial,” Gain said.

© 2019 Bloomberg L.P.

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