South32 to Run South Africa Coal Unit as a Separate Business

By Robb M. Stewart Features Dow Jones Newswires

MELBOURNE, Australia--South32 Ltd. (S32.AU) plans to step back from its South African energy-coal operations by managing its mines and plants separately and it may seek a Johannesburg listing for the operations.

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The coal arm will be operated as a standalone business beginning in April and about US$300 million will be invested in one of the collieries to extend its life by about 20 years, the Australian mining company said Monday.

The move will simplify how South32 manages its global portfolio of assets, while restructuring the South African coal operations will provide tailored support and systems and governance processes, the company said. Managing the business separately also will allow the company to improve competitiveness and ensure the sustainability of operations that need ongoing investment to sustain production and meet "take-or-pay" rail and domestic supply obligations, South32 Chief Executive Graham Kerr said.

The South Africa unit covers three mining operations and processing plants that, in the last financial year, produced 28.9 million metric tons of coal for domestic and export markets. It also owns a 21% stake in the Richards Bay coal-export terminal.

Mr. Kerr said the company would seek to increase local ownership of the coal business. The business is currently 8% owned by a black economic-empowerment consortium that bought a stake with loans owed to South32.

Ultimately, the business could be listed on the Johannesburg Stock Exchange, Mr. Kerr said.

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South32 was spun out of BHP Billiton Ltd. (BHP.AU) in 2015. Listed in Sydney, London and Johannesburg, the company's operations range from energy coal used to fuel power stations, alumina and manganese to silver, nickel and zinc. In South Africa, it also has manganese and aluminium operations.

The South African energy coal business employs about 4,100 full-time employees and another 4,300 contractors, representing about 35% of South32's workforce. The company has said production will slip to about 27.5 million tons this financial year before rebounding to nearly 29.4 million the year after.

As it moves to split off the operation into a separate business, South32 said it would invest 4.3 billion South African rand (US$309.6 million) to ensure the future of its Klipspruit colliery for at least another 20 years, unlocking 616 million tons of resources. Development work is set to begin before the end of 2017 and first coal from the open-cut operations is set for fiscal 2019, the company said.

Until there is a change in control of the business, and subject to regulatory approval, the South African operations will continue to be consolidated in South32's financial results, the company said.

Write to Robb M. Stewart at robb.stewart@wsj.com

(END) Dow Jones Newswires

November 27, 2017 01:32 ET (06:32 GMT)