Australia-based South32 has announced that it has decided to divest its stake in South Africa Energy Coal (SAEC) to Seriti Resources.

The deal marks the exit of South32 from thermal coal business in South Africa.

The purchasers consist of Thabong Coal Proprietary, a wholly-owned subsidiary of Seriti, a community trust and an employee trust, who will respectively acquire 81.835%, 5% and 5% of the shares in SAEC.

The remaining 8.165% stake in SAEC is owned by a broad-based black economic empowerment (B-BBEE) consortium led by Phembani Group Proprietary Limited.

Under the terms of the agreement, the black-owned and controlled coal mining company Seriti will pay an up-front cash of nearly ZAR100m ($6.77m) for the acquisition.

South32 will also get 49% of the free cash flow generated by SAEC until March 2024, with any payments capped at a maximum of ZAR1.5bn (please convert into USD) a year.

South32 CEO Graham Kerr said “The sale of our interest in South Africa Energy Coal will enable the business to continue to operate safely and sustainably into the future for the benefit of its employees, customers and local communities, consistent with South Africa’s transformation agenda.

“For South32, this marks an important milestone as we continue to reshape our portfolio. Completion of this transactionwill substantially reduce our capital intensity, strengthen our balance sheet and will improve theGroup’s operating margin.”

Seriti is already supplying 24 million tonnes of thermal coal to Eskom’s three power stations

Seriti is providing about 24 million tonnes of thermal coal annually to Eskom’s three power stations- Lethabo, Tutuka and Kriel stations.

Through its operating subsidiary, Seriti Coal Proprietary, Seriti currently operates three large-scale, opencast and underground thermal coal mines in South Africa.

Seriti CEO Mike Teke said “This acquisition is a significant milestone for Seriti in our ambition to become a black-owned and controlled mining champion.

“The South Africa Energy Coal acquisition will enable us to offer further secured, long term coal supply solutions to Eskom as a demonstrable commitment to sustainably support South Africa’s energy needs.

“The combination of our energy coal businesses will realise further operational and technical efficiencies enabling us to better service our customers by offering competitive energy solutions.”

The deal is subject to various material conditions.