GMR Infra sells mining assets in South Africa

GMR Infrastructure holds 55.84% stake in Homeland Energy Group, a Toronto-listed company which owns coal properties in South Africa through its subsidiary

Bangalore-based GMR Infrastructure is divesting its two major coal-mining assets in South Africa, which it holds through a joint venture with Homeland Energy Group. However, sources said there will not be much inflow into GMR's reserves from this sale.

GMR Energy, a subsidiary of GMR Infra, holds 55.84 per cent stake in Homeland Energy Group, a Toronto-listed company which owns Kendal mines (operational) and partially-explored Eloff mines in South Africa through its subsidiary Homeland Mining and Energy.

In a statement, Homeland Energy Group said it had entered into an agreement to dispose of its 50 per cent stake in Eloff mines for around $12 million, through the stake sale of Tshedza Mining Resource, which holds the licence for the development of Eloff mines.

“The purchaser is the company’s current BEE (black economic empowerment) partner, which already holds a 50 per cent interest in the property," said the statement. BEE is a voluntary programme for companies to address the inequalities of disadvantaged groups.

An initial payment has been made and the balance will be paid upon receipt of the required regulatory approvals in South Africa. The funds will be used to pay off the bank loan taken from ICICI Bank, while part of it will be used for general working capital.

Homeland said the decision to divest Eloff was made after a feasibility study indicated the quality of the coal at Eloff was only good enough to sell to ESKOM, a South African electricity public utility, or to export to India. “The logistics infrastructure difficulties and evacuation costs would make export uneconomical. The risks associated with the substantial capital cost of commencing production at Eloff were considered to be too high given the limited upside of the project,” said Homeland.

According to GMR Infrastructure, Homeland has also entered into an agreement for the sale of its entire shareholding of moderate coal resource Kendal mines as well. Kendal mines currently has annual capacity of 1.8 million tonnes on a resource base of 34 million tonnes.

With these moves, GMR Infrastructure is taking forward its ‘asset light - asset right’ strategy forward. Earlier, GMR had divested its entire 70 per cent stake in a Singapore-based power project and 74 per cent stake in a highway project, raising a total of around Rs 2,500 crore.

GMR had initiated the asset-light strategy during early 2012 as it was creaking under a debt burden of Rs 37,000 crore. The company is further working on a floating a business trust in Singapore consisting of its highway assets through which it intends to raise close to $500 million. GMR’s senior management officials have said they intend to reduce debt by Rs 10,000 crore during the next financial year.