- Thungela Resources will be a new company listed in London and Johannesburg
- If Anglo American shareholders back the move, they will get one Thungela share for every 10 Anglo shares they hold
Anglo American (AAL) shareholders will vote on spinning off the miner’s thermal coal assets into a new listed company next month. The plan is to shift the mines, which produce coal that is burned at power stations, into the Johannesburg- and London-listed entity Thungela Resources.
Each Anglo shareholder will get one Thungela share for every 10 shares they own. Three-quarters of shareholders voting at the annual meeting on 5 May need to back the demerger for it to go ahead.
Anglo said the plan would allow Thungela to “attract new shareholders and to access new sources of capital as an independent company offering direct exposure to thermal coal”. Bernstein analyst Bob Brackett said the unit did not generate any free cash in 2019 or 2020 and would likely trade at a lower multiple than Anglo.
He also said there would likely be “flowback” from Anglo shareholders not interested in a pure coal holding. One initial large shareholder would be BlackRock, so the demerger will be a test of its noises about going greener. Separately, Thungela’s recent operating losses of 4.4bn rand (£218m) in 2020, and 7.7bn rand in 2019, may see the fund manager sell up anyway.
London has few coal options, with South African company MC Mining (MCM) struggling at just over a tenth of its valuation from a few years ago. Glencore (GLEN) offers the most exposure of the majors, although Anglo will still have thermal coal through its Cerrejon asset in Colombia, and mines in Australia.
Meanwhile, South32 (S32) is handing South African company Seriti Resources $250m (£182m) to take its thermal coal assets, in a deal that will likely complete this quarter.
Bernstein estimates Thungela has a net present value (NPV) of $371m. The unit itself will need help to get going, and Anglo will hand Thungela $170m initially, and then “further contingent capital support” until the end of 2022 if thermal coal prices remain weak.
This deal seems to strengthen Anglo American’s investment case, which means Thungela looks like one to avoid. Buy Anglo at 3,049p and avoid Thungela once it lists.
Last IC View: Buy, 2,913p, 17 March 2021
