Anglo American forged ahead to its goal of becoming carbon-neutral in two decades and attracting investors who shun polluting industries by spinning out its SA coal business.
Anglo will inject R2.5bn and support it financially until the end of 2022 if coal prices are weak, giving the new JSE-listed company, Thungela Resources, the best possible start and to ensure a sustainable business, said Anglo CEO Mark Cutifani.
The new company, which had gross assets valued at $1.3bn (R18.9bn) at the end of December and employed 6,000 people, will be headed by July Ndlovu, who at present heads Anglo’s coal business and has a three decade career behind him in the London-listed company.
The well-flagged decision means that SA’s biggest mining company has finalised its exit from thermal coal in the country after selling the coal mines that supply Eskom to Seriti Resources and creating a new export coal venture that will also have a listing in London.
Thungela’s creation comes at a time when major players in global mining are exiting thermal coal, which is used to generate electricity in power stations, due to pressure from global fund managers and other big investors, which are increasingly sensitive to climate change.
On the other hand, some of the world’s biggest emerging markets and populous nations, such as India, are unlikely to wean themselves off coal-powered energy any time soon.
Anglo opted to give its shareholders the choice whether to hold the high-quality coal mines in their portfolio or to divest from the assets, depending on their views of environmental issues, said Cutifani.
“Anglo American has been pursuing a responsible transition away from thermal coal for a number of years now. While representing just a small proportion of Anglo American today, we are laying the foundation for SA’s leading coal business, setting it up for success to deliver value for all its stakeholders.”
Anglo shareholders will vote on the establishment of Thungela on May 5 at a general meeting, with the listing expected on June 7.
The new company will be SA’s largest coal exporter.
Anglo shareholders will own 100% of Thungela, receiving one share in the new company for every 10 they hold in the London-based miner.
Cash support
The cash injection into Thungela will give it a sound balance sheet as a stand-alone company does not need to be repaid, Anglo CFO Stephen Pearce said on a media call.
Anglo would step in with cash support if the coal price dropped below R1,175/tonne, or about $80/tonne, paying Thungela the difference between the prevailing price and that level. Again, this is cash Anglo would not be repaid, Pearce said.
The price has averaged $91/tonne in the year to date.
The price support is capped at R1.5bn for 2021 and R2.5bn for 2022.
Anglo will own 9% of Thungela and will gradually dispose of this stake over two or three years in line with its stated strategy of no longer having thermal coal assets in its portfolio, said Cutifani, adding that the company is also likely to divest of its Cerrejon coal investment in Colombia in that time.
Anglo had no intention of disposing of its metallurgical coal mines in Australia because they provided a key ingredient in steel manufacture and anyone thinking the company would dispose of these assets would be “mad in the head”, Cutifani said.
The high quality of SA thermal coal meant it would displace lower-quality, more polluting coal from other sources for power plants, Cutifani said.
Thungela has gross assets valued at $1.3bn or nearly R19bn at the end of December. The company aimed to be an attractive dividend payer, returning at least 30% of cash flow after investing in sustaining production at its mines, Ndlovu said, adding that there were no immediate plans for new projects at the assets, which have lives ranging between five and 11 years.
There are 756-million tonnes of resources, which means the assets have a long life ahead of them. Anglo estimated that coal’s contribution to global energy supply would fall to about 31% from 35% now.
Thungela would make decisions on growth in its portfolio in 2023, with smaller projects designed for quick repayment of capital coming into production from 2025, keeping export coal production in the 10-million to 14-million tonnes range, but possibly more, said Thungela CFO Deon Smith.
India is the largest market for SA’s thermal coal and Anglo forecast SA’s total export coal dropping to 49-million tonnes by 2035, from 72-million tonnes now.
India is expected to grow imports to 192-million tonnes from 162-million tonnes over the same period.
The coal mines in Thungela generated 16.5-million tonnes of coal exports in 2020 and analysts noted they accounted for about 5% of Anglo’s revenue for the year.
Thungela will own 90% of the coal assets, and the remaining 10% ownership will be split equally between employee and community structures.
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