Anglo American PLC (LON:AAL) said it will spin off its thermal coal operations in South Africa, helping the group move closer towards its commitment to be carbon neutral by 2040.
Subject to the approval of Anglo American's shareholders on May 5, the thermal coal operations in South Africa will be transferred to a new holding company, Thungela Resources Ltd, which will have a primary listing on the Johannesburg Stock Exchange and a standard listing in London.
Thermal coal is used to generate about 40% of all electricity worldwide, but investors are increasingly shunning the commodity because power generation from coal is very carbon dioxide intensive, making it a significant contributor to climate change.
"Anglo American has been pursuing a responsible transition away from thermal coal for a number of years now,” said Anglo American chief executive Mark Cutifani. "As the world transitions towards a low carbon economy, we must continue to act responsibly - bringing our employees, shareholders, host communities, host governments and customers along with us.”
Thungela will be a leading South African thermal coal exporter, with 16.5 million tonnes of attributable export saleable production in 2020.
“Looking forward, we believe the prospects for long-term value delivery are greatest as two standalone businesses, each with their own strategy and access to capital," said Cutifani.
India and China’s reliance on imported thermal coal is expected to continue in the long term.
“Thungela is a leading South African producer of high quality, low-cost export thermal coal, well positioned to benefit from improved market conditions, and providing a reliable and affordable energy source to our customers mainly in developing economies,” said Thungela chief executive July Ndlovu.
“The proposed demerger recognises the diverse range of views held by Anglo American's shareholders in relation to thermal coal and therefore provides Anglo American's shareholders, including those with specified investment criteria, with the choice to act on such views and, following the implementation of the proposed demerger, to either retain, increase or decrease their interests in Thungela.
“The proposal also allows Thungela to attract new shareholders and to access new sources of capital as an independent company offering direct exposure to thermal coal,” Ndlovu added.
Anglo American will provide an initial cash injection of ZAR2.5bn (£125mln) and could provide further capital support until the end of 2022 if rand prices for thermal coal fall below a certain level.
Following completion of the proposed demerger, 100% of the issued share capital of Thungela will be held by Anglo American shareholders who will each receive one Thungela share for every 10 Anglo American share.
Thungela will hold 90% of the thermal coal operations in South Africa with the remaining 10% held collectively by the employee partnership plan and the community partnership plan.
If approved, the demerger is expected to be effective on June 4, with Thungela's shares being listed and admitted to trading on the JSE and LSE on June 7.