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Anglo American spins off Thungela coal unit, 'worth zero' says short-seller Boatman

Thungela means "to ignite" in isiZulu and today's listing has done that among investors

Thungela Resources Ltd's Zibulo colliery operates both underground and opencast operations. Photo Credit: Thungela Resources Ltd

Anglo American PLC (LON:AAL) said it completed the demerger of its thermal coal operations in South Africa, igniting criticism from research company Boatman Capital.

The spin off of Thungela Resources Ltd (LON:TGA, JSE:TGA), which started trading today as a separate company on the London and Johannesburg stock exchanges, will please many western professional investors in Anglo American who are shying away from fossil fuels due to their damaging impact on the environment, but not everyone is happy.

Short-seller Boatman Capital was highly critical of the move. It said Thungela had massively under-estimated the environmental clean-up costs associated with closing its mines, which have just five to 11 years of expected life remaining, effectively making the company worthless.

“Based on our estimates, Thungela’s environmental liabilities could be three times greater than currently reported and are more than the value of the entire company. Our financial model attributes zero value to Thungela,” Boatman Capital said in a report.

Thermal coal is used to generate about 40% of all electricity worldwide. India and China's reliance on imported thermal coal is expected to continue in the long term even as many developed countries prefer less environmentally damaging alternatives.

“As a leading South African thermal coal exporter, Thungela offers investors access to a high-quality thermal coal business with low cash cost and high-margin assets and a strong balance sheet, underpinned by a robust ESG framework,” Anglo American said today in a statement.

Anglo American's shareholders received one Thungela share for every 10 Anglo American shares, while also retaining their existing shareholding in Anglo American.

Thungela holds 90% of the thermal coal operations in South Africa with the remaining 10% held collectively by an employee partnership plan and a community partnership plan.

"We have consistently believed in a responsible transition from thermal coal, being a transition that seeks to balance the needs and expectations of all stakeholders,” said Anglo American chief executive Mark Cutifani. “The demerger of Thungela lives up to that promise by bringing our employees, shareholders, host communities, host government and our customers along with us."

"Thungela starts its journey today as a high-quality independent business. We have every confidence that Thungela will be a responsible steward of what are valuable thermal coal resources in South Africa and will continue delivering value for all its stakeholders and for South Africa as a whole," he said.

July Ndlovu, chief executive of Thungela, said the company plays an important role in providing affordable energy to its customers in the developing world, as well as in South Africa.

“Thungela has an enviable cash cost position and is poised to deliver attractive returns to shareholders," he said.

Shares in Thungela were trading at 120.20p in midmorning trading, down almost 20% from the opening price of 150p.

“We expect there to be immediate pressure on Thungela’s share price when the company lists on June 7th as many institutional investors will not want to hold a pure thermal coal producer,” said Boatman Capital. “We also think that as the scale of Thungela’s likely environmental liabilities become apparent, investors will see little to attract them to this stock.”

Thungela means "to ignite" in isiZulu.

Quick facts: Anglo American PLC


Price: 2584 GBX

Market Cap: £35.08 billion

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