Anglo's SA coal spinoff left bleeding on its first day

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On Monday, Thungela Resources started trading on the Johannesburg and London stock exchanges. (iStock)
On Monday, Thungela Resources started trading on the Johannesburg and London stock exchanges. (iStock)
  • On Monday, Thungela Resources started trading on the Johannesburg and London stock exchanges. 
  • Anglo American unbundled all of its SA thermal coal assets into the company.
  • The new company met with a chilly reception from the market.

Anglo American’s SA coal spinoff, Thungela Resources, made a disappointing debut on the Johannesburg and London stock exchanges on Monday.

By early afternoon on Monday, its share price was trading at R22.46 - more than 10% lower than its starting point of R25 at the start of its first trading day on the Joburg bourse. 

The market valued the company at around R3 billion, which is much lower than some analysts projected. According to Bloomberg, Liberum Capital expected the company to have a market capitalisation of at least R5.9 billion. 

Anglo American’s share price fell by 2.8% – or around R23 billion in market capitalisation - to R604.91 on Monday morning. Anglo shareholders received one Thungela share for every ten Anglo shares that they held.

Anglo listed its South African thermal coal assets separately amid increasing investor pressure to become more environmentally friendly. Anglo wants to be carbon neutral by 2040, which it won’t be able to do with heavy-polluting assets like coal mines on its books.

The listing of Thungela was marred by a report, released this weekend, by the short-seller Boatman Capital. Boatman claims that the company’s clean-up costs for the mines, which are all expected to close in the next decade, could be three times greater than the amounts currently disclosed to investors, Bloomberg reported. Boatman found that Thungela was worth "zero", as a result.

Xavier Prévost, senior coal analyst at XMP Consulting, says it’s not easy to assign a value to the company.

He rates the quality of Thungela’s mines, saying that its coal mines deliver among the highest calorific value (a measure of heating power) in the country.

"If you consider the assets that comprise Thungela, i.e. Goedehoop, Greenside, Isibonelo, Khwezela, Zibulo, Mafube, Rietvlei and the Phola Plant, I would say, it will become the most valuable group of mines in SA - no other coal company, including Exxaro, [or] main coal producer has something similar."

But there are indications that the company won’t commit further capital to invest in areas around its current mines for expansion. "If that is correct, the future of these mines will be relatively short and value of the company greatly diminished," adds Prévost.

Still, he expects that Thungela should be profitable "from the word go". The company – which currently exports all of its thermal coal - will continue to benefit from a recent strong run in seaborne coal prices.

"All going well, probably Thungela will export its full [Richards Bay Coal Terminal] allocation (23.24%), or more, considering that many other mines, after lockdown, are struggling to remain operational, some on care and maintenance, others completely closed," says Prévost. Thungela now holds Anglo’s 23% stake in the Richards Bay Coal Terminal.

He believes the company will pay its first dividends in December 2021.

Opportunity or value trap?

Casparus Treurnicht, portfolio manager at Gryphon Asset Management, says many shareholders – among them large pension funds – may have been forced to sell their shares in the coal company on Monday, driving the share price down.

"ESG [environmental, social, and governance] considerations will require many more 'sensitive' investors to dump their shares in a company that is solely focussed on coal."

In addition, with a market cap of below R4 billion, Thungela probably won’t be listed in many indices – which will mean index investors won’t have to hold the company. The smallest company on the JSE’s Top 40 index, for example, has a market capitalisation of around R35 billion.

Treurnicht says that at these low levels, Thungela could offer a short-term opportunity for investors.

"The only risk is commodity prices – which may have peaked already. In that case, Thungela could develop into a classic value trap [a low-price share that appears to be undervalued, but instead keeps on falling in value]."

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