The stock climbed Thursday as the mining giant announced plans to divest its thermal coal operations in South Africa as it sought a responsible transition away from fossil fuels.
announced that it will separate its South African thermal coal operations into a new holding company, Thungela Resources Limited, subject to shareholder approval on May 5. Thungela will then be listed on the Johannesburg Stock Exchange and the Johannesburg Stock Exchange.
London Stock Exchange.
Thungela is a leading South African producer and exporter of thermal coal.
Miners have come under heavy pressure from investors to divest coal assets in recent years, as so-called ESG (environment, social and corporate governance) investments have become increasingly important. In August of last year, an Anglo-Australian miner
has pledged to quit thermal coal mining within two years, following sustained pressure from shareholders, including the Norwegian sovereign wealth fund.
has already left the market, finalizing the sale of its remaining coal assets in 2018. Anglo American announced in December that it would be phasing out thermal coal operations in South Africa and Colombia by mid-2023.
On the other hand,
chose to destroy its existing coal mines rather than run them, with chief executive Ivan Glasenberg saying he did not see how splitting the coal mines would help reduce emissions.
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Investor pressure has clearly played a role in Anglo-American strategy, but the company’s shareholders do not seem to be all on the same page.
The miner said the proposed split acknowledges its shareholders a wide range of views when it comes to thermal coal. Anglo American shareholders will own 100% of the issued share capital of Thungela, receiving one Thungela share for every 10 Anglo American shares they hold. The company said shareholders could then keep, increase or decrease their interest in Thungela depending on their investment criteria.
Anglo American will also provide Thungela with a cash injection of $ 170 million as well as conditional support until the end of 2022 if thermal coal prices fall below a certain level. Its marketing activity will also support Thungela and its products for 3 years.
Look forward. Unsurprisingly, investors reacted positively, with Anglo-American stocks climbing 2.3% to 3,057 pence at the start of the session. RBC Capital Markets analyst Tyler Broda said the split would strengthen the company’s overall ESG profile, but would also be a closely watched test case.
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It will be an interesting case to track the magnitude of ESG discounts for coal by comparing the performance of Anglo American and Thungela, Broda said. He noted that Anglo American still has thermal coal exposure in Cerrejn, Colombia at less than 1% Ebitda (earnings before interest, taxes, depreciation and amortization) but expects this to be sold in due time. He noted the stock’s outperformance with a target price of 4,100 pence, highlighting its strong diversification and higher growth rates than its peers.
Jefferies analysts were equally optimistic in a note released Wednesday and said the company was deeply undervalued. They said investor preference would shift from free cash flow and dividend yield to growth and net present value. Anglo American stands out for the breadth and quality of its growth, they said, with growth estimated at $ 10 billion not reflected in the share price. They assessed it to buy with a target price of 3,800 pence.
The split will certainly appease ESG investors, but analysts at Liberum, who preferred the Glencores approach, were less impressed. They said: In reality, it’s just about handing over the management of the assets to another producer rather than impacting global carbon emissions.