THUNGELA Resources, the thermal coal-mining group that plans to list on the JSE and the London Stock Exchange on Monday, may realise better profits, because of expectations in the market of a short-to-medium term rise in coal prices.
Anglo American plc is demerging its thermal coal interests to become Thungela – it formally announced its intention last May – and conditions for the sale are expected to be concluded on Friday.
The coal assets ran at a $15 million (about R206m) earnings before interest, tax depreciation and amortisation loss last year, because of an average coal price of $57 per ton.
The Trading Economics website said yesterday that coal futures were trading at about $109 per ton, a level not seen since October of 2018, as miners struggled to meet robust demand, particularly from China, and supply remained constrained.
Electricity consumption in China grew 13.2 percent from a year earlier in April as the country’s economic rebound gathered pace.
On top of that, data showed that China’s coal output fell 1.8 percent year-on-year in April to an eightmonth low because of safety and environmental inspections in some major coal-producing regions and mining accidents.
Adding to the supply constraints was an unofficial ban on Australian coal, while continued stockpiling ahead of summer had supercharged upward momentum in the market, Trading Economics said.
KPMG Analysis has forecast an average price of $78.8 per ton for Newcastle thermal coal for this year.
According to Fitch, however, the long-term outlook for coal remains bearish amid China’s and India’s intentions to increase domestic production, as well as the increasing share of renewable energy in the global energy mix. The Thungela demerger, effected by a scheme of arrangement (including an in specie reduction of capital), would reduce the share premium of Anglo American (AAM) by $1.8 billion.
AAM shareholders would receive one Thungela share for every 10 Anglo shares held.
For AAM shareholders on the UK register, depositary arrangements would enable these shareholders to hold and settle transfers of the shares in the form of company depositary interests (Company DI). Each Company DI would represent an entitlement to one share.
Thungela will own, among others, the Goedehoop, Greenside, Isibonelo, Khwezela, Anglo American Inyosi Coal, Mafube Coal Mining and Butsanani Energy Investments, which operates the Rietvlei colliery.
Thungela was expected to hold R2.5bn of cash upon listing, which would give it financial headroom to execute its strategy.
It would become one of the largest pure-play producers and exporters of thermal coal in South Africa, based on aggregate thermal coal reserves and marketable thermal coal production.
A 50 percent interest in Phola, which owns and operates the Phola Coal Processing Plant, and a 23.22 percent interest in the Richard Bay Coal Terminal were also held.
Thungela said it aimed for a sustainable future in accordance with its environmental, social and governance programmes.
In the 2020 financial year, the mines produced 16 463kt of thermal coal to export markets and 14 015kt to the domestic market, generating sales volume (including coal acquired from third parties) of 18 153kt for export and 13 362kt domestically.
Thungela would be led by chief executive July Ndlovu, who is currently the chief executive of Anglo Coal.
“Despite uncertain and volatile pricing in the seaborne thermal coal export market, given the group’s business model, it is imperative for it to hold a diverse portfolio of mines and establish cost structures to maximise output, with consideration to fully utilising contractual rail commitments,” the group said.