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The FTSE 100 natural resources group is demerging its thermal coal assets as it targets commodities for a ‘low carbon economy’
Thursday 15 Apr 2021 Author: Yoosof Farah

Investors in Anglo American (AAL) will get free shares in another mining company after the FTSE 100 group decided to spin off its thermal coal assets.

Anglo’s coal assets will be transferred to a separate company called Thungela, which will be listed on both the London and Johannesburg stock exchanges. If approved by shareholders, the demerger will become effective on 4 June and the new shares will begin trading on 7 June.

Anglo American shareholders will be awarded one new Thungela share for every 10 Anglo shares they currently hold. Chief executive Mark Cutifani says the move is part of the miner’s ‘transition away from thermal coal’, which has been in place for years as the world ‘transitions towards a low carbon economy’.

The market greeted the news from Anglo with a 3% rise in its share price, with the demerger a big plus point for investors from an environmental, social and governance perspective.

Jefferies analyst Chris LaFemina says the move is positive for the miner ‘as it is a clear, albeit phased, path to an improved ESG performance for Anglo.’

Most of the big, diversified miners like Anglo are moving away from being contributors to climate change to playing a crucial role in sourcing the metals – like copper, cobalt, nickel and lithium – and other materials required for renewables and electric vehicle infrastructure.

LaFemina adds that with the yield curve steepening and multi-year deficits projected in key commodity markets, ‘investor preference in mining will likely shift from free cash flow and dividend yield to growth and net present value’, with investors focusing on the quality of growth in commodities with structural upward trajectories like those involved in electric vehicles and renewables.

Certain mining stocks are likely to be in demand with investors this coming decade for that reason, and so the more of their fossil fuel assets they can dispose of, the better from their point of view.

However, it’s not always that easy and Anglo’s move to spin off its coal assets into a new company is likely to be because it couldn’t find a buyer at an economically viable price.

The outlook for the new business doesn’t immediately sound great but Cutifani has defended the prospects for the new company, arguing the move will allow Thungela to expand production to meet demand from customers in Asia, and in particular India, who still rely on coal-fired power. ‘You can’t just walk away from billions of people across the globe,’ he told the Financial Times.

Thungela, which produced 16.5 million tonnes of coal last year and has assets worth around $1.3 billion, will pay out at least 30% of its free cash flow to investors in the form of dividends.

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