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Anglo American sets up new JSE-listed coal miner

Coal is expected to ‘remain a significant part of the energy mix well into the next decade,’ including in South Africa: July Ndlovu – CEO, Thungela Resources.

NOMPU SIZIBA: Anglo American is to spin out its South African coal assets into a new company called Thungela Resources. It’s going to inject R2.5 billion in the entity to give it a good financial head start, and will intervene by propping up the revenue the company gets if the coal price falls below $80/tonne. That’s until the end of 2022. Anglo American shareholders are to be given one Thungela share for every 10 Anglo shares they hold. They’re scheduled to vote on the establishment of the company on May 5. The plan is for Thungela to be listed on the JSE and the London FTSE in early June.

Well, to tell us about what the new entity will have to offer, and its strategic direction, I’m joined on the line by July Ndlovu, currently the CEO of Anglo Coal South Africa, but also the CEO-designate of Thungela Resources. Thanks very much, July, for joining us. Tell us about the coal assets that are going to be sitting in Thungela Resources, the reserves that you have as a company and the lifespan of your current mines.

JULY NDLOVU: Thungela Resources has four open-pit mines, three underground mines, open-pit mines. We have , Khwezela. We have got Isibonelo which supplies Sasol in Secunda. Then Mafube Colliery is a joint venture. We have got a small pit which we share with Coal Replay [1:20??], which we commissioned last year, which supplies the local market.

Then there is the mine at Zibulo, Greenside and Goedehoop, all supplying export markets. Zibulo has been by far the largest of our mines. We have roughly 750 million tonnes of resources, all very high-quality resources which are suitable for export-quality production when converted to production.

NOMPU SIZIBA: Right. Just give us a sense– in terms of the markets that you serve, both domestic and external – of what the proportions are there.

JULY NDLOVU:

To give you a sense, last year we were expecting 30 million roughly, of which 17 million tonnes was export, the other 13 domestic. In the future I expect that to remain at about 16 million export, and the domestic to be roughly about six million.

The export markets we serve are predominantly in the Pacific Basin, Asia, South East Asia, countries like India, Vietnam, Pakistan, South Korea. We sell a little bit in Japan and recently we’ve been putting coal into China.

NOMPU SIZIBA: In the next couple of years, Anglo is going to be providing Thungela with a fair bit of support – R2.5 billion to ensure Thungela’s financial steadiness. And you’ll also be getting support in the event that the coal price comes down below $80/tonne, with Anglo plugging the gap there until the end of next year. So it seems that there’s absolutely no excuse for you guys to fail

JULY NDLOVU: We are absolutely grateful for Anglo’s support, but this has to be seen in the context of the commitment that Anglo has made, which is that it is setting us [up] to be successful. And therefore this gives us the time we require to set these operations to be successful, to ensure that we can get the best out of these assets.

Clearly the other portion of the injection we are talking about – other than the R2.5 million – I would prefer to call that an “insurance” in case the prices do collapse.

NOMPU SIZIBA: Yes. Now, how do you see the fortunes of coal over the medium term? You’ve told us about the markets that you serve externally; how do you see appetite for the commodity in your key export destinations?

JULY NDLOVU: Nompu, I’m fortunate to be the chairman of the World Coal Association today. I have conversations with people across the value chain, including in markets that we serve, as I just described. What is important here is to say that the market we serve is roughly a [?? third of the world’s] population. What we hear in those conversations is that coal is going to remain a significant part of the energy mix well into the next decade. And in fact it’s going to remain the same in South Africa. And therefore we think coal’s role, both in our country and in the emerging markets, remains absolutely crucial for the next little while.

NOMPU SIZIBA: You are the CEO designate of Thungela – what strategies do you have in place to make it worth the while of shareholders to remain invested in Thungela Resources?

JULY NDLOVU:

This is the first pure-play thermal coal asset to come on the market. It’s a very attractive business. We have done an incredible amount of work over the last four or five years to reshape, to resize, to reposition it to a high-quality thermal coal business.

What we have got today are assets that are all in the first half of the cost curve, producing very high-quality coal with optionality to extend the life of those mines. You couldn’t find a more attractive pure play at the moment.

If you think about it from a South African context, we are the single-largest exporter of thermal coal. That positions us well, being in a mature basin with the established infrastructure. We are very experienced, by the way. We’ve been together for a number of years – over a hundred years of deep mining experience. All the ingredients to be successful are there.

NOMPU SIZIBA: A big reason for Anglo to unbundle its coal assets is because it’s looking to move away from so-called “dirty mining”, and looking to be involved in more sustainable carbon-neutral mining. Realistically speaking, how many decades you think the coal industry will remain viable for, specifically in the African context – you did talk about emerging markets earlier – especially when taking things into account like just transition.

JULY NDLOVU: That’s a difficult question – to pin down a specific period, other than to say when you look at the IPA projections, even under the two-degree scenario, it suggests that there will still be some calls on just providing baseload in some geographies, particularly in the emerging markets as I say, well into the 2040/2050s. Exactly when that date is I think is a moot point.

But I want to make this point. As the chairman of the World Coal Association, I think coal is not a commodity that can’t be made cleaner. There are cleaner coal technologies that, if we invest in the right choices like ultra-super critical and assisting new …… carbon capture,  sequestration and ……, in essence you take the CO2, you capture it either underground, or use it for other applications, actually we could continue to use thermal coal for a long time.

NOMPU SIZIBA: Yes. But even if you do that, July, I’ve heard that those processes, those fancy technologies – you’re talking about [carbon capture and] sequestration and all of that – are very costly. Wouldn’t that then be quite costly for the consumer?

JULY NDLOVU: Like all technologies, they start off costly; but these are improving over time. And what we see more and more is people becoming better at these technologies, and that they are significantly improving. My view in the future is that it’s not going to be a single technology that will get us to a net-zero position. It’s going to be a combination of these. Where coal could play a significant role in terms of providing a resilient, reliable grid – is part of the baseline. Of course, a significant portion of that energy being provided for by renewables with downside, by the way, is the intermittency. And therefore getting all of these into the mix could create a far more compelling and competitive grid.

NOMPU SIZIBA: I know it’s very early days indeed – you need to just get your feet under the table in running Thungela when it comes into existence. But do you foresee down the line doing something similar to Exxaro, whereby you’ve got your foot on the coal side, but you’re also transitioning and trying to get into renewable energies as well, to sort of balance the two as the transition takes place?

JULY NDLOVU: I took the example. I can’t pre-empt what our strategic choices are. We are not planning to shrink this business, we are planning to make it successful. Our first priority, absolute first priority, is getting these assets to be standalone, getting our assets delivering to their full potential, generating maximum cash flows. Once we have done that I think we are in a position where we can look at other strategic options.

NOMPU SIZIBA: Fair enough. So for those who are not Anglo shareholders – because we have heard that current Anglo shareholders will be getting at least one share for every 10 Anglo shares that they own – for people who are not in that camp who may be interested in your very convincing sales pitch just now, if they want to get hold of Thungela shares when exactly are you looking at listing?

JULY NDLOVU: In terms of our next steps, the next big milestone is the Anglo American annual general meeting, where we expect to get shareholder approval to demerge.

Should we get that approval, our plan is then to be listed in the first week of June.

NOMPU SIZIBA: That was July Ndlovu. He’s the CEO-designate of Thungela Resources.

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