Anglo-American coal spin-off could be worthless, short seller says
According to short seller Boatman Capital Research, the Anglo American mining company has “massively underestimated” the environmental responsibilities associated with a South African coal company it is divesting.
This means Thungela Resources, whose shares are due to start trading in London and Johannesburg on Monday, could be worthless.
Boatman, who has also waged a protracted campaign against engineer Babcock International, claimed in a report on Sunday that the clean-up costs of Thungela’s seven mines could reach $ 1.36 billion, nearly three times the amount a currently set aside, due to a draft regulation.
“Given that the Thungela mines have a remaining lifespan of 5 to 11 years (assuming there is no extension), this is now a pressing issue for the company and its shareholders. “the report said, setting a net worth of zero.
Major miners are under pressure from investors to disengage from coal because of its contribution to climate change. Thermal coal is burned in power plants to generate electricity, a process that is responsible for about 30 percent of global carbon dioxide emissions.
Rio Tinto sold its last coal mine in 2018, while BHP is also looking to divest its thermal coal business.
The split will allow Anglo to focus on producing metals that will be in demand as they transition to clean energies such as copper and platinum.
It will also test the appetite of London-based investors for coal mining stocks. In a report released last week, the company’s business broker, Liberum, said Thungela could reach a market value of $ 440 million to $ 950 million.
Anglo hit back at Boatman’s claims, saying the $ 480 million clean-up provision on Thungela’s balance sheet was “beyond” regulatory guidelines for miners in South Africa.
He also said that provisioning for environmental liabilities on the basis of a draft regulation does not “accurately reflect the actual or probable sums required to discharge these liabilities.”
“It is precisely because these sums are considered artificial, and arbitrarily inflated, that the project has been under study since 2015. It is a question that concerns the whole industry in South Africa, therefore the regulations on which the Boatman report apparently draws its conclusion are far from finalized, ”the company said.
Thungela, which means “to ignite” in isiZulu, is one of South Africa’s largest thermal coal exporters. As part of the split, investors will receive one Thungela share for every 10 Anglo American shares they hold.
Thungela’s split follows a sharp rise in South African thermal coal prices, which rose 25% to $ 113 per tonne this year.
Anglo is providing a $ 180 million capital injection to Thungela, which will begin its first day of trading debt free. It has also agreed to provide “conditional capital support” until the end of 2022 if thermal coal prices fall below a certain threshold.
Analysts believe the most likely buyers of the stock will be value-based income funds. Thungela’s declared dividend policy is to pay a minimum of 30 percent of free operating cash flow to shareholders.
“We anticipate that the company will be able to pay dividends initially through price support and Anglo’s dowry, but we believe that beyond that point the dividends will be unsustainable and the true value of the company will become evident.” said Boatman.