FOR more than a decade, global mining capital has been shifting across portfolios as major mining companies optimise their exposure to commodities and jurisdictions that align with their long-term growth strategies and return expectations.
Decarbonisation commitments have placed an additional constraint on capital available to thermal coal, and the result has been a sustained cycle of sales and demergers, with South Africa carrying a meaningful share of it. The commentary this creates tends to fixate on who is leaving, while the economics sit elsewhere.
The departure of major mining companies from South African assets is often interpreted as a verdict on the future of those resources, overlooking the fact that an asset can remain economically viable, geologically sound and well run even as it becomes less strategically important to the company that owns it.
Yet a change in ownership can fundamentally alter the investment thesis. An asset that occupied a relatively small place in a diversified global portfolio may become central to a more focused operator. With that shift comes greater management attention, a different investment horizon and potentially a stronger commitment to allocating capital towards its long-term performance.
Five years on, Thungela’s journey offers a compelling example of what can be achieved when an asset becomes central to its owner’s investment strategy.
When Thungela became a standalone business in 2021, following its unbundling from Anglo American, our South African portfolio had a weighted average life of about eight years.
On that trajectory, the business would now be approaching its final years. Instead, the expected life of the portfolio now extends to 2040, supported by R4.4bn invested in the Annea Colliery and Zibulo North Shaft projects, alongside a R2.7bn investment to buy Ensham in Australia.
Since listing, Thungela has returned more than R23bn to shareholders through dividends and share buybacks.
Strategically central
The geology did not suddenly improve. Instead, Thungela’s independence changed the willingness to allocate capital behind the assets. Through disciplined investment, the lives of our mines were extended, the portfolio was diversified and additional value was unlocked. South Africa has seen this before; assets that no longer fit within large, diversified portfolios become the foundation on which new and focused operators build scale and growth.
A South African coal or mineral asset inside a global portfolio can be profitable, geologically sound and well run and still lose the competition for capital to copper in South America or iron ore in Australia, simply because another project fits the owner’s priorities better at that point in the cycle. Move the same asset into a business for which it is strategically central and the calculation changes materially.
The Joburg Indaba, held this month, created a platform for discussion and to share views on what happens when resources move from a large, diversified global portfolio into a more focused mining business. The answer is not automatically that the new owner will create more value. Rather, that the change can create the conditions for a different investment approach, where management attention is more concentrated and capital allocation is driven by an asset’s specific potential.
The result can be a second life for a mine that might otherwise have faced a shorter investment horizon. But that opportunity comes with a corresponding responsibility: a focused owner has to demonstrate that it has the balance sheet strength, technical capability and operational discipline to sustain that investment through a full commodity cycle.
The majors helped create much of the scale and technical capability South African mining still depends on, and their role remains significant. At the same time, South Africa’s mineral endowment remains economically significant regardless of who owns the assets. What changes are the quality of capital, management capability and investment that support them. Those factors determine whether a transfer of ownership becomes a cycle of investment and growth or simply the redistribution of a declining asset base.
An asset having a second life depends on more than the favourable part of the commodity cycle too. It requires the capital to fund development, sustain employment, meet tax and royalty obligations and honour rehabilitation and closure commitments through weaker markets. A longer life of mine only creates lasting value for the country when owners have the balance sheet strength and conviction to carry both the opportunity and the responsibility over the full life of the asset.
As ownership becomes more diverse, the capital question becomes more consequential. The traditional majors brought access to global capital almost by definition. Focused and mid-sized operators have to earn that access through execution, balance sheet resilience and returns. Institutional investors, including South Africa’s pension funds, will increasingly have to decide whether these companies can convert inherited resources into durable, investable businesses.
South Africa is often assessed through the accumulation of its constraints, although capital rarely decides on a single variable. Electricity stability has improved materially, logistics performance is recovering, and the tax framework has remained comparatively stable. This feeds directly into the confidence with which a project still producing in 15 or 20 years can be underwritten today.
Thungela has had to make that comparison with every investment decision. In the end, where money is invested is the truest measure of confidence in a jurisdiction’s future.
The majors will continue to matter, but the industry’s future cannot depend on preserving the ownership structure of the past. Some of the businesses taking control of assets that no longer rank highly inside diversified portfolios will remain focused operators. Others will consolidate, diversify and expand into new jurisdictions, and some may eventually become majors themselves. The next test is whether enough capital is prepared to back what those assets can become.
Deon Smith is CFO at Thungela. This article first appeared in Financial Mail.