Investor concerns over thermal coal may have peaked as market buys ‘just transition’

THE 93% improvement in Thungela Resources’ shares since its demerger from Anglo American and listing on the Johannesburg Stock Exchange in June indicates investors aren’t yet prepared to shun thermal coal producers.

In fact, the market is developing a more nuanced approach to the handling of coal resources which is to acknowledge the notion of ‘just transition’ rather than commit companies exposed to carbon-heavy minerals to pariah status.

According to Jefferies, a bank, investor concerns about coal exposure may have peaked “… as it has become clear that a transition from coal to renewables will take time and the world will need coal in the interim to meet energy demand”.

According to Wood Mackenzie, a mining research company, coal as a constituent of the total world energy supply is forecast to fall from 35% in 2020 to 31% by 2030. Coal-fired power installations in Asia are the driving force for this relatively sustained level of coal demand, according to a report by the Guardian, the UK newspaper.

Citing Carbon Tracker, a financial think tank, it said that China, India, Indonesia, Japan, and Vietnam planned to build more than 600 coal power units. This is equal to 80% of the world’s planned new coal plants.

But investors accept Glencore’s recent argument following its decision to buy 100% control of Colombian coal producer, Cerrjeón that it was better to responsibly manage coal resources rather than sell them to third parties.

“Mining coal responsibly is clearly important, and Glencore’s view that ‘disposing of fossil fuel assets and making them someone else’s issue is not the solution and it won’t reduce absolute emissions’ seems correct,” said Jefferies. The bank acknowledged similar views held by Anglo and BHP.

Morgan Stanley said Glencore’s decision to buy out Anglo’s and BHP’s stakes in Cerrjeón was “a pragmatic solution to the future ownership structure as it gives Glencore full control of the asset”.

Thungela’s improved valuation is also likely to be the story of its investment life because it’s being fuelled by an improvement in the seaborne price of coal.

According to Exxaro Resources, Thungela’s only listed coal rival in Johannesburg, the API4 (export) price from South Africa was forecast to average $95 per ton (FOB), a 48% improvement on the first six months of 2020.

This export price “… will continue to gain momentum as supply wanes”, said Exxaro. Export prices were expected to cool by the year-end as supply recovered, it added. Thungela produces export coal and coal for domestic consumption.