We don’t support this browser anymore.
This means our website may not look and work as you would expect. Read more about browsers and how to update them here.

Skip to main content
  • Register
  • Help
  • Contact us

Anglo American - thermal coal demerger

Sophie Lund-Yates, Equity Analyst | 9 April 2021 | A A A
Anglo American - thermal coal demerger

No recommendation

No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Anglo American Ordinary USD0.54945

Sell: 2,871.00 | Buy: 2,872.50 | Change 99.50 (3.59%)
Chart View factsheet

Market closed | Prices delayed by at least 15 minutes | Switch to live prices

Anglo American has announced the demerger of its South African thermal coal operations. The 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 2021, and the new shares will begin trading on 7 June.

Anglo American shareholders will be awarded 1 new Thungela share for every 10 Anglo shares they currently hold.

Mark Cutifani, Anglo American CEO, said the move is in line with the group's "transition away from thermal coal" which has been in place for a number of years, "as the world transitions towards a low carbon economy".

The shares rose 3.0% following the announcement.

View the latest Anglo American share price and how to deal

Our view

2020 was a tale of two halves for Anglo. The first half saw the bulk of COVID related disruption. But a rebound in commodity prices and a production ramp-up in the second half, means full year underlying cash profits were down just a whisker.

Anglo's strategy of diversifying between industrial and consumer products makes sense to us. Demand for industrial commodities, like iron ore and coal, is very economically sensitive because when conditions are tough plans for new factories and skyscrapers quickly get scrapped. Consumer demand is more reliable.

It looks like Anglo is well past the worst of the operational disruptions, but the bigger picture for its portfolio of assets is less clear. If the global economy recovers smoothly Anglo's industrial portfolio should stand to benefit, and commodities could provide a natural inflation hedge, should that become an issue. However, a global recession is still a possibility. If we enter a sustained recession, demand for Anglo's commodities, both industrial and consumer, is likely to take a hit. Prices and profits would likely follow suit.

That's why financial resilience remains key.

Anglo went into the crisis in better shape than it's been in previously. Improvements in cost control and productivity, along with better prices, has done wonders for profits and cash generation. Net debt was also on the way down from the lofty heights of $12.9bn in 2015. At $5.6bn today, it's risen over the year, but is still manageable - particularly if iron ore, copper and platinum prices stay where they are.

The coal demerger will be welcomed by some - thermal coal is a particularly dirty fuel. Hiving it off from the rest of the group means Anglo can boost its environmental credentials, which could mean more eco-conscious investors would feel comfortable including Anglo in their portfolios. Operationally speaking, coal was already quite a small part of the whole, so this shouldn't change the status quo much. It's also unclear if the demerger will result in a sustained valuation uplift.

Over the long term Anglo's diversified approach remains sensible, but the near term remains uncertain. This is important to bear in mind because, with a policy to pay out 40% of profits, lower profits mean lower dividends.

Anglo American key facts

  • 12m forward Price/Earnings ratio: 8.0
  • Ten year average 12m forward Price/Earnings ratio: 10.4
  • Prospective yield: 4.9%

All ratios are from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

Sign up for updates on Anglo American

Full Year Results (underlying results, 25/02/21)

Anglo's full year revenue rose 3% to $30.9bn and underlying cash profits (EBITDA) fell 2% to $9.8bn. The miner saw significant operational disruption in the first half, but this was largely offset by stronger metal prices in the second.

The group declared a final dividend of $0.72 per share, in line with the policy to pay out 40% of profits. This brings total dividends for 2020 up to $1.00 per share, down from $1.09 in 2019.

Iron Ore continues to be the biggest contributor to group profits. This year cash profits rose from $3.4bn to $4.6bn, reflecting increased prices and lower costs across the division. Cash profits from the Kumba operations increased 20% to $2.7bn despite lower sales volumes. This was mostly because average iron ore prices rose from $97 per tonne to $115, and unit costs fell from $33 per tonne to $31. Minas-Rio generated $1.9bn in cash profits, representing a 60% increase on 2019, as unit costs were stable while prices and volumes rose.

Platinum Group Metals delivered a 28% increase in cash profits to $2.6bn. This was primarily thanks to a 51% increase in average prices, and despite a fall in production volume caused by the pandemic.

Copper cash profits rose 15% to $1.9bn, reflecting an 10% increase in average prices and record low unit costs of $1.13 per pound. Production increased slightly to 647,400 tonnes thanks to record production at Collahuasi and a strong performance from Los Bronces, which offset the disruption caused by COVID.

Diamond division De Beers saw a 27% fall in sales to $3.4bn as jewellery stores closed around the world and polishing factories in India closed during lockdowns. Cash profits fell 25% to $417m as a result, despite a 10% fall in unit costs.

Coal cash profits fell from $1.8bn to $35m, primarily due to the challenges in Metallurgical Coal. Prices fell 34%, volumes fell 25% and unit costs rose 37%. Volume and costs movements were primarily driven by "underground operational incidents" at Moranbah North and Grosvenor.

Nickel & Manganese cash profits fell from $634m to $510m, reflecting a weak Manganese performance. Crop Nutrients made $1m in cash profits and the Woodsmith polyhalite project is progressing well following the acquisition of Sirius Minerals.

Free cash flow fell 47% to $1.2bn, reflecting lower cash generation and higher capital spending. Net debt rose from $4.6bn to $5.6bn over the year, in part reflecting a build up of inventory at PGM and De Beers.

Find out more about Anglo American shares including how to invest

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.