Sunday Times

Coal mogul offers clean fossil options

Technology means it’s not always dirty, says Thungela boss


● As an Anglo American scholarshi­p student in the mid-1980s, July Ndlovu and his fellow students were taken to meet Harry Oppenheime­r.

Oppenheime­r, by then retired as Anglo chair, persuaded Ndlovu to study metallurgi­cal engineerin­g rather than medicine if he wanted to make a difference. Mining was that place, Oppenheime­r told him.

Thirty years into a successful career at Anglo American, Zimbabwe-born Ndlovu is still working to make a difference. The route he has now chosen, as the CEO of new and soon-to-be-listed Thungela Resources, is hardly the most obvious, especially with pressure to exit fossil fuels, and financiers and investors shunning coal.

But Ndlovu, CEO for the past five years of the Anglo thermal-coal operations that have been split into Thungela (“to ignite”), emphasises that he chose to go with the new company rather than stay in Anglo. He applauds Anglo for the exit route it has chosen, demerging the thermal-coal assets and unbundling them to its shareholde­rs rather than selling them to a private player or simply running them down.

Anglo’s shareholde­rs this week approved the deal at the group’s annual meeting, paving the way for Thungela to be listed on the JSE and London Stock Exchange in the first week of June.

“By listing Thungela, leaving it transparen­t and accountabl­e to society, that for me is an important part of a responsibl­e transition,” says Ndlovu. “I accept it’s going to be tough getting finance but we have got to make our voice heard, we are the responsibl­e operators who deserve to be supported.”

He was being interviewe­d at Thungela’s airy new Rosebank office block in Johannesbu­rg that was designed to look and feel transparen­t and open.

And as the chair of the World Coal Associatio­n, Ndlovu urges a more nuanced conversati­on about what many call a “just transition” from carbon to cleaner energy sources, though Anglo — whose chair this week described climate change as “the major issue of our time” — prefers “responsibl­e transition”.

Ndlovu cites Internatio­nal Energy Agency projection­s that, even given countries’ commitment­s under the Paris climate accord, the global seaborne thermal-coal trade will still be the same 20 years from now, at 1-billion tons annually.

He urges a more holistic debate on the transition that needs to address energy poverty in poorer countries and ensure developing economies that depend on coal, oil or gas do not suffer irreparabl­e damage from switching off fossil fuels.

“That switch cannot just happen without thought of consequenc­es from an economic point of view and that is what we are talking about when we talk about the just transition,” he says. “And coal doesn’t have to be always dirty: it can be made cleaner depending on what technology choices you make.”

With climate-change debates in overdrive ahead of the Glasgow summit in November, Anglo’s Thungela deal has again highlighte­d debate about how the major global resources players respond to pressure from shareholde­rs to divest assets that fuel coal-fired power stations.

Glencore’s Ivan Glasenberg said last year that selling would do nothing for climate change; Glencore would simply run down its coal mines over time. Australia’s South32 has been in the process of selling its South African thermal-coal assets to Seriti, which in 2018 also bought Anglo’s Eskom-tied coal mines and New Largo project adjacent to Kusile. That left Anglo with its high-quality, low-cost portfolio of seven mainly export coal mines, which export 16Mt a year and are the largest shareholde­r in the Richards Bay coal terminal.

The Thungela demerger route “chose itself”, as Ndlovu puts it. BEE didn’t come into the equation because Anglo Coal already had the best empowermen­t credential­s in the group, which had been doing BEE coal deals since the 1990s.

Thungela’s black shareholdi­ng will be about 36% and, as part of the demerger deal, Anglo will transfer 10% of the shares to employees and communitie­s.

Ndlovu says this is about ensuring the new company is run responsibl­y and transparen­tly.

“If we say we wanted to do what is right to make sure employees and communitie­s and South Africa are better off, that our obligation­s in terms of closure of the mines are to best standards, and that the entity has the best skills and best balance sheet, the choice of a demerger was obvious.”

The question is what Thungela does next. Its coal mines have lives ranging from five to 19 years and are in the lower part of the cost curve, so well positioned to supply what demand remains even if the world switches to renewable energy faster than expected.

Though it has ample resources and reserves under the ground that it could develop, the question is whether it should. That, says Ndlovu, will depend on the market.

“We do have options in the ground to be able to invest in the future of this business. The only question is, do we allocate capital — you would have to have conviction that there is demand for coal beyond the next 7-11 years.”

Over the next couple of years the company will have time to study the market and understand the environmen­tal, social and corporate governance megatrends, he says. Anglo invested over the past two years to extend the life of the mines. As part of the deal it will inject R2.5bn into Thungela, ensuring it has a debt-free balance sheet and is well provided for closure liabilitie­s, which Ndlovu emphasises includes not leaving ghost towns when it shuts down mines.

Anglo will also provide additional support over the next two years if the rand coal price goes below a certain level. That hardly seems a problem now with the global spot price having more than doubled from the low of $45 a ton it reached in 2020 to average more than $90 in the first quarter of this year. Globally, little new mine supply has come online in recent years, but demand continues to rise fast. “The fundamenta­ls are pricesuppo­rtive,” says Ndlovu.

That could be an understate­ment, if the projection­s cited by Thungela’s head of marketing, Bernard Dalton, prove correct. It might not be what his audience wanted to hear, Dalton said. But demand was expected to increase by 12.5% over the next decade and seaborne thermal coal would still account for 31% of global power generation by 2030.

In Asia, thermal coal’s share will jump from 79% to 86% in 2030. India, which takes 50% of SA’s export coal, is forecast to grow demand by 19% over the period. In China, where South African coal has gained an edge thanks to the dispute between China and Australia, imports will increase as its own production declines.

SA’s production, too, is set to decline by 25% in the absence of investment in new mines.

The supply and demand could make new projects lucrative over the next few years. But if it does decide to invest, Thungela will want to be sure of robust returns and short payback times, given the uncertaint­y about future demand, says Ndlovu.

It is planning to do things differentl­y and it doesn’t necessaril­y have to confine its ambitions to coal. “The only limit is our imaginatio­n,” he says.

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 ?? Picture: Masi Losi ?? July Ndlovu, CEO of new and soon-to-be-listed Thungela Resources.
Picture: Masi Losi July Ndlovu, CEO of new and soon-to-be-listed Thungela Resources.

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