The Counterpoint on Thungela Resources: A comment on Coal


The Counterpoint on Thungela Resources: A comment on Coal


Published Date: 2021-06-09 | Source: INCE|Community | Author: Cuma Dube | The ESG Guy

The Counterpoint on Thungela Resources: A comment on Coal

The Finance Ghost is quite firmly my favourite ghost, followed closely by Casper, Pac-Man and Slimer from Ghostbusters. I consider myself an ardent ghostie but I must disagree with him on Thungela Resources. (Editor's note: debating ideas is what makes a market - love it)

There are, indeed, many who do not mind making money off fossils fuels, but there is plenty more institutionally managed money that does. While retail investor inflows grew exponentially, more than half of the world's wealth is ESG-aligned, growing by more than double in 2020 and capturing $51 billion of net new money, according to Morningstar. This growth isn't just driven by large pension funds, sovereign wealth funds and scaredy-cat banks but, in large part, by retail investors themselves.

Global coal consumption is estimated to have fallen by over 500 million tonnes (7%) between 2018 and 2020, which is unprecedented, according to the International Energy Agency (IEA). While the economic recovery is set to see a rebound of about 2.6% led by China, India and Southeast Asia, the IEA estimates that demand will flatten at about 7.4 billion tonnes In 2025, and what follows will be the structural decline of coal use. 

Coal hungry countries (outside of South Africa) are also taking steps to rein in imports of coal from other countries to ensure adequate supply to fuel their economies. All this doesn't augur well for Thungela Resources and other pure-play coal producers in the medium to long term. Trading Economics expects coal to trade at 107 USD/MT by the end of this quarter and down to 96.71 USD/MT in 12 months. 

It should come as no surprise that Anglo American unbundled this asset now and chose to continue supporting it for only the next three years.

Figure 1: Coal Price Forecasts 2022-2023 (Source: Trading Economics)

The retail investor may have made some money yesterday, but Thungela Resources Limited may not be the best long-term play. The price/MT is tapering off, the cost/MT will rise and demand will peak shortly - it doesn't look good to me. 

They have to find a way to pay fat dividends to keep investors engaged, but so does a street hustle, and that never ends well. 

I am talking, of course, to the long-term investor looking to build a resilient and sustainable portfolio. With governments around the world (this includes Asia, India, Japan and China) setting paths to net-zero emissions, coal use may drop by 60% by 2030 to achieve net-zero. The pathway ahead is certainly uncertain. 

If you made money today, then I love that for you but be careful and always consult your financial advisor. I don't believe this to be a great portfolio investment. That is just my opinion. I am not by any means giving investment advice, but just sharing my opinion on the company's prospects and the counterpoint to the article written by the Finance Ghost on InceConnect.


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