Thungela Resources (LON: TGA) (OTCPK: TNGRF) shares are up 4% today. TGA shares are up on the completion of the purchase of the Australian thermal coal mine, Ensham: “Earlier this year Thungela announced that it will acquire a majority shareholding interest in Sungela Holdings, which in turn will acquire an 85% interest in the Ensham Business. Thungela is pleased to announce that all conditions precedent relating to the acquisition have now been fulfilled and that the Transaction has become unconditional. The effective date of completion will be 31 August 2023, and Thungela will assume operational control of the Ensham Business from 1 September 2023.”
Now, it may be impolitic to be mining thermal coal these days given all that concern about climate change. It may even be true that in the long term the business is doomed as the world does stop using thermal (ie, for heating and electricity) coal. But in the long term every business sector is doomed, the buggy whip makers did go out of business. The capitalist question is whether there’s money to be made between now and then. And the answer with thermal coal is that yes, there is. This is also often true of declining businesses. As all the capital looking for excitement and growth goes elsewhere there’s still money to be made sweating those old assets down into the ground.
Thungela Resources share price from Google Finance
Now, yes, that doesn’t look like Thungela has done well recently for shareholders. But that’s also a feature of the boom and then relapse in energy prices this past three years. The background to this is that Thungela exists at all because of all of that ESG activism. To protect the environment large companies should not invest in climate boiling things - like coal. And insurance and pensions funds should not invest in companies that do them and so on, nor should we. So, Anglo American span off its thermal coal business - that’s Thungela.
But that all the polite and fashionable people refuse to invest in these shares means that they are cheap. Which means that the returns to owning them are higher than elsewhere - always, but always, adjusted for risk and so on. It’s precisely that ESG pressure - as with the tobacco companies - that makes coal an attractive investment.
What Thungela is really doing here is diversifying away from the geographical base in South Africa but remaining within the coal business. The aim and purpose is to sweat that business for returns for as long as it lasts. Yes, coal does boil the planet. But billions of people are going to be using it for some time yet - might as well make a turn upon that fact.