Anglo American Sells Out Thungela – Will TGA Rise After Overhang Gone?

Thungela Resources (LON: TGA) shares are down 7% in London on the news that Anglo American has sold out of its remaining 8% stake in the company. Looking purely at technical issues there are two possible future reactions in that Thungela share price.

The business itself is the old South African coal interests of Anglo American. This was spun out as a separate company just recently. Partly this is the influence of that ESG – environment, social, governance – fashion. Some funds will simply not invest in companies involved in such businesses as coal for climate change reasons. So, to make Anglo shares as widely attractive as possible spin-off those coal interests. Some won’t worry about the ESG, some will, but that will affect the Tungela share price, not the larger Anglo American one.

There are things to think about concerning Thungela itself of course, over and above all of this. South Africa is a difficult place to be doing business these days. On the other hand the energy system does depend, heavily, upon locally mined coal and there are still good export markets for it. Thungela Resouces shares, for the longer term, may or may not be useful investments based upon the balance of such probabilities.

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As traders though we’re much more interested in the short term. Here’s it’s the influence of that sell-off that should pique our interest.

At the time of the spin-off, Anglo American retained an 8% shareholding. They always said that they would sell this off at some point. The announcement is that they have done so:

…the sale of the group's remaining 8.0% shareholding in Thungela Resources Limited (“Thungela”) through an accelerated book build placing to a number of major financial institutions, realising gross proceeds of R1,672 million (approximately US$115 million). The Thungela shares were placed at a price of R154 per share, representing a 12% discount to the closing share price on 24 March 2022 and a 4% discount to the closing share price on 23 March 2022.

There are three likely short-term effects here. The first is, well, if Anglo is selling at this price then maybe this is the peak of the Thungela price? That’s possible, although we should also recall that Anglo always said they would do this. The second is, well, there are now many more Thungela shares floating around the market. Some of which will have gone to buyers keen to make a turn on that 12 or 4% discount. They’d be loose holders of the stock that is. Any interesting rise in the Thungela price might be met by them selling out at a nice little profit.

Finally, though there is also the fact that this 8% has long been known about. It was an overhang – we all knew that the sale would come at some point. So, now that it has happened there’s no new supply of stock that might hit the market. Well, once those more flighty shareholders from the book building have sold and the shares ended up in long term investors’ hands that is.

So it’s possible that this current 7% fall in the Thungela share price is just temporary, until the market sees that Anglo’s stake is securely placed with institutions and not in the hands of short-term speculators. Or, of course, that this is the peak if Anglo is willing to sell at this price.