Anglo American plans to spin off its thermal coal operations in South Africa to a new holding company, Thungela Resources Ltd. Anglo American said Thungela will be a standalone business, and it will provide an initial cash injection of ZAR2.5 billion (approximately $170 million). It will also provide contingent capital support until the end of 2022 if thermal coal prices fall below a certain threshold. Thungela produced 16.5 million metric tons (mt) of coal last year and has assets worth $1.3 billion.

The spinoff allows Anglo American to continue its transition away from thermal coal, Anglo American Chief Executive Mark Cutifani said.

“We are confident that Thungela will be a responsible steward of our thermal coal assets in South Africa, benefiting from an experienced and diverse management team and board,” Cutifani said. “While representing just a small proportion of Anglo American today, we are laying the foundation for South Africa’s leading coal business, setting it up for success to deliver value for all its stakeholders. Looking forward, we believe the prospects for long-term value delivery are greatest as two standalone businesses, each with their own strategy and access to capital.”

Following completion of the separation, which will be voted on by shareholders on May 5, 100% of the issued share capital of Thungela will be held by Anglo American shareholders who will each receive one Thungela share for every 10 Anglo American shares.

Thungela will hold 90% of the thermal coal operations in South Africa with the remaining 10% held collectively by the employee partnership plan and the community partnership plan.

Anglo American’s marketing business will continue to support Thungela in the sale and marketing of its products for a three-year period with an additional six-month transitional period thereafter.

“Thungela is a leading South African producer of high-quality, low-cost export thermal coal, well positioned to benefit from improved market conditions, and providing a reliable and affordable energy source to our customers mainly in developing economies,” Thungela CEO July Ndlovu said. “We have significantly repositioned and upgraded our portfolio in recent years into a highly competitive producer of export product, with established access to world-class export infrastructure.”

The company is establishing an employee partnership plan and a community partnership plan, with each holding a 5% interest in the Thungela thermal coal operations in South Africa.

The separation allows Anglo American shareholders to either retain, increase or decrease their interests in Thungela. The proposal also allows Thungela to attract new shareholders and to access new sources of capital as an independent company offering direct exposure to thermal coal, the company said.

If it is approved, the demerger will be effective on June 4.