CFO Deon Smith proud of Thungela Resources’ solid results in just a short period of time
Deon Smith looks back at the 2021 financial year ahead of Thungela Resources’ annual results.
As 2021 draws to a close, Thungela Resources CFO Deon Smith looks back on the first months since the demerger and listing of the company on 7 June. “We are proud that, in a short period of time, we have been able to achieve solid results notwithstanding a number of challenges, most notably rail infrastructure constraints,” he says.
In the last year, Thungela has seen the demand for energy, including thermal coal, continue to improve as global economic activity recovers from the Covid-19 pandemic. Deon adds that while international coal supply from the major supply basins was disrupted by logistical constraints in China, Russia and Indonesia, as well as community unrest in Colombia and ongoing geopolitical tensions between China and Australia, demand for high-quality South African coal has remained firm.
Deon explains that Thungela has been able to achieve early improvements with regard to reducing its capital intensity following its interim statement that it had to “reconsider capital spend through a ‘Thungela lens’.” Accordingly, the financial year 2021 capex will come in slightly below R2.6 billion. Cash flow generation has also been robust on the back of trong benchmark export coal prices and narrower discounts.
“Whilst this year has seen a strong price recovery, we have also seen coal prices recede from their highs reached in October 2021 with continued price volatility,” Deon says. “It is therefore important that the group maintains an adequate level of liquidity in order to continue to operate confidently in lower price environments without compromising returns to shareholders, and to enable funding for key life extension projects.”
Given the above, and the fact that Thungela is a single commodity and single geography thermal coal business, coupled with limited access to debt markets, Deon explains that an appropriate level of balance sheet flexibility is important in order to manage the business through periods of coal price volatility. “We believe it is appropriate to maintain a liquidity buffer of between R5 billion and R6 billion during and following periods of stronger market conditions, and all else being equal, between R2 billion and R3 billion following weaker market conditions.”
He adds that Thungela is in a sound position and the group has adequate resources to deliver on its strategic capital allocation objectives. “With this in mind, the group expects to progress the studies of our key life extension projects, including Elders and the Zibulo North shaft, over the coming months, and to be in a position to provide more detailed feedback at the group’s full year annual results presentation.”
Thungela also continues to evaluate opportunities to enhance its business and optimise resource extraction, Deon says, whether through value accretive acquisitions or through strategic partnerships. “We have concluded a strategic partnership agreement with Nasonti, a partner that we have had a long and successful working relationship with, to establish a company through which we will enable increased saleable production.”
Through this agreement, a beneficiation plant will be re-established at Goedehoop South in order to commercially exploit the mineral residue material at the site.
Deon concludes that, given the strong prive environment and performance, Thungela is likely to return to profitability in respect of earnings per share and headline earnings per share for the 2021 financial year, following a loss in the 2020 financial year.