The coal mine has benefited from coal price increases, but continues to face disruption from rail and economic issues.
As Thungela Resources celebrates a year of being listed on the Johannesburg Stock Exchange, CFO Deon Smith explains that the group is proud that it was able to deliver a solid first set of annual financial results during this time.
The coal miner expects to report robust earnings and cash generation for the six months ended 30 June, which Deon says reflects its ability to mitigate the impact of the continued inconsistent and poor rail performance by Transnet Freight Rail (TFR), which has affected Thungela’s ability to deliver export equity thermal coal to the seaborne market.
“Thungela and the industry continue to engage TFR in order to collaborate in finding solutions to the issues affecting TFR rail performance, which include locomotive unavailability and cable theft in particular, as well as other issues affecting the rail network.”
Deon adds that Thungela is “closely monitoring the export saleable production guidance in light of the inconsistent TFR rail performance”, but expects an improvement in its performance following the annual maintenance shut in July.
He explains that Thungela continues to evaluate alternative transport options to mitigate the impact of poor TFR rail performance.
Despite TFR disruptions, demand for thermal coal remained firm at the start of the year as global economic activity continued to recover from the Covid-19 pandemic. “However, the unfortunate onset of the conflict between Russia and Ukraine further contributed to tightness in supply and resulted in a refocus on energy security in Europe and beyond. This tightness, coupled with sanctions on Russia, saw the price of the energy complex, including thermal coal, escalate rapidly from late February,” Deon says.
He explains that the benchmark coal price has averaged $266 (approximately R4,272) per tonne for the year to date. “However, prices have been extremely volatile with large daily fluctuations in physical prices.”
Deon adds that Thungela’s board believes that in the current economic environment it is appropriate to maintain the liquidity buffer at the upper end of the range of R5 billion to R6 billion.
“Robust cash flow generation due to strong realised export coal prices have resulted in a net cash position of approximately R15.3 billion, and earnings per share is expected to increase by R54.87 to R58. With all of this in mind, we still expect to declare an interim dividend for the six-month period ending 30 June 2022,” Deon concluded.
