Thungela Resources, a coal exporter, expects to deliver strong annual earnings despite a deterioration in Transnet Freight Rail performance (TFR), a rise in illegal mining activity, and increased incidents of power interruption.
In its trading statement for the financial year ending December 31, 2022 issued yesterday, Thungela said it was likely to lose 600 000 tons of export coal revenue in its 2022 financial year, owing to a deterioration in the performance of Transnet TFR.
Thungela chief financial officer, Deon Smith, said: “TFR’s performance continued to deteriorate in the second half of the year – from an annualised industry rate of 53.3 million tonnes (Mt) in the first half of 2022, down to an expected annualised rate of 49.0Mt in the 2022 financial year.”
Poor rail performance impacted Thungela’s ability to move coal to port, with a concomitant impact on export sales.
“The poor performance was further exacerbated by a 12-day strike by Transnet employees in October, 2022 as well as a severe derailment on the coal corridor in early November, which took 10 days to clear,” he said.
“While we were able to partially mitigate the impact on our business, the duration of these events, combined with the need for TFR to rebalance the rail system following the conclusion of the strike and the derailment, resulted in a loss of about 600kt (thousand tons) of export saleable production for the 2022 financial year,” Smith said.
Thungela ought to mitigate the impact of the rail challenges by continuing to rail higher-grade products, and creating additional stockpile capacity by trucking coal between its operations.
“We also trucked coal from our operations to three additional third-party sidings to create further rail loading optionality, and de-risk train cancellations. Notwithstanding these actions, we were forced to curtail production at some operations in 2022,” Smith said.
Thungela said its headline earnings per share was expected to be at least R131 in the year to December, 2022, a 97% increase compared to last year’s R66.57.
Cash-flow generation had been robust on the back of strong realised export coal prices.
“The strong cash generation has resulted in a net cash position of R19.8 billion on November 30, 2022 compared to R8bn on November 30, 2021,” Thungela said.
Cash flow from operations in December, 2022 was expected to be neutral due to the disruption to November sales, as a result of the TFR strike and derailment.
The demand for energy, including thermal coal, remained firm into the second half of 2022, given continued supply constraints coupled with the need for energy security globally.
“The ongoing conflict in Ukraine resulted in Europe seeking to mitigate the impact of tighter gas stocks through increased imports of coal. Demand in the region is expected to remain firm into 2023, as stocks will have to be replenished following the winter season,” it said.
According to Thungela, the Benchmark coal price has averaged $276.57 (R4 758) per tonne for the year to date, compared to $124.11 per tonne for the 2021 financial year.
“Although prices remain firm, they continue to be volatile,” it said.
Smith said export saleable production for the 2022 financial year was expected to be 12.8Mt, lower than the revised guidance range of 13Mt to 13.6Mt issued in August, 2022 and 15% lower than the 2021 financial year export saleable production of 15Mt.
“This is mainly attributable to the reduced and inconsistent TFR rail performance,” he said.
Thungela said it closed parts of the Khwezela complex in Mpumalanga, in an effort to reduce the impact of illegal mining on the site and to mitigate the risk of future adverse environmental events.
The acquisition of the 27% shareholding in Anglo American Inyosi Coal Proprietary, the entity which holds the Zibulo operation and the Elders project, underscored its commitment to optimising capital allocation.
“As a result of the transaction, Thungela will benefit from the full economics of the most cash-generative assets in our portfolio, providing an uplift in earnings attributable to the equity owners of Thungela,” Smith said.
BUSINESS REPORT