JSE-listed coal miner Thungela has had to curtail production from three underground sections as a way of managing high stockpiles occasioned by Transnet’s inefficiencies although it is still on track to meet its production targets for 2023.
Transnet has been experiencing problems that have grounded South African companies. Coal miners such as Thungela have been hardest hit during the 2023 full financial year.
“In response to the continued rail underperformance, we curtailed production at three underground sections earlier this year and instituted free-on-truck sales in order to better manage stockpile capacity at our operations,” said Thungela chief finance officer Deon Smith.
The Transnet inefficiencies forced Thungela to use trucks to ferry coal from its South African operations to nearby sidings. This helped the company to reduce reliance on rail and manage risk of train cancellations.
Thungela expects to move 12 million tons of coal in the full-year period to end December 2023.
However, the inconsistent and poor performance by Transnet weighed heavily on Thungela and the wider South African coal industry.
As a result of Transnet’s poor rail and port performance, the annualised industry run rate dropped from 48 million tons in the first half of the current year to 45.9 million tons in the second half of the year through to the end of November 2023.
“The deterioration in the second half of the year has been primarily attributable to an increase in security-related issues as well as locomotive failures. The coal industry, including Thungela, continues to work closely with Transnet to remedy the security situation and has been supporting Transnet through additional security coverage since November 2023,” Smith said.
Thungela believes that a sustainable solution to the Transnet challenges afflicting the coal industry is dependent on the procurement of spares for the locomotives supplied by the Chinese locomotive supplier CRRC.
Exports of saleable coal from Thungela’s South African operations this year are expected to amount to 12.1 million tons in the 2023 full-year period. This would be marginally higher than the company’s mid-range guidance of 11.5 million tons to 12.5 million tons issued in August.
This has been attributed to the removal of the three underground sections as a result of the poor rail performance that resulted in a 7.6% decrease compared to the prior year.
Costs for an exported ton for the period, excluding royalties, are expected to be at the low end of Thungela’s revised guidance range of R1 120 to R1 200/ton. This is due to higher-than-expected domestic revenue offsets and a positive movement in the non-cash rehabilitation provisions.
Inclusive of royalties, costs per export ton for Thungela are expected to be at the low end of the revised guidance range of R1 170 to R1 250/ton.
In spite of challenges experienced in South Africa, Thungela said it was set to benefit from “operational agility” with higher-than-expected production at Ensham.
This was despite reduced energy demand in Europe, China and much of Asia as a result of the milder 2023 northern hemisphere winter. This reduction in demand was worsened by “already high coal and gas stock levels’ in key import hubs.
Nonetheless, inventory levels in the main coal supply hubs increased due to the low demand in Europe, with more producers shifting their focus to the Asian-Pacific market. Energy prices, including the price of coal, also remain volatile and susceptible to ongoing geopolitical tensions.
Ensham had achieved a premium to the Newcastle Benchmark coal price at 10.4%. The premium has been attributed to the composition of the Ensham sales book which includes volumes sold at fixed prices.
Capital expenditure for Thungela in South Africa is expected to be R3 billion this year, consisting of R1.4bn relating to sustaining capital and R1.6bn relating to expansionary capital for the Elders and Zibulo North Shaft projects.
For Ensham, capex is expected to be R1bn, relating to sustaining capex only. The group is expected to recognise R0.3bn, which represents the attributable capital expenditure incurred in the period from completion through to the end of the year on an 85% basis.
BUSINESS REPORT