Thungela Resources will pay out final ordinary dividends for the year to the end of December 2023 amounting to R1.4 billion after beating coal price headwinds and rail underperformance which resulted in headline earnings per share (Heps) plunging 73% to R3.49.
Yesterday’s declaration of the R1.4bn final dividend brings up the company’s total payout to shareholders for the year to R2.8bn, having already paid a similar interim dividend that amounts to R10 per share.
Thungela is also embarking on a share repurchase programme with a value of R500 million but “subject” to market conditions. Shares in Thungela traded 3.47% stronger in afternoon trade on the JSE at R111.71.
Thungela was a “plucky business with good management and substantial cash reserves”, said market analyst Karin Richards yesterday. “I feel so badly for them – trying to run a coal business and do Transnet’s job on the side. But they are coming up trumps,” added Richards.
There was massive upside potential for the coal miner, especially on hopes that Transnet has started to turn around for good. This is also despite depressed coal prices on local and international markets.
“The Richards Bay coal price has dropped below $100, but it’s still within a support band. Positive divergence remains, but of course nothing prohibits another leg down – $60 is possible. At least it’s closer to the bottom than the top,” explained Richards.
Other analysts said they were worried that management in Thungela has “zero confidence on Transnet Freight Rail (TFR) improving the rail capacity” in 2024.
During the 2023 full-year period under review, profits in Thungela amounted to R5bn, including a contribution of R448m from the newly acquired Australian Ensham business for the four months since completion of the transaction.
The company had strong cash generation and maintained a good balance sheet. Adjusted operating free cash flows amounted to R6.8bn while net cash stood at R10.2bn as at the end of December.
Thungela CEO July Ndlovu said: “Thungela delivered resilient results in 2023. We achieved adjusted earnings before interest, tax, depreciation and amortisation (Ebitda) of R8.5bn, despite a significant decline in benchmark coal prices and continued poor performance from Transnet Freight Rail.
“Earnings were also impacted by the late arrival of seven vessels in December, which resulted in the slippage of approximately 550 000 tons of sales planned for December 2023 into January 2024,” he said.
Despite these hurdles, Thungela achieved export saleable production of 12.2 million tons in 2023 at a free on board (FOB) cost excluding royalties of R1 084 per ton. The company spent R3bn in capital expenditure in South Africa.
In Australia, Thungela’s export production amounted to 2.9 million tons, exceeding the company’s initial expectations of 2.7 million tons. FOB cost excluding royalties from the Ensham mine for the period from completion of the acquisition through to the end of year amounted to R1 544 per ton after spending R299mn in capital.
Thungela deems the successful execution of two life extension projects it is undertaking as crucial to its future competitiveness, hence the company is reserving R2.6bn on the projects. It is also provisioning a cash buffer of R5bn at year end.
“Thungela remains able to access R3.2bn in undrawn credit facilities, and plans to maintain this flexibility for as long as challenges to obtaining funding from international capital markets persist. The board has also set aside R500m as cash collateral for the financial surety required for the Ensham rehabilitation liability, while we pursue acceptance into the Queensland Financial Provisioning Scheme,” the company said.
Although thermal coal prices declined much faster than market observers expected at the start of 2023, this was driven by a mild winter in the northern hemisphere, coupled with high coal and gas reserves.
Nonetheless, demand remains strong and responsive, explained Thungela, although it highlighted that supply was “presenting a growing challenge, with limited access to funding and insurance, increasingly stringent regulatory requirements, and widespread social and political opposition to the development” of new coal mines.
“This provides companies like Thungela, with established high-quality coal operations and access to existing reserves, with a significant structural advantage. Inconsistent and constrained TFR performance has once again significantly compromised the South African coal mining industry.”
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