Thungela Resources Limited
(Incorporated in the Republic of
South Africa)
(Registration number:
2021/303811/06)
JSE share code: TGA
LSE share code: TGA
ISIN: ZAE000296554
('Thungela' or the 'Company' and
together with its affiliates, the 'Group')
Chief Financial Officer's Pre-Close
and Trading Statement for the six months ending 30 June 2024
Dear Stakeholder
Thungela continues to deliver on the
successful execution of our strategic priorities as we build a
sustainable, long-life business across multiple geographies. This
allows us to deliver on our purpose - to responsibly create value
together for a shared future. We remain focused on operating a
fatality-free business and have seen an improvement in safety
performance across our operations during the period under
review.
Our diversification journey into
Australia is proving successful and we are pleased to report that
Ensham is performing better than our initial expectations,
particularly in terms of year to date1
production.
The establishment of Thungela
Marketing International in Dubai is progressing well and we expect
to fully transition the marketing activities for our South African
coal from Anglo American Marketing Limited on 1 July 2024. The
marketing team has been successfully marketing Ensham coal since
the acquisition date of 1 September 2023.
The underlying operating environment
remains uncertain as macroeconomic and geopolitical headwinds
persist, alongside continued rail performance challenges in South
Africa. European and Asian winter energy
demand did not meet expectations and thus
coal and gas stock levels remained elevated at key import hubs.
This resulted in reduced demand and softer benchmark coal prices
for most of the first half of the year.
Thermal coal markets remain
responsive to price movements within both the oil and gas markets,
with a stronger correlation with the gas market. The ongoing war in
Ukraine, coupled with recent tensions in the Middle East, has led
to increased concerns around gas supply. This has led to a higher
risk premium being factored into gas prices, which, in turn, has
recently lent support to the Richards Bay Benchmark coal
price2. Furthermore, the lack of availability of high
quality coal and the expected restocking in South East Asia
following the monsoon season is expected to support the Richards
Bay Benchmark coal price, which remains range bound, while any
further geopolitical escalation may result in the strengthening of
coal prices.
The following are key insights into
our performance for the year to date and our expectations for the
six-months ending 30 June 2024 (H1
2024):
• Benchmark coal
prices have weakened with the Richards
Bay Benchmark coal price 18% lower compared to FY 2023. The
Richards Bay Benchmark coal price averaged
USD99.71 per tonne for the year to date,
compared to USD121.00 per tonne for FY
20231. The Newcastle Benchmark coal price3
was 25% lower than FY 2023 and has averaged USD129.99 per tonne for the year to date, compared to
USD172.79 per tonne for FY 2023.
•
Discount to the Richards Bay
Benchmark coal price is approximately 15% for the year to date, compared to 14% for FY
2023. The widening of the discount is
mainly related to the increase of lower quality
export coal in our sales mix (resulting in
the draw down of inventory), offset to a degree by the
narrowing of discounts between higher and lower quality coal as
benchmark coal prices softened. The average realised export price
for product sold ex-Richards Bay Coal Terminal for the year to date
is USD84.66 per tonne, compared to
USD103.67 per tonne for FY 2023.
• Discount to the Newcastle
Benchmark coal price has been
approximately 6.8% for the year to date, compared
to a premium of 11% achieved for the period 1 September 2023
to 31 December 2023, and the discount is expected to be in the high
single-digit range for the remainder of the year. The average
realised price for product from Ensham is USD121.15 per tonne for the year to date, compared to
USD155.85 per tonne for the period 1
September 2023 to 31 December 2023.
Approximately 20% of Ensham's
sales for the year to date is referenced
against the Japanese Reference Price which has not yet been settled
in the market. The majority of tonnes sold against the Japanese Reference Price has been invoiced and paid for at the prevailing price
for 2023 (USD199.95 per tonne). Revenue pertaining to these sales
was however, recognised at the average 2024 year to date realised
price for the balance of the portfolio in order to reflect a more
conservative view of the earnings to be realised. Settlement of the 2024 price will accordingly trigger an
adjustment for tonnes already sold, which will impact both earnings
and cash flow.
• Export saleable production for H1
2024 relating to our South African operations
is expected to be 6.2Mt,
which, on an annualised basis, remains within the
guidance range of 11.5Mt to 12.5Mt.
• Export
saleable production at Ensham4 for H1
2024 is expected to be
1.9Mt (on a 100% basis). The increase in
production is mainly as a result of an additional mining section
implemented from January 2024, alongside our continued focus on
improving productivity. The attributable export saleable production
from Ensham for the Group in H1 2024 is expected to be 1.6Mt - this represents 85% of the total
production.
•
FOB cost per
export tonne excluding royalties for the South African
operations for H1 2024 is expected
to be at the lower end of the guidance range of R1,170 to R1,290
per tonne. This is in line with the production forecast being at
the upper end of the guidance range. Including royalties, the FOB
cost per export tonne is also expected to be at the lower end of
the guidance range of R1,180 to R1,300 per tonne.
• FOB cost per export tonne
excluding royalties at Ensham is
expected to be at the lower end of the guidance range of AUD130 to
AUD140 per tonne issued in March 2024, in line with the higher end
of the production forecast. Including royalties, the FOB cost per
export tonne is expected to be at the lower end of the guidance
range of AUD150 to AUD160 per tonne.
• Export equity sales for H1
2024 from the South African operations are expected to be 6.0Mt compared to
6.3Mt in H1 2023, a decrease of 4.8%. This
is mainly as a result of the lower rail
performance in H1 2024 compared to the prior
period.
• Export equity sales at
Ensham4
are expected to be 2.0Mt for H1 2024 (on a 100%
basis).
•
Capital
expenditure (capex) for the South African operations
for H1 2024 is expected to be R1.3 billion. This consists of
approximately R500 million relating to sustaining capital and
approximately R800 million relating to expansionary capital for the
Elders and Zibulo North Shaft projects.
• Capex at Ensham
for H1 2024 is expected to be approximately
AUD23 million (on a 100% basis) - this
relates to sustaining capex only. Similar to the
capital spend profile in South Africa, we expect higher capital
spend in H2 2024.
•
Earnings per
share (EPS)5 for H1 2024
is expected to be between
R7.00 and R10.00, thus
between R12.45 and R15.45 lower than the H1 2023 EPS of R22.45 per
share - a decrease of between 55% and 69%. The decrease in our
earnings is mainly attributable to the decrease in the benchmark
coal prices compared to the prior period compounded by a drawdown
on stockpiles from December 2023 as well as an increase in lower
quality export coal in the export sales mix.
•
Headline earnings per share
(HEPS)5 for H1 2024 is expected to be
between R7.00 and R10.00,
thus between R12.46 and R15.46 lower than the H1 2023 HEPS of
R22.46 per share - a decrease of between 55% and 69%.
The forecast EPS and HEPS ranges are
calculated at an average exchange rate of USD:ZAR18.60 for the
month of June 2024. The current post-election
developments in South Africa may impact the exchange rate,
resulting in an impact on reportable earnings.
The
key constraint on our business remains rail
performance
Transnet Freight Rail (TFR) is
expected to rail 46Mt on an annualised industry basis based on the
first half of the year. Rail performance
was negatively impacted for the year to date by two derailments
which resulted in the Group losing approximately 650kt of export equity sales. Should
TFR performance remain at the current run rates, we expect on-mine
inventory to increase approximately by 1.1Mt to the end of the
year.
The South African coal industry,
including Thungela, continues to support TFR in the procurement of
critical locomotive spares and TFR has made good progress
installing the compressors and batteries that have been delivered.
We expect to see improvements related to the installation of these
spares and other initiatives from 2025.
Disciplined capital allocation framework remains a cornerstone
of Thungela's strategy
The Elders and Zibulo North Shaft
life extension projects remain on-track and on budget. We expect to spend a further R800 million on these
projects in H2 2024, in line with our initial estimates. These
investments secure the future of our South African operations, and
the remaining forecast spend of R1.8 billion through to completion
of these projects remains in line with our previously communicated
capital allocation commitment.
Several transactions in June 2024
are expected to impact our 30 June 2024 net cash position. These
include the finalisation of the Ensham rehabilitation surety bond
(which will require partial cash collateralisation), provisional
tax payments in Australia and South Africa, as well as the
potential impact of the settlement of the Japanese Reference Price.
As a result, net cash at 30 June 2024 is expected to range between
R7.1 billion and R7.4 billion, including the cash reserved to
complete the capital projects of R1.8 billion.
The board remains committed to
prioritising shareholder returns, through dividends and share
buybacks, while maintaining balance sheet flexibility. Our dividend
policy, which is to distribute a minimum of 30% of adjusted
operating free cash flow6 to shareholders, continues to
guide our capital allocation decisions.
The Group expects to release its
interim results on or about 19 August 2024.
Deon Smith
Chief Financial Officer
Annexure A: Operational performance
Table 1: Export saleable production by
operation
|
Export saleable production
|
H1 2023
Actual
Mt
(a)
|
H1 2024
Forecast7
Mt
(b)
|
% change
(b-a)/a
|
|
South Africa
|
|
|
|
|
Underground
|
4.4
|
4.5
|
2.3
|
|
Zibulo
|
2.0
|
2.3
|
15
|
|
Greenside
|
1.0
|
1.1
|
10
|
|
Goedehoop8
|
1.4
|
1.1
|
(21)
|
|
|
|
|
|
|
Opencast
|
1.7
|
1.7
|
-
|
|
Khwezela
|
1.0
|
0.9
|
(10)
|
|
Mafube
|
0.7
|
0.8
|
14
|
|
|
|
|
|
|
Australia
|
|
|
|
|
Ensham (85%)4
|
0.0
|
1.6
|
-
|
|
|
|
|
|
|
TOTAL
|
6.1
|
7.8
|
28
|
Table 2: Export sales by segment
|
Export sales
|
H1 2023
Actual
Mt
|
H1 2024
Forecast7
Mt
|
% change
|
|
South Africa
|
6.3
|
6.0
|
(4.8)
|
|
Underground
|
4.8
|
4.7
|
(2.1)
|
|
Opencast
|
1.5
|
1.3
|
(13)
|
|
|
|
|
|
|
Australia
|
|
|
|
|
Ensham (100%)4
|
0.0
|
2.0
|
-
|
|
Underground
|
0.0
|
2.0
|
-
|
|
|
|
|
|
|
TOTAL
|
6.3
|
8.0
|
27
|
Annexure B: Ensham accounting treatment
As a result of the Ensham
acquisition, Thungela, through its subsidiary Sungela Holdings,
obtained an 85% interest in the Ensham Business, with the remaining
15% owned by LX International, through its subsidiary Bowen
Investment (Australia).
Thungela holds a 73.5% interest in
Sungela Holdings, with the remaining 26.5% held by Audley Energy
and Mayfair Corporations Group (the co-investors). The
co-investors' purchase of equity in Sungela Holdings was funded
through a mezzanine loan provided by Thungela, which is repayable
in February 2025. The co-investors are required to apply 90% of any
distributions from Sungela Holdings towards repayment of the
loan.
The results of the Ensham Business
have been included in the Thungela Group results from the date the
Group obtained operational control, being 1 September 2023. The
contractual agreements governing the Ensham Business result in
Thungela recognising 85% of the results of the mine on a
line-by-line basis, including saleable production. Thungela is
responsible for marketing all coal produced by the Ensham Business
and thus sales volumes are recognised at 100%. Attributable metrics
from Ensham represent the Group's 85% interest therein, other than
sales metrics which are at 100%. The incremental costs relating to
the 15% of sales volumes are recognised as coal purchased from our
joint venture partner within operating costs.
For full details relating to the
accounting treatment applied to the Ensham Business, refer to note
2A of the Annual Financial Statements for the year ended 31
December 2023.
Footnotes
1. All references to
"year to date" refer to the period from 1 January 2024 to 31 May 2024. FY 2023
refers to the period from 1 January 2023 to 31 December
2023.
2. Richards Bay
Benchmark coal price reference for 6,000kcal/kg thermal coal
exported from the Richards Bay Coal Terminal.
3. Newcastle Benchmark
coal price reference for 6,000kcal/kg coal exported from Newcastle,
Australia. The NEWC Index is the main price reference for physical
coal contracts in Asia and is the settlement price for a
significant volume of index-linked contracts.
4. Production at Ensham
is crushed and screened before being sold into either the export or
Australian domestic market. Sales into the Australian domestic
market are at export parity prices and, as a result, all production
at Ensham is considered to be export saleable
production.
5. Expected EPS and HEPS
for H1 2024 is based on a WANOS of approximately 135.4 million shares. EPS and HEPS for H1 2023 is based on
WANOS of approximately 137.2 million shares.
6. Adjusted operating
free cash flow is net cash flow from operating activities less
sustaining capex.
7. Based on the latest
available management forecast. Final figures may differ by
approximately 5%.
8. Export saleable
production for Goedehoop includes approximately 300kt (H1 2023: 300kt) attributable to the Nasonti
operation.
Review of Pre-Close and Trading Statement
The information in this Pre-Close
and Trading Statement is the responsibility of the directors of
Thungela and has not been reviewed or reported on by the Group's
independent external auditor.
Investor call details
A conference call and audio webinar
relating to the details of this announcement will be held at 12:00
SAST on Tuesday, 18 June 2024. A recording of the audio webinar
will be made available on the Thungela website from 17:00 SAST on
the same date - www.thungela.com/investors.
Conference Call
registration:
https://services.choruscall.za.com/DiamondPassRegistration/register?confirmationNumber=2121727&linkSecurityString=7384866e9
Audio webinar
registration:
https://themediaframe.com/mediaframe/webcast.html?webcastid=gpbc9pvD
Disclaimer
This announcement includes
forward-looking statements. All statements other than statements of
historical facts contained in this announcement, including, without
limitation, those regarding Thungela's financial position,
business, acquisition and divestment strategy, dividend policy,
plans and objectives of management for future operations (including
development plans and objectives relating to Thungela's products,
production forecasts and Reserve and Resource positions), are, or
may be deemed to be, forward-looking statements. By their nature,
such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results,
performance or achievements of Thungela or industry results to be
materially different from any future results, performance or
achievements expressed or implied by such forward-looking
statements. The Group assumes no responsibility to update
forward-looking statements in this announcement except as may be
required by law.
The information contained in this
announcement is deemed by the Company to constitute inside
information as stipulated under the market abuse regulation (EU)
no. 596/2014 as amended by the market abuse (amendment) (UK mar)
regulations 2019. Upon the publication of this announcement via the
regulatory information service, this inside information is now
considered to be in the public domain.
Investor relations
Hugo Nunes
Email: hugo.nunes@thungela.com
Shreshini Singh
Email: shreshini.singh@thungela.com
Media
Hulisani Rasivhaga
Email: hulisani.rasivhaga@thungela.com
UK
Financial adviser and corporate broker
Liberum Capital Limited
Sponsor
Rand Merchant Bank
(a division of FirstRand Bank
Limited)
Rosebank
18 June 2024