Thungela resilient despite 55% slide in coal price

Poor rail performance and a reversal of record coal prices seen in 2022 and early 2023 weighed heavily on Thungela’s financial performance in 2023.

However, according to CEO July Ndlovu, the coal miner was able to deliver “resilient” results in 2023 despite these headwinds.

“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 — a result of the scramble to secure energy stocks in 2022, following the start of the Russia-Ukraine conflict,” said Ndlovu on Monday.

The company’s results for the 12 months to end-December showed that the Richards Bay benchmark coal price dropped 55% from an average in $270 per tonne in 2022 to $121 per tonne in 2023. The Newcastle benchmark price decreased 52% from $360 to $173 per tonne.

The decline in prices resulted in the group s headline earnings per share —’an alternative profit measure commonly used in SA — decreasing by 73% to R35 per share. Net profit was down about 72% to R5bn (R18.2bn in 2022).

There was only a slight decline in export sales from SA, dropping by about 2% to 11,9million tonnes. However, earnings were also impacted by the late arrival of seven vessels in December, which resulted in the slippage of about 550,000 tonnes of sales, from Thungela’s SA and Australian operation, planned for December 2023 into January 2024.

Thungela assumed operational control of the Ensham coal mine in Australia on September 1. According to Ndlovu, this marked a significant milestone in Thungela’s strategy to expand its presence beyond SA.

“This mitigates our reliance on a single operating geography and opens up new markets, notably in Japan and Malaysia, diversifying our customer base and providing exposure to the Newcastle Benchmark coal price,” Thungela said.

For the four months from September to December, Ensham delivered 900,000million tonnes in sales.

By end-December operational performance at Ensham stabilised at an annualised run rate of 3.3-million tonnes year, up from 2.7-million tonnes at the acquisition date.

“We believe there is an opportunity for further improvement to approximately 3.6-million tonnes through the introduction of an additional production section in 2024,” the company said.

Given changes to its production footprint, Thungela expects to export about 15-million tonnes of coal per year by 2026 with about 11-million tonnes from SA and 4-million tonnes from Australia.

Its guidance for 2024 puts export coal sales from SA at between 11.5-million and 12.5million tonnes. Ensham is expected to deliver between 3.2million and 3.5-million tonnes in sales.

As its guidance for SA sales in 2024 suggests, Thungela does not expect to see a significant improvement in performance from Transnet Freight Rail (TFR) in 2024. But, according to Ndlovu, performance on the TFR coal line may have “bottomed out”.

In 2023, TFR railed 47.9-million tonnes of thermal coal to the Richards Bay Coal Terminal (RBCT), compared to 50.33-million tonnes in 2022, a decline of 4.8% and the worst performance since the early 1990s.

“The latest six-week run rate is now just over 51-million tonnes — a rate we last saw in 2022. We don’t think performance is getting worse, in fact, there is some improvement,” Ndlovu told Business Day.

“We continue to work closely with other industry players and Transnet to remedy rail performance. Through RBCT, the industry has strengthened security measures by deploying additional security on the coal line for the past 18 months ... RBCT, on behalf of the industry, is also helping Transnet to acquire the critical spare parts necessary for the maintenance of locomotives from alternative suppliers,” he said.

Thungela declared a R10 per share final dividend, bringing the total dividend for the year to R20 — a payout of R2.8bn compared to R13.8bn in 2022. In addition, the board has approved a share buyback of up to R500m subject to market conditions, which will be executed up to the date of the group’s next AGM.

The market responded positively to Thungela’s results on Monday with the share price on the JSE up about 5.5% in midday trade to R11.40 per share. The share has lost about 42% of its value over the past 12 months.