Thungela Resources shares leapt by 8 percent yesterday after the mining firm delivered another set of exceptional interim results driven by elevated benchmark coal prices and declared a whopping interim dividend of R8.2 billion.
The share price traded at a high of R299 in morning trade yesterday, with the shares having increased by 461 percent in the past year.
However, CEO July Ndlovu flagged in an interview that Thungela’s ability to fully take advantage of the strong price environment in the first half of 2022 was hindered by Transnet Freight Rail’s continued under-performance.
“A consistently well run logistics corridor between Mpumalanga and Richards Bay is crucial not only for coal exporters like Thungela, but also for the South African economy with coal exports generating billions of rand in tax and royalty revenues,” he said.
For six months to June 30, Thungela, which was demerged from Anglo American in 2021, flagged a profit of R9.6bn compared with R351 million in the first half of 2021.
It announced a dividend of R8.2 billion, or R60 per share, due to profit surging, boosted by strong export coal prices.
It also lowered guidance for shipments as rail constraints continue to hamper its ability to move coal from its mines to Richards Bay, one of the biggest coal terminals in the world.
Thungela expects to export between 13 million to 13.6 million tons of the fossil fuel this year, from an initial projection of between 14 million to 15 million.
Ndlovu said Thungela had achieved excellent results and the balance sheet was strong.
He said the demand for affordable energy sources such as thermal coal escalated amid the energy security crisis, which was exacerbated by the escalation of the Russia-Ukraine conflict.
“Coupled with supply constraints in major coal-producing regions, this resulted in the price of thermal coal increasing to unprecedented levels,” he said.
Thungela had also approved the R2bn Elders project, a proposed underground coal mine in Mpumalanga province, which will replace another mine that was reaching the end of its life, he said.
Looking ahead, Ndlovu said with the remainder of the year the prices would remain firm.
“Coal is set to remain a critical input for affordable and reliable power generation, not only in the developing world but also in highly industrialised and developed nations which have recently increased their reliance on coal to meet their energy needs. We are monitoring these trends and their implications for Thungela’s strategy in the short to medium term, with particular attention given to exploring opportunities for geographic diversification,” he said.
Ndlovu said operating a fatality-free business and ensuring exceptional shareholder returns were crucial to earning the trust and support of our stakeholders.
“We remain committed to delivering on our purpose of responsibly creating value together for a shared future,” he said.
Anchor Capital investment analyst Seleho Tsatsi said there continued to be quite a bit of earnings momentum in Thungela.
“As a result, cash returns should continue to be strong, and second-half earnings should come in stronger than what Thungela has just reported for the first half,” he said.
Tsatsi said Thungela reduced its volume guidance largely due to Transnet challenges.
“Guidance for unit cost is also consequently higher. For now, high coal prices mean unit cost inflation can be overcome. Thungela should produce stronger earnings in the second half of this year thanks to higher volumes and higher coal prices. Despite the massive run-up in the share price, the share trades at a very low multiple of this year's earnings and dividends,” he said.
According to Tsatsi, this was probably because the market did not expect coal prices to hold near their extraordinarily high spot levels over the long term.
BUSINESS REPORT