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Coal price saves Thungela’s skin amid TFR stumbles, growing impact of illegal mining

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THUNGELA Resources expected to lose 600,000 tons of export coal revenue in its 2022 financial year owing to a deterioration in the performance of Transnet Freight Rail (TFR), a division of the South African government owned rail and ports utility, Transnet.

Thanks to elevated export prices, which averaged $236.11/t compared to $103.82.t in 2021, the economic fallout from TFR’s travails was more than offset. Thungela said it expected to report headline share earnings of R131/share, 97% higher than the R66.57/share a year earlier.

Thungela had net cash of R19.8bn as of November 30 compared to R8bn a year ago. December was cash neutral for Thungela, however, owing to a 12 day strike at Transnet’s ports, and a derailment on the coal line which took 10 days to clear.

Details of the firm’s proposed final dividend will be announced on March 27 when Thungela makes its year-end annoucement. It unveiled a R60/share interim dividend in August in terms of its 30% of adjusted operating free cash flow payout policy.

But the stresses of operating in difficult South African conditions were laid bare in the firm’s pre-close financial year-end announcement, signed off by Deon Smith, Thungela’s CFO.

In addition to TFR’s continued failures, Thungela decided to close part of the Khwezela complex in Mpumalanga province in an effort to reduce the impact of illegal mining and future adverse environmental events that may flow as a consequence of illegal mining.

Partly related to illegal mining, the company expected to book a higher closure cost charge of R1.1bn to its income statement in its 2021 financial year. The increase was due to inflation, an increase in the price of diesel and fixing up previously rehabilitated areas of the mine that had been disturbed by illegal miners.

The Minerals Council estimated that illegal mining cost South Africa about R49bn in 2019 and that criminal syndicates have open season amid a frail security services response. There are an estimated 6,100 derelict and closed mines – an open invitation to illegal miners – awaiting closure certificates from Government’s Department of Mineral Resources and Energy, according to council estimates.

TFR travails

TFR’s annualised tempo had reduced in the second half of the financial year to 49 million tons (Mt) from 53.3Mt in the first half of its year, partly as a result of the strike and coal derailment. Thungela subsequently throttled back production at some of its operations and expected to report a 900,000 ton capital build as of year-end.

Export sales would be 12.8Mt compared to guidance of between 13Mt to 13.6Mt, a 15% decline. Lower production has resulted in an increase in the FOB cost per export ton which was expected to come in at $955/t compared to guidance of $885 to $915/t.

Commenting on the thermal coal market, Smith said that prices ought to remain robust as buyers looked to restock following the European winter. The benchmark coal price averaged $276.57/t in 2022 (2021: $124.11/t).

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