Thungela in clover as August brings coal-strapped Europe “unparalleled energy crisis”

THUNGELA Resources is set to bring the curtain down on an extraordinary maiden financial year ended December 31 – in which the coal miner’s share price increased six fold – with first half headline earnings of between R8.9bn to R9bn.

This compares to headline earnings of R227m for the six months ended June 30, 2021 during which time the company’s assets were a unit of Anglo American. Thungela was listed in Johannesburg and London post a demerger of Anglo American on 7 June.

Commenting in a trading statement to the JSE today, Thungela said interim headline share earnings would come in between R66.85 to R67.45 per share compared to R3.05/share in the prior six month period. The performance has been driven by the thermal coal price which at about $411.50 per ton is 175% higher year-on-year.

Thungela is also ideally positioned to produce similarly strong top line performance in the current 2022 financial year, analysts say.

“Europe is on the verge of an unparalleled energy crisis, created by the war in Ukraine and resulting tension with Russia,” said UBS analysts in a July 21 note. Coal generation now plays a key role in ensuring reliability of power in Europe with many European Union (EU) nations recommissioning coal units and delaying coal plant retirements to avoid outages.

“It is however unclear whether Europe will be able to secure adequate coal supply to sustain & grow generation with imports of Russian coal which will be banned this month, the bank said.  Russian coal comprises some 45 million tons (Mt) or 70% of thermal coal imports in 2021.

Offsetting the extraordinary market conditions to an extent, Thungela said that the second half of its financial year was typified by “increased operating costs” of which higher royalty charges and rising costs across the energy complex where important drivers “as well as global inflationary pressures”.

Thungela would also book fair value losses on the price risk management programme undertaken as part of a capital support agreements.

The miner said earlier in the 2022 financial year that its unit costs per ton were averaging R957 – a significant increase on the R787/t registered for the corresponding six months.

It added at the time that export sales would be 6.1Mt for the six months ended June, a 14% year-on-year decline. This was the result of continued failures at the government-owned freight and logistics unit Transnet which, at an industry-wide annualised railed rate of 55Mt, could unseat Thungela’s full-year export guidance of 14Mt to 15Mt.

Despite the share price improvement in the past 12 months, Citi said it was keeping a buy recommendation on Thungela shares as yield would remain high.

“The investment story is one of leverage to thermal coal prices, but there are also idiosyncratic value-creation opportunities through mine life extensions, capital allocation,” it said. “Cash return has been impressive and is likely to increase further on our estimates.”

It added: “The global seaborne thermal coal market is set to remain tight during the 2022 calendar year, most notably high-CV coal, with the EU’s historic ban on Russian coal scheduled to take effect in mid-August”.

Thungela has committed to distribute cash above its minimum capital return policy of 30% of adjusted operating free cash flow. It unveiled a maiden R18/share final dividend for 2021, equal to a payout of R2.5bn.

According to RMB Morgan Stanley in June, Thungela could distribute its market capitalisation of some R30bn over its next three dividend payments.


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