Thungela flips up BEE partner in R1.1bn deal ahead of Elders, Zibulo North projects

THUNGELA Resources is to buy out its empowerment partner in a deal worth about R1.1bn at the firm’s current market price.

The transaction comes as Thungela prepares to invest in two replacement projects – Elders and Zibulo North – worth billions of rands.

The thermal coal producer said in an announcement today it would purchase the 27% stake held by Inyosi Coal in Zibulo, an operating mine, and the Elders deposit both of which are in South Africa’s Mpumalanga province.

Thungela will pay with about 4.3 million of its own shares for the stake. It said the deal would give its black empowerment partners greater liquidity. To this end, there is lock up clause of an initial 30 days in which no more than 20% of the newly allotted shares may be sold. Inyosi Coal’s shareholders will end up with just over 3% of Thungela.

As of end-June, the stake was worth R696m, Thungela said. Shares in the company have gained 18% between then and now.

In August, Thungela announced it had approved the Elders project at a lowered capital cost of R2bn (versus R3bn previously). Coal from the property will replace production from the adjacent Goedehoop Colliery which is approaching the end of its life.

July Ndlovu, CEO of Thungela, said the purchase of Inyosi Coal’s stake represented “sound capital discipline” ahead of investing in “a highly cash-generative asset”. In effect, Thungela will be increasing access to cash flow from the project which will accelerate project pay-back.

The Inyosi Coal shareholding was put in place by the assets’ former owner, Anglo American.  Anglo demerged the assets, forming Thungela Resources, in 2021. Shares in the company have gained an incredible 840% since the first day of trade in July of that year as thermal coal prices took off amid supply chain difficulties.

The invasion of Ukraine by Russia in February this year compounded these issues sending Europe into an energy tailspin as it returned to coal as a way of topping up restricted gas exports from Russia.

Thungela Resources did not just “shoot the lights” out in the six months to June – it nuked them – through increasing earnings per share by more than 2,000% and declaring an interim dividend of R60 a share.

Unfortunately, logistical constraints at state-owned rail and ports company, Transnet has restricted exports out of Richards Bay for the last two years. Most recently a derailment closed the North Corridor transporting coal from Mpumalanga to Richards Bay Coal Terminal for about two weeks. Prior to that, a ports strike halted exports for a further two week period.