Thungela says dividends “sacrosanct” despite coal price fall, wobbly TFR performance

THUNGELA Resources said dividends were “sacrosanct” amid a deterioration in operating conditions including a decline in the performance of Transnet Freight Rail (TFR) and lower global coal prices this year.

“In my view our dividend policy remains absolutely sancrosanct,” said Deon Smith, CFO of Thungela in a conference call today following publication of an operating update. Paying its 30% of adjusted operating free cash flow was “a ticket to the game”.

Smith’s comments come amid margin pressure on Thungela. The average realised export price for the financial year to end-May halved to $112/t while sales fell 5% year-on-year to 6.2 million tons (Mt).

In addition, Thungela has between R7bn to R8bn in capital projects on its book following the anticipated approval today of the R2.4bn Zibulo Shaft North expansion. Thungela last year approved the development of the Elders project and the purchase of Ensham, a mine in Australia which makes up the balance of the outlay.

The big concern, however is the performance of TFR, a unit of the Government owned rail and ports utility, Transnet. Thungela said that by early May, TFR’s run-rate had “stabilised” at 48Mt following “a very weak start to the year” when it was below 40Mt.

In May, however, TFR suffered two derailments which resulted in the loss of 300,000 tons in railed volumes for the company. In order Thungela make the upper end of its export saleable production guidance range 12.5Mt, it requires an industry run rate of 53Mt in the second half of the year.

“Thungela and the industry continue to work closely with TFR on a series of on-going interventions aimed at improving rail performance,” the company said.

In lieu of the disappointing performance at TFR, Thungela had more than halved its stockpiles of 450,000 tons with most of the reduction at the port. Smith said the company might “have to moderate” it sales so that it would have enough stocks to keep customers adequately supplied amid TFR’s annual shutdown shut-down in July.

Thungela’s cost per export ton (FOB) was forecast to be R1,230/t compared to R1,093/t in the first half of the previous financial year. Excluding royalties, the cost per ton would be R1,155 in line with the full year guidance range of R1,047 to R1,180/t and R927/t in the previous financial year the company said.

The outcome for Thungela is a 66% to 75% year-on-year decline in headline share earnings which would come in at between R17 and R23 per share – a decline of between R44.23 and R50.23 than in the first half of last year.