Thungela Resources cut its interim dividend for the six months to end June by 80% yet the share price was up 2.5% on the JSE this morning despite the decline in international steam coal export prices and Transnet Freight Rail’s (TFR) continuing poor performance.
The share has traded in a range between about R124 and R180 since early 2023 and the reason appears to be that investors share Thungela CEO July Ndlovu’s positive long-term view on the coal business.
According to Ndlovu “global demand for coal reached a record high of 8.7 billion tons in 2023 and is expected to remain stable in the coming years.
“The increasing demand from Asian economies outweighs the efforts to phase out coal globally and energy transition is delayed as energy security becomes a priority amidst geopolitical tensions and potential supply disruptions.
“Despite the decline in coal use in the United States and Europe coal remains a crucial energy source for electricity, steel and cement production worldwide.
“Following a period of supply growth at the onset of the Russia-Ukraine conflict, global supply is likely to tighten as both country and company ESG (environmental, social and governance) pledges are introduced.
“Supply will further be impacted by limited access to capital and insurance which will discourage new production coming on line. This provides an opportunity for Thungela as we have access to existing, high-quality coal resources and reserves.”
Ndlovu told Miningmx, “I believe we have a sophisticated investor base which understands the long-term fundamentals of coal and our business. More importantly, we have built a robust and resilient business. I think investors understand what we are doing and that we are delivering on our strategy.”
Thungela was let down yet again in the first half of 2024 by the biggest business risk factor beyond management’s direct control which is TFR’s inability to rail required volumes of coal to Richards Bay.
Ndlovu described TFR’s rail performance in the six months as “disappointing” and said he only expected to see improved rail performance from 2025. Despite this he maintained progress was being made in turning TFR around even though total rail volumes for 2024 are likely to level-peg at last year’s rock-bottom level of 47.9Mt.
He commented, “the new leadership has stopped TFR’s deterioration. They could still have been going backwards right now. We have to acknowledge that and congratulate them for it.
“Things could have been worse, but they stopped the bleeding. They are also putting the new building blocks in place and there is no doubt in my mind that we are going to see improvement over time. The 2025 estimate is just being pragmatic and understanding the complexity of what they need to do to turn it around.”
Ndlovu said he hoped total Richards Bay Coal Terminal exports for 2025 would be “somewhere between 55mt and 60mt. If that happens, we would see an improvement in our own business of around 500,000t exported and that’s significant for us.”
Ndlovu said he expected Thungela’s South African export saleable production “to be at the upper end” of the guidance range of 11.5mt to 12.5mt for the year to December and he revised expected output from the group’s Ensham mine in Australia upwards to between 3.5mt and 3.8mt.
