JSE-listed Thungela Resources expects to report 2.9-million tonnes of saleable production from the Ensham operation, in Australia, for the 2023 financial year, which is above the company’s expectation of 2.7-million tonnes.

Thungela acquired the Ensham thermal coal mine in August – marking a milestone in the company’s geographic diversification efforts.

The group has already received R800-million in cash through an economic benefit deed payment. Together with some final adjustments to the acquisition, the purchase price of the Ensham business has effectively reduced from R4.1-billion to R3.2-billion.

It was imperative that the acquisition be value accretive for shareholders and that the transaction be structured to enable Thungela to benefit from the economics of the Ensham business from the lockbox date of January 1 through to completion.

The acquisition has significantly increased Thungela’s coal resource base and provided access to new markets, such as Japan, and exposure to the Newcastle Benchmark coal price.

Thungela assumed control of the Ensham operations on September 1 and has been focused on enhancing productivity at the mine, as evident in the higher-than-expected saleable export production.

The premium achieved by Ensham to the Newcastle Benchmark coal price has been about 10.4% from completion of the acquisition at the end of August through to the end of November 30. This premium is primarily owing to the composition of the Ensham sales book which includes volumes sold at fixed prices.

The average realised price for product from Ensham is $153.44/t for the same period.

In a pre-close statement for the financial year ending December 31, CFO Deon Smith said the company would meet its full-year guidance despite continued rail challenges.

Export saleable production from the South African operations is expected to be 12.1-million tonnes for the year, which is marginally higher than the mid-point of the guidance range of 11.5-million tonnes and 12.5-million tonnes issued in August.

The removal of three underground sections and poor rail performance resulted in a 7.6% decrease in volumes compared with the prior year.

Thungela produced 13.1-million tonnes of saleable coal in the 2022 financial year.

Thungela expects its capital expenditure (capex) for the South African operations to total R3-billion in the reporting year, comprising R1.4-billion of sustaining capital and R1.6-billion of expansionary capital for the Elders and Zibulo North shaft projects.

The group expects the Ensham capex to amount to R1-billion in the year under review, relating to sustaining costs only.

As of November 30, Thungela had a net cash position of R10.5-billion. The group expects this to reduce to R9.6-billion at the end of the year owing to tax and royalty payments and capital spend for December.

MARKET VIEW

Commenting on market dynamics, Smith said energy demand reduced in Europe, China and much of Asia following the milder 2023 northern hemisphere winter.

This reduction in demand was further exacerbated by already high coal and gas stock levels in key import hubs. Inventory levels in the main coal supply hubs increased owing to the low demand in Europe, with more producers shifting their focus to the Asian-Pacific market.

Energy prices, including the price of coal, remain volatile and susceptible to ongoing geopolitical tensions.

Benchmark coal prices softened markedly in 2023 following the record levels observed in 2022.

The Richards Bay Benchmark coal price has averaged $122.88/t in the year to date, compared to $270.87/t in the 2022 financial year.

The Newcastle Benchmark coal price has averaged $75.15/t in the year to date, compared to $360.19/t in the 2022 financial year.

Discount to the Richards Bay Benchmark coal price has been about 15% in the year to date, compared to 15% in the 2022 financial year and 18% in the first half of the 2023 financial year.

Smith pointed out that discounts in the second half of the year had narrowed as prices retracted.

The average realised export price for product through the Richards Bay Coal Terminal (RBCT) in the year to date is $104.85/t, compared to $229.21/t in the 2022 financial year.

Free-on-board (FOB) cost per export tonne excluding royalties for the South African operations for the full year is expected to be at the low end of the revised guidance range of between R1 120/t and R1 200/t, which was issued in August.

This is owing to higher-than-expected domestic revenue offsets and a positive movement in the non-cash rehabilitation provisions. Including royalties, the FOB cost per export tonne is expected to be at the low end of the revised guidance range, which is set at between R1 170/t and R1 250/t.

FOB cost per export tonne excluding royalties at Ensham is expected to be R1 947/t for the period from acquisition completion through to the end of the year. Including royalties, the FOB cost per export tonne is expected to be R2 342/t.

RAIL ISSUES

The inconsistent and poor Transnet rail performance continued to weigh heavily on the South African coal mining industry and on Thungela’s results in the second half of the year.

The annualised industry run rate dropped from 48-million tonnes a year in the first half of the year to 45.9-million tonnes a year in the second half of the year.  

This results in an annualised run rate of 47-million tonnes a year in the year to date, which is below the 50.3-million tonnes railed in 2022.

The deterioration in the second half of the year has been primarily attributable to an increase in security-related issues as well as locomotive failures.

The coal industry, including Thungela, continues to work closely with Transnet to remedy the security situation and has been supporting Transnet through additional security coverage since November this year.

Smith said a sustainable solution is dependent on the procurement of spares for the locomotives supplied by the Chinese locomotive supplier CRRC, either directly from CRRC, or from alternative suppliers.

Thungela and the coal industry recognise the need for urgent intervention and RBCT, on behalf of the industry, has placed orders with alternative suppliers for critical locomotive spares.

Transnet is also in the process of procuring locomotive spares from alternative equipment manufacturers.

In response to the continued rail underperformance, Thungela curtailed production at three underground sections earlier this year and instituted free-on-truck sales to better manage stockpile capacity at operations.

“We continued to truck coal from our operations to nearby sidings, allowing for further rail loading options and reducing the risk of train cancellations.

“The wider distribution pattern and our rapid load-out terminals are physical infrastructure advantages which allow us to benefit from additional trains when Transnet experiences problems on certain sections elsewhere on the line. As a result, the group expects to rail 12-million tonnes in the 2023 financial year,” Smith concluded.