Thungela confident Transnet rail challenge is transient

13th August 2021 By: Martin Creamer - Creamer Media Editor

Thungela confident Transnet rail challenge is transient

Thungela Resources FD Deon Smith.
Photo by: Creamer Media

JOHANNESBURG ( – New coal mining company Thungela Resources said on Friday that it remained confident that the Transnet Freight Rail (TFR) challenge is transient.

Similar to the rest of the coal-mining industry, Thungela has faced a sustained period of underperformance by TFR.

“The underperformance, as we understand it,” said Thungela Resources FD Deon Smith during a webinar presentation covered by Mining Weekly, “is driven by two issues – theft of infrastructure and locomotive failures”. (Also watch attached Creamer Media video.)

Compared to export production of 7.1-million tonnes in the first half of 2021, Thungela built about one-and-a-half million tonnes of finished inventory stockpiles, in line with what it anticipated, owing to its having to replenish inventory, after stocks had been sold down in the last quarter of 2020 on the back of recovering prices, he said.

“You will again notice the seasonality effect and we are accordingly also expecting a higher sales outcome in the second-half of the year, compared with that of the first half,” said Smith.

However, in making this statement, he said Thungela needed to carefully consider TFR’s performance, which he described as having a direct impact on the business of the JSE- and LSE-listed company, which is unable to move as much product as planned to the port to take advantage of the current strong market conditions.

Consequently, sales are being deferred and inventory build is taking place on mine, whereas ideally, the company would want to build stocks at port.

“While unlikely, a sustained poor performance by TFR could put us at risk of becoming stock-bound at our mines,” said Smith.

Based on the current rail performance, the industry, he said, was set to achieve materially lower exports, compared with installed capacity.

The current state, therefore, presented a very unfortunate missed opportunity for the industry and the country, given the strong prices and favourable demand outlook for South African coal.

“We, importantly, continue to engage TFR at all levels and to pledge our assistance where required, and remain confident that this is a transient challenge,” he added.

The company confirmed the guidance for export saleable production of between 15-million and 16-million tonnes and flat free on board cost of R830/t for the full-year.

At question time, Smith elaborated on the company’s stockpile position: “We continue to stockpile at mine, which is not ideal for us because ideally, we would like to enjoy stockpiles at port. That gives us more flexibility to take advantage of market prices.

“We still have some room at most of our operations to increase stock build . . . clearly, in all the work we’re doing with TFR, if we are able to maintain at least the current pace, then we have some time to build before we have to start unwinding or take alternative steps and measures to mitigate that type of productivity throttle back, in order not to run out of stock space. But that’s something we’re monitoring carefully and we have a bit of time to make that call, if indeed. The unfortunate outcome is that we would need to make a decision,” Smith said.

In response to Mining Weekly on the TFR position, he added: “There are continued green shoots as everybody pulls together to try and resolve what has been a very disappointing first half."

Thungela generated half-year operating profit of R990-million, adjusted earnings before interest, taxes, depreciation and amortisation of almost R1.9-billion and a net cash position of R3-billion.