TIDMTGA
RNS Number : 5302W
Thungela Resources Limited
13 December 2023
Thungela Resources Limited
(Incorporated in the Republic of South Africa)
(Registration number: 2021/303811/06)
JSE share code: TGA
LSE share code: TGA
ISIN: ZAE000296554
('Thungela' or the 'Company' and together with its affiliates,
the 'Group')
Chief Financial Officer's Pre-Close Statement
for the financial year ending 31 December 2023
Operational agility sees Thungela confirm its full year 2023
guidance despite continued rail challenges, while also achieving
higher than expected production at Ensham
Dear Stakeholder
As we approach the end of 2023, we are proud to report that we
have demonstrated resilience in the face of external challenges,
made substantial progress in executing our strategic objectives,
and continued to live up to our purpose - to responsibly create
value together for a shared future.
Based on the Group's performance for the period 1 January 2023
to 30 November 2023 ("the year to date"(1) ), we are set to achieve
the full-year guidance metrics as outlined in our 2023 interim
results released in August 2023.
The followin g are the key insights into our performance for the
year to date and our expectations for the financial year ending 31
December 2023.
-- 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 due 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(2) has averaged USD122.88/tonne for the year to date,
compared to USD270.87/tonne for FY 2022. The Newcastle Benchmark
coal price(3) has averaged USD175.15/tonne for the year to date,
compared to USD360.19/tonne for FY 2022.
-- Discount to the Richards Bay Benchmark coal price has been
approximately 15% for the year to date, compared to 15% for FY 2022
and 18% for H1 2023. Discounts in the second half of the year
narrowed as prices retracted. The average realised export price for
product sold ex-Richards Bay Coal Terminal ("RBCT") for the year to
date is USD104.85/tonne, compared to USD229.21/tonne for FY
2022.
-- The premium achieved by Ensham to the Newcastle Benchmark
coal price has been approximately 10.4% from completion of the
acquisition on 31 August 2023 through to 30 November 2023. This
premium is due primarily to the composition of the Ensham sales
book which includes volumes sold at fixed prices. The average
realised price for product from Ensham is USD153.44/tonne for the
same period.
--
-- Export saleable production relating to our South African
operations is expected to be 12.1Mt for FY 2023, marginally higher
than the mid-point of the guidance range of 11.5Mt to 12.5Mt issued
in August 2023. The removal of three underground sections in
response to poor rail performance resulted in a decrease of 7.6%
compared to the prior year (FY 2022: 13.1Mt).
-- Export saleable production at Ensham(4) for FY 2023 is
expected to be 2.9Mt (on a 100% basis), higher than the expectation
of 2.7Mt that prevailed upon completion of the acquisition - this
increase is primarily due to an enhanced focus on productivity. The
attributable export saleable production from Ensham for the Group
in FY 2023 is expected to be 0.8Mt - this represents 85% of the
total production for the four months from completion of the
acquisition to the end of the year (refer to Annexure A).
-- FOB cost per export tonne excluding royalties for the South
African operations for FY 2023 is expected to be at the low end of
the revised guidance range of R1,120 to R1,200/tonne issued in
August 2023 - this is due 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 of
R1,170 to R1,250/tonne.
-- FOB cost per export tonn e excluding royalties at Ensham(5)
is expected to be approximately R1,947/tonne for the period from
completion through to the end of the year (refer to Annexure A).
Including royalties, the FOB cost per export tonne is expected to
be R2,342/tonne.
-- Export equity sales for the South African operations are
expected to be relatively stable year-on-year with 12.1Mt for FY
2023, compared to 12.2Mt in FY 2022.
-- Export equity sales for Ensham(4) are expected to be 3.0Mt
for FY 2023. The Group expects to recognise 1.2Mt of sales,
representing 100% of the sales in the four months following
completion of the transaction (refer to Annexure A).
-- Capital expenditure for the South African operations for FY
2023 is expected to be R3.0 billion, at the lower end of the
guidance range. This consists of R1.4 billion relating to
sustaining capital and R1.6 billion relating to expansionary
capital for the Elders and Zibulo North Shaft projects.
-- Capital expenditure at Ensham for FY 2023 is expected to be
R1.0 billion (on a 100% basis) - this relates to sustaining capex
only. The Group is expected to recognise R0.3 billion which
represents the attributable capital expenditure incurred in the
period from completion through to the end of the year on an 85%
basis (refer to Annexure A).
-- The Group had a net cash position of R10.5 billion on 30
November 2023 . In December 2023 we received the Ensham economic
benefit deed payment of R0.8 billion. We also expect to pay R2.1
billion in taxes and royalties in South Africa in December 2023.
Taking into account these movements, as well as expected cash
generation from operations and capital spend for December, net cash
is expected to be approximately R9.6 billion at the end of
2023.
Managing the impact of continued poor rail performance
The inconsistent and poor Transnet rail performance continued to
weigh heavily on the South African coal mining industry and indeed
on the Group's results in the second half of the year. The
annualised industry run rate dropped from 48.0Mtpa in H1 2023 to
45.9Mtpa in the second half of the year through to the end of
November 2023. This results in an annualised run rate of 47.0Mtpa
for the year to date, below the 50.3Mt 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 2023. 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
recognises 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, we curtailed
production at three underground sections earlier this year and
instituted free-on-truck sales in order to better manage stockpile
capacity at our 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 TFR experiences problems on certain sections elsewhere
on the line. As a result, the Group expects to rail 12.0Mt in
2023.
Update on the Ensham acquisition
Earlier this year, we announced the acquisition of the Ensham
thermal coal mine in Queensland Australia, marking a significant
milestone on our journey to geographic diversification, and we
successfully completed the transaction on 31 August 2023.
It was imperative that the acquisition be value accretive for
shareholders and the transaction was structured to enable Thungela
to benefit from the economics of the Ensham Business from the
lock-box date of 1 January 2023 through to completion. We are
pleased to report that the Group has received R0.8 billion in cash
through this mechanism, higher than initial estimates. Together
with the final closing adjustments, this results in a reduction in
the purchase price of the Ensham Business from the initial R4.1
billion, to approximately R3.2 billion.
The acquisition substantially increases Thungela's coal resource
base and provides access to new markets, notably Japan, as well as
exposure to the Newcastle Benchmark coal price. The Ensham sales
book consists of volumes sold against the Newcastle Benchmark coal
price, the Japanese Reference Price as well as fixed price
contracts with large utilities.
Thungela assumed control of the operations on 1 September 2023,
resulting in an enhanced focus on productivity. W e are confident
that the mine should produce 2.9Mt (on a 100% basis) in 2023,
higher than our initial expectation of 2.7Mt at the time of
completion of the transaction. The integration of Ensham into the
Group has progressed well and we completed the transition of all
services from the previous owner on 30 November 2023. Key areas of
judgement in relation to the acquisition of the Ensham Business,
and the impact thereof on the financial results for the year, are
in the process of being finalised.
Commitment to capital allocation framework and shareholder
returns
In South Africa we also continue to make good progress on the
Elders and Zibulo North Shaft projects which are on track with
regard to both the expected completion schedule and total expected
spend. By the end of 2023 we expect to have spent a total of R1.6
billion on the two projects, with a further R2.8 billion expected
to be spent in future to complete the projects.
While agile operational performance has allowed the Group to
navigate challenging rail and price headwinds this year, a degree
of caution pertaining to balance sheet flexibility remains
appropriate as softening coal prices have put the Group on a lower
cash generation trajectory.
Disciplined capital allocation remains a cornerstone of
Thungela's strategy, and our capital allocation strategy continues
to be informed by the funding requirements for our projects as well
as the continued uncertainty relating to rail performance.
Accordingly, the board considers it appropriate to maintain a cash
buffer of R5 billion as well as to continue to reserve the cash
required for the ongoing execution of the Elders and Zibulo North
Shaft projects.
The board also reaffirms that it is committed to shareholder
returns in accordance with Thungela's stated dividend policy, which
is to target a minimum payout of 30% of adjusted operating free
cash flow(6) , and the Group's capital allocation framework which
prioritises the return of capital to shareholders while maintaining
balance sheet flexibility.
Our disciplined capital allocation approach, agility and
enhanced resilience have served us well in 2023, enabling us to
execute on our strategic priorities, adapt to changing market
conditions and ensure that we are able to continue to create
superior returns for our shareholders in the long-term.
Deon Smith
Chief Financial Officer
Annexure A: Ensham accounting treatment
As a result of the acquisition, Thungela, through its subsidiary
Sungela Holdings, obtained an 85% interest in the Ensham Business,
with the remaining 15% owned by LX International, through its
subsidiary Bowen Investment (Australia).
Thungela holds a 75% interest in Sungela Holdings, with the
remaining 25% held by Audley Energy and Mayfair Corporations Group
(the co-investors). The co-investors purchase of equity in Sungela
Holdings was funded through a mezzanine loan provided by Thungela,
which is repayable in February 2025. The co-investors are required
to apply 90% of any distributions from Sungela Holdings towards
repayment of the loan.
The results of the Ensham Business have been included in the
Thungela Group results from the date the Group obtained operational
control, being 1 September 2023. The contractual agreements
governing the Ensham Business result in Thungela recognising 85% of
the results of the mine on a line-by-line basis, including saleable
production. Thungela is responsible for marketing all coal produced
by the Ensham Business, and thus sales volumes are recognised at
100%. Attributable metrics from Ensham represent the Group's 85%
interest therein, other than sales metrics which are at 100%. The
incremental costs relating to the 15% of sales volumes are
recognised as coal purchased from our joint venture partner within
operating costs. The results of the Thungela Group for the year
ended 31 December 2022 will not be updated to reflect the results
of the Ensham Business before the date we obtained control
thereof.
Annexure B: Operational performance
Table 1: Export saleable production by operation
Export saleable 2022 2023 % change
production Actual Forecast(7)
Mt
(a) (b) (b-a)/a
South Africa
------------------------- ------- ------------
Underground 9.7 9.0 -7%
------------------------- ------- ------------
Zibulo 4.3 4.2 -2%
------------------------- ------- ------------
Greenside 2.6 1.9 -27%
------------------------- ------- ------------
Goedehoop(8) 2.8 2.9 4%
------------------------- ------- ------------
Opencast 3.4 3.1 -9%
------------------------- ------- ------------
Khwezela 1.6 1.6 -
------------------------- ------- ------------
Mafube 1.8 1.5 -17%
------------------------- ------- ------------
Australia
------------------------- ------- ------------
Ensham (85%) 0.0 0.8 -
------------------------- ------- ------------
TOTAL 13.1 12.9 -2%
------------------------- ------- ------------
Table 2: Export sales by segment
Export sales 2022 2023 % change
Mt Actual Forecast(7)
South Africa 12.2 12.1 1%
--------------- ------- ------------
Underground 8.8 9.3 6%
--------------- ------- ------------
Opencast 3.4 2.8 -18%
--------------- ------- ------------
Australia
--------------- ------- ------------
Ensham (100%) 0.0 1.2 -
--------------- ------- ------------
Export sales 0.0 1.0 -
--------------- ------- ------------
Domestic sales 0.0 0.2 -
--------------- ------- ------------
TOTAL 12.2 13.3 9%
--------------- ------- ------------
Footnotes
1. All references to "year to date" refer to the period from 1
January 2023 to 30 November 2023 (FY 2023). FY 2022 refers to the
period from 1 January 2022 to 31 December 2022.
2. Richards Bay Benchmark price reference for 6,000kcal/kg
thermal coal exported from the Richards Bay Coal Terminal.
3. Newcastle Benchmark price reference for 6,000kcal/kg coal
exported from Newcastle, Australia. The NEWC Index is the main
price reference for physical coal contracts in Asia and is the
settlement price for a significant volume of index-linked
contracts.
4. Production at Ensham is crushed and screened before being
sold into either the export or Australian domestic market. Sales
into the Australian domestic market are at export parity prices
and, as a result, all production at Ensham is considered to be
export saleable production.
5. Based on an average ZAR/AUD exchange rate of R12.05:AUD1.00
for the four months from the completion of the acquisition.
6. Adjusted operating free cash flow is net cash flows from
operating activities less sustaining capex.
7. Based on the latest available management forecasts. Final figures may differ by +/- 5%.
8. Export saleable production for Goedehoop includes
approximately 715kt (2022: 372kt) attributable to the Nasonti
operation.
Review of Pre-Close Statement
The information in this Pre-Close Statement is the
responsibility of the directors of Thungela and has not been
reviewed or reported on by the Group's independent external
auditor.
A trading statemen t will be released once the Company has
reasonable certainty on the expected ranges for EPS and HEPS and to
the extent required by the JSE Listing Requirements.
Investor Call Details
A conference call and audio webinar relating to the details of
this announcement will be held at 13:00 SAST on Wednesday, 13
December 2023. A recording of the audio webinar will be made
available on the Thungela website from 17:00 SAST on the same date
- www.thungela.com/investors.
Conference Call registration:
https://services.choruscall.za.com/DiamondPassRegistration/register?confirmationNumber=2089702&linkSecurityString=57bdebc4a
Audio webinar registration:
https://themediaframe.com/mediaframe/webcast.html?webcastid=g3bZvNrt
Disclaimer
This announcement includes forward-looking statements. All
statements other than statements of historical facts contained in
this announcement, including, without limitation, those regarding
Thungela's financial position, business, acquisition and divestment
strategy, dividend policy, plans and objectives of management for
future operations (including development plans and objectives
relating to Thungela's products, production forecasts and Reserve
and Resource positions), are, or may be deemed to be,
forward-looking statements. By their nature, such forward-looking
statements involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or
achievements of Thungela or industry results to be materially
different from any future results, performance or achievements
expressed or implied by such forward-looking statements. The Group
assumes no responsibility to update forward-looking statements in
this announcement except as may be required by law.
The information contained in this announcement is deemed by the
Company to constitute inside information as stipulated under the
market abuse regulation (EU) no. 596/2014 as amended by the market
abuse (amendment) (UK mar) regulations 2019. Upon the publication
of this announcement via the regulatory information service, this
inside information is now considered to be in the public
domain.
Investor Relations
Ryan Africa
Email: ryan.africa@thungela.com
Shreshini Singh
Email: shreshini.singh@thungela.com
Media Contacts
Hulisani Rasivhaga
Email: hulisani.rasivhaga@thungela.com
UK Financial adviser and corporate broker
Liberum Capital Limited
Tel: +44 20 3100 2000
Sponsor
Rand Merchant Bank
(a division of FirstRand Bank Limited)
Rosebank
13 December 2023
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END
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December 13, 2023 02:34 ET (07:34 GMT)
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