Coal producer Thungela reports threefold surge in annual profits despite Transnet woes
Thungela Resources, the thermal coal producer that was spun out of Anglo American as part of its low-carbon strategy, reported a threefold surge in its net profits in 2022. This is largely a function of prices and underscores the point that coal remains a cash king, even if the future of fossil fuel is uncertain. And Thungela would, of course, have made even more money were it not for Transnet.
Coal is increasingly being scorned because of its links to climate change, and a growing number of banks will no longer provide finance for new projects involving the fossil fuel. But Russia’s invasion of Ukraine, among other things, sent its price soaring last year. Solar panels are all the rage at the moment, but coal producers are making hay while the sun shines.
This was reflected in Thungela’s 2022 results, its second full-year set since it was spun off from Anglo American under investor pressure. Highlights include a three-fold increase in adjusted Ebitda to R29.5 billion, while net profit also tripled to R18.2-billion.
The upshot was a total dividend for the year of R100 per share, equating to 13.8-billion, or 76% of adjusted operating cash flow, being returned for shareholders who still don’t have exposure to coal in their portfolio.
And things would have been better – obviously – were it not for Transnet’s shoddy performance, underscoring the mounting costs of state failure to an economy that is expected to have almost no growth this year because of Eskom’s woes. Thungela paid R8.5-billion in income taxes and royalties to the South African fiscus in 2022, and would have paid more if Transnet did its job properly.
“Despite losing close to three million tonnes of export saleable production volumes as a direct result of the poor Transnet Freight Rail performance, we achieved a more than fourfold increase in cash generation,” Thungela said.
Its overall export sales for the year were just over 13 tonnes and so would have been over 16 tonnes were it not for Transnet. And its guidance this year is lower: 10.5 tonnes to 12.5 tonnes.
Overall, deliveries of coal in 2022 to the Richards Bay Coal Terminal fell to a 30-year low of 50.43 tonnes.
And banks have not yet rendered coal producers unbankable.
“… we have secured access to R3.2-billion in credit facilities with leading South African banks to reflect this change, as well as to bolster our resilience against continued poor rail performance by maintaining a sufficient level of liquidity,” the company said.
Coal producers also have emissions reduction targets of their own, plugging into the wider corporate embrace of ESGs, or environmental, social and governance concerns.
“… we have completed a full review of our intermediate emissions reduction opportunities and commit to reducing our scope 1 and 2 emissions by 30% by 2030 (using 2021 emissions as a baseline) and reaching net zero by 2050. Further details on the group’s pathway to net zero will be published in April 2023 in our maiden Climate Change Report,” Thungela said.
Aside from Transnet, among the many challenges that Thungela faces is the illegal mining and theft of coal from its operations, said CEO July Ndlovu.
“What we are seeing is a lot more illegal mining where these guys just come into our property and start mining,” he told Business Maverick in an interview. And it’s not just a few guys with a pick and shovel and a couple of feed bags who are selling coal on the side of the road.
“We are talking about guys who actually come with trucks and big yellow machinery,” Ndlovu said.
He said that when prices were high, some of this coal was being exported – presumably after being laundered – and another destination is “the customer of last resort in the country. That’s where it’s going.” That was a bit cryptic, but one assumes Eskom is the customer in question. DM/BM