TIDMTGA
RNS Number : 8452J
Thungela Resources Limited
21 August 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
Tax number: 9111917259
('Thungela' or the 'Company' and, together with its affiliates,
the 'Group')
2023 Interim results announcement and cash dividend
declaration
THUNGELA REPORTS RESILIENT PERFORMANCE FOR THE SIX MONTHSED 30
JUNE 2023 ("H1 2023") AND DECLARES R10 PER SHARE DIVID, REAFFIRMING
DIVID POLICY
KEY FEATURES
-- Total recordable case frequency rate (TRCFR) improved to 1.33, from 1.59 in June 2022
-- Profit for the reporting period of R3.0 billion reflecting a
significant decrease in thermal coal prices (H1 2022: R9.6
billion)
-- Headline earnings of R22.46 per share (H1 2022: R67.23)
-- Adjusted operating free cash flow* of R4.3 billion (H1 2022:
R8.9 billion) and net cash* position of R13.6 billion (H1 2022:
R14.8 billion)
-- Interim ordinary cash dividend declared of R10 per share, 33%
of adjusted operating free cash flow*, resulting in R1.4 billion
returned to shareholders
-- Sisonke Employee Empowerment Scheme and Nkulo Community
Partnership Trust to receive a contribution of R156 million
collectively in keeping with commitment to create shared value
-- Increased life of mine by 10 years through approval of the Zibulo North Shaft project
-- Ensham transaction expected to complete by 31 August 2023
-- Full year guidance range for export saleable production
narrowed to between 11.5Mt and 12.5Mt
-- Full year guidance for FOB cost per export tonne* revised to
R1,120 to R1,200 excluding royalties, or R1,170 to R1,250 per tonne
including royalties. Guidance for capital expenditure, both
sustaining and expansionary, reiterated
KEY FINANCIAL INFORMATION
Financial overview
Rand million (unless otherwise H1 2023 H1 2022 % change
stated)
------------------------------------------ ---------------- ----------------
Revenue 14,359 26,176 (45)
------------------------------------------ ---------------- ----------------
Operating costs (10,604) (10,119) 5
------------------------------------------ ---------------- ----------------
Profit for the reporting period 3,005 9,630 (69)
------------------------------------------ ---------------- ----------------
Earnings per share (cents/share) 2,245 6,723 (67)
------------------------------------------ ---------------- ----------------
Headline earnings per share (cents/share) 2,246 6,723 (67)
------------------------------------------ ---------------- ----------------
Dividend per share (cents/share) 1,000 6,000 (83)
------------------------------------------ ---------------- ----------------
Alternative performance measures*
------------------------------------------ ---------------- ----------------
Adjusted EBITDA 4,380 16,679 (74)
------------------------------------------ ---------------- ----------------
Adjusted EBITDA margin (%) 31 64 (33pp)
------------------------------------------ ---------------- ----------------
Adjusted operating free cash flow 4,298 8,934 (52)
------------------------------------------ ---------------- ----------------
Net cash 13,579 14,815 (8)
------------------------------------------ ---------------- ----------------
Capital expenditure 893 568 57
------------------------------------------ ---------------- ----------------
pp - percentage points change period on period
Message from July Ndlovu, Chief Executive Officer
Thungela continued to advance its strategic priorities, amid
challenging market conditions in the first half of 2023, by
investing through the cycle and focusing on what we can
control:
-- Continued to prioritise safety - TRCFR improved to 1.33, from 1.59 in June 2022 (1).
-- Took measures to strengthen business resilience in the face
of softer coal prices and persistent Transnet Freight Rail (TFR)
underperformance.
-- Increased life of mine profile through approval of the Zibulo North Shaft project.
-- Announced the acquisition of Ensham, marking a significant
step in Thungela's strategy to pursue geographical
diversification.
-- Maintained disciplined capital allocation and reaffirmed
dividend policy: interim dividend of R10 per share - 33% of
adjusted operating free cash flow*.
Safety is our first value and we remain focused on operating a
fatality-free business. Tragically our colleague Mr Breeze Mahlangu
passed away in February following complications after an accident
in December 2022. We have continued our relentless pursuit to
eliminate fatalities in our business and I am encouraged by the
improvement in our safety performance, with TRCFR of 1.33 for the
first six months of 2023.
We have continued to focus on 'controlling the controllables' in
the face of the challenging external factors which characterised
the first half of the year and, notwithstanding the softer price
environment and the lack of any improvement in rail performance,
Thungela recorded R3.1 billion (R22.45 per share) in earnings
attributable to shareholders of the Group, and adjusted EBITD A* of
R4.4 billion in the first half of 2023.
The Group generated adjusted operating free cash flow * of R4.3
billion for the reporting period. The net cash* position stood at
R13.6 billion at 30 June 2023. Adjusted operating free cash flow*
for the period benefited from the fact that sustaining capital
spend is traditionally weighted towards the second half of the
year, as well as from the unwind of working capital.
Market fundamentals remain strong despite softer short-term
prices
The pricing environment in the first half of 2023 was
substantially weaker compared to the first half of 2022.
Seaborne coal prices fell sharply as European buying slowed
significantly on the back of record coal and gas stock levels
coming out of a milder winter. This resulted in the redirection of
coal volumes to Asian markets which also showed signs of weaker
demand, especially from Japan and China.
Efforts to curb inflation through monetary tightening policies
globally have also resulted in a growth slow down with reduced
economic activity and demand for energy.
Market fundamentals however remain strong and there are reasons
to remain optimistic on thermal coal prices. LNG prices are now
starting to find support, which will make coal more competitive as
a fuel source towards the end of the year as the European winter
approaches. Coal production from Russia's western regions is also
slowly being curtailed at current pricing levels.
We believe the current price headwinds have marked a pause in
attractive prices, rather than heralded a sustained downturn. We
expect demand for coal to remain robust in developing countries,
especially in Asia which remains reliant on thermal coal, as
countries such as China and India continue to build coal-fired
power plants.
Underinvestment into coal supply has continued, with the
exception of China and India (both focusing on domestic supply) and
Indonesia, which produces lower quality coal. At the same time, we
have seen an increase in new coal-fired power generation coming
online, especially in China, all of which should be supportive of
coal prices in the medium to longer term.
Continued underperformance on the part of TFR has again hampered
our ability to operate optimally. TFR achieved an annualised run
rate of 48Mtpa for the industry in the first half of 2023, a
deterioration of 13% compared to the 55Mtpa run rate achieved in
the first half of 2022. TFR suffered two derailments in May 2023
which cost Thungela at least 340kt in rail capacity. After a
particularly poor first quarter, the rail performance stabilised in
the second quarter - following the derailments TFR performance
averaged 50Mtpa for the six-week period preceding its annual
maintenance shut in July. The stabilisation is the result of
intensive collaboration between TFR and the South African coal
industry, including Thungela.
A consistently performing and well managed bulk rail
infrastructure remains critical to the coal mining industry and the
South African economy. TFR has stated that it will achieve 60Mt in
the 2023/2024 contractual year. The recent formation of the
President's National Logistics Crisis Committee and significant
changes to the Transnet board are positive indications of the
intent to achieve improved performance. TFR's ability to improve
rail performance hinges on several important factors, critical of
which is the resolution of an impasse which currently prevents TFR
from procuring much needed spares and locomotives.
Resilience and readiness
While softer coal prices and poor rail performance have weighed
heavily on Thungela's performance in the first half of 2023, we
expect these factors to improve over time. The Group must therefore
ensure that it is both resilient to weaker short-term market
conditions and ready to take advantage of improved conditions as
they arise. This implies a continuum of decisive actions and
strategies.
Creating a resilient business requires focusing on two facets in
order to optimise the business for current and future
volatility.
The first is our decision to structurally resize the portfolio
in response to rail constraints. Previously, we had curtailed
high-cost operations such as Khwezela. We have subsequently ramped
up Khwezela and reduced underground sections that are starting to
face increasingly complex geological conditions.
The second is to improve our competitiveness by increasing
productivity and ensuring the optimal cost base for our business.
In the event that prices remain depressed for a protracted period
and rail performance does not improve, we may be required to
consider further revisions to our portfolio.
Thungela's ability to take these actions, to protect cash flow
through resizing the portfolio and to improve our competitiveness,
is underpinned by the Group's strong balance sheet and liquidity
position. This allows us to weather the challenging market
conditions and focus on operational excellence, while continuing to
fund our capital projects.
Readiness for improved market and infrastructure conditions is
premised on structuring the Group for success regardless of market
cycles. While the softer prices and continued uncertainty relating
to TFR performance present near-term challenges, this does not
change the Group's longer-term strategic priorities: to drive our
ESG aspirations, maximise the full potential of our existing
assets, create future diversification options and optimise capital
allocation.
Maximising value from existing assets
Investing through the cycle in projects which realise the full
potential of our existing assets has been a key tenet of Thungela's
strategy since listing. We are pleased to report that we continue
to make good progress on the Elders production replacement project,
approved by the board last year, and we expect first coal from the
underground operation by the first half of 2024, in line with our
original target.
In June 2023, the board also approved the Zibulo North Shaft
project at a total capital cost of R2.4 billion. The project will
extend the life of our flagship Zibulo operation by at least 10
years from 2025.
Both projects secure the future of the business by improving the
quality and overall cost competitiveness of the portfolio.
Acquisition of Ensham Coal Mine in Australia
The proposed acquisition of the Ensham Business in Australia
announced in February marks the first milestone of our geographic
diversification strategy which aims to further enhance the
resilience of our portfolio.
Ensham is a large, high quality asset with long life potential
and provides Thungela with entry into the southern Bowen Basin in
Queensland, a leading mining jurisdiction, with mature and well
established infrastructure.
The transaction was structured to enable the Group to benefit
from the economics of the Ensham Business (subject to a limit)
between 1 January 2023 and the completion date.
Ensham will be acquired at a cost of approximately R4.1 billion
and this investment is set to be earnings and cash flow accretive,
with strong potential for a short payback period. The acquisition
also brings increased scale and marketing capability, providing
access to Japan and other Asian markets.
Thungela will assume operational control of the Ensham Business
following completion of the transaction, which is expected on 31
August 2023 given that all key regulatory conditions precedent have
now been met, with only a few commercial conditions (such as the
transfer of material supplier contracts) yet to be concluded. A
comprehensive roadmap has been prepared to ensure alignment in
terms of priorities, governance and other aspects of
integration.
Commitment to capital allocation framework
The board reaffirms its commitment to Thungela's dividend policy
to target a minimum payout of 30% of adjusted operating free cash
flow *. The board has accordingly declared an interim dividend of
R10 per share. Thungela shareholders will receive R1.4 billion in
total, which represents 33% of adjusted operating free cash flow*
for the period ended 30 June 2023. The Sisonke Employee Empowerment
Scheme and the Nkulo Community Partnership Trust will receive a
further R156 million in aggregate.
The board's commitment to maximising shareholder value
underscores the importance of the completion of the Elders and
Zibulo North Shaft projects. Approximately R3.8 billion is yet to
be spent on these projects, which will not only enhance our
portfolio's quality and competitiveness but also extend the life of
our business.
The board also continues to monitor the appropriate timing for
the execution of a potential share buyback. The prevailing market
conditions, and resultant need for balance sheet flexibility, call
for a cautious approach to capital allocation until clarity emerges
on the trajectory of a possible recovery in market conditions and
rail performance.
Looking ahead
It is prudent to narrow our full year export saleable production
guidance range for 2023 to between 11.5Mt and 12.5Mt. Achieving the
lower end of this range requires an annualised TFR industry run
rate of 47Mtpa in the second half of the year - the ongoing
collaboration between TFR and industry should ensure that this run
rate is achieved.
The long-term coal market remains structurally attractive and
Thungela is building its own export marketing capabilities as the
offtake agreement with Anglo American comes to an end in
mid-2024.
We will continue to closely monitor the trajectory of thermal
coal prices and rail performance, and the impact this will have on
the future size and shape of an appropriate portfolio in terms of
cost, productivity and sustaining capital.
Thungela's objectives remain clear: we must continue to focus on
the factors we can control in order to safeguard performance,
invest in our strategic projects and maintain disciplined capital
allocation. This will ensure that we are able to continue to
responsibly create value for our stakeholders.
While much of the focus will be on productivity and cost
improvements, it is important to emphasise that focusing on what we
are able to control goes hand in hand with operating responsibly,
ensuring the safety and health of our employees, meeting our
responsibilities to the environment and delivering on our social
obligations. It also requires us to step up our efforts together
with industry, government and Transnet to find sustainable
solutions to the logistics challenges facing South Africa.
Finally, we are confident that our strategy, disciplined capital
allocation approach and enhanced resilience will allow us to
navigate the challenging market conditions we are currently facing;
while improvements to the overall competitiveness of our portfolio
will continue to create superior returns for our shareholders in
the long-term.
July Ndlovu
21 August 2023
Operational Outlook
2023 2023
Revised Previous guidance
Export saleable production (Mt) 11.5 - 12.5 10.5 - 12.5
---------------------------------------- -------------
FOB cost per export tonne* (Rand/tonne) 1,170 - 1,250 1,131 - 1,264
---------------------------------------- -------------
FOB cost per export tonne excluding
royalties* (Rand/tonne) 1,120 - 1,200 1,047 - 1,180
---------------------------------------- -------------
Capital - sustaining (Rand billion) 1.3 - 1.5 1.3 - 1.5
---------------------------------------- -------------
Capital - expansionary (Rand billion) 1.6 - 1.8 1.6 - 1.8
---------------------------------------- -------------
Looking ahead, the Group is updating its operational outlook for
the 2023 year, based on operations for the first six months of the
year. The range for export saleable production is accordingly
narrowed to between 11.5Mt and 12.5Mt. Achieving the lower end of
this range requires an annualised TFR industry run rate of 47Mtpa
in the second half of the year.
Our guidance for FOB cost per export tonne * for 2023 has been
revised to between R1,120 and R1,200 excluding royalties. Including
royalties, the guidance range is revised to between R1,170 and
R1,250 per tonne using a forecast Benchmark coal price of USD100
per tonne. This increase is primarily due to a lower domestic
by-product revenue offset from Isibonelo and Mafube.
Capital expenditure guidance remains unchanged. Our sustaining
capital expenditure guidance for 2023 remains between R1.3 billion
and R1.5 billion. Expansionary capex is expected to be between R1.6
billion and R1.8 billion, relating primarily to R1.2 billion for
the Elders project and R0.5 billion for the Zibulo North Shaft
project.
The 2023 cost guidance provided reflects the impact of the
reduction in underground sections already undertaken this year. We
have embarked on a programme to improve productivity across our
operations as well as to reduce costs where we have removed
production. The outcome of this work will be reflected in our 2024
guidance which we expect to provide when we report our full year
results in March 2024.
The guidance for 2023 excludes the Ensham Business and we will
accordingly only provide guidance after completion of the
transaction.
Interim dividend
The board has declared an interim ordinary cash dividend of
R10.00 per share payable on 26 September 2023 and 9 October 2023 to
shareholders on the JSE and LSE respectively. Further details
regarding the dividend payable to shareholders of Thungela may be
found in a separate announcement on SENS and RNS dated 21 August
2023.
Footnote
(1) TRCFR for H1 2022 was previously reported in the Interim
Financial Statements for the six months ended 30 June 2022 as 1.48.
This figure was subsequently updated at year end to reflect the
reclassification of an injury from a first-aid case to a medical
treatment case.
FORWARD -LOOKING STATEMENTS
This document includes forward-looking statements. All
statements included in this document (other than statements of
historical facts) are, or may be deemed to be, forward-looking
statements, 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 resource
and reserve positions). 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. Thungela
therefore cautions that forward-looking statements are not
guarantees of future performance.
Any forward-looking statement made in this document or elsewhere
is applicable only at the date on which such forward-looking
statement is made. New factors that could cause Thungela's business
not to develop as expected may emerge from time to time and it is
not possible to predict all of them. Further, the extent to which
any factor or combination of factors may cause actual results to
differ materially from those contained in any forward-looking
statement are not known. Thungela has no duty to, and does not
intend to, update or revise the forward-looking statements
contained in this document after the date of this document, except
as may be required by law. Any forward-looking statements included
in this document have not been reviewed or reported on by the
Group's independent external auditor.
Investors are cautioned not to rely on these forward-looking
statements and are encouraged to read the Interim Financial
Statements for the six months ended 30 June 2023, which are
available from the Thungela website via the following web link:
https://www.thungela.com/investors/results
ALTERNATIVE PERFORMANCE MEASURES
Throughout this results announcement a range of financial and
non-financial measures are used to assess our performance,
including a number of financial measures that are not defined or
specified under International Financial Reporting Standards (IFRS),
which are termed 'Alternative Performance Measures' (APMs).
Management uses these measures to monitor the Group's financial
performance alongside IFRS measures to improve the comparability of
information between reporting periods. These APMs should be
considered in addition to, and not as a substitute for, or as
superior to, measures of financial performance, financial position
or cash flows reported in accordance with IFRS. APMs are not
uniformly defined by all companies, including those in the Group's
industry. Accordingly, they may not be comparable with similarly
titled measures and disclosures by other companies. In this results
announcement, APMs are
denoted with an asterisk (*).
ABOUT THIS RESULTS ANNOUNCEMENT
This results announcement is the responsibility of the board of
directors of Thungela.
Shareholders are advised that this results announcement is only
a select extract of the information contained in the Interim
Financial Statements and does not contain full or complete details.
Any investment decisions by investors and/or shareholders should be
based on a consideration of the Interim Financial Statements as a
whole and investors and/or shareholders are encouraged to review
the Interim Financial Statements which are available on the
Thungela website via the following web link:
https://www.thungela.com/investors/results and has been published
on SENS, the Johannesburg Stock Exchange News Service, at
https://senspdf.jse.co.za/documents/2023/JSE/ISSE/TGAE/Int2023.pdf
A conference call and audio webinar relating to the details of
this announcement will be held at 12:00 SAST (11:00 BST) on Monday
21 August 2023. A recording of the webinar will be made available
on the Thungela website from 15:00 SAST (14:00 BST) on the same
date.
Conference Call registration:
https://services.choruscall.za.com/DiamondPassRegistration/register?confirmationNumber=4803796&linkSecurityString=c5e389d68
Webinar registration:
https://78449.themediaframe.com/links/thungela230821_1200.html
The condensed consolidated interim financial statements for the
six months ended 30 June 2023 were reviewed by
PricewaterhouseCoopers Incorporated who have issued an unmodified
review report. This results announcement and the operational
outlook have not been audited or reviewed by the Group's
independent external auditor.
Copies of the Interim Financial Statements for the six months
ended 30 June 2023 may be requested by contacting Thungela Investor
Relations by email at ryan.africa@thungela.com and are also
available for inspection at the Company's registered office and at
the offices of the Company's sponsor, to investors and/or
shareholders at no charge, on any business day between the hours of
08:00 - 17:00. The Company's registered office is located at: 25
Bath Avenue, Rosebank, Johannesburg, 2196, South Africa. The
Company's sponsor's office is located at: 1 Merchant Place, Cnr
Rivonia Road and Fredman Drive, Sandton, 2196, South Africa.
The information contained within 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.
On behalf of the board of directors
Sango Ntsaluba, Chairperson
July Ndlovu, Chief executive officer
Johannesburg (South Africa)
Date of SENS release: 21 August 2023
Investor Relations
Ryan Africa
Email: ryan.africa@thungela.com
Media Contacts
Tarryn Genis
Email: tarryn.genis@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)
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END
IR FLFSDTVIIFIV
(END) Dow Jones Newswires
August 21, 2023 02:00 ET (06:00 GMT)
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