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Interim results for the six months ended 30 June 2024, ordinary cash dividend declaration and share repurchase
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')
Interim results for the six months ended 30 June 2024, ordinary cash dividend
declaration and share repurchase
THUNGELA REPORTS INTERIM RESULTS IN LINE WITH 2024 GUIDANCE AND
UPGRADES ENSHAM PRODUCTION OUTLOOK
GROUP PERFORMANCE MEASURES
- Lowest total recordable case frequency rate (TRCFR) of 0.99 in South Africa
and continue to make significant progress on safety in Australia
- Group export saleable production at 7.8Mt, with South Africa at 6.2Mt and
1.6Mt (on an 85% basis) for Ensham - exceeding initial estimates and leading
to guidance upgrade for Ensham
- Group capital expenditure of R1.5 billion, reflecting the disciplined execution
of the life extension projects in South Africa
- Profit of R1.2 billion, including R419 million from Australia, demonstrating the
benefits from the Group's geographic diversification
- Total shareholder returns of R441 million, consisting of an ordinary interim
cash dividend of R281 million (R2.00 per share) and a share buyback of up to
R160 million - in aggregate 47% of adjusted operating free cash flow*
KEY FINANCIAL INFORMATION(1)
Financial overview (R'million) 30 June 2024 30 June 2023 % change
Revenue 16,752 14,359 17
Profit for the reporting period 1,186 3,005 (61)
Earnings per share (cents/share) 952 2,245 (58)
Headline earnings per share
(cents/share) 952 2,246 (58)
Dividend per share (cents/share) 200 1,000 (80)
Alternative performance measures*
Adjusted EBITDA 2,146 4,380 (51)
Adjusted EBITDA margin (%) 13 31 (18pp)
Adjusted operating free cash flow 936 4,298 (78)
Net cash 6,683 13,579 (51)
Capital expenditure 1,541 893 73
pp – percentage points change year on year
MESSAGE FROM JULY NDLOVU, CHIEF EXECUTIVE OFFICER
Thungela's results for the first six months of the year demonstrate our track-record of
disciplined execution of our strategic priorities as we build a long-life, competitive
business. We remain unwavering in our commitment to operate a fatality-free
business and are proud to report that we have been operating for 18 months without
a loss of life. Our operational performance is in line with 2024 guidance in South
Africa and ahead of full year guidance in Australia. As a result, we are upgrading the
production guidance at Ensham. Capital expenditure for our two life extension
projects remains on track and on budget. We remain steadfast in our focus on
controlling the controllables.
Thungela Marketing International, which was established in the United Arab
Emirates, is now fully operational and is responsible for the marketing of our South
African and Australian coal. This provides us with an opportunity to leverage our
equity coal, by maximising value from the extraction of the resource in the ground to
delivering the product to end-users and customers.
Safety has always been our first value and we have reinforced its primacy by
establishing safety as a dedicated pillar in our strategic priorities framework. Our
increased focus on accountability, safety culture and independent reviews on critical
controls effectiveness, is delivering meaningful safety improvements. The Group
TRCFR for the period under review was 1.75 compared to 2.53 in the comparative
period, including Ensham. In South Africa, we recorded our lowest TRCFR at 0.99,
down from 1.21(2) in the comparative period. In Australia, the TRCFR significantly
improved to 11.64, from 22.01 for the six months ended June 2023, reflecting
proactive efforts to align Ensham's safety systems with Thungela's work practices,
where appropriate.
The softer price environment across the Richards Bay and Newcastle Benchmark
coal prices, together with the continued underperformance by Transnet Freight Rail
(TFR), has negatively impacted our financial results in comparison to the same
period last year. The Group generated adjusted EBITDA* of R2.1 billion and net
profit of R1.2 billion, with Ensham (which has been reflected in our financial results
since the acquisition date of 31 August 2023) contributing R419 million to net profit
for the period under review, showcasing the benefits of our geographic diversification
strategy.
In South Africa, we achieved export saleable production of 6.2Mt, at a free on board
(FOB) cost* of R1,189 per export tonne excluding royalties for the first half of 2024,
in line with our guidance. Capital expenditure of R1.3 billion in the first half of the
year is progressing in line with guidance, with R457 million spent in sustaining
capital* and R799 million in expansionary capital. Our two life extension projects at
Elders and the Zibulo North Shaft are key to improving our long-term
competitiveness as some of our older mines naturally come to the end of their lives.
These projects will extend our life of mine for the South African operations, from the
initial eight years at listing in 2021, to approximately 15 years.
In Australia, Ensham recorded strong production results for the period under review,
with export saleable production of 1.6Mt (on an 85% basis), or 1.9Mt (on a 100%
basis), as the mine focuses on improving productivity and leverages from the
Group's operational expertise. FOB cost per export tonne excluding royalties* was
accordingly below guidance at R1,360. We spent R285 million on sustaining capital*
(on an 85% basis), in line with guidance for the full year.
We have initiated a resource development plan review at Ensham, which, once
completed, will enable us to understand the full potential of the asset, by identifying
brownfield opportunities and the related capital requirements.
Navigating thermal coal markets and rail performance
Global demand for coal reached a record high of 8.7 billion tonnes in 2023(3) and is
expected to remain stable in the coming years. Despite the decline in coal use in the
United States and Europe, coal remains a crucial energy source for electricity, steel
and cement production worldwide. The increasing demand from Asian economies
outweighs the efforts to phase out coal globally, and energy transition is delayed as
energy security becomes a priority amidst geopolitical tensions and potential supply
disruptions. Following a period of supply growth at the onset of the Russia-Ukraine
conflict, global supply is likely to tighten as both country and company ESG pledges
are introduced. Supply will further be impacted by limited access to capital and
insurance, which will discourage new production coming online. This provides an
opportunity for Thungela, as we have access to existing high-quality coal resources
and reserves.
The milder winter conditions in the northern hemisphere led to reduced demand and
higher gas and coal stock levels, which contributed to softer benchmark coal prices
experienced in the first half of the year. Thermal coal markets remain responsive to
price movements in the energy markets, more specifically movements in the gas
market. The impact of geopolitical tensions in the Middle East and the ongoing
Russia-Ukraine conflict continue to heighten risks around gas supply, which has
provided recent support for the Richards Bay Benchmark coal price, averaging
USD101.05 per tonne for the period under review. The lack of availability of high-
quality coal, and the expected restocking in Southeast Asia following the monsoon
season, could support the Richards Bay Benchmark coal price, which remains range
bound, while any further geopolitical escalation may result in the strengthening of
coal prices.
In Australia, the Newcastle Benchmark coal price has softened to an average of
USD130.66 per tonne for the period under review but improved in the second
quarter of 2024 to approximately USD135.00 per tonne, supported by the onset of
the Japanese Reference Price negotiations. These negotiations will lay the
foundation for term contracts with Japanese and other Asian utilities. Seaborne
demand in the main Asian coal markets, such as Japan, South Korea, China and
India, for now remains sluggish, mainly due to increased in-country production in
China and India.
The TFR rail performance in the first half of the year was disappointing at 47.3Mt on
an annualised basis for the industry, in comparison to the 47.9Mt railed in 2023. The
ongoing support from industry has enabled progress on some of the interventions
already in place, such as the purchasing of critical locomotive spares and the
provision of security on the rail line. The industry will recover these costs through the
mutual co-operation agreement with TFR, which was put in place earlier in the year.
While we believe that the correct building blocks are being implemented by TFR, we
only expect to see improved rail performance from 2025.
Thungela's logistical infrastructure enables the movement of our coal to the Richards
Bay Coal Terminal to be maximised, using existing contracted rail capacity, as well
as the continued use of third-party sidings. This supports incremental coal movement
as a result of the wider train allocation distribution. In addition, we monitor the
domestic market for revenue generating opportunities, and have placed limited
volumes in the first half of the year.
Capital allocation
In the first half of the year, we completed the repurchase of 3,307,667 ordinary
shares (2.35% of issued share capital) for a consideration of R441 million. This
demonstrates our commitment to shareholder returns and recognises the diverse
preferences of our shareholder base.
The Group invested R742 million in sustaining capital*, which, when deducted from
our cash flows generated from operating activities of R1.7 billion, resulted in an
adjusted operating free cash flow* of R936 million for the reporting period. In
addition, we continued to invest in securing the future of our business through our
life extension projects and spent R799 million on expansionary capital.
In Australia, we contributed R855 million into an investment vehicle, similar to the
green fund in South Africa, in order to secure the necessary financial surety for the
Ensham rehabilitation liabilities. We have also made the required annual contribution
of R188 million into the green fund in South Africa, thereby improving our
environmental liability coverage*.
At 30 June 2024 the net cash* position of the Group was R6.7 billion, after
accounting for cash reserved in Australia of R815 million pending the settlement of
the Japanese Reference Price, as well as cash held on behalf of the trusts in South
Africa.
The board remains committed to our dividend policy, which is to distribute a
minimum of 30% of adjusted operating free cash flow*, and has declared an interim
ordinary cash dividend of R2.00 per share. In addition, the board has approved a
share buyback of up to R160 million, subject to favourable market conditions. In
aggregate, this amounts to a total return of R441 million to shareholders,
representing 47% of adjusted operating free cash flow* for the first half of 2024.
The share buyback is expected to be completed during the second half of 2024 and
is pursuant to the authority obtained at the Group's most recent annual general
meeting in June 2024. The Sisonke Employee Empowerment Scheme and the Nkulo
Community Partnership Trust will also receive a further R31 million collectively.
Recognising the importance of our life extension projects in South Africa, we
continue to reserve R1.7 billion to fund the completion of these projects. As a result
of the dividend declaration and share buyback, the cash buffer will reduce to
approximately R4.4 billion, which is within the range of R3 billion to R5 billion. The
Group holds undrawn credit facilities of R3.2 billion, enabling us to maintain sufficient
liquidity and balance sheet flexibility, given current market conditions.
Looking ahead
Controlling the controllables while operating in a challenging environment remains
our focus, as we position the business to take advantage of the long-term
fundamentals supporting coal demand globally.
Following the strong performance at Ensham in the first half of the year, we are
upgrading the production guidance for the full year 2024. We continue to drive
productivity improvements and improve the cost competitiveness of the mine. We
remain optimistic in discovering value accretive opportunities at Ensham once the
resource development plan has been completed.
We remain committed to deliver on our purpose - to responsibly create value
together for a shared future - and we are confident that our disciplined capital
allocation approach will ensure that Thungela delivers value for our people,
communities and shareholders over the long term.
Operational guidance
Ensham - Ensham -
South Africa previous revised
Export saleable production (Mt) (Ensham on a 100% basis) 11.5 – 12.5 3.2 – 3.5 3.5 – 3.8
FOB cost per export tonne* (Rand/tonne) 1,180 – 1,300 1,830 – 1,950 1,830 – 1,950
FOB cost per export tonne excluding royalties*
(Rand/tonne) 1,170 – 1,290 1,590 – 1,710 1,590 – 1,710
Capital – sustaining* (Rand million) 900 – 1,100 600 – 900 600 - 900
Capital – expansionary (Rand million) 1,600 – 1,900 nil nil
Figures in the table above are based on an exchange rate of R12.20:AUD1. Royalties are calculated using an assumed Richards Bay Benchmark
coal price of USD100.00 per tonne and an assumed Newcastle Benchmark coal price of USD120.00 per tonne.
South Africa
Following the strong production momentum in South Africa, we expect full year
export saleable production to be at the upper end of the guidance range. We are
optimistic that the TFR reform initiatives, strengthened by industry support, will result
in improved rail performance from 2025.
With strong production performance, we expect FOB cost per export tonne* to be
closer to the lower end of the guidance range, notwithstanding the timing of cost
increases in the second half of the year.
Our spend on sustaining capital* remains on track and is expected to remain within
the guidance range. On expansionary capital, the planned spend for the second half
of the year will result in total spend reaching the upper end of the guidance range for
the full year.
Ensham
Production in the first half of the year of 1.9Mt (on a 100% basis) represents a full
year outlook above the guidance range previously provided. While the mine
experienced good mining conditions in the first half of the year, we expect to traverse
two geological faults in the second half of the year. We are currently planning the
optimal deployment of production sections with the inclusion of a fault crew to
maintain the current production momentum. With that mitigation to traversing
challenging geology in the second half of the year, we have upgraded the production
guidance for 2024 to between 3.5Mt and 3.8Mt (on a 100% basis).
While we have guided higher production at Ensham for the year, we anticipate non-
cash costs relating to the environmental provisions, which will be more clearly
defined in the second half of the year, to potentially offset the benefits to be realised
from the increased production. We have thus kept our FOB cost per export tonne*
guidance consistent with what we have previously communicated.
Sustaining capital* spend at Ensham is more heavily weighted toward the second
half of the year, with key purchases planned in the last quarter. Guidance is therefore
maintained at between R600 million and R900 million.
DIVIDEND DECLARATION
The board has declared an interim ordinary cash dividend of R2.00 per share,
payable to shareholders on the Johannesburg Stock Exchange and London Stock
Exchange in September 2024 and October 2024, respectively. Further detail
regarding the dividend payable to shareholders of Thungela as well as the share
repurchase can be found in a separate announcement dated 19 August 2024 on the
Johannesburg Stock Exchange News Services (SENS) and London Regulatory
News Services.
FOOTNOTES
(1) Group financial results for the six months ended 30 June 2023 do not include the
financial results of the Ensham Business as the effective date of the Ensham
acquisition was 31 August 2023.
(2) TRCFR was previously reported in the Interim Financial Statements for the six
months ended 30 June 2023 as 1.33. This figure was updated in the 31 December
2023 annual results subsequent to the assurance process.
(3) Source: International Energy Agency July 2024 report.
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 2024, 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 Accounting Standards), which are termed 'alternative performance
measures' (APMs). Management uses these measures, alongside IFRS Accounting
Standards measures, to monitor the Group's financial performance and 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 Accounting Standards. APMs are not uniformly defined by all companies,
including those in the Group's industry. Accordingly, these measures may not be
comparable with similarly titled measures and disclosures by other companies. In
this Results Announcement, APMs are denoted with an asterisk (*).
RESULTS ANNOUNCEMENT
This Results Announcement, including the forward-looking statements, is the
responsibility of the 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 is available on the Thungela website via the following web link:
https://www.thungela.com/investors/results, and has been published on SENS, at
https://senspdf.jse.co.za/documents/2024/JSE/ISSE/TGAE/TGAInt2024.pdf
A conference call and audio webinar relating to the details of this announcement will
be held at 12:00 SAST (10:00 GMT) on Monday, 19 August 2024. Details to register
for the webcast and conference call are available below:
Webcast: https://78449.themediaframe.com/links/thungela240819_1200.html
Conference call:
https://services.choruscall.za.com/DiamondPassRegistration/register?confirmationN
umber=3091494&linkSecurityString=c07d868fc
The condensed consolidated interim financial statements for the six months ended
30 June 2024 were reviewed by PricewaterhouseCoopers Inc. who have issued an
unqualified review report. The full independent auditor's report and Interim Financial
Statements are available for viewing on the Thungela website via the following web
link: https://www.thungela.com/investors/results.
This Results Announcement has not been audited or reviewed by the Group's
independent external auditor. Any reference to future financial performance included
in this announcement has not been separately reported on by the Group's
independent external auditor.
The Company's registered office is located at: 25 Bath Avenue, Rosebank,
Johannesburg, 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.
For and on behalf of the board of directors
Sango Ntsaluba, Chairperson
July Ndlovu, Chief executive officer
Johannesburg, South Africa
19 August 2024
Investor relations
Hugo Nunes
Email: hugo.nunes@thungela.com
Shreshini Singh
Email: shreshini.singh@thungela.com
Media
Hulisani Rasivhaga
Email: hulisani.rasivhaga@thungela.com
UK Financial adviser and corporate broker
Panmure Liberum Capital Limited
Tel: +44 20 3100 2000
Sponsor
Rand Merchant Bank
(A division of FirstRand Bank Limited)
Tel: +27 11 282 8000
Date: 19-08-2024 08:00:00
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