Thungela Resources CEO Deon Smith yesterday said Transnet’s rail inefficiencies continued to be a major drawback for the coal miner, which is expecting a decline of between 55% and 69% in interim headline earnings per share (HEPS) for the period to the end of June.
Shares in Thungela fell by nearly 6.4% in afternoon trade on the JSE to R112.11 per share yesterday. The company’s stock is now down by about 9.2% in the past 30 days.
Smith said that “the key constraint on our business remains rail performance” by Transnet Freight Rail.
Transnet was expected to rail 46 million tons “on an annualised industry basis” based its performance for first half of the year.
“Rail performance was negatively impacted for the year to date by two derailments which resulted in the group losing approximately 650 000 tons of export equity sales,” explained Smith.
On current Transnet freight rail run-rates, Thungela is expecting its on-mine inventories to ratchet up by as much as 1.1 million tons for the current trading year.
This comes as the South African coal industry, including Thungela, has continued to support Transnet in the procurement of critical locomotive spares.
The state-owned logistics group had, however, made progress in installing compressors and batteries at affected operations.
“We expect to see improvements related to the installation of these spares and other initiatives from 2025,” said Smith.
In the meantime, Thungela is expecting HEPS for its 2024 first-half trading period to be between R7 and R10, lower by between R12.46 and R15.46 compared to the same period last year, or weaker by between 55% and 69%.
Despite taking a shave on its HEPS for the period, Thungela’s capital expenditure for its SA operations for the period under review is expected to amount to R1.3 billion.
This consists of about R500 million in sustaining capital and approximately R800m related to expansionary capital for the Elders and Zibulo North Shaft projects.
Smith underscored that the “underlying operating environment remains uncertain as macroeconomic and geopolitical headwinds persist,” in addition to the continued rail performance challenges in SA.
European and Asian winter energy demand did not meet expectations, resulting in elevated coal and gas stocks at key import hubs.
As a consequence of the reduced demand, the company witnessed softer benchmark coal prices for most of the first half of the year.
Thungela’s export saleable production for the first half of 2024 from its SA operations is expected to top 6.2 million tons. This is within the company’s annualised guidance range of 11.5 million tons to 12.5 million tons.
Saleable production from the company’s Ensham mine in Australia for the same period is expected to amount to 1.9 million tons, attributable to implementation of an additional mining section in January this year as well as the company’s continued focus on improving productivity.
The full on-board cost per export ton excluding royalties for the SA operations for the first half of 2024 is expected to be at the lower end of Thungela’s guidance range of R1 170 to R1 290 per ton.
This was in line with the group’s production forecasts for the period being at the upper end of the guidance range.
Including royalties, the free-on-board (FOB) cost per export ton is also expected to be at the lower end of the guidance range of R1 180 to R1 300 per ton.
Thungela said benchmark coal prices have weakened, with the Richards Bay Benchmark coal price 18% lower compared to the 2023 full year, averaging $99.71 per ton for the year to date compared to $121.00 per ton for the previous year.
“Thermal coal markets remain responsive to price movements within both the oil and gas markets, with a stronger correlation with the gas market,” Thungela said.
“The ongoing war in Ukraine, coupled with recent tensions in the Middle East, has led to increased concerns around gas supply.”
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