Thungela delivered resilient results
in 2023. We achieved adjusted EBITDA* of R8.5 billion and net
profit of R5.0 billion, despite a significant decline in benchmark
coal prices and continued poor performance from Transnet Freight
Rail (TFR). Earnings were also impacted by the late arrival of
seven vessels in December, which resulted in the slippage of
approximately 550kt of sales planned for December 2023 into January
2024.
2023 proved transformative for
Thungela, with the acquisition of the Ensham Mine in Australia,
approval of an extension to the life of our flagship Zibulo mine,
and continued execution of the Elders project setting us on a path
towards diversification, a more competitive portfolio and a longer
life business.
Safety is our first value. As
reported previously, our colleague Breeze Mahlangu tragically
passed away in February 2023. While our overall safety performance
(measured in total recordable case frequency rate) in South Africa
is consistent with last year, we cannot waiver in our commitment to
operating a business free from fatalities and injuries. We
continued to spike on the social component of ESG, with
contributions of R312 million to the Nkulo Community Partnership
Trust and the Sisonke Employee Empowerment Scheme. In January 2024
we launched a R160 million, five-year education initiative in
Mpumalanga seeking to improve access to quality education for grade
R to grade four learners in 45 no-fee schools.
Shareholder returns reflect resilient performance in
challenging conditions
Thungela successfully navigated
several exogenous challenges, including the weaker benchmark coal
prices and continued poor rail performance by TFR, as the business
delivered operational results in line with our targets.
In South Africa, we achieved export
saleable production of 12.2Mt, at a free on board (FOB) cost
excluding royalties* of R1,084 per export tonne, while we spent
R3.0 billion in
capital expenditure. This performance is aligned to our guidance to
the market at the release of our 2023 interim
results.
In Australia, export saleable
production of 2.9Mt (on a 100%, full-year basis) exceeded our
initial expectations of 2.7Mt. FOB cost excluding royalties* at
Ensham for the period from completion of the acquisition through to
the end of year was R1,544 per tonne. We spent R299 million in
capital over the same period (on an 85% basis).
Our agility in responding to the
various challenges helped us maintain strong cash generation which
resulted in adjusted operating free cash flow* of R6.8 billion in
2023, and a net cash* position of R10.2 billion at year end,
slightly ahead of our estimate in the December 2023 Pre-close
Statement as a result of better cash conversion, providing room for
improved returns to shareholders.
The successful execution of our two
life extension projects is crucial to the Group's future
competitiveness, and their funding requirements continue to
determine the appropriate level of balance sheet flexibility.
Accordingly, the board considers it appropriate to reserve the R2.6
billion yet to be spent on these projects, as well as the cash
buffer of R5 billion at year end. Thungela remains able to access
R3.2 billion in undrawn credit facilities, and plans to maintain
this flexibility for as long as challenges to obtaining funding
from international capital markets persist. The board has also set
aside R500 million as cash collateral for the financial surety
required for the Ensham rehabilitation liability, while we pursue
acceptance into the Queensland Financial Provisioning
Scheme.
Shareholder returns are a central
focus of our capital allocation framework. We not only invest in
initiatives which deliver attractive returns in the long-term, but
also prioritise returning value to shareholders through dividends
and share buybacks, the combination of which provides flexibility
for the diverse preferences of our shareholders, while maintaining
a strong financial position.
Since listing, we have consistently
delivered on our commitment to distribute a minimum of 30% of
adjusted operating free cash flow*
to shareholders. This year is no different, and
the board has, in line with the Group's capital allocation
framework, declared a final ordinary cash dividend of R10.00 per
share. Combined with the interim dividend of R10.00 per share, this
amounts to a total dividend of R2.8 billion, representing 41% of
adjusted operating free cash flow* for the year.
In addition, the board has approved
a share buyback of up to R500 million (subject to market
conditions), which will be executed up to the date of the Group's
next AGM. Taking this into account, Thungela is returning 49% of
adjusted operating free cash flow*
for the full year to shareholders. The dividend
and share buyback reflect our confidence in the Group's strong
financial position and future prospects.
The
long-term fundamentals for coal demand remain
robust
Thermal coal prices declined much
faster than market observers expected at the start of 2023. This
was driven by a mild winter in the northern hemisphere, coupled
with high coal and gas reserves - a result of the scramble to
secure energy stocks in 2022, following the start of the
Russia-Ukraine conflict.
While global efforts to reduce
emissions from fossil fuels are underway, the demand for energy,
including thermal coal, remains strong. This is reflected in record
levels of global electricity generation from coal, as well as
thermal coal exports. As Europe and North America pledge to phase
down unabated coal, the use of coal for power generation will
become concentrated in Asia, home to several of our key markets.
Rapidly growing economies such as China, India, Vietnam, the
Philippines and Indonesia remain reliant on coal as an affordable
and reliable source of power. In its 'Coal 2023 Report' the International
Energy Agency acknowledged that coal remained the largest energy
source for electricity generation, steel-making and cement
production - affirming that coal will continue to play a central
role in the global economy.
Demand remains strong and
responsive, but supply is presenting a growing challenge, with
limited access to funding and insurance, increasingly stringent
regulatory requirements, and widespread social and political
opposition to the development of new coal mines. This provides
companies like Thungela, with established high-quality coal
operations and access to existing reserves, with a significant
structural advantage.
Managing the impact of continued poor rail
performance
Inconsistent and constrained TFR
performance has once again significantly compromised the South
African coal mining industry. In 2023,
TFR railed 47.9Mt of thermal coal to the Richards
Bay Coal Terminal (RBCT), compared to 50.3Mt in 2022, a decline of
4.8%.
We continue to work closely with
other industry players and Transnet to remedy rail performance.
Through RBCT, the industry has strengthened security measures by
deploying additional security on the coal line for the past 18
months. While the impasse between TFR and Chinese locomotive
supplier CRRC continues, RBCT (on behalf of the industry) is also
helping Transnet to acquire the critical spare parts necessary for
the maintenance of locomotives from alternative
suppliers.
The cost of the spares and security
deployment is recovered by the coal exporting parties through the
mutual cooperation agreement signed between TFR and RBCT
(representing the coal exporting parties). Further collaborative
efforts will address critical systems, such as signalling, to
improve overall performance.
We have responded to TFR's
persistent poor performance by curtailing production at our
underground mines, renting sidings to improve our rail distribution
pattern and driving efficiencies at our rapid loading terminals.
Acting swiftly and decisively in the face of rail challenges has
allowed us to benefit from additional trains when they are
available, and rail 12.3Mt of export saleable volumes in 2023.
Given the uncertain nature of TFR's performance, we have agreed to
extend the existing long-term rail agreement by one year, to 31
March 2025, to allow TFR to demonstrate sufficient stability before
the contract is renegotiated.
Building a sustainable and long-life business across multiple
geographies
2023 was a year of significant
accomplishments for Thungela as we executed our strategic
priorities - successfully unlocking new markets and mitigating risk
through our geographic diversification strategy, increasing the
life of our business and building an organisation optimised for
further diversification. These actions demonstrate our singular
focus on creating long-term value for our stakeholders.
The acquisition of a controlling
interest in the Ensham Business in Australia marked a significant
milestone on our diversification journey, as it expands Thungela's
presence beyond South Africa. This mitigates our reliance on a
single operating geography and opens up new markets, notably in
Japan and Malaysia, diversifying our customer base and providing
exposure to the Newcastle Benchmark coal price.
Ensham will benefit from our
operational expertise as it extracts coal using mechanised
underground bord and pillar mining methods, similar to those used
in our South African operations. Since we assumed operational
control on 1 September 2023, our focus has been on improving
productivity. Operational performance has stabilised at an
annualised run-rate of 3.2Mtpa, up from 2.7Mtpa at the acquisition
date. We believe there is opportunity for further improvement to
approximately 3.6Mtpa through the introduction of an additional
production section in 2024. Resource development studies are
underway to define the full upside potential of the Ensham resource
by identifying brownfield opportunities and their related capital
requirements.
Thriving in a rapidly evolving
energy landscape will require the creation of a robust Thungela
with a long-life, cost competitive portfolio that is diversified
and future-proof. We are confident that the depletion of existing
reserves globally, coupled with a lack of new supply, will be price
supportive in the long term, supporting cash generation and
shareholder returns.
Accordingly, maximising value from
our existing assets will be critical to shaping our future
business. Through Ensham, and the Elders and Zibulo North Shaft
projects, we will transform Thungela into a long-life business with
a competitive portfolio measured by all-in sustaining
cost.
The Elders project, which will
replace export volumes when the Goedehoop Colliery reaches the end
of its life, has progressed rapidly and on budget - delivering
first coal on 1 March 2024, well ahead of initial estimates. The
Zibulo North Shaft life extension project, which will increase the
life of our flagship mine through to 2038, also continues to
progress well.
By 2026, Thungela will be a c.15Mtpa
export business (with an estimated 11Mtpa from South Africa and
4Mtpa from Australia). Our production footprint will change
significantly in the coming years as production from Elders and
Zibulo North is ramped-up and some of our existing mines naturally
come to the end of their lives (Goedehoop and Isibonelo in 2025,
and Greenside in 2026).
The complexity of managing an
international business requires several changes to the Group's
business model, particularly in how coal from our portfolio is
marketed internationally. To meet this need, we have established
Thungela Marketing International in the United Arab Emirates, one
of the leading coal trading centres globally.
In anticipation of the expiration of
the marketing agreement with Anglo American Marketing Limited in
June 2024, Thungela Marketing International has commenced with some
of the marketing functions. Thungela Marketing International will
cater to both the South African and Australian assets, reinforcing
our commitment to capturing the full margin on our products and
actively participating in the international commodities market as a
global coal producer.
Looking
ahead
Despite near-term headwinds, our
commitment to delivering on our strategic priorities remains
unwavering, ensuring readiness to take advantage of the long-term
fundamentals supporting coal demand, and ultimately stronger coal
prices, in our key markets. In the short term, a sustainable
solution to ensure efficient and reliable rail performance is
critical and we will continue working with TFR to remedy the state
of rail in South Africa.
We continue to evaluate our
portfolio with a focus on strengthening the Group's
competitiveness, optimising capital allocation and ultimately
maximising shareholder returns. We will continue to create
sustainable value for all our stakeholders and to deliver on our
purpose - to responsibly create value together for a shared
future.
OPERATIONAL OUTLOOK
|
South African operations
|
2024
|
|
Export saleable production
(Mt)
|
11.5 -
12.5
|
|
FOB cost per export tonne*
(Rand/tonne)
|
1,180 -
1,300
|
|
FOB cost per export tonne excluding
royalties* (Rand/tonne)
|
1,170 -
1,290
|
|
Capital - sustaining (Rand
million)
|
900 -
1,100
|
|
Capital - expansionary (Rand
million)
|
1,600 -
1,900
|
|
Ensham operation
|
2024
|
2024
|
|
Export saleable production (Mt) (on
a 100% basis)
|
3.2 -
3.5
|
3.2 -
3.5
|
|
FOB cost per export tonne*
(Rand/tonne) | (AU$/tonne)
|
1,830 -
1,950
|
150 -
160
|
|
FOB cost per export tonne excluding
royalties* (Rand/tonne) | (AU$/tonne)
|
1,590 -
1,710
|
130 -
140
|
|
Capital - sustaining* (on an 85%
basis) (Rand million) | (AU$ million)
|
600 -
900
|
40 -
70
|
|
Capital - expansionary (Rand
million) | (AU$ million)
|
nil
|
nil
|
Figures in the table above are based
on an exchange rate of ZAR12.20:AUD1. Royalties are calculated
using an assumed Richards Bay Benchmark coal price of USD100 per
tonne and a Newcastle Benchmark coal price of USD120 per
tonne.
As the timing of a sustained
improvement in rail performance in South Africa is still uncertain,
we have adopted the same approach to guidance as last year and will
provide guidance only for 2024. This approach remains appropriate
when considering the agreement between Thungela and Transnet to
postpone the renegotiation of the long-term rail agreement by one
year in order to allow Transnet to demonstrate sufficient stability
before the contract is renegotiated.
With regards to Ensham, as we only
assumed operational control on 1 September 2023, we are currently
identifying the potential step-up in performance, establishing high
confidence cost estimates and understanding the appropriate level
of capital expenditure beyond 2024. Accordingly, we have only
provided guidance for 2024 at this stage.
DIVIDEND DECLARATION AND SHARE REPURCHASE
The board has declared a final
ordinary cash dividend of R10.00 per share, payable to shareholders
on the Johannesburg Stock Exchange and London Stock Exchange in
April 2024 and May 2024, respectively.
In addition, the board has
authorised a share repurchase of up to R500
million, subject to market conditions. The program will be executed
in the period commencing 19 March 2024 and,
unless revised or terminated earlier, ending 3 June 2024, being the
last trading day prior to the Group's next AGM, scheduled for
Tuesday, 4 June 2024, and will be subject to market conditions and
applicable legal and regulatory requirements.
Further details regarding the
dividend payable to shareholders of Thungela as well as the share
repurchase can be found in a separate announcement dated
18 March 2024 on the Johannesburg
Stock Exchange News Services (SENS) and
London Regulatory News Services (RNS).
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
full Annual Financial Statements for the year ended 31 December
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 Accounting Standards), which are termed
'Alternative Performance Measures' (APMs). Management uses these
measures to monitor the Group's financial performance alongside
IFRS Accounting Standards 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 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 full Annual 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 full Annual Financial Statements as
a whole and investors and/or shareholders are encouraged to review
the full Annual 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/2024/JSE/ISSE/TGAE/TGAFY2023.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, 18 March 2024. Details to register for
the webinar and conference call are available below:
Conference Call registration:
https://services.choruscall.za.com/DiamondPassRegistration/register?confirmationNumber=1552324&linkSecurityString=48259d3f0
Webinar registration:
https://78449.themediaframe.com/links/thungela240318_1200.html
The consolidated financial
statements for the year ended 31 December 2023 were audited by
PricewaterhouseCoopers Inc. who have issued an unqualified audit
opinion. The full independent auditor's report and Annual 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.
On behalf of the board of
directors
Sango Ntsaluba,
Chairperson
July Ndlovu, Chief executive
officer
Johannesburg (South
Africa)
Date of SENS release: 18 March
2024
Investor relations
Hugo Nunes
Email:
hugo.nunes@thungela.com
Shreshini Singh
Email:
shreshini.singh@thungela.com
Media contact
Hulisani Rasivhaga
Email: hulisani.rasivhaga@thungela.com
UK
Financial adviser and corporate broker
Liberum Capital Limited
Tel: +44 20 3100 2000
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