Thungela Resources debuted on the JSE less than a year ago, following a demerger of the thermal coal operations from Anglo American in June 2021. The formation of a standalone pure-play thermal-coal company surprised many, but the transition into a public company has been successful, and it believes it has the fundamentals in place to be a solid investment for years to come.

‘Our purpose is at the core of what we think we can bring to the market – responsibly creating value together for a shared future,’ says Thungela Resources CEO July Ndlovu. ‘We believe we will be playing a stabilising role in the currently volatile financial, energy and job markets in 2022 and beyond.’

DELIVERING TRUE FINANCIAL VALUE
Since its dual listings on the JSE and London Stock Exchange, Thungela has been covered by five sell-side analysts at leading investment banks in both Johannesburg and London. The analysts have noted that during Thungela’s first months of financial and operational independence – in a challenging business environment – it achieved a robust financial performance and a very healthy net cash position. Calculating Thungela’s cash-flow generation combined with disciplined capital expenditure, it has an adjusted operating free cash flow of R3.9 billion. It also declared a maiden dividend of R18 per share.

‘We are able to deliver on our promises because of the unique position we are in now, with Thungela continuing to benefit from shrinking global thermal coal supply,’ says Ndlovu. ‘Coupled with increased demand, this has driven thermal coal prices to their highest levels in over a decade. Realised prices increased markedly from $48 per ton in 2020 to $104 per ton in 2021. In addition to the higher benchmark price, realised prices benefited from the narrowing of the discount to the benchmark price from 26% in 2020 to 16% in the current period, thanks to an improved sales mix within our group.’

ENERGY STABILITY IN A CHANGING WORLD
‘We know people are sceptical about coal and want to see a faster transition,’ according to Ndlovu. ‘And let us be clear – we are in support of this transition. We just believe it needs to be managed very well to ensure energy stability, and we believe we can play a key role as an unlikely partner to the renewable energy sector to ensure that the developing economies we serve don’t falter as we figure out the path to more permanent renewable energy supply.’

Ndlovu believes Thungela has a vital role to play in providing affordable, reliable and resilient global power generation for the foreseeable future. ‘As an industry we need to be pragmatic in our approach and have honest, unemotional conversations about how we can manage a responsible transition over time. A dead stop of coal and an immediate takeover of renewables is not feasible.’

The reality is that developing economies require large amounts of low-cost power as they develop, grow and strive for more equality in an imbalanced global economy. As the world moves towards a cleaner, more equal, more resilient global economy, coal is vital right now in getting it there. Coal is an enabler for many industries that underpin growing economies. It is the building block to industry, enabling the manufacture of 70% and 90% of the world’s steel and cement respectively, and 61% of the energy used to make aluminium.

A MAJOR EMPLOYER IN A DIRE JOB MARKET
Coal mining is the third-largest employer in SA. In a country with record-high unemployment rates, including a 66% youth-unemployment rate, Thungela is proud that more than 7 000 employees and contracting partners depend on it.

‘We are sharing the value we are creating with our employees in the communities where we operate,’ says Ndlovu. ‘We have set up an employee- and a community-partnership plan, which each hold a 5% stake in our operations, and we plan to continue paying forward any successes we achieve as a company. We are very pleased to have been able to distribute R273 million to our communities and employees.’

As coal gets phased out over time, technology and people need to be a part of that transition. The focus must be on ‘phasing in’ new technologies and training workforces that are already skilled within the energy sector; not on simply ‘phasing out’ any fuel source.

Meanwhile, one of Thungela’s major goals for 2022 and beyond is to be a fatality-free business with a world-class safety strategy that is based on three pillars, namely back to basics; work management; and culture change. The company takes the well-being of its workers extremely seriously and strives to be an employer of choice in the local mining industry.

LOOKING AHEAD
Thungela’s focus now is to create long-term value by taking good care of its assets and responsibilities. This includes driving its ESG aspirations, maximising the full potential of the company’s existing assets, assessing future diversification options and optimising its capital allocation. It will also be heeding a number of megatrends impacting the firm’s strategy, including geopolitical tensions around the world that affect the energy sector.

‘The market fundamentals underpinning coal demand remain supportive. In weighing up our future expansion options – buy versus build – we will continue to evaluate acquisition opportunities that may be superior to organic increases in production, noting the environmental benefits of replacing a declining tonnage profile with producing assets versus adding new coal projects,’ says Ndlovu. ‘If we find a path to buy rather than build replacement production, this will not detract from our stated objective to define a pathway to net zero by 2050, subject to the markets we serve and countries we operate in.’

In a world that is not devoid of volatility, adds Ndlovu, Thungela will continue to seek resilience and agility while it realises further operational improvements and cost efficiencies – and execute its life-extension projects. ‘We fully embrace the transparency that is expected from a public company and will be sharing our journey as a responsible value creator making a unique contribution to society,’ he says. ‘Many people are relying on us, and we strive to serve them well.’

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www.thungela.com