The huge cost to SA’s coal miners of the challenges plaguing operations at Transnet Freight Rail is becoming clearer.
At a time when global coal prices soared to record highs, SA’s coal mining companies were forced to hold back on production as dysfunction at the state-owned rail operator created bottlenecks that let coal stockpiles grow.
Thungela Resources, the SA coal miner that was hived off Anglo American and listed on the JSE in 2021, benefited from high prices and strong demand, but lost out on about R2bn in earnings after its export sales and production were “severely impacted by [Transnet] constraints”, it said on Tuesday.
Business Day reported earlier this year that Exxaro, the largest supplier of coal to Eskom, suffered about R5bn in lost export sales due to inefficiencies in the country’s rail network.
Thungela exports most of its coal and its revenue was boosted by the benchmark thermal coal price, which strengthened 90% to $124/tonne, though the stronger rand took the shine off some of the gains.
However, exports were down 16% in 2021 to 15-million tonnes. On the assumption that the recovery at Transnet would be gradual rather than immediate, CEO July Ndlovu said the company expected exports of between 14-million and 15-million tonnes, before returning to 16-million tonnes from 2023.
Thungela’s coal stockpile grew to 2.8-million tonnes by the end of December, which was about 1-million tonnes more than “optimal stock levels” for the company, said CFO Deon Smith. The inability of SA coal miners to react to the global increase in demand and the price of coal, due to the logistical constraints caused by Transnet, was the “biggest missed opportunity for SA in the last 12 months”, Smith said.
The company is working with Transnet to resolve operational challenges faced by the rail operator and has accepted that “there will be a cost to solving these issues”, Ndlovu said when presenting the company’s annual results.
“We need to tackle the issues at [Transnet] head-on.
“If we don’t do that, we would be doing the country a disservice. We believe we have a responsibility to our shareholders and also to the country to work with Transnet,” he said.
Transnet CEO Portia Derby said in an article published by Business Day on Tuesday that one of the entity’s most “underestimated” operational challenges came from the setting aside of the original equipment manufacturer supply contracts with a Chinese firm for 1,064 locomotives due to various irregularities. This process also disrupted the delivery of spares and parts for other locomotives, which had resulted in a shortage of working locomotives.
Last year, Transnet transported 58-million tonnes of coal via its rail network and it expects to increase this to 70-million tonnes in 2022.
Ndlovu said: “We have been more conservative in our assumptions and have based expectations for the year on Transnet moving between 60-million and 65-million tonnes.”
Despite rail infrastructure constraints and the challenges posed by Covid-19, Thungela will return R2.5bn to shareholders after declaring a maiden dividend of R18 per share.
Earnings benefited from record high coal prices, driven by demand in countries such as China, which in 2021 was rocked by a crippling power crunch, and countries in Europe facing supply shortages due to disruptions in exports from Russia, the region’s largest coal supplier, after its invasion of Ukraine.
The company said headline earnings per share were R66.57 in the year to end-December, from a loss of R5.31 a year before. Its net cash was a whopping R8.7bn, swinging from net debt of R388m in the previous comparative period.
Thungela shares eased 2.16% to end at R155.67 on the JSE on Tuesday, having debuted at just R25 less than a year ago.
Update: March 22 2022
This article has been updated with information throughout.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.