The share price of coal miner Thungela closed almost 10% lower after the company announced that production had decreased because of Transnet’s continued poor performance. This is despite the price of coal almost tripling in the past year.
In an interim trading statement to end-June, Thungela also flagged an almost 44% increase in costs, saying its on-board cost per export tonne of coal is expected to be R1,124 compared with R782 in its 2021 first half.
Thungela was spun off from Anglo American in June last year amid climate change concerns. But just 10 months after listing its share price had risen by about 1,000% to a record R273.67. The miner, which expects to make 90% of revenue in its half-year to end-June from exports, relies on rail to move coal to ports.
By the JSE’s close on Monday, Thungela’s share price had fallen 9.84% to R223. It said the export saleable production of coal will be down 14% to 6.1-million tonnes in the reporting period, because of the “continued inconsistent and poor” performance by Transnet.
To mitigate against holding excess stock, Thungela produces coal in line with its ability to get it to ports for export. The export saleable production is expected to be down 13% in its underground and 18% in its opencast mines.
It said it was in talks with Transnet after it released a statement in April accusing the rail and port operator of not meeting contractual obligations. Even as security problems on the railways have been addressed through an industry and government partnership there are problems with the reliability of the trains.
Transnet is ordering new locomotives but procurement takes time, CFO Deon Smith said in a conference call, noting that the National Treasury had relaxed stringent local purchasing regulations that were hampering the state-owned enterprise’s ability to buy the parts it needed.
Thungela said it continues to evaluate alternative transport options to lessen the effect of the poor rail performance. Asked in the call if it would use trucks to move extra coal from mines in inland provinces such as Mpumalanga to ports, Smith said it wasn’t yet viable as it was much slower and more costly.
“While a lot of smaller operators could move the dial by trucking a couple of loads, in our world we need to truck something very, very material before it has a meaningful positive effect on our sales number.”
He said trucking was not as safe, as there was an increased risk of theft.
“This is becoming a bit of a black gold scenario, whereby the price of coal makes it a fairly attractive commodity but trucking becomes less secure, while also adding to dust pollution. There’s already a lot of pushback in and around Richards Bay by residents as a result of the increased dust and pressure on road systems as a result of trucking,” he said.
Demand for thermal coal, used for electricity, was firm at the start of 2022 as the world continued to recover from Covid-19. But the war in Ukraine shook up energy markets and pushed up volatile coal prices as many European countries tried to find alternative energy sources after sanctions were imposed on Russia. The benchmark price of coal rose 171.43% year on year to $266 per tonne.
“In order for Thungela to achieve the lower end of the export saleable production guidance previously issued (14-million to 15-million tonnes), Transnet Freight Rail needs to deliver a successful annual maintenance shut in July 2022 and a step-up in annualised rail performance,” Smith said, adding that this would require a 9% increase in the second half of 2022 compared with the first half of 2021.
Update: June 13 2022
This story has been updated with new information.
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