Thungela Resources’ board has opted to maintain a large liquidity buffer in case of further impacts from South Africa’s crumbling rail and power infrastructure.
The cash portion came to R5 billion following the R40 per share final dividend declared last month. In addition, the board had decided to increase the overall liquidity buffer to R8.2bn through the securing of facilities amounting to R3.2bn, Sango Ntsaluba, chairman of the thermal coal mining group said in the annual report released Thursday.
“Four months into 2023, we are concerned by the challenges that abound, including TFR (Transnet Freight Rail) performance, softening of coal prices and volatility of coal demand worldwide,” he said, adding that it was also clear that coal prices could not be expected to be as strong this year as they were in 2022, notwithstanding that “the fundamentals for coal remain strong”.
“Last year, the board expressed the view that creating value responsibly meant maintaining disciplined capital allocation, balance sheet flexibility, and sufficient funding to withstand market and Benchmark coal price fluctuations.”
There were two main reasons for this – uncertainty regarding the expected timeframe for TFR performance to normalise, and the acquisition of the Ensham Business which had materially changed the overall structure of the group, including its liquidity needs. The enhanced liquidity buffer would provide the group with adequate funding to execute its strategy, said Ntsaluba.
He said TFR performance had reached a record low last year, with total volume railed only marginally above 50 million tons, the lowest volume railed for the industry in more than 13 years.
The rail and port operator had continued to operate below capacity due to security incidents on the line, maintenance challenges on rail infrastructure and rolling stock, and, in the fourth quarter of 2022, a 12-day strike by Transnet employees and one of the worst derailments seen on the line in recent history.
He said the deterioration of TFR performance to these levels seemed to have been a wake-up call for the government, and TFR in particular, and there was now a realisation that continuation on this trajectory could result in a national crisis.
“We call upon government to act swiftly and effectively in providing Transnet with all the support necessary for the state owned entity’s performance to start turning around and to attend to other risks such as unstable electricity supply, illegal mining and increasingly disgruntled communities frustrated by a lack of service delivery,” he said.
On the power crisis, he said that while the political focus appeared to be a step in the right direction, “it is imperative that clear, actionable and measurable steps are taken to resolve this crisis”.
He said illegal mining continued to be rampant across the mining industry. “We will continue to work with communities, law enforcement agencies and the judiciary to find a lasting solution in this regard.”
He said Illegal mining was a contributing factor to the environmental incident that occurred at Khwezela’s Kromdraai site in February 2022. Furthermore, illegal miners were also mining areas that had previously been rehabilitated, resulting in increased costs for Thungela to rehabilitate these areas again.
The closure of parts of the Khwezela complex was being accelerated to discourage illegal mining and to mitigate the risk of future adverse environmental events.
“South Africa stands on a precipice, and not resolving these issues may push us over the edge,” said Ntsaluba.
In the past financial year, buoyed by strong demand and prices, Thungela returned a whopping R13.8bn to shareholders compared with R2.5bn in 2021. Headline earnings per share increased to 130.82 cents from 66.57 cents in 2021.
The group aims to reduce scope 1 and 2 greenhouse gas emissions by 30% in 2030 and reach net zero by 2050. A feasibility study had commenced on the Lephalale methane gas project and an associated production right application was planned for mid-2023.
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