Thungela Resources Limited (TGA) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to Thungela's Pre-Close Statement. [Operator Instructions] Please note that this event is being recorded. I'd now like to turn the conference over to Mr. Ryan Africa. Please go ahead, sir.

Good morning, everyone, and welcome to the CFO call following the pre-close and trading statement released earlier today. I'm Ryan Africa, Head of Investor Relations for Thungela. I'm joined on the call today, of course, by our CFO, Deon Smith. I'd like to take a couple of minutes to explain how the call and audio webinar order. Today's call will be done through both an audio webinar as well as the conference call facility. Deon will present an overview of the key elements in today's release. Thereafter, there will be a Q&A session before we close the call shortly before 1:00. Turning to Q&A [Operator Instructions] Finally, a reminder that this morning's announcement is now available on the Thungela website and that today's session will be recorded, and a recording will be made available on the Thungela website from late this afternoon. A transcript of the session will also be made available on the website in the coming days. With logistics out of the way, please allow me to hand over now to Thungela's Chief Financial Officer, Deon Smith.

Thank you very much, Ryan, and good afternoon, and thank you to all of those on the call for making the time to spend the next hour on this pre-close and trading statement. For those who have had an opportunity to review the statement, you'll see that we highlight in it a number of features. Firstly, this is from cash generation for the first half of 2022, mainly due to continued strong coal prices, and that's driving an earnings per share at least ZAR 58 a share for the first half compared to around ZAR 3 a share same period last year. We also highlight our export production in our sales numbers, which are likely to be lower than H1 2021. And also as a consequence, our cost per tonne also higher compared to first half 2021. So clearly, the impact of TFR is inconsistent and poor performance is at the heart of our lower production, most of which was a conscious throttling back but also our sales numbers and run rates. And we'll dive into that in a bit more detail. And then clearly, TFR performance is something that has been at the heart of our business for a number of months. We closely monitor it. Today, I will share with you where we are in the current situation and also the measures we are taking and planning to take at broad levels to minimize the future impact on our business. So let me just say that what I plan to cover today is I'll briefly talk through what we've seen in the market year-to-date, provide you with an update on our key metrics. And then we'll also talk a little bit about the cost pressures we face as a business. And then finally, we'll spend a bit of time on cash generation, capital allocation and our dividend policy. So before I start on the detail, it's important for me to emphasize that the trading statement we put out on SENS and RNS this morning is both pre-close statement but is also a threshold trading statement. And that's on the back of reporting a strong growth in EPS and headline earnings per share for H1 2022. And you'll see that, that increase is set out in the statement more clearly. Once we may have reasonable certainty as to EPS and HEPS range for H1 2022 and as you may know per JSE rules that's sort of within the 20% from the prior year, so we need to have confidence with an around ZAR 0.60 per share or 1% roughly of where we are, ZAR 58 a share. We will issue a further range trading statement. You can expect that later in July 2022. So let me begin with market dynamics and what we've seen in supply and demand of coal prices. And if I take you back to late last year, you would recall that we've reached sort of triple digits mid last year for the first time in some time. And then it escalated into October. And after October, prices subsided but still hovering in the early hundreds off the back of fairly strong supply and demand dynamics as the world emerged out of the COVID pandemic and growth rate started to return in some of the economies that we are exporting coal into. And over that period of time, you would recall that discounts to the benchmark price narrowed and consistently narrowed from the year prior, where we averaged around 26% discount to benchmark, to H1 2021, where the discount was around 23%. H2, it narrowed even further to around 13%. And that was off the back of a conscious decision to also high grade our portfolio, focus our exports and utilizing the rail on some of the higher quality, higher margin coals in our portfolio and, therefore, stockpiling some of the lower in situ coal qualities across our mine stockpiles. You would see from today's announcement that we're now expecting that 13% to widen slightly to around 15% discount to the benchmark price for the first half this year. And the major driver behind that has been a sales mix as we have had to rail a broader range of qualities to help us manage stockpile levels across the spectrum. That is not an indication of the market demand-supply dynamics. To the contrary, you would have seen that in old news now, but in the period that we're talking about from about late Feb but, in particular, from early March, we saw coal prices globally escalate fairly rapidly off the back of the sanctions and the conflict that erupted in Ukraine. Now clearly, those sanctions are expected to have a pronounced impact in the short to medium term but could also prevail for a longer period of time, especially as some of the sanctions, as you can imagine, impact the flow of parts, technology and otherwise into Russia and, as a result, a pressure on the Russian supply of coal mining activities over the medium to longer run also. So we're expecting the fairly good dynamic in supply and demand to prevail for some time to come. And we are seeking to position ourselves to take advantage of that strong pricing environment. In terms of our export saleable production, so this is our production run rate for the first half, you would see that we flagged today that we're expecting to come in around 6.1 million tonnes. And as I mentioned earlier, much of that was consciously throttled that production on navigation, a small opencast as well as a plant. And our focus was really to reduce production where we could eliminate most of the cost, in that we reached our maximum stockpile capacities or what at the time was our maximum stockpile capacities late last year. And our aim was really to preserve our higher cash margin production. Now with that throttled-down production run rate, clearly, the lower denominator coupled also with the higher prices that resulted in a higher royalty gave us a higher cost per -- unit cost per tonne for the period. Another feature within that is clearly the higher energy complex costs. But as we said when we pushed our -- when we published our guidance for this year, we anticipated the guidance to be exceeded by 2 factors. One is the royalties, and clearly, that is likely to be the case. And the second one is also to the extent that our planning assumption at the time of around $90 a tonne would be exceed -- $90 a tonne for thermal API 4 would be exceeded. And to the extent that it is exceeded, clearly, there would be higher energy complex costs that make it into our cost base. And that certainly is the case today. Our export sales is expected at 6.4 million tonnes, which, yes, is higher than our production. And that was off a fairly strong rallies in the first part of 2022 and before the TFR variability kicked in again. And over that time, we clearly therefore drew down on our stocks across all of our mines as that rail exceeded the production that we had. In terms of TFR, I said, I'll get back to TFR. Let me touch on a couple of points. So I used the word variable, and that's mainly as a result of what we've observed as number of trains that we've received. We haven't received a consistently low and certainly not a consistently high number of trains. The train delivery to our sidings has been highly variable, which has made our planning and forecasting slightly more complex than usual. And we were quite confident during last part of last year and early this year that a number of the initiatives that industry and Transnet jointly invested in showed really meaningful progress. And you might recall the security intervention. And these gains were clearly ahead at certain periods of time or since they were put in place, but there were a number of other challenges that TFR faces that offset some of these gains. Now a lot of this has been reported in the media and fairly widely spoken about, so -- but let me sort of just reiterate them for clarity. Locomotive availability due to spares, maintenance and the like has been at the heart and consistently at the heart of some of TFR's challenges. They introduce or we introduced around 40 locos earlier this year. We have not seen the anticipated full step-up from those locos. But clearly, absent that introduction, there is a high risk that we would have seen even further deterioration in TFR's performance. We've also seen wagons end towards -- and a number of other elements that are aligned to parts and maintenance for its performance showing variable output and variable availability of rail and train delivery to our sidings. Clearly, that situation remains disappointing, and we have not reduced the pressure that we and the industry is placing at various layers from Transnet and beyond to rectify what's otherwise a fairly significant must opportunity for Thungela, but also our industry and our country. So are there silver linings? I think there are. There's been a couple in the making for some time. It goes without saying that there is sufficient political awareness of the challenges faced by Transnet and the industry. The decision to review some of the decisions that have been made historically is encouraging. We understand that the Chinese rail contractual position, which you might recall is a 1064 procurement contract, which became subject to an inquiry off the back of step capture, is now under review. And we understand there's an imminent capital discussion and decision due around that contract which should provide medium-term relief as parts and maintenance support would be unlocked as a result of that political decision. We're also pleased that the government has now formally relaxed some of its local content requirements in particular instances where parts are critical to maintain some of the locomotives on the coal line. And we're hearing encouraging news around the flow of that maintenance and parts into Transnet. There's also a new management at certain levels of Transnet. And clearly, whilst it's early days, we're encouraged by the levels of energy and willingness to resolve some of the Transnet issues on the coal line, and therefore, we see a number of these silver linings along the dark plants that we've experienced in recent past. But notwithstanding these silver linings, we have continued to evaluate a number of alternative options to add to our future export sales capability. And clearly, any and most of those would involve trucking and potentially alternative rail solutions. And whilst they are being investigated and lost, we are confident that we might show progress in some of those in the short to medium term. We're not in a position today to report in detail on what those are. It's safe to say that the complexity of railing the quantum of coal that we're doing or trucking some quantum of coal cannot be underestimated. And reports of long queues, theft of coal and otherwise has been widely reported amongst miners that have tried to export coal through alternative channels. And we've seen the challenges that come with that. So clearly, what we want to do is be fairly circumspect in how we approach the alternative options. We continue to be motivated to work primarily with Transnet to resolve some of these issues. And the work that the industry, Transnet and ourselves, have put in over the last number of months is -- will bear fruits. The question is the pace of it and the timing of it, which clearly remains high up on our radar and our watch lists. If I sort of move off saleable and sales and I focus a bit more on costs, I mentioned a couple of factors that have impacted our unit cost. And what you'll see when we're reporting a lot more detail when we get to our interims somewhere in mid-August this year is that there were 2 main features in our cost profile. The first one is the lower denominator. And whilst we aim to take out production where we are able to take out variable cost and as much of the fixed cost as possible, clearly, there's an element of stranded fixed cost. And that has reported through to our H1 unit cost. Our business has always been slightly seasonal, and we're expecting a slightly stronger H2 when it gets to production. We're therefore anticipating that, that lower denominator should normalize in H2. And that if Transnet achieves the 9% step-up that we've set out in the SENS this morning, this is the 9% that gets them to around about 60 million tonne run rate, which is what their own stated minimum objective is, that we should be in a position whereby we can pull back the denominator and our cost per tonne into the guidance range that we've announced previously. We, however, also have seen higher-than-anticipated energy complex cost escalation. And this is across a number of inputs, explosives, diesel, steel, actually most consumables with an energy content or input. And as I mentioned in March, we used the planning assumption of around $90 a tonne in coming up with our cost guidance, which already incorporated near double-digit increase. And therefore, we felt that and we continue to feel that benefiting from the revenue line of higher coal prices also in the energy complex more than offsets the higher explosive, diesel and steel costs. So in some ways, it is a bit of a champagne problem if the cost overrun is primarily as a result of energy complex costs. If I then turn through to our capital. So we're expecting that by half year we would spend approximately ZAR 0.5 billion for the first half of this year. And that's out of a range of about ZAR 1.6 billion to ZAR 1.8 billion full year sustaining CapEx guidance. Now it's typical for our business to spend around 30% to 40% of our CapEx in the first half. And capital is therefore fairly seasonal, whereby planning tax base and design and quotes in H1, and there's a bit more implementation in H2 and execution of that capital spend. We're therefore not expecting a material different outcome on capital, but clearly, we'll be monitoring TFR production performance and run rates fairly carefully. And if anything, we might come in on the lower end of that guidance over the full year but within that guidance. In terms of cash flow and where we are at the end of May, our cash -- and this is cash outside of the ZAR 3.3 billion environmental rehabilitation cash. So outside of that, our cash flow or cash at the end of May net position was around ZAR 15.3 billion. A good portion of that in dollars and a good portion of that in ZAR. And clearly, that is a very strong balance sheet position. We expected, however, to pay taxes in the royalties for the first 6 months in June and which should offset our free cash flow generation that we typically generate in June given current prices. But notwithstanding that from a capital allocation perspective, we should end June with a very healthy cash balance. And clearly, the Board is set, as we've communicated in March, to maintain our dividend policy. Our policy is a minimum of 30% of our adjusted operating free cash flow, so therefore, no maximum. And the Board clearly has the headroom to return additional cash to shareholders, consistent with the philosophy that we followed at the year 2021 year-end. I recognize that was quite a mouthful, so now I propose that we pause and that we turn to Q&A to address any questions that listeners to this call may have at this juncture. Thanks, Ryan.

Thank you very much, Deon. As Deon said, we will now turn to Q&A. [Operator Instructions] Operator, please could I ask you to open the lines for the first question?

The first question comes from Tim Clark of SBG Securities.

I've got a couple of questions, please. One, just for absolute clarity, Deon, I think you said it but I just want to be absolutely sure. You're going to apply the ZAR 6 billion buffer or you plan to present to the Board applying the ZAR 6 billion buffer to paying out the dividend. So you'll treat the interim dividend and the final dividend the same way in terms of applying the buffer? That's the first question. The second question, please, just on cost guidance. You've sort of noted that you've done planning around energy costs at $90. We're getting the full revenue and discount number now, and so it's definitely a champagne moment, and it is definitely offsetting the price. I'm somewhat surprised you haven't revisited the cost guidance for current energy prices. And I wonder if you could perhaps touch on that for us. And then second -- and then lastly, just on your export volumes for the second half, it does look fairly bullish. You've spoken about some of the silver linings. Do you worry that -- I mean the guidance that you've given us, like do you think that there's a -- I mean, it's a bit of a stretch almost to get to the bottom of the range, let alone to the top end of the range. Are you a little worried about the risks on that export guidance or sales guidance? Or do you feel very comfortable with it?

Yes. Thank you very much, Tim, for those. In order that you asked the questions, so on the first one, clearly, it's difficult to speak on behalf of the Board. And as you know, these type of dividend decisions in addition to the solvency, liquidity and all of those typical assessments of the status of the business and the outlook of the business at a particular point in time, ceteris paribus to the assumption that we had at year-end, the philosophy that the Board is likely to follow is very similar. In that we've reiterated in this announcement our commitment to maintain that buffer between ZAR 5 billion and ZAR 6 billion. And therefore, it is quite conceivable that, that would be the outcome and that excess cash should therefore be returned to shareholders come our next dividend declaration. And clearly, from a management perspective, that's what we're likely to put to the Board. So -- and that's obviously on a ceteris paribus basis. So that's on the first question. And that buffer remains the appropriate number, yes. On your second one, absolutely, we've reflected quite a couple of times, Tim, when we planned our year and we used a $90 a tonne API 4 price roughly to plan it. We've reflected quite often as to what energy complex cost or prices could do and what this -- what the impact on our business could be. And clearly, we've -- our supply chain and procurement team has estimated each of those input costs. So we have a good sense for where they might come to. But I think the principle that we followed so far is that when we make capital project decisions, we would like to use the $90 a tonne. When we make -- which is the Wood Mac type reference, when we make the decisions as to which operations to pause given that it takes a long time to put something on a care and maintenance or stop it or start it, we use that same principle rather than referring to a spot price in excess of $300 a tonne or even the forward curve at high 200s or mid-200s. And that has been a consistent planning philosophy. And we flagged that energy costs to the extent that it exceeds that type of level has likely been to report through to a slightly higher or a higher cost per tonne. To guess exactly where that comes to, where that energy complex cost gets us to is a bit speculative similar to speculating where the coal price in the full year would come to. So it is something that we consistently review, but it's more difficult to guess where that escalation and that inflation would ultimately get to compared to being clear on our planning assumption, and there's a bit of cost that's on top of it. So you might ask then, well, how much of your year-on-year 20-odd percent increase in cost, what is the denominator and what is the energy complex cost? Just to give you a sense, it's around 5 of that 20-odd percent, 5 to 7 percentage points, roughly. So those are -- so that is incremental cost as a result of the higher-than-anticipated energy complex cost across diesel, explosives and the like. And clearly, that is a champagne problem. But the elephant in the room is clearly that the other, let's say, 15-odd percent is a denominator feature. And that is something that we anticipate to pull back in H2, which naturally leads me to your third question on the full year export saleable production guidance of 14 million to 15 million tonnes. Now what we did in this announcement, Tim, is we said what you need to believe in terms of Transnet step-up from current levels, and that's that 9%. Recognizing that Transnet has had a very, very challenging time, some of the decisions that Transnet has made and need to make and some of these interventions around parts and maintenance is expected to have a fairly binary step-up type impact. And on that basis, we are not today planning to curtail any further production until it becomes clear that, that step-up isn't materializing. So there is risk, to ask -- to answer your question more broadly as to whether we feel that there's risk to that guidance or the low end of the guidance or not. Absolutely, there's definitely risk to the guidance. There is -- our aim is still to hit that bottom range of that guidance. And if there are further headwinds that exceed some of the tailwinds that we're obviously engineering ourselves through getting more stock out of our mines to ports to export, then clearly, there might be risk. And we would update the market on that shortly as soon as we are aware or as soon as we have confidence as to what those ranges are. But at the latest, it would be mid-August at the point that we approach the market on our interim results.

The next question comes from Luvuyo Booi of Investec.

Just a quick one for me is on your cost. Can you perhaps just talk a little bit more about the cost implications of the alternative modes of transport that you're looking at and how the cost profile is likely to be if you were to go that route? For example, how much is the cost of trucking coal to [ RPPT ] per tonne? And at what point would it not be profitable for you to go that route?

Luvuyo, it's a very good question. It's one that we've been struggling with from time to time. The cost per tonne depends on a number of factors but typically ranges between around USD 60 and USD 80 a tonne incremental cost from mine gate. You're recognizing that in some areas, you don't use an efficient siding to load on to a vessel vehicle otherwise, through to the market. Now whilst current prices, that is highly affordable and, therefore, incrementally could add a net cash benefit and margin to our business, you have to also appreciate that there are other factors that play into it, which is higher risk, such as reports of rampant coal theft given that this is becoming a bit of a black gold scenario whereby the price of coal makes it a fairly attractive commodity and trucking is certainly less secure than railing. Add on top of that a higher working capital in that the coal that you put on to trucks take materially longer to get to port and to market ultimately but not only takes longer, and I'm not talking about very, very intimidating queues at some of the passovers at the borders and so forth, is -- also becomes, therefore, a theft challenge, a working capital challenge and a cost challenge. And we, therefore, carefully looking at it, and we will only pull the trigger on one of those options and highlight to the market which option and how we structured it once we have a little bit of confidence that, that type of trucking or that type of approach would be net-net beneficial to the business and also recognizing incremental trucks on road, the risk that, that holds to people using those roads, dust and other softer factors. There's already a lot of pushback in and around Richards Bay by communities and residents as a result of the increased dust and pressure on road systems as a result of the trucking. And clearly, whilst 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 impact on our sales number. So it is something that we will only pull a trigger on if we have a very clear path and a very clear view that it would be accretive.

At this stage, we don't have any further questions from online attendee. I will now hand over to questions from the webcast.

Thank you very much. At this stage, we've got one question on the webcast, and that question comes from Thomas [indiscernible]. Can you please talk a little on the materiality of nonexport sales as these related production and pricing? Has the upward price pressure kept into any part of this business?

So maybe just to start off with in terms of the materiality of domestic versus export sales. In our business, we -- export sales contribute historically the lion's share of our revenue and, therefore, the lion's share of the value in our business. Last year, exports accounted for around 80% of our revenue. And this half year, it should be around 90% of our revenue, and that's off the back of fairly strong prices. So clearly, you'll see that domestic sales at less than 10% is not meaningful in our business and that in many respect outside of the Isibonelo, Sasol agreement, so that's one mine, and outside of the Rietvlei arrangement with Eskom. Most of our domestic tonnage is really a byproduct of our export business, and therefore, we reduced our costs with that domestic revenue. If you look at the tonnage, in year-to-date 2022, around 1.6, and year-to-date 2021, that was about 1.4 in ZAR in terms of revenue contribution. So it is not a very material part of our business. And the upward price pressure that you would have seen from the export side of the business is unlikely to feed into the domestic part. The reason for that, Thomas, is very simply that there is an oversupply of coal in the domestic market as a result of the Transnet constraints. So I'm not expecting that export price parity to necessarily play into the domestic prices that we get for coal.

Thank you, Deon. There are 1 or 2 more questions coming through on the webcast. The first question is from [ Howard Go ]. What do you expect Thungela's effective tax rate to be for H1 and H2?

The business last year enjoyed a shield from historic assessed -- taxable assessed losses. We've eroded those by the end of last year. And as a result, in 2022, our effective tax rate would increase. Last year, it was around 7.6%. This year, it's likely to hover at the corporate tax rate level, which, as you might know, in South Africa is around 28%. We're also clearly monitoring the reduction to the SA corporate tax rate around 27%, but we're expecting that type of tax rate to be our effective tax rate in the short term.

Thank you very much, Deon. And thank you [ Howard ], for that question. The next question comes from [ Zach Oster ]. Any interest in raising debt onto the balance sheet? What is the banking appetite for this?

I'm assuming you're not from a bank. Otherwise, it might have been a more interesting discussion. The reality is that our business today is long cash, and therefore, we don't necessarily have an extreme desire or need for debt onto the balance sheet. Add to that the cash buffer, as we spoke about, of ZAR 6 billion after paying our dividends and otherwise, clearly, there isn't necessarily much room for it. However, we have continued to engage banks in that we're revisiting our longer-term balance sheet structure and that we have been pleasantly surprised at the openness and willingness of banks to engage favorably with us on certain types of debt and instruments to add to some of our liquidity and firepower in the business. And we would therefore seek at the appropriate time to update the market on those discussions.

Thank you, Deon. A further question that's come through is from Mark Zand from Wexford. When will you make your next dividend declaration?

Mark, yes, so we're announcing our interim results on or about the 15th of August. That would be the date that we would declare the next dividend. The payment thereof clearly would follow typical practice that you would have seen at our year-end. So in the next sort of couple of months after that, the actual dividend payment will also flow.

Thanks, Deon. There's a further question. Could you comment on the changes being made by Transnet to address theft issues and reliability issues? Why should the changes this time lead to more improvement than they have done in the past?

I think absolutely, it's a fair challenge. I think that the theft issues have been addressed more so than the reliability issues through the security interventions. And so long as we keep focus on the theft issues, that should remain fairly stable, and it has, since the introduction of that, remained fairly stable other than the odd copper cable theft and the like. In terms of reliability, the changes that we speak of are not 1-day game but rather 5-day game type changes. They are more significant because there are procurement processes that need to be followed per government regulations, awards and allocation processes. And the lead time to some of those interventions are typically long to start over. And that's putting aside any of the issues such as local South African content parts requirements and the like, which existed historically. With those now being waived and with, I think, the political decisions that have taken more time than previously to implement, it is likely that the timing to implement some of these changes should be faster than what it would have been a while back without the necessary political support for those changes. Now I'm not for a minute suggesting that there are any guarantees in the improvement of reliability by Transnet because, clearly, what they are addressing are the most -- one of the most significant elements of their armory, which is really the locomotives, wagons and [ guards ]. However, there are a number of other factors. And the question on whether you would see the step-up therefore hinges on whether Transnet is able to manage all of those consistently.

Perfect. Thank you very much, Deon. The next question is from David Baker of Baker Steel. Why is there long delay in paying dividends after declaration?

David, I think the usual process that we follow after declaration of a dividend is observing the various record data across the JSE and the LSE. And there isn't necessarily a particular rationale or science behind it. I think our first dividend declaration was on the 22nd of March, if I remember correctly. And consequently, I think, in early May, the 9th of May, so about 2 months later, we paid the JSE dividend. I think as we mature, we might look to accelerate some of those time lines but recognize that we're extracting out of South Africa a fairly significant quantum of cash, and therefore, there are typical processes that we need to follow to ensure that we are able to do so or to pay the dividend on time.

Thanks, Deon. A further question from David Baker. Where is most of the increased demand for your coal coming from, Europe or India? And if the sanctions come in August, how do you see this playing out?

Yes, David, a very good question on the second one in terms of the post-August impact. I'm going to hover on that second part of your question first. We don't have the perfect crystal ball on how we see that play out. And the reason is because it's linked to your first question as to where ultimately the Russian coal settles. It depends on the quantum of coal that makes its way through to China. And as you might know that, that well -- the 25-odd million tonne is already very constrained into the East. But the alternative path that could make more coal -- could take more coal out of Russia into India, which should continue to therefore offset some of the demand that we're getting. Interestingly enough, India continues to be a very, very important and very dominant market for all South African coals. And the Europe incremental demand, whilst the volumes have not been extreme, has had the impact on price that we've all observed in that there's definite competition for coal that is destined for the East to go into Europe. So whilst percentage-wise India still is probably the most dominant market for South African coals and our coals, Europe has just competed for that coal. And post the next wave of sanctions, it very much hinges on where we see that Russian coal land, as to exactly what the price is because that coal either offsets imports of that particular country, India, China or otherwise, or alternatively offset some domestic supply. And it depends on those more nuances, which there are too many factors to delve into this call where we see that. Needless to say, on balance, should be price supportive.

Thank you, Deon. The next question is from Norman MacKechnie at Momentum. Over time, to what extent are rehabilitation costs likely to increase? And how will this impact the amount of cash that you're likely to keep on the balance sheet?

So currently, at the end of last year, we reported a balance sheet liability of around ZAR 6.4 billion, from memory. And as you might recall that our regulatory liability, so what we actually need on our balance sheet is around ZAR 4.1 billion, from memory. So we are fairly significantly over-provided relative to what we should. You may or may not know that we maintained the higher level of provision because we anticipated that the New (sic) [ National ] Environmental, so the NEMA, Management Act financial regulatory provision requirements would come into effect in June 2022. That financial provisioning regulation has now officially by the minister been postponed to, I think, the 19th of September 2023. I think that's probably the fifth or sixth time that this implementation of these provisions or these provisioning requirements have been postponed and for good reason because quite a lot of it doesn't make sense. We have provided on our balance sheet what we believe is sensible beyond clearly what the regulatory requirement is and, therefore, much closer to what that NEMA provisions, if reasonably drafted, should require. Now with global inflation and energy complex inflation, there's clearly risk that the actual execution of the rehabilitation activities at the end of life could be higher than what we've planned before. We do an annual assessment of this. This process takes us almost a whole year. We use mainly external consultants, and we would know what those numbers look like later on this year and report them in our full year results. Now safe to say that current inflationary environment we live in may or may not play out over the next 20 to 30 or 40 years. And the timing of our cash flows that are subject to these rehabilitation or in relation to these rehabilitation provisions are not necessarily near term. So I would be very surprised if there is a very significant provision headwind given the timing of inflation relative to the timing of when we would have to spend those rehabilitation rands in dollars.

Thank you, Deon. I think we've got time for 1 or 2 more questions. Another follow-up from David Baker. Any advances on M&A and diversification outside of South Africa?

David, yes, very good question given what we said at our year-end results. We have continued to look at various options across the globe. But we've always said that we would not pull the trigger on anything if we're not absolutely convinced that it ticks the 9 boxes we set out at the results and that it is a very compelling investment proposition. We also said that we would not pull the trigger on something if we felt that shareholders can do better with the money. As a consequence, there isn't anything that is price sensitive or worthy of a cautionary as we sit here today. We will continue to look at opportunities across the globe in markets that we believe we have the right to win and operate. But clearly, in the short term, I cannot see that any of those opportunities would present a better prospect than returning the cash to shareholders at this juncture.

Thanks, Deon. At this stage, I can see that there are no further questions on the webinar. And similarly, there is no one in the queue on the call. So with that, I would firstly like to thank everyone for their participation today. Thank you for joining the call. And then if, of course, there are any further questions, please do get in touch with me via e-mail. My e-mail address is [email protected], and I'll get back to you. With that, please allow me to hand back to Deon to close up the call.

Thank you very much, Ryan. And thank you very much for everybody that joined us today and for the questions. Please do feel free to also reach out to us separately should you want to. We would -- we look forward to sharing with you a lot more detail as to the last couple of months of Thungela's performance when we get to our interims on or around the 15th of August and look forward to engaging with you more at that point in time. Have a safe and good afternoon to everybody.

Thank you. Ladies and gentlemen, that concludes today's event. Thank you for joining us. You may now disconnect your lines.