Thungela Resources Limited (TGA) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Thungela CFO Pre-Close Call. [Operator Instructions] Please note that this conference is being recorded. I'd now like to turn the conference over to Mr. Ryan Africa, the Head of Investor Relations. Thank you and you may proceed, sir.

Thank you. 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, and I'm joined on the call today of course by our CFO, Deon Smith. Today's call will be done through an audio webinar as well as a conference call facility. Deon will present an overview of the key elements in today's release. Thereafter, there will be a Q&A session until we close the call shortly before 12:00. Turning to Q&A. For those wishing to ask a question today, you're able to do so either directly on the conference call facility. Alternatively, you can submit your question via text in the webinar and I will read these out. [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 the recording will be made available on the Thungela website from later this afternoon. With logistics out of the way, please allow me now to hand over to Thungela's Chief Financial Officer, Deon Smith.

Thank you very much, Ryan, and good morning to those of you who made the time to dial into this pre-close and trading statement for the first half of 2023. So clearly, we are pleased with the progress across a number of fronts. But what's not obvious from the announcement today is that we continue to make progress on our elimination of fatalities work, our safety program more generally as well as our levels of environmental compliance and these efforts should be more evident from our numbers as we report these at our interim results in the last part of August 2023. So at that time we expect to report positive results both in terms of earnings and cash generation, but clearly not at the levels that we've observed in recent reporting periods and that's mainly due to a softer price environment we find ourselves in currently. So in addition to prices, our earnings decline in this period is also on the back of continued low rail performance by Transnet Freight Rail and in the first half we achieved around 6 million tonnes of rail and I'll get back to this a bit later on. And if you look at Transnet's performance, the momentum improved quite dramatically during the second quarter of the first half. That's after a very poor start in January. But then again in May we experienced 2 and 1 involved operational safety issue also. Clearly without those events, our rail performance would have been even better by around 300,000 tonnes, which would have brought our rail up to 6.3 million tonnes for the first half. As we said in the announcement, we need a run rate of approximately 53 million tonnes per annum for the whole industry for Thungela to achieve the top end of its guidance range. And clearly for us to get to the midpoint of our production guidance range, TFR would have to perform consistent with what we've seen in the first half of the year throughout the second half of the year. We've had a couple of questions around the impact of Eskom seeing that load shedding in South Africa has been more pronounced in recent months and in 2023. I mean clearly from our perspective, it is a concern; but it's not yet a significant issue to operations given that it's not the ultimate bottleneck. Transnet remains that bottleneck. When you turn to the prices we've achieved that we've reported in the announcement, you also note that our discounts are slightly wider in this first half of the year than what we've experienced last year. And as you may recall, this is simply because discounts are set in absolute terms when we receive orders for coal, but the pricing is determined in the month in which we ship coal. Therefore, whilst the absolute discounts were set during times or periods when prices were higher, those discounts then report through as a higher percentage achieved discount notwithstanding that it's the same absolute value discount. We expect these levels of discount to prevail throughout this year. So in H2 we expect to see a similar discount based on what we see on the forward curve for API4 at the moment, which is slightly above $100 a tonne. When you turn to our production, clearly it's slightly lower and mainly in the underground operations and that's where we've taken sections out during the first half of the year and this is in response to the ongoing Transnet challenges and mainly as a result of pronounced stockpile levels at those underground mines. If you look at up to end of June this year; we're likely to produce around 5.8 million tonnes, we're likely to rail approximately 6 million tonnes and we're likely to sell approximately 6.2 million tonnes. And clearly we are therefore planning to draw down on stocks of around 400,000 tonnes, of which half is likely to be at port and the other half at mine. Our efforts in this first half has clearly been to protect our cash flow and some of the actions we've taken might have put a drag on our unit cost, but this unit cost is still coming to the middle of our guidance range or within our guidance range. Our cash flow for the period also clearly benefited from a lower CapEx spend, I'll get back to that shortly, but also from the working capital unwind as a result of stock as well as accounts receivable based on fairly strong prices that we achieved in December and that accounts receivable reporting into cash in the first quarter of 2023. As I said, our unit cost came within the guidance range as we anticipated that the cost drag that we're seeing at the moment is likely to be with us for the course of 2023 and clearly our ability to improve on this position therefore hinges on Transnet throughput in 2024 onwards. Our EPS is down period-on-period by between 66% and 75% at approximately ZAR 17 to ZAR 23 per share. And at the end of May, we reported a cash balance of approximately ZAR 14 billion. This is expected to moderate slightly given that we have fairly high taxes and royalty payments that's due in June. Depending on the timeline for the last conditions precedent around the Ensham transaction, that transaction could complete any time over the next 3 months and even in June, which could mean a materially reduced cash balance at the end of June should clearly Ensham complete in June. I mentioned previously that our CapEx was low for this period. This is primarily a product of our typical spring profile, which is weighted towards the second half of the year as we do design and planning in the first half of the year. There is, however, also a level of cautious review of our SIB, our sustaining capital that we've undertaken, and this has given the fairly significant reduction in prices from what you've observed last year to the first half of this year and the need for us to ensure that whatever sustaining capital we spend indeed pays back at the new forward curve that we're observing currently. We will provide a more detailed update around that when we get to our interim results in August. As I said earlier, we expect Ensham is likely to complete within next couple of months. And depending on the timing of it given that we earn the economics from the 1st January 2023 or a portion of the economics, we're likely to see a cash return to the business after funding the full acquisition price and currently that cash return is almost ZAR 700 million, which should reduce that net payment for the interim acquisition during this year by a healthy ZAR 700 million. We also today reported that we've approved the Zibulo life extension project for a total nominal capital of about ZAR 2.4 billion. Zibulo is a very significant operation in our production profile. This approval would extend Zibulo's life by approximately 10 to 12 years as of 2025 when we're expecting first coal. The product quality at Zibulo is likely to be fairly similar in initial periods, but reducing from close to 6,000 kcal to about 5,700 kcal during the first 6 years of this operation's post-CapEx life. We continue to make really good progress on the build program at Elders. This is the production replacement project near Goedehoop and that time line that we've previously communicated whereby we expect first coal during the first half of 2024 is still on track. Whilst our spend that we're reporting in this first half is slightly lower than anticipated, none of that effects the critical part of Elders. So before I start wrapping up, it has to be said that we remain committed to our capital allocation approach that we followed historically. We, however, recognize that with softer prices and continued uncertainty around Transnet's run rate that the business needs to be cautious given that we now have Elders as well as Zibulo capital projects approved and that we have approximately ZAR 4 billion still to be spent to complete these projects. Both Elders and Zibulo are critical projects for our business in that it would sustain or improve our competitive position and extend the life of our business very materially. It is therefore paramount to see these capital projects through. Notwithstanding that view clearly, we remain committed to our dividend policy and that is to pay 30% or a minimum of 30% of our adjusted operating free cash flow to shareholders. With that, let me pause and hand back to Ryan to see if we have any questions that we could help answer.

[Operator Instructions] We'll start with questions on the line and then move to those sent by the webcast platform. Operator, please open the lines for the first question.

The first question comes from Brian Morgan from RMB Morgan Stanley.

Perhaps you could just say to us a little bit about your thinking with regards to distributions. You've obviously got approval to do buybacks now, but then obviously the concept of distributions is uncertain. We've got the Ensham acquisition and there's obviously a 2-month bridging to think about between when you have to pay for it and when you get the cashback from the lockbox. You've got the Elders CapEx, you've got the Zibulo CapEx. How should we package all of this together and think about distributions in the next couple of reporting periods?

So clearly it's not possible for me to give you definitive answers today given that we typically have these debates as a Board reflecting on a number of aspects for the business. But importantly also the outlook on Transnet and prices and FX nowadays, the time that we deliberate the future and our ability to distribute cash with confidence or any other mechanisms such as a buyback. But to give you the broad strokes, you are correct. If you look at our business, we have 3 very significant commitments; Elders, Zibulo and Ensham. Across those 3 commitments, the quantum is approximately ZAR 7 billion to ZAR 8 billion. And clearly for us, it's important to maintain balance sheet flexibility and strength to fund those with confidence and therefore approach our balance sheet in a way that our distribution doesn't threaten our ability to complete or execute against any of those significant commitments. In my view, I think our dividend policy remains absolutely sacrosanct and therefore paying 30% of our adjusted operating free cash flow is a ticket to the game. Beyond that clearly remains a debate as to how confident we are with the prospects for the business at the point that we consider the dividend relative to these other commitments, which clearly are non-negotiable. We wouldn't want to start a key capital project and then have to stop it halfway for reasons that might be temporary at the time. But clearly that's a decision we can make somewhere in August when we reflect on the full 6 months rather than a partial or a portion of 6 months, which is where we are today.

And then thoughts around the buyback, sort of dividends versus buybacks?

Yes. So I think we've always said that we would commit to the 30% dividend of the adjusted operating free cash flow to the extent that there are returns above that. We are quite fortunate now that we have both mechanisms available. So we have additional dividends as well as the opportunity to buy back our own stock. So absolutely that is a consideration in how to return cash above the 30%, Brian. So very pleased that we have both those tools rather than just 1 to consider at the time.

The next question comes from Tim Clark from SBG Securities.

At $105 odd API4 with the discount, I was a little bit surprised at the mix of production. I sort of thought that perhaps some of your higher cost operations like Khwezela would be under quite a bit of pressure at this point. So I wonder if you could just speak to us about sort of operationally what's your thinking of the different assets and the different levels at current spot prices or forward curve prices and just sort of what's your planning scenario built in. And then also just on Zibulo North, just to confirm that you've also used similar sorts of pricing as we're seeing today because obviously the heat has come out of that. And then lastly my second question is just on port stocks. Can you give us an idea of -- you said you drew down about 200,000 tonnes of port stocks. I wonder if you could give us a sense of what flexibility you retain in port stocks.

Let me start with your third one, that might be the easiest one. At the end of May, we had port stocks of about 270,000 tonnes and you might recall at year-end we had about 450,000 tonnes at port approximately. So that drawdown was clearly slightly higher at port than what we would have wanted and it's mainly as a result of committing to a sales plan for May and then experiencing the 2 derailments in May, which caused us to tip below the 300,000 level, which is what we would have wanted to see at the end of May. I mean ideally if we railed without those 2 derailments, we would have been at around 450,000 tonnes of stock at port, which would have placed us in a much better position to continue to build stocks heading to the point prior to the Transnet shut planned for July. This clearly puts us in a position where we might need to moderate our sales plans slightly heading up to that shut in order to retain enough flexibility to sell port stocks through the shut. So that's the third part of your questions, Tim. On the second part, Zibulo. Yes, absolutely we've always said that we would only approve these projects when we look at and our view is we typically take a lot of comfort from the fundamental bottom-up analysis that some of the best observers of coal prices do. And in that regard, it would max pricing albeit it's peaked up slightly from previous forecasts. They're now at sort of mid-90s so slightly below current forward curve and clearly that's what we use when we evaluate a project such as Zibulo. Zibulo requires sort of less than $70 a tonne in order to pay its capital and OpEx and so forth and therefore there's significant headroom in Zibulo. You have to recognize both Zibulo and Elders, these types of new projects in new coal and fresh geology, has the benefit of higher productivities given geological inflation has not yet kicked in whereas operations closer to the end of life or even operations such as Zibulo have more geological challenges than what a new mine would have. So investing in those projects necessarily brings them in at a lower cost per tonne in future. So hopefully that gives you the answer on Zibulo. The more complex question you asked is the first one on operations. You might recall, Tim, that when you look at last year's financials, Khwezela had very high cost per tonne at around $150 a tonne and it was because we constrained primarily Khwezela during last year and we've actually decided earlier this year to push Khwezela hard to start ramping it up and rather constrain some of the underground mines. And the reason for that was you might recall that the Transnet woes started immediately after we built the navigation project, which was just prior to demerger we completed that project, and we never really ramped up Khwezela and therefore it was always plagued with a fairly high cost per tonne due to a low denominator. In ramping Khwezela up, we've now proven to ourselves that Khwezela can run at a much more competitive cost per tonne and that was important for us to assess that outcome, Tim, in order for us to have all of the ingredients in our portfolio decision making that enables us to make the right portfolio decisions should it become clear that Transnet is unlikely to recover back to historic levels in the short term. So what do I mean by that? I mean that Khwezela is a longer-life operation, Zibulo is a longer-life operation, for example Elders is a long-life operation and we need to ensure that those operations can operate at the most competitive cost per tonne in order to protect a base of production for our business. And that was therefore important for us to ramp Khwezela up and that's possibly why you've seen some of the confusion as to why we would not have stopped Khwezela is because we needed to ramp it up and to understand if there are any other operational bottlenecks. And so far we haven't experienced any bottlenecks at Khwezela. And this now arms us with good information as to how to think about our portfolio into the future.

It would be very interesting at the upcoming results to discuss that flexibility in detail because obviously when you listed, your sort of export number was 16 million plus and we're living in a much more dire world than that. So just how you've planned flexibility around that. But it was a very interesting answer.

At this time, that does conclude the questions on the phone lines. If I can hand over for questions on the webcast.

Perfect. There are a number of questions on the webcast. The first -- I'm going to group a couple which relate to TFR and the first one comes from [ Thibault Levacher ] at Nedbank. And I think we've spoken about this in the call, Deon, but maybe just to reiterate. What was the drawdown on port stocks in H1 2023? Where do stocks stand now versus capacity both at mine and port?

So I can quickly give you, just to reiterate, currently finished product at port is around 270,000 tonnes. At mine it's around 2.9 million tonnes, closer to 3 million tonnes at mine. And when I say currently, that is sort of end of May numbers.

Okay. Then again a couple of questions in the same vein from [indiscernible] at Matrix, [indiscernible] and David Underwood at Henry Bath; essentially the same question. What would it take for Transnet to get closer to 60 million tonnes per annum or put otherwise and also how are we dealing with the Transnet bottleneck problems specifically as Thungela thought of using the Maputo corridor to avoid the issues on Richards Bay?

So in order to achieve the 60 million tonne throughput for Transnet, and this is a theoretical or mathematical answer rather than necessarily only a practical answer, Transnet would have to operate its existing installed capacity using operating principles and discipline that was observed until a number of years ago. Therefore, there's unlikely to be a very significant capital investment required for Transnet to ramp up to 60 million tonnes for the industry. Having said what I've just said, clearly the maintenance and operating practices as well as theft or other issues and the reliability of some of the locomotives has lagged over the last number of years and deteriorated over time and therefore adding capacity with the locos or otherwise to the line and locos is clearly the next key bottleneck to take Transnet theoretically above 60 million tonnes per annum. So adding that incremental capacity would net-net be helpful to creep closer to the 60 million tonnes regardless of the fact that it's not necessarily necessary, but it would certainly be helpful. In terms of tracking, you might have picked up that the news flow around the number of trucks making its way to Maputo and other ports has slightly moderated. And the reason for that is that with prices coming down, it's even more challenging for operators to earn a positive margin on lower quality coal being tracked given the inefficiencies in that logistics channel as well as the incremental cost relative to the rail and port cost through Richards Bay. So at current levels of approximately $100 a tonne API4 so 6,000 CV equivalent, most of the coal that was destined to move through those corridors would therefore be moved by operators to release cash rather than necessarily to make a profit. And therefore we question the sustainability of those alternative ports with the current forward curve and current observed prices.

We'll move to a couple of questions on Ensham. The first one comes from [ Johannes Wanderwurst ] from Pontus Pty Limited. While the Ensham investment over time require further cash contributions from Thungela over and above the approximately ZAR 4 billion initial price upon completion of the transaction in the near future? If so, what sort of magnitude might these further investments be?

Thank you for your question, Johannes. So just to remind us all that the initial purchase price was struck in Australian dollars and whilst there's a complex structure behind it, I'll simplify it to around AUD340 million. So currently that's around ZAR 4.25 billion and that cash would flow out the business on the day of completion, which is likely to be on the final day of either June so 30 June or 31 July or the last day of August. Those are the most likely dates at which that ZAR 4.25 billion would exit our business. In relation to the economic benefits that we get from 1 January 2023, there is a 2 month delay in formulating and calculating and agreeing that economic benefit net of any royalties payable to the seller Idemitsu. As I said during the call, at the moment our forecast if we complete the next month or 2 is that that economic benefit payable to Thungela is approximately ZAR 700 million. That ZAR 700 million is only payable therefore in the second half of this year assuming we complete and reduces the net acquisition price theoretically to around ZAR 3.6 billion. In addition, clearly Thungela would have to assess the levels of working capital in the business and there's a normal working capital adjustment mechanism on completion and to the extent that there's sufficient working capital in the business, there wouldn't be any further need for cash contributions in the short term. If we look at the current Newcastle prices as well as the forward curve relative to the costs incurred by Ensham, Ensham is likely to be cash generative as an asset and fund its own CapEx and there's not material CapEx in Ensham. And therefore -- so I'm talking $50 million to $70 million per annum sustaining CapEx and Ensham should be able to cover that themselves. We're therefore not expecting further cash flows to make its way to Ensham once the transaction has been completed. To the contrary we're, clearly with strong Newcastle prices, looking to Ensham to help fund and bring cash into the business for other capital deployment opportunities.

Two further questions on Ensham that are related and I suspect we will speak about this more at the release of the interim results. But the question from Edward Seaton from Douglas Seaton Limited. Can you tell us anything about production volumes and any operational issues in Australia and along the same vein from Sandile Magagula at Tomb Wealth. On Ensham, what is the expected cash cost per tonne sustaining and expansion CapEx overall and first contribution to Thungela? How big would the expected annual contribution for Ensham be on Thungela? Does Ensham have similar coal quality as Thungela? Please kindly provide insights. And given the current slowdown in the coal market, are there any expected specific adjustments to initial purchase consideration? I think you've already touched on a number of those so just a quick response there.

So during the first half of this year and you have to appreciate this is still Idemitsu managed business and I wouldn't want to report numbers on their behalf on this call, which they haven't reported yet to the market. But safe to say that the run rate we've observed last year of approximately 3 million tonnes of product has continued in the first half of 2023 without very material changes. Again without reporting anything they haven't reported about their own costs in the first half of this year. You might recall last year they reported a US dollar cost per tonne of about $100 a tonne and that compares currently with the Newcastle forward curve about USD 140 a tonne. So apologies for not being able to give you the detail of the first half of this year, but I suspect Idemitsu might report at a similar time to what we are reporting at which point that information become public.

Changing tact slightly, a follow-up from Sandile as well. In light of the TFR constraints and coal market and low valuation, do you think it's best to buy back stock or continue paying dividends? Would you continue to pay dividends should the market continue to weaken further?

Thank you, Sandile, for the question. I think I answered some of that when I answered Brian earlier around our thinking that clearly we remain focused on our dividend policy, which does stay 30% of adjusted operating free cash flow as a minimum dividend and room to do more. And to the extent that we are able to do more and that is really a Board deliberation at the time given all of the factors. Sandile, you also mention around outlook of the business at that point in time, which as you know is very much informed by Transnet prices and FX. Clearly we would have to assess it closer to the time of having to make the decision, but we continue to assess it and we'll update the market therefore when we get to the August interim results.

The next question is from David Fraser at Peregrine Capital. At a USD/ZAR exchange rate of ZAR 18.60, what is your breakeven USD coal price?

So at ZAR 18.50, it's $90 a tonne all-in so that's OpEx, sustaining CapEx and the like so $90 a tonne. I don't know at ZAR 18.60, but at ZAR 18.50, it's $90, David. So I assume it's rounding below there.

Going to scroll further down. Then the next we've got 3 questions from Siphelele Mhlongo at Sanlam Investments. The first question is what is behind the realization deterioration? Is it the grade of export volumes sold to-date or other market factors largely? Question number 2, does Thungela have enough high grade volumes at the port to keep realizations at current levels or higher? And question number 3. Sorry, I missed the comment on Zibulo. You say the grades will be largely the same in the first few years. Do you expect higher grades from the mine extension later?

So Siphelele, I answered I think some of the realization question earlier, but let me. I suspect I might not have been that clear, in hindsight apologies. So our grade that we've exported and sold in the first half is consistent broadly with what we've seen in the second half of last year. So there hasn't been material changes to our product mix. That's firstly. Secondly, we have seen a higher discount percentage, which is I think what you referred to as realization. The reason we've seen that higher percentage is because at the time that discounts were struck, the actual absolute discount was high because the absolute API4 price was high. That absolute discount number is penciled in and applied on the date of the actual sale and because API4 has softened as a percentage, that discount was then more pronounced in the first half of this year and higher percentage notwithstanding the same absolute number. So that's the main reason why our realization deteriorated slightly and we expect the current levels broadly or roughly to remain in place and be achieved in H2 also based on the current forward curve as a caveat. So your next question, do we have enough high grade volumes at port to keep realizations at current? So I think we've answered the question in terms of H2 realizations likely to be the same. And if I quickly just look down our port stocks, the answer is yes. If I look at the 270,000 odd tonnes that we have, we do have sufficient short-term port stocks at least, but clearly it hinges on being able to continue to rail higher grade volumes through to the port in H2. In terms of Zibulo, so the grades will likely be the same as they are currently for the next couple of years. In fact it will probably remain the same all the way through to 2030. From approximately 2030, the grades are likely based on the geology and the in-situ coal to reduce to about a 5, 7 product and then post 2035 reduce again. So over the life of that operation, the average would be around 5, 7, but it starts off higher and ends lower.

We've got a couple of questions from Jon Ogden from Eastern Value. I'm going to read out 2 or 3 of them, Deon, and we can take them that way. Firstly, how much of your FOB costs are in rand so how much benefit are you getting from the weaker rand in terms of lower costs? Then the second question, do you view the present weak South African coal price as a temporary pause in bull market caused by global undersupply or something more serious in terms of a longer-term downturn? Then Jon's final question, how should we view the domestic sales? Are they always breakeven or loss making? Any numbers you can share?

So Jon, let me quickly start with your present weak South African coal prices as a temporary pause question in a bull market. So maybe I should just remind you our view has always been that we think structurally the coal market remains very attractive. We think the under-investment into coal mines is a feature that has continued other than in China, India, Indonesia where some of the developments have been to feed increased domestic demand. Equally we have seen a massive increase in the new coal-fired power generation built in China that was last year. I think in the fourth quarter you may recall, China switched on almost as many gigawatts in coal fire as the whole Europe. And India recently last week I think announced that they are planning to switch on a very significant quantum of incremental coal-fired power stations during the next number of years. And all of that in our mind remain supportive of coal prices in the medium and longer term and those are anecdotal points in recent times. But the fundamental research that companies such as the WoodMacs do, which I referred to earlier, points to a very similar feature in the Bay is continued demand for coal in medium to longer term. Currently we see the weakness pronounced due to a number of factors. Firstly, the winter in Europe was much meeker and milder than what anybody anticipated and coal stocks, gas stocks and the like was fairly high coming out of that winter and therefore no need to restock. That might change as we head closer to winter later this year and clearly we'll be watchful around developments in that regard. We also see a very significant supply of gas on tap currently and that clearly will moderate as suppliers of gas are unable or unwilling to accept low or negative margins with current gas prices. So there are a number of short-term headwinds in the coal price. And yes, so therefore I'm answering your question from our perspective, we do think that this doesn't necessarily mark a very serious downturn for the longer term, but rather a level of pause. So that's on the market question. In terms of your question on domestic sales, they absolutely so far have been fairly neutral in terms of our earnings and cash generation. In some instances slightly margin negative, but there are a number of efforts ongoing to turn that scenario around. Lots of volume, but not very material earnings. It remains in many of our mines a byproduct also so where we watch for a primary product for export, it remains a byproduct and that's why it isn't necessarily a standalone focus of the business. A very large proportion of our costs are in rand so indeed the weakening of the currency has benefited us materially. The last time we ran a sensitivity I think for every ZAR 1 weakening, there's about a ZAR 1 billion of tailwind to our earnings if that ZAR 1 weakening in the rand to the dollar prevails for a full 12 months. From memory, there is a direct and indirect rand element to our FOB cost per tonne. You have to appreciate that the direct is very limited. But the indirect; which includes diesel usage, explosives usage, steel usage, almost all consumables; have an indirect reference to the underlying currency. And therefore over time as contracts with our suppliers reset based on a new FX and we are unable to protect our FOB cost per tonne, we'll get the full benefit through the cost line.

I can see on the webinar that there are about another 3 questions there. Firstly, we'll go to a question from David Underwood at Henry Bath. What is senior management going to do to help increase the share price as the current share price of GBP590 is a long way off the 52-week high of GBP1,933? And a follow-up question from David Underwood at Henry Bath as well. Have senior management will be buying more shares at the current low levels to help boost confidence of current shareholders?

So I have not followed every senior manager's buying activities. I think we only report some directors' and officers' dealings. And if I recall correctly, I think our Chairman acquired shares as recent as last week if I'm not mistaken or 2 weeks ago from memory. So there has been some buying activity, but nothing more I can comment on, David. Sorry, I just wanted to double check the second question. What is senior management doing to help increase the share price as the current share price of GBP5.90 is a long way off the 52-week high. So David, our share price obviously we don't necessarily comment in detail as to what drives the share price. But if you have a fundamental valuation of the valuation of our business regardless of the multiples they trade at, it is a function of primarily our revenue line which is informed by volumes of sales multiplied by the realized price that we achieve. And clearly we have quite significant operational leverage and therefore that revenue relative to our cost line is the primary driver. Given what prices have done over the last number of months, I'm now talking about 5, 6 months, clearly that net free cash flow generation in the current period has softened and that is no doubt behind some of the decline in the share price just as a consequence. Clearly what we are focused on as a management team is to control what we are able to control, which might not be that coal price, but certainly the sales volume and the revenue line as well as our cost and our CapEx. There's a number of programs that we have internally to ensure that we review the level of our CapEx spend so our SIB spend carefully and that we review our OpEx very carefully and avoid any spend that we feel is discretionary and might not impact the sustainability or the future prospects of the business.

Last couple of questions. The first one from [ Peter Kronberg ]. Can you outline any planned CapEx spend for off grid energy projects? Is there any prospect of introducing some debt on to the balance sheet?

We have approved a solar project for approximately ZAR 100 million. That is a 4-megawatt project at Zibulo. We are also busy reviewing a similar solar project at Elders. The reason we would focus our solar efforts behind the meter at these 2 operations is because they are long life. They are linked to these 2 capital projects I've spoken about not included in that spend the ZAR 100 million, they are on top of. But clearly we have a level of confidence in the payback, the energy security that those projects would bring. So it's about ZAR 100 million per 4 megawatt fit-for-purpose behind the meter so energy security solutions at Zibulo and potentially 1 at Elders into the future. In terms of introducing debt, we entered into facility agreements with 2 of the larger South African banks early this year. In fact I think January, February sometime this year from memory. And those agreements gave us access to around ZAR 3.2 billion of facilities. Our thinking around the use of those facilities remain work in progress, but they were originally designed to give us more balance sheet flexibility and to start to migrate our business over time to a position where we can optimize return on equity and obviously get our weighted average cost of capital down. We are currently contemplating the use of those facilities for some of our capital projects spend so Elders and the like. But clearly there are a number of considerations around the tax efficiency and the like that we're also working through. So yes, that is work in progress, Peter.

We've got 2 last questions. The first from [ Manohar Raja ]. Are you open to being taken over by for example the likes of Glencore or in search of high quality coal assets?

So that's not a question that I can necessarily answer. I mean as many of us, we work for Thungela and clearly if our shareholders are open to such an outcome, then it's really a shareholder decision or a Board and shareholder decision rather than necessarily an employee decision. We operate this business the best we can regardless of the shareholders that own us.

And then the last question for today is from David Fraser at Peregrine Capital. You have not mentioned the core cash bands. Are they still valid in the current environment?

So we said when we reported results in March this year that we were comfortable at the time to reduce the cash that we had on hand as what you call it the core cash or the cash buffer from a previous level up to ZAR 6 billion down to ZAR 5 billion. We said so for a number of reasons at the time, including the fact that we were able to secure a level of liquidity outside of funding with our own balance sheet only. We haven't revisited that position, David, not in the period between March and now. But clearly that is a discussion we will be having with the Board as we consider the broader capital allocation of the business heading into the second half of this year. So no, we haven't updated and that stance hasn't changed. Having said what I've just said, clearly from a dividend expectation relative to a cash band expectation, the primary measure we use is a percentage of adjusted operating free cash flow and there our minimum payout is 30% of adjusted operating free cash flow.

I see that we have no further questions in the queue. Should you have any follow-up questions, please do get in touch with me via email. My email address is [email protected] and I will get back to you. With that, please allow me to hand back to Deon to close out the call.

Thank you very, very much, Ryan. Clearly the current world that we operate in give us a couple of interesting challenges. Not only do we face Transnet challenges, but we also have a lower softer price environment that we're maneuvering through. As a management team, we remain very focused on what we are able to control and some of the questions that you've asked today are absolutely pertinent in that context. In particular our portfolio, the appropriate shape and size, how do we operate most efficiently, productively from the appropriate operations and what is the right level of sustaining capital to spend at each of these operations. We will continue to focus on what we are able to control and what goes hand-in-hand with operating responsibility clearly is the safety of our employees and the health of our employees as well as the environment. Those are the factors that we are able to control and that we will focus on over the next number of months and we hope to report positive results on all of what we are able to control when we speak to you next I think in late August this year. Thank you again for all the questions and for everybody that's taken the time to dial in. Have a wonderful day.

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