Thungela Resources Limited (TGA) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Thungela's CFO pre-close statement for 6 months ending 30 June 2026. [Operator Instructions] Please note that this event is being recorded. I will now hand the conference over to Hugo Nunes, Head of Investor Relations at Thungela. Please go ahead, sir.

Thank you. Good afternoon to all, and welcome to this afternoon's investor call following the release of the CFO pre-closed earlier today. I'm Hugo Nunes, Thungela's Head of Investor Relations, and I'm joined on the call by our Chief Financial Officer, Deon Smith. Today's call will be done through both an audio webinar as well as a conference call facility. Deon will present an overview of the CFO preclose released earlier today. And thereafter, there will be a Q&A session until we close the call shortly before 1:00 South African time. [Operator Instructions] Finally, a reminder that today's announcement is now available on Thungela's website, and today's session will be recorded, and the recording will be made available on the Thungela website from later this afternoon. With that out of the way, please allow me to hand over to Deon Smith.

Thank you, Hugo. Good morning, and good afternoon. Thank you for making the time. to join us on this pre-close call for the 6 months ending 30 June 2026. So starting with safety. We are pleased to report that we've remained fatality free for the last 39 months. And at the outset, it's important to recognize the conflict in the Middle East. Note that we took additional steps to ensure the safety and well-being of our employees in that region whilst also securing operational continuity. The situation, as you would have seen in the media continues to be volatile, and we are closely monitoring those developments, but we're pleased that we've not had any significant business interruptions or otherwise today. So this conflict in the Middle East, once again, highlighted to us the security and energy security concerns globally. And as oil and gas flows through straight off was significantly disrupted during this period. So during the peak conflict, you would have seen oil prices fluctuate between 90, even $120 a barrel. However, with a fragile piece agreement now reported to in place, both oil and gas prices have eased back and receipted to pre-conflict levels. and currently trading in the low 70s. Coal prices showed a similar pattern. The new cast price in Australia and rose well above $140 a tonne in the last stages of the conflict whilst the South African Richards Bay benchmark price peaked at around $120 in May. South African price response lagged behind the Australian benchmark. And that was largely due to a slowdown in the Indian demand and alongside increased inflows of lower-cost coals into the Indian market. In terms of our performance. In South Africa, the average API4 price for the first 5 months of the year is about $104 a top -- that's up from $92 a tonne in the first half of 2025. You might recall $89 a tonne for the full year. Discounts in South Africa was about 16% for the first half of the year. And that's consistent with the levels we observed in 2025. Our financial performance continues to be very sensitive to the volatility in the South African rand. And in the period, the rand averaged a very strong ZAR 16.4 to the U.S. dollar, compared that to ZAR 18. 39 million in the first half of 2025 and 17.89% for the full year. in 2025. So this has translated into an average realized price in South Africa of about ZAR 1,437 a tonne, slightly up from 1.3 in the first half of 2025 but broadly in line with the full year 2025. Turning to production. Our export saleable production in South Africa benefited from improvements at Cell and consistently strong performance at Mafube compared to the prior comparable period. At the bulb, our year-on-year production has declined as we continue to transition from the current shaft to the New North shaft. As a result, we expect our exportable production for South Africa to be approximately 6.3 million tonnes for the first half. Export sales in South Africa was very robust. First half 2026 volumes is expected to reach approximately 7.5 million tonnes, and that includes tonnes of third-party volume. And this 7.5 million compares to the 6.6 million in the first half of 2025. So the performance was supported by improved TFR operations, which have reached more than 60 million tonnes on an annualized run rate basis for the first 5 months of this year. We're also able to use rail capacity from other coal exporters who did not have sufficient coal available to use their full allocation. Our FOB cost per tonne in South Africa for the first half of the year is expected to be slightly above the full year guidance, and that's primarily due to the lower production denominator. However, our full year cost guidance and production guidance remains unchanged, and that's supported by the anticipation of a stronger output from [indiscernible] in the second half as well as the normal seasonal nature of production in South Africa. If we turn to Australia, new coal prices averaged about 125 by the end of May 2026, and that compares to $102 per tonne in the first half of 2025 and $105 million a tonne for the full year. However, the average discount is expected to be approximately 13.5% for the half year. And this largely reflects the combination of contracts that we agreed prior to the onset of the Middle East conflict that we invoiced thereafter and also a bit of a timing delay on the higher prices coming through into our realization. Similarly, we've also had around 360,000 tonnes of invoiced coal and that was invoiced to a time ones customer basis, the 2025 contract pricing. We typically negotiate with this coal utility. And once we finalize these negotiations in the coming months, we'll have to reissue invoices for the cells conducted in the first half at the revised price. And that would obviously increase our price realization for the first half or for the full year and narrow that discount slightly. So as a result of all of the above, our average realized price in Australia was about $107 a tonne compared to $109 a tonne in the first half of 2025 and $105 million for the full year. At Ingram, we expect export saleable production of approximately 2 million tonnes, and that's up from 1.6 million tonnes the first half of 2025. But as previously said, last year's first half performance was affected by that temporary geological feature that we traversed in the first half. But we also anticipate sales of around ZAR 2 million to match that production of ZAR 2 million in the first half of '20. And therefore, we're also very confident in our full year guidance of about 3.9 million to 4.2 million tonnes at Asia. Turning to cost, FOB cost per ton is expected to come in below the full year guidance range at the half year, but that's primarily due to a stronger and South African rand. And therefore, the translation and consolidation of the should mine benefits from that. our full year guidance ranges, both on production and on cost remains unchanged. If I turn back to the group and look at capital expenditure for the business. first half of the year, it's expected at approximately ZAR 600 million in South Africa and ZAR 250 million at Engine. Full year guidance remains unchanged. With South Africa expected to be around still between ZAR 700 million and ZAR 1 billion, ZAR 700 million and ZAR 1 billion and incrimbetween ZAR 500 million and ZAR 700 million. So to summarize the group's performance for the first 6 months of 2026, our production remains on track, increasing from 8.3 million -- increasing -- sorry, 8.3 million tonnes in the first half, and that's up from the 8 million tonnes in the comparable period in 2025. And our group export sales rose to 9.5 million tonnes. That includes the 700,000 tonnes third-party sales. wrapping up on operations, our full year guidance for both production costs and for capital across both regions remain in place and unchanged. From a portfolio perspective, you may recall that when we announced our year-end results, we also announced the sale of Howorth as well as the can cookie mining right, which is within the broader laser complex. Whilst we continue to make good progress in the Hoop North transaction, we're very pleased to confirm that we've completed the KK mining rights sale. This transaction will result in, obviously, an upfront cash consideration, modest cash consideration, but most importantly, also a noncash reduction in the group's environmental provisions of about ZAR 1 billion. and that will be a positive boost to our earnings in the first half of 2026. But we'll clarify all of that as we get closer to the interim results announcement. In terms of capital allocation, at the end of June 2026. We expect net cash to be in the range of about GBP 5.9 million to 6.1 million I'm being told that it will probably be towards the upper end of that range, so closer to the ZAR 6.1 billion mark. And the reason for that range was really just the timing of our VAT receipts in relation to June, but should be in by close of business today and hence, the upper end of that range. That cash balance also includes the benefit of about ZAR 1 billion of FX cash gains in the first half, and for those that typically follow our foreign exchange position, we've placed another ZAR 390 million, ZAR 390 million into the second half -- sorry, $380 million to the second half of the year at ZAR 18 to the dollar. Our Board remains as always committed to our dividend policy. That dividend policy is to distribute at least 30% of our adjusted operating free cash flow to shareholders by way of a cash dividend. And then clearly, in determining this dividend, the Board will also take into account an appropriate level of the cash buffer in light of the recent coal price volatility, but most importantly, also the strengthening of the South African rand. In closing, we continue to remain focused on what's really important for our business. That's enhancing our safety performance and delivering on our operational commitments and our guidance that we've provided and reaffirmed today. And we'll provide you with obviously a fairly detailed update on our results for the first half when we announced these on the 17th of August 2026. So -- and with that, I have to pause and take any questions.

Thank you, Deon. [Operator Instructions] Operator, please open the first question.

The first question we have comes from Jandre Pieterse of [indiscernible] Wealth.

First question, just to clarify on that fixed price contract from the Taiwanese customer. Can you just clarify there in terms of both timing and cash versus accounting here. It wasn't yet to me whether the discount benefit will come through in H2 or whether you'll be restating H1 and whether this is effectively a placeholder, we will be topped up or this improves going forward.

Yes, thank you very much for your question. So we invoiced the 360,000 tonnes at low $100 a tonne. So similar to the levels we observed in 2025. Our negotiations typically complete by August, September. That's the latest we're able to complete those negotiations. Clearly, with the extreme volatility, our customers also not been keen to negotiate the conclusion of that 2026 pricing level whilst the war is ongoing. To answer your question more explicitly, what will happen if we invoice these at making up a price of $20 a tonne, our earnings would benefit clearly from an uplift between the low 100s to the 120 level. our cash, we would also benefit in a cash adjustment. We would not be restating any results -- it's not material enough. This is more just a continuation of a contract that we would then get the full benefit in the second half of the year earnings increase and a cash injection.

Okay. That makes sense. That's helpful. And then just in terms of the third-party coal you sold, I just want to see any color in terms of margin? Is that at a marginal margin? Or how much does that compare versus your own interns?

Yes. So the third-party purchase that we typically do we make a narrow margin on that. So not a very wide margin. It's optimizing clearly our full logistics chain optimizing our blend and our product to be able to deliver to our end customer. But we don't do that at a very significant margin. It's a fairly narrow margin.

Last one for me before I hand over. In terms of SIB CapEx going forward into the future and depreciation, especially after your disposal now, where do you see those landing versus current SIB CapEx numbers for this year? Is it roughly here plus inflation or at any different?

Yes. Thank you for those questions. The disposal has not had any impact on the SIB or our review of SIB because that was a closed operation that we exited. The SIB that we've guided before is is round about the same type of levels we think it will remain for the next couple of years. There are opportunities to reduce that slightly as some of our operations come closer to the end of its life. . So we're talking green site in Cosala in particular. But for the next couple of years, the levels we are spending currently in sustaining capital is appropriate in [indiscernible].

The next question we have comes from Tim Clark of SBG Securities.

Congrats on the results. Just the first question. Diesel prices are up a lot. I know there was a bit of inventory, obviously, that we work through. But obviously, the diesel that's going to be moving into the second half will be quite high cost in. I'm a little surprised that it hasn't impacted your cost guidance. So just maybe you can give us some thoughts on what diesel has done to costs across the business.

Yes, Tim, it's a very good question. The -- it's not only diesel, but as you can imagine, explosives all energy-related costs have definitely increased. There's some supply chain disruptions that have also caused increases in certain inputs into our process. As I might have mentioned before, our energy cost input or input cost is a fairly low percentage in the total cost picture. So even if those costs go up at the levels that we see in the market and stay there, we're not expecting a material impact on our business. So around cost input cost is diesel. The reason it's so low is because we run mainly underground mines. So the open cost operators would most certainly have other challenges. We've also had the benefit of offsetting some of the cost pressures we could not avoid by delivering on our internal cost savings program. So we continue to deliver on operational cost improvements. But clearly, those have only but offset these cost pressures that you're referring to we're comfortable to keep our guidance at the level that it is currently. We believe there's enough headroom in that to compensate for the increase we've seen so far.

And then just on plain 4. Obviously, it's a moderate cash consideration, but can you give us some indication of the run rate of costs that you were incurring on the area that you've sold on a monthly basis, so we can maybe extrapolate or some sense of the cost savings that we can build in.

Yes. So the costs that we ran at KK whilst it was under care and maintenance, it was around ZAR 5 million a month, which will discontinue or has now discontinued around 5 million to 6 million in a month.

Okay. Super. And then my last 1 is just the outlook for the discount on the new parcel or interim sales for the second half of the year. I mean, obviously, you've got the new contract coming in or you're negotiating a new contract to Taiwan. It will be a kind of opco benefit for 6 months at whatever price difference is -- but should we be reverting back to more normalized discount ranges? Or do you see a wider range for the second half?

Yes, Tim, it's a very good question and difficult to answer at the moment. We'll update you in due course. It very much depends on where some of the volatility lands I think that we will see a narrowing of the discount certainly in the second half but to guess the exact percentage at the moment is difficult given the volatility, but definitely narrowing discount compared to what we saw in H1.

At the normalized levels, do you think? Or do will you give us some thoughts on results maybe?

I'll give you a bit more detail at results. It very much depends on where we land with Tim Power also but certainly internally hopeful to pull that back to single digits rather than double-digit percentage points.

The next question we have comes from Thobela Bixa of Nedbank.

Just some few questions from me. The first 1 is just in terms of those geological challenges you had in Australia, are you now past those? Or you still have some sort of remaining into the second half?

Well, it's definitely a pertinent question for all underground mines. The challenges we had in H1 2025 were unfortunate because we had 2 separate geological intrusions on 2 different sections of the mine, both arriving in our mining horizon at this exact same moment. . And therefore, we had to mine through some of those areas rather than redeploying continuous miner units to other parts of the mine because early, you don't have as much flexibility as to deploy both but rather just 1 typically. So the issue at Ensham was very much pronounced in the first half of last year. It did not impact our production run rate in the first half of 2025. We still produced, but some of the coal we produce was lower quality. And hence, we did not declared a salable production in the first half mainly because we didn't have contracts for it. we resolved that, as you might recall, in brushscreen that coal and also sold it in the second half of the year. So that was very much temporary. In answering your question, looking forward at Ensham, like every other mine, we will always face some level of geological intrusion and uncertainty from time to time. But the way that we have now responded to set up Ensham with a fault development crew as well as increased flexibility means that if we had to encounter a similar intrusion or 2 intrusions at the same time, we should have more flexibility in order to not have that impact on our sellable production. So the answer is yes, we will always have geological features in our minds, but we are now better equipped at managing that attention than what we were a year ago.

Okay. And then just another question is just in terms of those third-party sales, I mean, there was a significant increase in the half. Just talk to us in terms of what drove that? And perhaps are they mainly just from assay side? Or do you also do some third-party sales in Australia?

So they're mainly South Africa. It was slightly and continues to be slightly opportunistic I downplayed the margin earlier because these are not material margins, but they still add a couple of dollars a tonne to our business. So where we have visibility that there is excess rail available that we can match with excess tons in the market, we certainly play our part to make a couple of dollars. But it's definitely a South African future currently more than Australia.

Okay. And then my final question, which is a bit left field. Just -- I mean we saw in the news or we just saw some headlines that you are possibly interested in a met coal assets in Australia. Could you just talk to us in terms of your thinking around M&A at this date?

Yes. Thanks, Thobela, not left field at all, but definitely in our field of play. We don't comment on specific situations or specific transactions. But what I can tell you is consistent with what we've said in the past, when your neighbor's house goes on for sale, we walk around on a Sunday afternoon. We definitely go look at it. We're very keen to understand if there's any good practices we can pick up and whether we can learn from those. But as we've also said before, if we then do stumble across an operation that we believe we can operate materially better than the current operators and can unlock value, we would consider that acquisition. But clearly, the speculation in the market was nothing more vacation.

Yes. And maybe just a follow-up, Deon, in terms of looking at neighbors houses and stuff, is it still around Dermacor or you also sort of interested in other, let's say, met coal and other types of assets.

So we've never sort of come out and said that we're interested in 1 type of house versus a different part. We've looked at mining methodologies and areas where we have a right to win, where we can operate well. and we wouldn't necessarily venture outside of areas that we do not have expertise and skills to operate better than somebody else. And the reason you wouldn't have seen a lot of acquisitions out of Thungela in the last 5 years is because we've only found, as you know, interim that we thought we could operate better. So it's more asset-specific right to than what it is neces

[Operator Instructions] We have a follow-up question from Jandre.

I also just wanted to ask for discounts for SA going into second half. And you shipped some lower quality coal that you had inventories off. Do you expect that to continue into -- and then just a follow-up on to Thobela's question in terms of M&A, you see a previously mentioned that there would be a little bit of a relook at a board level on the M&A strategy and considering assets, including met coal and iron ore, has that concluded? Can you say whether iron in particular is still on the table? Or is that the narrowness it really just come down to mining method?

Yes. Thanks, Jandre. So for the second half in South Africa, we -- as you may know, that Azelumine also produces really high-quality coals as we see the blue ramp up, we should see our discounts stay where they are compared to the first half or potentially even narrow slightly. Again, we're not looking at material shifts in that discount. So probably back to the levels we saw for the full year last year, so 1 or so percentage improvement. In terms of M&A strategy, it's not a single point in time that the Board has these debates or discussions. It's a continued process. But so far, the discussions have consistently stayed on asset quality, specific mining methodology right to win rather than necessarily 1 commodity or another commodity. So no, there's no specific view on commodity or any other guidance I can give you on that. But certainly, our main focus is actually mining what we have today mining it safely and cost effectively and getting us back to giving the level of confidence in the market that we're able to meet or even exceed our guidance. So our primary focus and the board's focus is certainly operating what we have very well not only having debate to start M&A.

So at this stage, there are no further questions on the conference I will now hand back over to Deon Smith for closing comments. Please go ahead, sir.

Thank you very much for that, and thank you again to everyone that's dialed in today. I appreciate your time, and stay safe and warm in -- if you're in the Southern Hemisphere, we look forward to engaging you fairly soon and at the very latest, obviously, on the 17th of August as we announce our interim results. Thank you kindly to everyone and have a lovely afternoon.

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