Ahead of releasing its interim results on August 18, JSE-listed coal miner Thungela Resources says the recent softer coal price environment has demonstrated the importance of operating a cost competitive business and maintaining balance sheet flexibility.

Amid the challenging operating environment, with volatile coal prices and fluctuating foreign exchange rates, Thungela has remained disciplined in executing its strategic priorities.

In South Africa, the company’s Elders project has started producing export saleable production and continues to ramp up. In turn, the Zibulo North Shaft project remains on schedule to be completed next year.

In Australia, the company has acquired the remaining stake in Ensham from its co-investors, with Thungela soon to own 100% of the business.

The group’s production in the six months ended June 30 was bolstered by incremental underground production while its opencast operations, predominantly at Isibonelo and Khwezela, in South Africa, were impacted by higher-than-expected rainfall.

The Australian production and export saleable product qualities in the six months under review were impacted by challenging geology, but should improve in the second half of the year.

Export saleable production in South Africa is expected to be about 6.4-million tonnes for the first half of the year, compared with 6.2-million tonnes in the first half of last year, mainly owing to improved rail performance and production support from underground operations.

Export saleable production at Ensham is expected to be about 1.6-million tonnes for the six months under review, compared with 2.1-million tonnes in the six months ended June 30, 2024.

The company’s net cash, excluding cash pertaining to the Ensham fixed price contracts that are yet to be finalised, is expected to be between R5.9-billion and R6.1-billion at the end of June, while it has undrawn facilities of R3.2-billion.

Moreover, Thungela’s Goedehoop and Isibonelo mines are approaching the end of their mine lives and, as a result, the company has started with a restructuring process at both operations. The company will share more detail about the restructuring at the release of its interim results in August.

RAIL PERFORMANCE

Notably, the company says the performance of Transnet Freight Rail (TFR) continues to benefit from ongoing industry collaborative initiatives. Rail performance from January to May was 55.5-million tonnes for the industry on an annualised basis, reflecting a 7% improvement compared with the same months of last year.

The improved performance is mainly as a result of fewer security-related issues, and improved locomotive availability and reliability, largely owing to the additional locomotives introduced onto the North Corridor coal line.

TFR’s signalling project is expected to commence in the second half of the year and this should further improve rail performance in 2026.

MARKET VIEW

The threat of higher tariffs and the resultant instability in global trade has caused disruptions among the largest economies, constraining global economic growth and impacting energy markets.

Ongoing conflicts in Eastern Europe and the Middle East continue to disrupt the supply chain universe and contribute towards the volatility in commodity prices.

Thermal coal prices have declined since the latter part of 2024, reflecting shifts in underlying demand and supply fundamentals. Demand has slowed as a result of the global economic slowdown, coupled with the high levels of stockpiles across coal’s main export hubs, particularly India and China.

Thungela explains imports into these regions are further impacted by increases in domestic coal production for power generation and industrial consumption.

Producers have been slow to curtail production and, according to consultancy Wood Mackenzie, at a Richards Bay Benchmark coal price of $90/t, about 50-million tonnes of export thermal coal production from Indonesia is potentially uneconomical.

Colombia's main producers are looking to cut between five-million and ten-million tonnes of thermal coal production this year owing to the low price environment.

Locally, benchmark coal prices softened in the year-to-date, with the Richards Bay Benchmark coal price averaging $91.74/t, compared with an average price of $105.30/t in the 2024 financial year.

The Newcastle Benchmark coal price saw a steeper weakening, averaging $101.71/t in the year-to-date, compared with the average $134.85/t price in the 2024 financial year.

Discount to the Richards Bay Benchmark coal price is about 14.6% for the year-to-date, compared with 13.1% in the 2024 financial year, which reflects the weakening market, bearish demand and wider grade discount differential for all products to date this year.

The average realised export price for product sold through Richards Bay Coal Terminal for the year-to-date is $78.3/t, compared with $91.56/t in the 2024 financial year.

Premium to the Newcastle Benchmark coal price has been about 8.1% in the year-to-date, compared to a discount of 8% in the 2024 financial year.

Thungela says the average realised export price in Australia was $109.93/t, compared with $124/t in the 2024 financial year. The premium is as a result of a number of fixed price contracts, representing about 70% of volumes sold, which were agreed at prices well above the Newcastle Benchmark coal price for the reporting period.