Thungela cuts production guidance due to rail problems

FIFI PETERS: Thungela Resources, the coal company that was spun out of Anglo American earlier this year – I think it was earlier this year – has cut its export sales guidance for 2021. This is due to some troubles at Transnet, which are making it difficult to get enough product out of the country. For more I’m joined by Thungela Resources CEO July Ndlovu. July, thanks so much for your time. Remind me – it was this year that you listed?

JULY NDLOVU: In fact a few months ago we started trading as an independent company – in June. Good evening. Fifi.

FIFI PETERS: Good evening. This pandemic has blurred timelines, so I just wanted to make sure that I was on the same page. You started trading and things have gone well. In fact, we heard from our market analyst how your share price has shot up as a result of the dynamics in your market. But nonetheless, you are currently experiencing challenges at Transnet on the ground. How is this impacting your business? What’s the situation like there?

Read: Transnet declares force majeure at Richards Bay terminal

JULY NDLOVU: The issues have been well covered widely and they fall in two categories: security and maintenance challenges at Transnet. Clearly, when we announced our interim results we said that while there were problems at Transnet we developed action plans to be able to manage our situation. Transnet has not been able to improve their performance since they came out of the shutdown. We have had to invoke some of [the] actions that we said we would do, which include making sure that the highest margin coal finds a seat on the train. We also worked quite extensively with Transnet to help with the security situation. I’m told actually that where we’ve deployed security as an industry – a stretch of about 240 kilometres – it’s only two weeks, early days, but we haven’t had a single security incident, which suggests that was done works.

However, if we don’t see a significant improvement, we think we’ll be stock-bound between now and year-end, which is the reason why we’ve had to issue the Sens that we issued this morning.

FIFI PETERS: Okay. Just in simpler language, you are prioritising the coal that makes you the most money, that has the highest margins – and that is going out for exports. So what’s happening with the rest?

JULY NDLOVU: We have had to stockpile coal at our mines. So when we say we are stock-bound, what we mean is we are running out of stockpile space in our mines, and we predict that sometime between now and year-end we’ll be running out of stockpile space.

FIFI PETERS: Fine. Then you’ve got this idle stock that’s sitting there that could have been making money for your business – and even for Sars in terms of the mining taxes that we have seen – but that is not [happening]. So how long can it stay there, and what is the potential loss in sales as a result?

JULY NDLOVU: It is significant. We said that our stocks are likely to increase I think …. by about 1.3 million tonnes, depending on what price you take. That could be anything between R2 billion and R10.5 billion worth of revenue tied up, which would have been contributed to this economy.

FIFI PETERS: Hm. What have you had to tell some of your clients, July?

JULY NDLOVU: Look, this has been quite a challenging time for our clients but, given that they understand the issue and the work that we’re doing, we are actively engaging with TFR [Transnet Freight Rail] to try and resolve some of the maintenance issues now that we’ve got the security intervention in place. I must say, as challenging as things are, there is a willingness for us to work together with Transnet, but clearly it’s going to take time to find the solutions that we need.

FIFI PETERS: What kind of concessions are they making for you? You’re losing out on revenue here. What is Transnet doing to compensate you for this?

JULY NDLOVU: There’s nothing much they can do, unfortunately, much as we want them to. At this point in time, quite honestly, Fifi, my first priority is to ensure that we as an industry and as a company can work with Transnet to get trains back on line. And if we can achieve that over the next three to six months, I think we, as a company and the country will be better off for it. I think that should actually be our focus, and I’m hoping that we can work with government to ensure that we bring TFR back to what it has always been.

FIFI PETERS: And if you can’t, what’s the plan B for your business? I’m sure your shareholders would want to know potentially how you’re thinking of the worst-case scenario.

JULY NDLOVU: Look, our options in the coal industry are quite limited. We have a very efficient infrastructure to the port. The port is quite good. It is actually specifically designed to make sure that it takes trains only. So there’s no alternative to get coal to our export market. What that means, Fifi, is whatever we do we’ve got to work together as an industry, as a country, to resolve these issues – even if it includes looking at investment into new trains, whatever it takes. This is not tenable.

FIFI PETERS: All right, July, thanks so much for updating us there on quite a grim situation on the ground – but it does sound like you’re quite hopeful that there can be a resolution. We only hope. July Ndlovu, CEO at Thungela Resources.