Inflation watchlist
By now, you may have seen how markets have been going into the red as inflation fears take a toll on the global economy. At the same time, more pressure may come as Russia begins to close gas taps for Europe, adding to the pressure around the rising costs of living. Given the current geopolitical tensions, Europe is expected to start burning more coal to fill the gap that may come as Russia reduces gas flows to Europe. The gas shortage has been seen across many European countries, with demand remaining steadily high. This is one of the latest moves by Russia after an energy embargo was brought to the table to cut the country from the global economy.
EasyZAR:
Thungela Resources Limited (TGA)
As one of the most traded stocks, Thungela is one of the largest coal companies that continue to stand out amid rising energy prices. The stock is owned by over 50 000 EasyVSTRs
Since early April 2022, the company has been hovering above R230 a share after hitting a significant rally from just around R20 since its listing. When the share price reached R50, they faced a sell-off, as uncertainties from central banks on inflation took a toll on the global markets. By Friday, 13 June 2022, the company further announced that Free on Board ‘FOB’ costs (which refers to costs related to ownership and exportation per tonne of coal) had been expected to increase in the first half of 2022 (H1 2022) due to the lower export of saleable production. Influencing factors include the South African railway.
Fast forward to the Monday, the company continued to rally behind coal prices, even as the energy embargo against Russia looms from the EU: a threat to the supply of coal to EU, and potentially adding more pressure to the global supply. This shift in dependency on Russia may stretch energy prices even further and encourage EU buyers to seek alternatives.
For Thungela, with the current headwinds that include the South African railway issues, the company expects FOB costs to increase, including royalties.
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“We are closely monitoring the previously issued export saleable production guidance in light of the inconsistent Transnet Freight Rail (TFR) performance. TFR’s performance for the year to date has been 55 Mt on an annualised basis for the industry.
“TFR needs to deliver a successful annual maintenance shut-down in July 2022 and a step-up in annualised rail performance of approximately 9% for H2 2022 compared to H1 2021 (i.e. a step-up to 60 Mt annualised performance for the industry as envisaged by TFR),” the company added.
Thungela had a net cash position of R15 billion by 31 May 2022, as a result of the high coal prices, with capital expenditure (CAPEX) expected to be around R0.5 billion for H1 2022.
Outlook
Bearing the fruits of all-time high coal prices, Thungela added that it expects earnings to increase by R54.87 to R58 per share in H1 2022, from R3 the previous comparative period (PCP);
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In terms of dividends, after paying R18 per share, the company board expects to declare another dividend payout, given the unchanged dividend policy. This was noted after shareholders rejected the buyback at a meeting on 25 May 2022. For this, the company added that it remains committed to its dividends policy, where it expects to continue sharing value with stakeholders.
Adding to the above, we may continue to see a rise in energy pricing as the effects of the ban on Russian fossil fuels come into effect. This, in return, may continue to bring more earnings home to investors. And, since Russia made approximately $4.4 billion annually from coal exports to Europe, these funds are now available to go elsewhere. The appetite for South African coal has grown in Europe as more EU countries are importing coal from South Africa compared to 2021.
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Informed decision
The company’s operational footprint may continue to place it in a position of profitability amid surging coal prices and demand. As a dividend-paying company, this may present itself as a tool against inflation, along with another asset that provides regular income, by being rewarded while owning shares in a company or investment. In the case of Thungela, as one of the world’s largest coal miners, aside from rising costs, the company may continue to bear the fruits of rising coal prices, which may further result in higher earnings, given that demand remains the same or increases as geopolitical factors hinder the global energy supply. This may also result in more dividend payouts to shareholders going forward during the rally of high coal prices.New to investing
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Read: Companies keeping lights on for EasyVSTRs and Consumers
Sources – EasyResearch, Thungela Resources Limited, JSE Sens, BusinessLive, Moneyweb, qz.com.
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