Our opinion on the current state of TGA

Thungela Resources Ltd. (TGA), a spin-off from Anglo American's coal division, has positioned itself as a significant player in the thermal coal export market, with a strong focus on the Asian, Indian, Southeast Asian, and East and North African markets. The unbundling of Thungela from Anglo American reflects the latter's strategic shift away from carbon-intensive fossil fuels, aligning with global trends towards cleaner energy sources. Thungela's operational footprint includes seven mines in South Africa, encompassing both open-cast and underground operations, and it boasts substantial annual production capacity.

Despite its considerable production capabilities and strategic assets, including a significant stake in the Richards Bay Coal Terminal, Thungela faces a range of external challenges that impact its financial performance. The first half of 2023 saw the company grappling with a softer price environment and ongoing inefficiencies in rail logistics, which have historically hampered South African coal exporters' ability to reach international markets effectively.

The company's financial results for the first half of 2023 reflect these challenges, with a notable decline in headline earnings per share (HEPS). Furthermore, Thungela's trading statement for the year ending December 2023 anticipates a significant drop in HEPS, partially attributed to non-recurring, non-cash adjustments associated with its acquisition of the Ensham Business.

Since its listing on the Johannesburg Stock Exchange (JSE) in June 2021, Thungela's share price has experienced volatility, initially trading below expected valuations before reaching a peak in September 2022. However, the share has since encountered a downward trend, influenced by lower coal prices and logistical constraints with Transnet, which underscore the inherent risks of a single-commodity focus.

Investors considering Thungela Resources should weigh the company's dividend commitment against the backdrop of operational challenges and the broader shift away from thermal coal in the global energy mix. While Thungela offers significant production capacity and access to key export markets, its future performance will likely be shaped by global commodity prices, logistical efficiencies, and the pace of energy transition policies worldwide.