SIMON BROWN: I’m chatting now with Bruce Williamson. He is from Integral Asset Management. Bruce, I appreciate the early morning time. I’m chatting about Thungela Resources – listed last year in June, up 10X since listing. Tuesday last week was LDT (last day to trade) for an R18 dividend. Some people could have paid only little over that if they’d bought at the lows of last year. It really has been on a massive tear and, truthfully, it’s not ending anytime soon. [From] some data you sent me late last night the coal prices are still moving higher.
BRUCE WILLIAMSON: Yeah, absolutely, Simon. Good morning to you and everyone else on the line. I think [there was] a complete misjudgement by many, if we go back to the Paris 2015 Agreement COP26, where literally the world in its quest to rush off to renewables put a gun to the head of the fossil-fuel producers – oil, gas, and coal. There’s just a shortage of coal; obviously the Russian invasion has just worsened things dramatically. There is just not enough energy in many other countries, and we’ve seen that in particular in Europe. And so the demand for coal is extremely strong. You just cannot get coal. In South Africa, we can’t get more coal out. We are way short. We are getting 59 tonnes, maybe 60 million tonnes out when we have a capacity for more like 77 million tonnes. So there’s a dramatic shortage of coal.
SIMON BROWN: Yeah. The Richard Bay Coal Terminal – I remember at the time when they expanded it, weirdly the coal terminal had more capacity than Transnet. I always scratched my head around that. I suppose the plan was that Transnet would in time come to the party. Of course, if anything, Transnet has gone the other way and taken out significant possible revenues. You’re suggesting perhaps losing us as much as $4.5 billion; that’s R70 billion.
BRUCE WILLIAMSON: Yeah, that’s right. Look, in the old days privately-owned Richards Bay Coal Terminal went to 91 million tonnes capacity because they had been in discussion, from what I recall, with Transnet. They wouldn’t have gone there on their own had they not thought Transnet could match them. In the event Transnet never did anything. They stuck at 77 [million tonnes] in fact and transported more like 73 million tonnes out.
Well, last year was just an absolute disaster. Apart from I don’t think very good management at Transnet, there’s theft and there’s corruption and big problems on the line. The theft of rails occasionally and more copper cabling just causes big disruption. So, instead of doing 73/77 million tonnes, we are doing 59/60 million tonnes. So yeah, you’re right. At today’s prices of $250 we’re losing something like $4.5 billion? Although our guys probably have to discount that by about 15% because of quality. Our quality is slightly below that benchmark of 6 000 kilocalories (per kilogram).
SIMON BROWN: Last year Thungela in the year to end-December, their price was around $124/tonne. They get a slight discount to that. They averaged $103 and they made an earnings of R63 and a dividend of R18. But that price, as you point out, the year-to-date average is now sitting at double, at $250/tonne. Thungela – even with the challenges they’ve got at Transnet, which are sort of restricting their ability – is going to have another banner year if things continue.
BRUCE WILLIAMSON: Yeah, absolutely. I started out in February putting, say, $190 as the benchmark and about $175 as the discounted price received. I was getting earnings of just below R100. I was getting earnings of just below R100. And then Thungela said they had a cash buffer of R6 billion … when they reported the December results. Then they could probably pay whatever they liked. They could pay 100% if they wanted.
So at a $190 benchmark, $170 seed price, I was looking at about R97 earnings. Okay, assume they don’t pay everything out, but they could easily pay an R80 of it. And with the R18 dividend coming, which has now gone ex-div, you could still be looking at R80 and certainly upwards, because my forecast of $190 is now well below where the spot average has been for the year.
SIMON BROWN: This comes to the point. A lot of folks [and] I got Thungela wrong. I bought it low, but in hindsight sold it very low as well. … you mentioned Paris 2015 COP26 and so forth, but there is that demand there, and that demand is not going to disappear in a hurry. I was digging around new coal power stations in Asia; there are a number of fairly large power plants being built that are going to need coal. This is not necessarily a flash in the pan that disappears in the sort of weeks or months ahead. This could roll for a couple of years potentially.
BRUCE WILLIAMSON: Yeah, absolutely. I think the whole world needs to sit down and take a deep breath: the road to a renewable transition has got to be rethought and planned very carefully, country by country. And the problem is that many countries are interdependent on each other. So [while] your plans are to go off coal, Europe might be able to go off, wean themselves off coal quicker than we can, and we would sit with surplus.
So we’ve got to match this move to renewables. It just has been badly thought out and ill-planned. So you’re right. It’s going to last a long time.
SIMON BROWN: It’s going to last a long time. Bruce Williamson at Integral Asset Management.