South African coal exporter Thungela Resources Ltd. saw profits plunge by 69% in the first half of the year on weaker coal prices and logistical constraints.
The company, which is the country’s largest shipper of coal for electricity generation, posted record income last year as European demand for the fuel surged after Russia’s invasion of Ukraine, causing prices to reach $450 a ton. Coal is now trading at less than a third of that peak.
Thungela and other miners have also faced severe bottlenecks on rail services run by state-owned Transnet SOC Ltd., with poor management, idle locomotives, cable theft and aging equipment among the issues weighing down coal shipments. Those logistical problems are “the most significant issue we face” domestically and are preventing companies from raising exports, Thungela Chief Executive Officer July Ndlovu told reporters on a call on Monday.
“This is an industry issue. We cannot afford not to improve Transnet,” Ndlovu said. “The consequences for South Africa are dire.”
While the second quarter brought an improvement on “a catastrophic decline in performance” during the first three months of the year, operations by Transnet are still “short of where we want them to be,” Ndlovu said. Thungela’s profits in the first half fell to 3 billion rand ($158 million), from 9.6 billion rand the prior year.
Miners have tried to get around the railway challenges by using trucks to transport coal from mines to the coast, but that’s become less attractive after a drop in coal prices. Another coal producer, Exxaro Resources Ltd., has temporarily stopped shipping by road.
The railway operator, meanwhile, is targeting transport of 60 million tons of coal to Richards Bay Coal Terminal this year, Transnet CEO Portia Derby said at a Bloomberg event on Aug. 17. However, the target is well above current annualized run rates.
Thungela expects to produce between 11.5 to 12.5 million tons of coal for export this year. If Transnet was to remove bottlenecks, the company would want to add an additional 2 to 3 million tons in annual output, Chief Financial Officer Deon Smith said.
The company expects to finalize the acquisition of its first asset outside South Africa by the end of the month. Thungela announced a 4.1 billion rand plan to buy the Ensham coal mine in Australia in February.
(Updates with background on trucking coal, target for rail shipments from sixth paragraph.)
