Thungela Resources Limited · JSE:TGA
Thungela Resources — FY2021 Earnings Presentation
41 slides from Thungela Resources's earnings presentation, March 2022
Slide 1: 2021 Annual Results and Strategy Update
2021 Annual Results and Strategy Update Presentation for the year ended 31 December 2021
Slide 2: Cautionary Statement
CAUTIONARY STATEMENT Disclaimer: This presentation has been prepared by Thungela Resources Limited (“Thungela”) and comprises the written materials/slides for a presentation concerning Thungela and its affiliates (together, the "Group"). By attending this presentation and/or reviewing the slides you
Slide 3: Our Purpose
OuR PURPOSE To responsibly create value together for a shared future thingela
Slide 4: Our Purpose
OuR PURPOSE create value together for a shared future thingela
Slide 5: Becoming a Public Company: The Start of Our Journey
BECOMING A PUBLIC COMPANY: THE START OF OUR JOURNEY THUNGELA RESOURCES LIMITED (TGA) ON JSE 120 SIGNIFICANT VALUE CREATED SINCE LISTING 100 • Thungela today returning 82% of our Day 1 closing market capitalisation as a cash dividend to shareholders 80 • Share price increase of 286% from closing pric
Slide 6: 2021 Highlights - Delivering on Our Promises
2021 HIGHLIGHTS - DELIVERING ON OUR PROMISES IMPROVEMENT IN SAFETY RETURN TO PROFITABILITY FINANCIAL STRENGTH BOLSTERED Total Recordable Case Profit for the period Adjusted operating free cash flow (OFCF) generation Frequency Rate R6.9 billion R3.9 billion decreased to 1.35 (2020: loss of R0.4 billi
Slide 7: Driving our ESG aspirations
Driving our ESG aspirations July Ndlovu | Chief Executive Officer
Slide 8: Our Approach to ESG
OUR APPROACH TO ESG OUR ESG FRAMEWORK RECOGNISE AND BALANCE SOCIETY’S NEEDS • Climate change is one of the major global challenges of our time • Need to balance environmental expectations, the need to support development, and the vital role that mines play in the economy and our host communities FIT
Slide 9: Safety and Health Are of Paramount Importance
SAFETY AND HEALTH ARE OF PARAMOUNT IMPORTANCE KEY SAFETY METRICS RELENTLESS DRIVE TO ELIMINATE FATALITIES 42 • Non-negotiable target: Fatality-free business • Safety Strategy: Back to basics, Work management and Culture 34 change 1,85 30 • Consistent improvement in total recordable injuries, but nee
Slide 10: Creating Value Together for a Shared Future
CREATING VALUE TOGETHER FOR A SHARED FUTURE DISTRIBUTIONS TO EPP AND CPP (R million) 273 CPP distribution 23x 137 137 (R m) CREATING VALUE FOR EMPLOYEES 6 137 • R137 million distributed to SACO Employee Partnership Trust1 • Allows employees to share in the value created • Develops culture where coll
Slide 11: Managing Resources and Impacts Responsibly
MANAGING RESOURCES AND IMPACTS RESPONSIBLY AREA REHABILITATED (hectares) 241 2020 LAND STEWARDSHIP AND BIODIVERSITY 2021 • 102 hectares seeded 174 162 • Started construction of demonstration scale passive water treatment plant 102 102 76 • Uncharacteristic incident at Kromdraai in February 2022, rem
Slide 12: Governance Supporting Value Creation
GOVERNANCE SUPPORTING VALUE CREATION BOARD STRUCTURE (31 DECEMBER 2021) EXPERIENCED AND DIVERSE BOARD • Majority of directors are independent 29% Independent non-executive • Board diversity – currently 14% female and 71% HDSA2 representation 57% Non-executive • Board will be expanded to include an a
Slide 13: The Numbers
The Numbers Deon Smith | Chief Financial Officer
Slide 14: 2021 Financial and Operational Highlights
2021 FINANCIAL AND OPERATIONAL HIGHLIGHTS PROFIT ADJUSTED EBITDA ADJUSTED OFCF DIVIDEND FOR THE PERIOD R6.9 billion R10.0 billion R3.9 billion R18 per share (2020: R0.4 billion loss) (2020: R0.3 billion) (2020: R249 million utilisation) R2.5 billion aggregate 63% of Adjusted OFCF EXPORT SALEABLE FOB
Slide 15: Solid Results in a Challenging Environment
SOLID RESULTS IN A CHALLENGING ENVIRONMENT TFR1 AVERAGE RUN RATES (Mt per annum) TFR CHALLENGES -21% • 2021 TFR performance exceptionally poor compared to 73,0 71,1 recent years 70,1 • Industry railed volume of 58.1 Mt for 2021 is the lowest +1,2% +1.3% 62,3 annual rail outcome since 1996 59,9 58,1
Slide 16: Export Sales Mix Maximised for Earnings
EXPORT SALES MIX MAXIMISED FOR EARNINGS EXPORT EQUITY SALES (kt) – PRO FORMA SALES IMPACTED BY RAIL CONSTRAINTS • Export equity sales decreased by 16% to 13.9Mt (2020: 16.6Mt) • Decision to curtail lower margin production from late Q3, which impacted full year production and export equity sales 926
Slide 17: Strong Fundamentals Resulted in a Supportive Market
STRONG FUNDAMENTALS RESULTED IN A SUPPORTIVE MARKET BENCHMARK AND REALISED THERMAL COAL PRICES (R/t) EXPORT MARKETS R/t 3,200 • Firmer demand from South Asian countries underpinned by urbanisation and economic growth 3,000 • Supply constraints, including TFR challenges and ongoing 2,800 geopolitical
Slide 18: Decrease in Export Saleable Production Due to Curtailment
DECREASE IN EXPORT SALEABLE PRODUCTION DUE TO CURTAILMENT EXPORT SALEABLE PRODUCTION (kt) TAKING OUT HIGH-COST VOLUMES 16,463 • Bokgoni pit at Khwezela placed on care and maintenance 2,051 14,957 in Q1 2021 987 447 14,510 1,450 1,008 • Decrease in Bokgoni volumes meant to be offset by ramp-up at Nav
Slide 19: Revenue and Cost Improvements Driving Margin
REVENUE AND COST IMPROVEMENTS DRIVING MARGIN REVENUE AND COSTS – PRO FORMA (R billion) REVENUE INCREASED BY R8 BILLION 45% • 90% increase in Benchmark coal price 26.4 • Realised price improved to 84% of Benchmark (2020: 74%) as discount narrowed -15% • Achieved average realised price of R1,535/t (20
Slide 20: Improved FOB Cost per Export Tonne
IMPROVED FOB COST PER EXPORT TONNE 2020 vs 2021 FOB COST PER EXPORT TONNE (R/t) - PRO FORMA COST PERFORMANCE 11 • TFR performance largely offset by Bokgoni pit care and 21 21 61 24 maintenance decision 84 833 31 812 • Lower rehabilitation charge in 2021 • Significant reduction in corporate costs fol
Slide 21: Record Adjusted EBITDA Driven by Benchmark Prices
RECORD ADJUSTED EBITDA DRIVEN BY BENCHMARK PRICES ADJUSTED EBITDA1 (R billion) RETURN TO PROFITABILITY ~R0.9 billion 10.1 10.0 • Increase of 92% in realised prices 0.4 0.1 • Partially offset by the impact of foreign exchange and 1.7 inflation 2.6 • Negative impact of lower export sales compared to 2
Slide 22: Working Capital Impacted by Rail Performance
WORKING CAPITAL IMPACTED BY RAIL PERFORMANCE WORKING CAPITAL MOVEMENTS (R billion) WORKING CAPITAL INCREASED BY R3.2 BILLION 3.4 • Inventory increased by R1.4 billion as poor railing performance by TFR resulted in a build-up of inventory 0.8 at operations • Trade receivables increased by R1 billion
Slide 23: Capital Expenditure Lower Than Guidance at Demerger
CAPITAL EXPENDITURE LOWER THAN GUIDANCE AT DEMERGER CAPITAL EXPENDITURE (R billion) SUSTAINING CAPEX HAS BEEN RESET • Capex of R2.3 billion in 2021, 19% lower than 2020 3.0 2021 guidance • Significantly lower than R3 billion upper end of guidance 2.6 range provided at Capital Markets Day in May 2021
Slide 24: Environmental Liability Appropriately Funded
ENVIRONMENTAL LIABILITY APPROPRIATELY FUNDED ENVIRONMENTAL LIABILITY (R million) AND FUNDING STATUS BALANCE SHEET PROVISION 530 480 6,640 6,751 • Increase driven by Mafube inclusion and unwinding of 249 6,184 268 discount • 2021 rehabilitation more than offset disturbances Guarantees 3,153 FUNDING T
Slide 25: Adjusted Operating Free Cash Flow Enables Strong Returns
ADJUSTED OPERATING FREE CASH FLOW ENABLES STRONG RETURNS ADJUSTED EBITDA TO ADJUSTED OPERATING FREE CASH FLOW (R billion) STRONG CASH FLOW DRIVEN BY EARNINGS 10.0 • Difference between EBITDA and cash flow primarily due to working capital build-up and sustaining capex spend 3.2 ADJUSTED OFCF IS BASIS
Slide 26: Robust Balance Sheet and Returns to Shareholders
ROBUST BALANCE SHEET AND RETURNS TO SHAREHOLDERS LIQUIDITY (R billion) 8.7 LIQUIDITY CONSIDERATION AND DIVIDEND Shareholders Surplus cash 2.7 2.5 of TGA • Dividend declaration of R18 per share 0.3 EPP/CPP • Declaration of 30% of Adjusted operating free cash flow would result in cash exceeding the li
Slide 27: Outlook
OUTLOOK EXPORT SALEABLE PRODUCTION (Mt) EXPORT SALEABLE PRODUCTION >16 >16 • 2022 production constrained by TFR performance 15 14 - 15 • Production expected to return to greater than 16Mt from 2023 as rail performance returns to normal levels FOB COST PER EXPORT TONNE 2021A 2022F 2023F 2024F • 2022
Slide 28: Strategy Update
Strategy Update July Ndlovu | Chief Executive Officer
Slide 29: Megatrends Impacting Thungela's Strategy
MEGATRENDS IMPACTING THUNGELA’S STRATEGY Strong fundamentals for thermal coal in the medium term, but long term Implications for Thungela Our strategic pillars remains uncertain Thermal coal demand will continue 01 Geopolitics • India, China and South East Asia expected Drive our ESG aspirations to
Slide 30: Our Strategy
OUR STRATEGY Delivered through four strategic pillars Drive Maximise Create Optimise our ESG the full potential future capital aspirations of our existing diversification allocation assets options
Slide 31: Drive our ESG aspirations: Pathway to Net Zero in 2050
Develop a pathway to net zero emissions in 2050 Subject to the Countries Markets requirements of: we operate in + we serve Drive our ESG aspirations DRIVES STRATEGIC DECISION MAKING Careful consideration of the socio-economic implications of the energy transition given our contribution to society Ma
Slide 32: ESG Drivers Deeply Embedded in Investment Criteria
ESG DRIVERS DEEPLY EMBEDDED IN INVESTMENT CRITERIA ALSO APPLIED TO ‘BUY VS BUILD’ ASSESSMENT Environmental Social Governance Responsible Pursue • Global carbon output impact • Support existing regional • Improved transparency • No net loss of biodiversity communities and supplier stewardship base op
Slide 33: Maximise the Full Potential of Our Existing Asset Base
MAXIMISE THE FULL POTENTIAL OF OUR EXISTING ASSET BASE Deliver Optimise Sharpen Improving our productivity cost structure rehabilitation improvements approach and position on implementation the cost curve and focusing Enhance Accelerate Develop & on production marketing capabilities farm fence deliv
Slide 34: Elders: Production Replacement
ELDERS: PRODUCTION REPLACEMENT STRATEGIC RATIONALE • Develop and deliver production replacement project • Potential to accelerate farm fence opportunities • Replace Goedehoop production volumes at end of life • Maintaining size and shape of SA export coal business SCOPE • New underground mine and su
Slide 35: Zibulo North Shaft: Life Extension
ZIBULO NORTH SHAFT: LIFE EXTENSION STRATEGIC RATIONALE • Deliver productivity improvement and optimise cost structure through reduced travel time to the coal face • Deliver production replacement for Zibulo opencast operations winding down in 2026 • Sustaining ROM production ensures continued utiliz
Slide 36: Create Future Diversification Options
CREATE FUTURE DIVERSIFICATION OPTIONS Investing Geographic Commodity Consider divestment where diversification of diversification to or wind-down of thermal coal assets expand sources of high-cost tons Thungela has a revenue “Right-To-Win”
Slide 37: Optimise Capital Allocation: Adopting a Balanced Approach
OPTIMISE CAPITAL ALLOCATION: ADOPTING A BALANCED APPROACH OPERATIONAL PRIMARY SOURCE OF CASH FLOW TO CREATE OR DISTRIBUTE VALUE CASH FLOWS REPLENISH LIQUIDITY BUFFER ENVIRONMENTAL Environmental liability to be cash collateralised over time. Use technology to improve ESG performance SUSTAINING CAPEX
Slide 38: Global Carbon Impact of 'Buy vs Build'
GLOBAL CARBON IMPACT OF ‘BUY VS BUILD’ BUILD vs BUY Existing Production replacement Greenfields Develop a pathway to net zero emissions in 2050 subject to the requirements of: Countries we operate in and markets we serve Chart Title Reduce carbon intensity Production (Mt) of existing assets on an an
Slide 39: Global Carbon Impact of 'Buy vs Build'
GLOBAL CARBON IMPACT OF ‘BUY VS BUILD’ Chart Title BUILD vs BUY Existing Production replacement Greenfields M&A Develop a pathway to net zero emissions in 2050 subject to the requirements of: Applying Thungela’s ESG Countries we operate in and standards to producing assets markets we serve Buying is
Slide 40: Conclusion
CONCLUSION Be a fatality free Strong market Robust business fundamentals performance Safety continues to be our Supportive price Adjusted EBITDA number one value environment expected for Adjusted OFCF balance of 2022 Maiden Sharing Driving ESG dividend value aspirations R18 per share Distribution of
Slide 41: Thank you
Thank you