EDITORIAL: Thungela’s Australia coal deal a high-stakes gamble

About a week after data showed SA coal shipments via Richards Bay Coal Terminal slumped to their lowest in nearly three decades, as Transnet struggles to keep cargo flowing, Thungela Resources unveiled a R4bn deal to buy a coal mine in Australia.  

It is a laudable effort at geographic diversification, putting Thungela in a position to print more money as demand for coal remains elevated after Russia’s invasion of Ukraine triggered a frantic scramble for alternatives to Russian coal and gas.

It is also a high-stakes gamble that coal will remain one of the main pillars of the global energy mix. If Thungela’s share price since it went public almost two years ago is anything to go by, investors want in on the action.

The stock has rallied more than tenfold since Anglo American spun out the business in 2021 as demand for coal swells and prices hit record highs. That means Thungela delivers bumper profits, a portion of which flows to shareholders via dividends. In fact, Thungela, which sits atop a nearly R10bn cash pile, expects to report an almost  two-fold increase in 2022 headline earnings, the primary profit gauge in SA. 

Nonetheless, it is worth asking if Thungela’s long-term strategic thinking behind the acquisition of the Ensham coal mine, which produces about 3.2-million tonnes a year, can stand up to scrutiny.

To begin with, in Australia, as in SA and elsewhere, the political posture is against coal. In November 2022  a court in Australia’s Queensland state blocked the development of a new thermal coal project on the grounds that its emissions will contribute to climate change and harm human rights. Furthermore, lenders and insurers are under mounting pressure from activists and their own shareholders to limit access to finance and coverage for companies like Thungela. 

It is likely that Thungela shareholders will soon start weighing the reputational cost of holding a company that digs up the most carbon-intensive source of energy against the financial benefit.   

Under such circumstances, it would not have been a bad idea for July Ndlovu, who leads Thungela’s executive team, to deploy R4bn cash on an asset that prepares the company for a future in which an environmentally friendly, cleaner and liveable planet needs less coal rather than more.