Changing of the guard at Thungela and the challenge of running a coal company

Anyone involved in running a coal company knows their every move is scrutinised by environmentalists, investors and regulators.

This is what awaits incoming Thungela CEO Moses Madondo, who replaces the retiring July Ndlovu in, appropriately enough, July 2025.

Ndlovu hands over a company in fine form.

Read:
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Thungela was hived off in June 2021 from Anglo American, which was eager to distance itself from a commodity increasingly shunned by commodity producers seeking favour with regulators and environmentally conscious investors.

No one expected Thungela to do quite as well as it did.

Its pre-listing price was R25, with SBG Securities valuing it at R33. Short seller Boatman Capital valued it “less than zero” in 2021 based on what it saw as understated mine rehabilitation costs.

In the end Thungela blew these forecasts to smithereens, in large part because of an unforeseen windfall in the form of Russia’s invasion of Ukraine, which pushed coal prices above $350/ton for a period.

Listen/read: Thungela lesson: How to spot a mispriced share

Eight months into that war, Thungela was minting money, reporting a 4 400% increase in interim profits on the back of a nearly three-fold increase in realised prices.

The share price shot up 13-fold from its debut price, and investors couldn’t be happier. Suddenly, coal was sexy again.

Needless to say, this couldn’t last forever. Coal prices started to soften, as did revenues and profits.

The massive windfall of 2022 fattened its cash balance by more than R6 billion, which was used to acquire a majority stake in Australian thermal coal operation Ensham in 2023.

It later bought 100% control of the Australian operation, adding more than three million tons to the 13.1Mt it produced in 2022.

Ensham, with a 16-year life of mine, gives Thungela access to fresh markets in Asia – without the obstacles of load shedding and port logistics that bedevilled its South Africans operations.

This came at a time when Russian coal was displacing South African coal in India and South Asian markets.

Ensham has turned out to be a better operation than envisaged at the time of purchase, prompting an upward revision of production estimates for the 2024 financial year. At the June 2024 interim stage, Ensham contributed R419 million to Thungela’s profit of R1.2 billion, rewarding its decision to invest outside SA.

A different beast

Ndlovu can also take credit for ensuring the group’s two expansion projects – the Elders and the Zibulo North Shaft, both in Mpumalanga – extend the group’s life of mine in SA from the initial eight years at listing to 15 years.

Thungela is a much different animal than the one that listed in 2021. It was seen as a short-lived play in a dying commodity space. Instead, it has reinvented itself and positioned the group for growth, correctly recognising that coal will form part of the world’s energy mix for some time yet.

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This is the legacy that Madondo inherits. A mining engineer by training, Madondo is currently CEO of De Beers Group Managed Operations. He previously worked his way up the totem pole at AngloGold Ashanti, first as junior engineer, then mine manager, general manager and eventually senior vice president.

He joined De Beers in January 2022. There are few aspects of mining he has not encountered in his career.

Richards Bay Coal Terminal – Madondo’s biggest challenge

Perhaps his biggest challenge – apart from satisfying environmental pressure groups seeking an early wind-down of coal operations – will be navigating the logistics of getting coal to the Richards Bay Coal Terminal, in which it has a 23% indirect interest.

Transnet Freight Rail’s volumes have collapsed from 71.1Mt a year in 2019 to 48Mt in 2023, with a slight improvement expected for 2024 once the data is in. That has stunted revenue for all bulk commodity exporters, Thungela included.

With Richards Bay coal prices now down around the $100/t mark, the cost of shipping by truck is unsustainable.

Read: Coal’s peak on the horizon as Richards Bay prices dip below $100/t

Having spent A$335 million on Ensham, expansion capital is limited and banks are increasingly timorous in lending to coal miners.

The days of windfall prices above $300/t are behind it, so building up a war chest for future acquisitions will likely be a slow haul. Operating profit margins have fallen by more than half since the glory days of 2022.

That said, there are enough opportunities for a company of Thungela’s size and quality to keep investors interested.

Read: Coal demand to keep hitting records through 2027, IEA says

It’s been written off before as a short-life and speculative investment play. It’s defied the odds and will likely do so again.

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