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South African thermal coal exporter Thungela Resources announced a reduction in coal production due to ongoing problems with freight rail on December 13, media reported.
The company expected a 7.6% decline in production from South African operations, with an estimated output of 12.1 million tonnes for 2023, one million tonnes lower than in 2022.
Persistent issues with state-owned freight rail monopoly Transnet, including security-related concerns and locomotive failures, have disrupted Thungela's operations and also affected other bulk mineral exporters in South Africa such as Kumba Iron Ore, leading to reduced production due to constrained transportation capacity via rail to port.
Transnet is projected to ship only 47 million tonnes of coal to port this year, down from 50.3 million tonnes last year and the lowest in three decades.
To mitigate the impact of rail disruptions, Thungela temporarily halted production at three underground sections earlier this year. The company currently had 2.7 million tonnes of coal stockpiled at its mines as of June 30, awaiting transportation to port.
Despite the challenges in South Africa, Thungela's Ensham mine in Australia is expected to exceed initial production forecasts of 2.7 million tonnes to 2.9 million tonnes. The acquisition of the Ensham mine was part of Thungela's diversification strategy to mitigate infrastructure challenges and declining exports in South Africa.
The coal industry's struggles with rail performance in South Africa have affected multiple companies, including Thungela and Exxaro Resources. Efforts to cooperate with Transnet on various issues, such as procurement, repairs, maintenance, and security, have not resulted in improvements.
Thungela has managed costs effectively on its South African mines, but lower average prices, expectations of warmer weather in the northern hemisphere, and upcoming capital expenditure of R2.8 billion ($150.4 million) in South African projects have prompted a cautious approach to shareholder returns.
The company plans to maintain a cash buffer of R5 billion while targeting a minimum payout of 30% of adjusted operating free cash flow.
Coal prices have faced significant pressure throughout 2023, with notable declines compared to the previous year.
As the year-end approaches, the average price of the Richards Bay Coal Terminal thermal coal stood at $122.88/t, slumping from $270.87/t in 2022. Similarly, Newcastle spot thermal coal averaged $175.15/t, against $360.19/t last year.
(Writing by Riley Liang Editing by Emma Yang)
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