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SIMON BROWN: I’m chatting now with Bruce Williamson of Integral Asset Management. Bruce, I appreciate the time again. I want to touch on Thungela. Before I do, some thoughts on coal. There are lots of different pricing points of course for coal, depending on where it’s shipping, the quality and the like. But just a generic chart I’ve got shows coal much of last year up around the $400/tonne level. It’s now sub-$200/tonne at this point. That is still well above the pre-pandemic levels which were closer to $50/tonne. Your thoughts on coal? Is this a reversion to the mean? Does it stay around the $200/tonne or is this frankly one of those things that is very hard to call?
BRIAN WILLIAMSON: It is difficult. Good morning, Simon, and good morning to the listeners. We are in unprecedented times now and I think what we all need to get a grip on is that this massive rush into wiping out fossil fuels and people wanting carbon-neutral far too early has caused big, big stress in terms of supply. We haven’t replenished mines, exploration, etc.
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And then of course the Russian invasion against Ukraine has now changed some of the supply. Russian supply into Europe, especially, has had to be replaced by others, and they’ve done really well in replacing [coal] with gas. But the bottom line – and let’s look at South Africa’s sort of coal, which is slightly below the new cost or R6 000/tonne, which I think you’re talking about – is that our markets have also changed. It’s a case of there probably not [being] enough coal for everyone at the moment, and it’s [about] how to mix and match the supply. And then you’ve got interest rates going up and the economy slowing at the same time.
So you can actually make a case that we’ve got to the stage, if you look especially at South Africa, of Richards Bay sitting at just below $140/tonne. We are now going to start, especially our higher-cost people, getting coal out by trucks and won’t be doing that for much longer. And then we are creating shortages again.
SIMON BROWN: We are almost creating our own shortage. And of course that is the challenge with Thungela. They’re struggling with Transnet. They’re not struggling to get the coal out of the ground; that they’re doing brilliantly. They simply can’t get it through Richards Bay Coal Terminal and [CEO] July Ndlovu in the last results wasn’t keen to give a forward-looking forecast.
BRIAN WILLIAMSON: Correct. It’s just reached a very, very sad stage. It impacts chrome, iron ore, manganese as well, but specifically coal. Four, five years ago we did 75 million tonnes. Last year we did 50 million tonnes. Included in that 50 million tonnes for 2022 was 39.2 million tonnes in the last quarter. And that is why we are at the lowest [level] in 30 years. This why Thungela is battling. And so it has given the market a range of 10.5 million tonnes to 12.5 million tonnes. We were hoping and looking more at [something] like 15 million tonnes, and even [with] that 15 million tonnes that we did last year, quarter one looks to me as though we probably just sneaked over 40 million tonnes annualised for the first quarter. So we are going to battle to match last year’s 50 million tonnes; we could be down on that. That is the problem Thungela has.
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And then Eskom is not going to help because Eskom looks as though it’s going to be even more desperate during the winter months and we could go to Level 6 [load shedding]. That’s going to impact Thungela’s business as well.
So it’s very, very difficult to just predict where our tonnages are going to be, and that’s the negative cloud – plus all the global negatives that people look [at] and say, well, just don’t invest for the time being.
SIMON BROWN: And that’s it. To your earlier point, coal is probably one of the most hated commodities in the world right now, notwithstanding that our planet runs on it.
Thungela is at about R212, s dividend of R40. Some folks thought that dividend was a little lighter than anticipated. Is this a stock that’s worth having a look at? My sense is that there are too many unknowns out there – or am I being a scaredy-cat?
BRIAN WILLIAMSON: Well, the unknowns are being forced from other areas, not specifically Thungela. You ….. R40 now. Yes, prices are much lower. It’s difficult to forecast because the volumes are going to play out probably on the downside. But you …… three dividends now, this final plus another six months and then the final in 12 months’ time. So you’re actually sitting potentially on three dividends coming at you. From that perspective, and from the perspective that prices look as though they’re going to hit bottom shortly because Russia won’t supply much at the 125, 130 Russia wants ……we’ll battle to supply and we will start battling our bottom end. All the trucking stuff will battle to go out. And so we are looking at a bottom-ish price maybe rising if the economies pick up. But the big global issues are weighing on it – [whether] the banking crisis is over, more central bank rate rises, a bad winter for Eskom, and ongoing problems with Transnet.
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So I just look at all of this and can understand why people say, ‘Can I have water break? I’ll just sit on the side for a while’.
SIMON BROWN: I like your point there. We do get three dividends over the next 12 months and conservatively that’s probably R120/share and a stock that is trading at R212.
We’ll leave it there. Bruce Williamson from Integral Asset Management, I always appreciate the early morning insights.
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