JSE-listed coal miner Thungela Resources has projected lower earnings and cash generation for the six-month period ending June 30 due to a significant decline in coal prices and ongoing rail performance issues with Transnet Freight Rail (TFR).

Based on the performance of the first five months of the year, Thungela anticipates a decrease in earnings per share for the first half of 2023, ranging between R17 and R23, which represents a decline of 66% to 75% compared to the same period in 2022.

The drop in coal prices can be attributed to a milder winter in Europe, softer gas prices, and elevated coal and gas stocks. Consequently, there has been a redirection of coal volumes to Asia, leading to increased supply in Asian markets, coupled with weaker demand, particularly from China. Russian coal has also entered the region at discounted rates.

However, Thungela highlights that the recent stabilization of liquid natural gas prices could make coal more competitive as a fuel source towards the end of the year, especially with the approaching European winter. Additionally, coal supply cuts and reduced export volumes from South Africa and western Russia may provide short-term support.

Thungela also mentions the challenges posed by rail underperformance, with TFR's performance stabilizing at around 48 million tonnes a year in early May. However, two derailments in May resulted in the loss of approximately 300,000 tonnes in railed volumes for Thungela. Collaborative efforts are underway with TFR to improve rail performance.

While Thungela is not significantly affected by electricity shortages, further deterioration in the electricity supply could become a concern. Thungela expects to report export saleable production of 5.8 million tonnes for the first half of the year, aligning with the full-year guidance range of 10.5 million to 12.5 million tonnes.

With a net cash position of R14 billion as of May 31, Thungela continues to focus on strategic priorities, including the Zibulo North Shaft life extension project and investment in the Elders production replacement project. The company remains committed to disciplined capital allocation and aims to distribute 30% of its adjusted operating free cash flow as a dividend.