Zama zamas eating into Thungela’s cash

Illegal mining in Mpumalanga continues to pose a challenge for thermal coal miner Thungela Resources. During 2022 the company had to spend R300m to rehabilitate areas that had already been completely rehabilitated before illegal miners moved in to operate the old mine shafts.

This cost of crime estimate, according to Thungela CEO July Ndlovu, does not include the cost of stolen goods and additional security.

“We are seeing illegal miners becoming more brazen. In some instances, they are accessing our operating mines to steal copper cables. Some of them collude with our own security guards to steal diesel, cables and conveyer belts,” he told Business Day.

According to Thungela, these criminals are “highly sophisticated” and their operations form part of organised crime networks. “These networks are increasingly turning to violence, which puts the lives of our security personnel and employees at risk, while at the same time increasing criminal activity in the communities in which we operate.”

Ndlovu did not want to speculate whether the criminal syndicates involved in crime at Thungela mines were connected to those suspected of having infiltrated Eskom’s coal supply chains in Mpumalanga.

“These are criminal syndicates, it’s difficult to know [if these are the same people] until they are brought to book. In some instances, we suspect

we’ve seen the same players but it is very difficult to say at this stage.”

Thungela has been working with the Directorate for Priority Crime Investigation (the Hawks) to curb the threat posed by illegal mining. The Hawks began working with Thungela in efforts to root out illegal miners after an incident in 2022 when an old mine shaft that was being rehabilitated at the Khwezela colliery’s Kromdraai site was entered by illegal miners, leading to the shaft collapsing and then spilling toxic water.

However, despite the involvement from the Hawks, Ndlovu said that judging from “what is happening to Eskom infrastructure and at other mines” they are “not on top of the situation yet”.

“While Thungela continues to invest in security and specialised interventions, we remain dependent on law enforcement authorities, regulators such as the department of mineral resources & energy, and the judicial system to halt illegal mining syndicates.”

Ndlovu was speaking to Business Day shortly after the company issued its annual earnings report, which showed headline earnings surged 143% to R130.82 per share, or R17.5bn, in the year to the end of December 2022.

Thungela declared a final dividend of R40 a share, bringing the total dividend for the year to R100 per share. This will amount to total returns to shareholders of R13.8bn.

“We generated adjusted operating free cash flow of R18.1bn during the year, compared to R3.9bn last year. This outcome is in large part due to strong coal prices,” said Ndlovu.

The benchmark coal price averaged $270 per tonne in 2022, compared with $124 per tonne in 2021.

Ndlovu said the more than fourfold increase in cash generation was a “remarkable achievement given the loss of close to 3-million tonnes of export saleable production volumes as a direct result of the poor Transnet Freight Rail performance”. He estimated this cost the company about R7bn in revenue.

Poor railage performance resulted in coal exports declining from 13.9-million tonnes in 2021 to 12.2-million tonnes last year. Given Transnet’s poor performance during the first two months of 2023 Thungela has revised its export guidance for the current year to between 10.5-million tonnes and 12.5million tonnes.

“We have seen rail performance stabilising somewhat over the last few weeks. The upper end of our guidance [for 2023] is consistent with Transnet achieving similar performance to last year,” Ndlovu said.

“In the short term, fixing the rail network is a matter of critical importance to SA … We remain focused on working with Transnet to resolve the issues plaguing rail performance and call on the government to support these efforts.”

In 2020 Transnet Freight Rail transported 70.1-million tonnes to the Richards Bay Coal Terminal, but this decreased to 58.1million tonnes in 2021, and to a 13-year low of 53.3-million tonnes in 2022.

The miner said though coal prices have softened in early 2023 it still expects prices to remain robust. “In the longer term, we anticipate continued strong coal demand from emerging markets, especially those in Asia, where coal is likely to remain part of the energy mix for at least the next two decades.”

Thungela will publish its first climate change report in April in which it will outline its plans to reduce carbon emissions.

“We have completed a full review of our intermediate emissions reduction targets and we are pleased to announce that Thungela aims to reduce its scope 1 and 2 emissions by 30% by 2030 (using our 2021 emissions as a baseline) and reach net zero by 2050,” it said.