Thungela Resources Ltd (TNGRF) (H1 2026) Earnings Call Highlights: EBITDA Surges 91% and EPS ...

Negative Points

• A strong South African rand (average ZAR16.41/USD) reduced reported revenue by approximately ZAR1.7 billion, limiting the benefit of higher coal prices.

• South African FOB costs increased to ZAR1,374 per tonne from ZAR1,264, driven by inflation, lower production volumes, and higher selling costs.

• Realized price discounts widened in both South Africa (15.7%) and Australia (13.3%), with Ensham's fixed-price contracts concluded before the price rally.

• Zibulo's production was lower due to underground infrastructure challenges, though expected to be transient as operations shift to the North Shaft.

• Market outlook remains cautious due to increased domestic supply in China and India, and the forward curve does not yet reflect potential price support from geopolitical tensions.

• The effective tax rate increased due to accounting treatments related to deferred tax assets in South Africa and Australia.

Q & A Highlights

Q: Why was depreciation so low compared to last year, and what is the normalized level going forward? Also, with a net cash position of ZAR6.1 billion and decent coal prices, why wasn't the dividend higher than the announced ZAR5.50 per share? A: Gideon Smith (CFO) explained that the significant reduction in depreciation is primarily due to the large impairment of over ZAR8 billion taken at the end of 2025, which reset the level of depreciation. He noted that the current rate is likely indicative of the future, barring any major changes to the property, plant, and equipment balance. Regarding the dividend, he clarified that while the minimum policy is a 30% payout of adjusted operating free cash flow, the Board opted for a higher payout (41%) to balance shareholder returns with the need to maintain a resilient balance sheet. This is to navigate market volatility and retain flexibility for potential growth opportunities, such as investments in the gas project.

Q: Can you help us think about your leverage to Newcastle prices, given the swing from a premium to a discount in Australia? What is the lag for these fixed-price contracts to reflect higher benchmark prices? A: Gideon Smith (CFO) explained that the Newcastle market increased much faster than API 4, but a large portion of Ensham's exports are under fixed-price arrangements. One significant contract for a couple of hundred thousand tonnes, delivered in H1 2026 at around $110/tonne, only settled after the results announcement at a price closer to $130/tonne. This will improve realized prices in H2. He also noted that the wider discount in the Newcastle market is due to the much higher benchmark price and supply-demand dynamics, which they expect to continue for the next few months before moderating.

Q: You don't sound particularly bullish on the thermal coal outlook despite the geopolitical tensions and low gas storage. Can you elaborate on the market dynamics you are seeing? A: Gideon Smith (CFO) affirmed that the company remains bullish on medium-to-long-term fundamentals but is moderate in its short-term outlook. He cited increased domestic supply in China and India, a "buy-at-home" focus in those geographies, and the fact that these factors have not yet fully played into the forward curve. He acknowledged the green shoots, such as reduced hydro energy and a post-monsoon recovery in India, but noted the market's cautious pricing reflects a balance of these competing factors.

Q: Regarding the challenges at Zibulo, should we anticipate a similar scenario in H2, and what is the timing for the transition to the North Shaft? A: Moses Madondo (CEO) stated that the H1 challenges at Zibulo were due to mining at the extremities of the current footprint, which caused infrastructure issues. The operation is now transitioning to the North Shaft, which will allow them to pull back infrastructure and reduce the operational strain. He expects an improved H2 performance as the center of gravity shifts towards the North Shaft, with Zibulo expected to perform at optimal levels in the second half of the year.

Q: Can you provide an update on the forward-looking derivative position for FX conversion? A: Gideon Smith (CFO) provided details on the current hedging positions. For H2 2026, they have approximately $390 million of FX converted at just below ZAR18. For 2027, they have about $120 million converted at ZAR18. For H1 2028, they have roughly $60 million converted at around ZAR18.53. These instruments are in place to convert dollar revenue into the best possible rand value.

Q: Are we at an inflection point where rehab and green fund cash outflows will slow down, given the progress towards full coverage? A: Gideon Smith (CFO) said they are not yet at 100% coverage in South Africa but expect to potentially reach that point by the end of the year or early 2027. The outcome depends on the comprehensive annual assessment of liabilities, which concludes around November. They will also take a legal view on the minimum regulatory provisions (NEMA), which differ significantly from their own estimates. A more confident outlook will be provided with the full-year results.

Q: Can you bridge the gap between the H1 FOB cost per tonne and the full-year guidance, which suggests a significant increase in H2? A: Gideon Smith (CFO) explained that the Australian FOB cost guidance is conservative relative to current performance. While they expect a higher cost run rate in H2 due to typical mid-year increases, the H1 result benefited significantly from the translation of Australian dollar costs into a stronger rand. Given the uncertainty of future exchange rate movements, they have maintained the existing guidance rather than lowering it.

Q: With the ramp-up of new shafts, will the South African portfolio FOB costs be higher or lower, and what are your expectations for discounts? A: Gideon Smith (CFO) stated that as Zibulo's footprint contracts and production shifts to the North Shaft, they expect a structural improvement in FOB cost per tonne, allowing the SA portfolio to absorb inflation and potentially see a slight reduction in real terms. Regarding discounts, he noted that Zibulo's average quality has shifted from a 6,000 kcal to a 5,850 kcal equivalent, which will likely result in a slightly higher discount being the new norm, despite a slight narrowing expected for the remainder of 2026.

Q: What is your full allocation on rail, what is the current actual availability, and will this trigger an adjustment to mine plans? A: Moses Madondo (CEO) confirmed that Thungela's allocation is based on a 23.5% share of RBCT, equating to roughly 14 million tonnes. The improved rail performance has allowed them to deliver on this run rate and take advantage of additional capacity where value-accretive, including third-party coal sales. In the longer term, they have projects like Nanea and Zibulo that provide opportunities to build on their delivery to the market.

Q: What do you expect in terms of working capital in the second half of the year? A: Gideon Smith (CFO) explained that while accounts receivable is difficult to predict due to price and FX volatility, they expect inventory to rebuild slightly in H2. Stock levels were drawn down to 1.4 million tonnes at the end of June from over 1.6 million tonnes at the end of last year. They expect to rebuild this, with much of the coal located at the port due to improved rail performance. Accounts payable is expected to

For the complete transcript of the earnings call, please refer to the full earnings call transcript .