Thungela Resources Limited

Good day, everyone, and welcome to Tungela's 2024 Annual Results Presentation. I'm Hugo Nunes, Head of Investor Relations, and I'd like to take a couple of minutes to introduce today's agenda and explain how the day will run. But first, allow me to draw your attention to a couple of disclaimers ahead of today's presentation. While you take a moment to read through the messages from our lawyers, we will start with our CEO, Julien Glovo, who will share Tengela's 2024 highlights and update on the execution of our strategic priorities and the market. Our CFO, Dion Smith, will then talk through the financial and operational performance for 2024. And after this, Julien will provide the 2025 guidance and conclude the presentation. This will be followed by a Q&A session, and we will then close the call at approximately 1.30. Turning to Q&A. For those wishing to ask questions directly, we ask that you please join the session using the conference call facility provided, as we can only take direct questions through this facility. In order to ask a question during the Q&A session, please dial star 1 on your keypad, and this will register your intention to ask a question. Once the Q&A session starts, the operator will then open your line and ask you to go ahead with your question. For those joining via the webinar, you will have the opportunity to submit questions via text, which will then be read out during the Q&A session. Before I hand over to July, I want to draw your attention to that, unless otherwise indicated in the presentation, operational and financial figures related to the ancient business in Australia in 2023 are based on Tungela's interest in Ensham for the four-month period between the acquisition date of 31 August 2023 to 31 December 2023. Now, please allow me to hand over to our CEO, Julien Glovo.

Thank you, Hugo, and good day to everyone on the call. Today, I'm pleased to share the 2024 annual results with you. These results demonstrate our continued operational excellence and disciplined execution of our strategy. Safety is and remains our first value. We are unconditional about protecting the lives of our people. We are proud to report that we have been operating a fatality-free business for more than two years. We've also improved our total recordable case frequency rate to 1.93 for the group. Operationally, we demonstrated exceptional agility in responding to the improved rail performance in South Africa in the second half of the year. For the year, the group recorded 17.7 million tons of export-sellable production, which exceeded our market guidance in South Africa and at Ansham. While the impact of softer price environment across the Richards Bay and Newcastle benchmark coal prices continues to impact our financial results the group recorded a net profit of 3.5 billion rand with ancient contributing 676 million rand or 19 turning to capital expenditure in 2024 we spent a total of 3.4 billion with 1.7 billion rand spent on sustaining capital and another 1.7 billion rand spent on our two key life extension projects, Elders and Zibolo North Shaft. Both of these projects remain on schedule and within budget. We continue to reserve the cash required to complete these projects. The Board considers it appropriate to maintain a cash buffer of 5.4 billion rand. We are returning all excess cash above the buffer to shareholders and have declared a final ordinary cash dividend of R11 per share, or R1.5 billion in total, as well as a share buyback of up to R300 million. Let me spend a moment on an update on the execution of our strategy. We are making good progress across these five pillars. We'll discuss safety on the next slide, but suffice to say that operating a fatality-free business is not just about the statistics. It is about truly caring about our people and their families and making sure that our people go home to their loved ones safely every day. In 2018, Tungela and our Black Economic Empowerment Partner established the Ritvlei coal mine with a view to supplying coal into the South African domestic market while ensuring the direct benefit for the local communities. With the mine now fully operational and a domestic contract in place, Tungela has sold its 34% interest in the Ritvlei coal mine to our partner. The transaction demonstrates economic inclusion. Our partners together with the local communities participate in the full economic benefits of the operation. Productivity improvements and cost efficiencies are key to ensuring that we remain competitive in the current price environment. This was demonstrated in the second half of the year when our South African operations were able to step up production in line with the improved rate of performance. The increased productivity drove production growth for the first time in three years, and enabled us to exceed our guidance for export-sellable production. At Ensham, we remain pleased with the significant production improvement since we took operational control of the mine in September 2023. You'll recall that the annualized run rate at the time was around 2.7 million tons, while in 2024, the mine achieved 4.1 million tons of export-sellable production. our two life extension projects which improve the cost competitiveness of the business remain on schedule and within budget construction is completed elders which delivered its first call in march 2024 and we are now progressing with the ramp-up activities we have previously told you about our gas reserves in limpopo recently We obtained the necessary licenses to develop a demonstration plant at the Lepalale coal bed methane project. The aim of this plant is to prove the feasibility of the gas project. We plan to spend 400 million rand on the demonstration plant and related infrastructure in 2025. Moving on to the creation of future diversification options. We recently announced the acquisition of the remaining 15% in the ancient mine from LXI for $48 million. We also announced that we have entered into an agreement with Audley and Mayfair to acquire their 27.5% interest in Sungela Holdings for an upfront consideration of US$1.7 million. and deferred contingent consideration. Let me be clear. They put in their own money up front, and what they are getting is slightly less than half of what they put in up front. Upon completion of this transaction, the group will own 100% of the ancient business. During 2024, We established the Tungela Marketing International business in Dubai. The team started marketing our Australian core from late 2023 and core from South Africa from July 2024. This was an important step as we seek to derive maximum value for our core. Our capital allocation framework remains the cornerstone of our strategy. When it comes to returns to shareholders, Our approach acknowledges the diverse preferences of our shareholder base. This is why we commit to provide returns to our shareholders through a combination of dividends and share buybacks. This listing, we've returned 21 billion to shareholders. Just as a reminder, our day one market cap was 3 billion rand. The successful execution of our strategic priorities is testament to Tungela's ambition to build a sustainable long-life competitive business across multiple geographies, paving the way for the group to capitalize on the robust long-term fundamentals supporting coal globally. Let's turn to safety. Our total recordable case frequency rate has improved to 1.93 compared to 2.8 in 2023. In South Africa, we recorded a historic low rate of 1.07, while in Australia, we've made significant improvement with NSHM recording a rate of 13.21 down from 22.63 in 2023. This improvement reflects our strong focus on improving workplace conditions leadership visibility, and critical controls. We are on a safety journey and will continue to share best practice across the regions to ensure that our people are safe at the workplace. Considering real performance, which normally is quite topical, it is encouraging to note the improvement in the performance of Transnet post the July 2024 annual maintenance shutdown. TFR railed 51.9 million tons for the industry in 2024, an increase of 8.4% from 2023. What was particularly pleasing was the improved run rate of 56.2 million tons in the second half of the year, up from 47.3 million tons in the first half of the year, easily the best semester since 2021. This improved rail performance reflects the collaborative efforts between TFR, the coal industry, and the National Logistics Committee. We remain dedicated to supporting Transnet in addressing the critical challenges in order for the coal line to return to historical performance levels. We are also pleased to report that we have signed an extension to the long-term rail agreement between Tungela and Transnet until March 2028. This provides Transnet with the opportunity to implement the initiatives to improve the performance of the rail line until the contract is up for renewal. 2024 saw both the API4 and Newcastle benchmark prices drop from 2023 on the back of high gas and coal inventories as countries built up stocks ahead of the winter season. In addition, the Northern Hemisphere winter was milder than expected and coupled with the impact of low economic activity in the regions in which we sell our coal, this put pressure on prices. The energy markets also remain impacted by the geopolitical tensions between Russia and Ukraine, as well as in the Middle East. The conflicts in these regions have led to increased concerns around gas supply, which in turn provided support for coal prices in the second half of the year. The discount to API4 has improved to 13.1% compared to 14.3% in 2023. The discount in the second half of the year narrowed to 11.1%, mainly as a result of the 1% saving in commissions, as well as improved realized prices achieved through blend uplift and brand premiums realized by the newly established Tungela Marketing international team. In Australia, the discount of 88% to the benchmark price is a result of lower demand in the Asian markets due to low economic activity and buyers looking at other supply regions to purchase coal. We are therefore seeing an increase in buying on the spot as buyers look for the best price. As a reminder, the premium achieved in 2023 was attributed to a higher proportion of fixed price contracts at the time of the acquisition of Ensham. Prices have continued to weaken since the start of the year. China's high inventories is a result of aggressive buying to avoid a repeat of the energy shortages that plagued the economy in 2021 and 2022, with core stocks up 21% year-on-year. The milder winter season and low economic activity in Asia has impacted the drawdown of the stocks And as a result, there's been limited buying in the first quarter. We expect to see price support in the coming months as these stocks are inevitably run down and buying sets up again. Having said all that, we remain confident in the long-term fundamentals of the role of coal in the energy mix in support of the global energy demand. The International Energy Agents confirmed in its World Energy Outlook 2024 report published in October 2024 that the outlook for coal demand remains firm. The strong energy demand from emerging markets with countries such as China and India continue to invest in coal-fired power stations to meet their energy requirements. In addition, A number of Southeast Asian countries with expansive growth ambitions will require reliable and affordable energy sources to support their development. The energy required to power the growing air industry is a topic of increasing focus due to the rapid expansion of AI technologies and their computational demands. Supply, on the other hand, as you see on the graph, is expected to continue to remain under pressure and reduce over time, as investment in new coal mines continues to dry up. As a consequence, we have recently seen an increase in the consolidation of existing mines rather than investment in new mines. Stringent regulatory requirements and widespread Social and political opposition to the development of new coal mines provides companies like Tungela with well-established high-quality coal operations and access to existing reserves with a significant structural advantage. Let me now hand over to Dion for the financial results.

Thank you, July, and to those online for making the time to dial into our results presentation for the year ended 31 December 2024. Let me start by saying that we are indeed pleased to report strong full year performance. As we set out at the intrams in August last year, the first half of 2024 presented various challenges across rail, our own operations, and indeed softer prices. Fortunately, the recovery in rail, operational productivity and the prices in the second half of 2024 enabled the much improved financial performance we are reporting on today. As July said earlier, the group generated 6.3 billion rand in adjusted EBITDA for the full year and a net profit of 3.5 billion rand. Approximately 1.2 billion rand was generated in the first half and the balance of $2.3 billion in the second half, demonstrating the tale of two halves, which characterized our performance in 2024. Breaking down the net profit of $3.5 billion by geography, $676 million was generated in Australia and a balance of $2.9 billion from South Africa, which obviously includes the margin earned by our TMI, so the marketing business, as well as our treasury activities. Our earnings per share of R26.76 benefited from the effects of lower weighted average number of shares in issue as compared to the prior year, showing early results of our share buybacks. We generated adjusted operating free cash flow of R3.6 billion for the full year, which resulted in a net cash position of R8.7 billion at year end. I will talk through the detail of the dividend and share buyback a little later in the presentation. But important to highlight that when we consider the total dividend of 13 rand per share for the full year, so it's 2 rand in intrams and 11 rand announced today, together with the interim buyback of 160 million and the further buyback of up to 300 million, we are returning a total of 2.3 billion, puttantly, with a 10% adjusted operation flow to shares. We've had a very strong year operationally. Our South African operation delivered 13.6 million tonne of export saleable production, an increase of almost 1.4 million tonne compared to last year. This performance was driven mainly by productivity improvements at Zibulu and Kwazela. It's important to bear in mind that this was achieved without reintroducing sections previously removed in response to the poor rail performance in 2023. In Australia, Ensham also exceeded expectations, producing 4.1 million tonnes on a 100% basis as the team was able to navigate fault zones more effectively than expected. The production performance across both geographies saw us beat the upper end of our production guidance. The strong production performance also drove a beat on unit cost performance, again across both SA and Australia. In terms of capital, we recorded a spend of 3.4 billion rand in 2024, with both sustaining and expansionary capex in line with guidance. Export saleable production in South Africa increased by 11%, from 12.2 million tonnes in 2023 to 13.6 million tonnes in 2024. This was a tale of two halves, mainly driven by the marked improvement in rail performance from TFR, which enabled the realization of the productivity improvements across the mines during the second half of 2024. Export sales also improved in the second half of the year, but full stockpiles at certain operations require that we continue to sell lower quality coal into the domestic market, so called free-on-truck sales on the slide. These sales, which do not fetch export parity prices, therefore hold further revenue enhancement opportunities should rail performance improve even further. The ancient mine recorded a marked improvement of 52% in the production run rate from acquisition to full year 2024, following on the introduction of focused projects at that mine. As Hugo mentioned earlier, for the slides which follow, the 2023 comparatives include only four months of NSHIM compared to 12 months in the 2024 figures. This structural difference makes year-on-year analysis for NSHIM a bit challenging, and accordingly you'll see that we display NSHIM separately and that the rest of the slide is focused on movements across the South African business. Let's move into some of the financial results, starting with revenue, where you'll see it's up by around 5 billion rand year on year, the biggest impact being the structural inclusion of Enshim for the full 12 months. The strong export sales performance in South Africa as we shipped almost 700,000 tons more than in 2023 also had a positive impact on revenue. Of course, the most significant impact during the year was the lower price environment across both API4 and Newcastle. Realised prices were down 12% year-on-year in South Africa and 20% in Australia. Looking at the other items on the waterfall, we had less domestic revenue in South Africa, largely due to the fact that reflux volumes were significantly lower, given the mine was on care and maintenance until shortly before we sold it. We also recorded incremental revenue from the third-party traded volumes. Moving to cost, we can again see the impact of including engine costs for the full 12-month period. A reminder that the balance of the Basel's graph pertains to South Africa only. Inflation continues to be high. The increase in commodity prices or purchases you'll see relates to cost of third-party volumes. The incremental volumes produced in 2024 also came with a proportional increase in variable costs compared to 2023. Inventory movement reflects the impact of the movement in stockpiles, as well as a lower production cost per ton, resulting in the moderation of the inventory balance at year-end. As previously flagged, stock deterioration remains a risk where production is not solved for a prolonged period of time due to rail constraints. The other smaller movements include an increase in environmental provision, a small movement in FX revaluations, and a smaller year-on-year contribution to the trusts in 2024 compared to 2023, in line with a lower declared dividends as compared to the 2022 dividends that resulted in that high cost in 2023. Realties are lower in line with lower revenue, driven again by the softer price environment. As I mentioned earlier, The year-on-year operating cost increase at Ensham is mainly due to the number of operating months included in our accounts. Operating costs incurred by Ensham in the year amounted to 8.2 billion rand. The on-mine cash costs were 4.8 billion, of which 2.7 billion is spent on employee-related costs. Royalties for the year on a per-tonne basis amounted to approximately 20 Australian dollars per tonne. Total logistics costs reduced from approximately 28 Australian dollars per tonne in the first half of the year to the full year cost of around 22 Australian dollars per tonne following the successful price negotiations with the rail operator. Looking at costs and insurance, we are making good progress on identifying the number of contracts where we have been able to negotiate better rates. These benefits have started filtering through in the numbers and contributed to the beat relative to guidance. In South Africa, cost per tonne excluding royalties increased by 4.2%. As mentioned on a previous slide, inflation in SA remained pronounced with a 6.5% increase on cash costs, but the impact of inflation and other smaller increases was offset to a significant degree by the higher production volumes. This resulted in a total FOB cost per tonne excluding royalties of R1,130 per tonne. Adjusted EBITDA as a function of revenue and operating cost movements excluding impacts of depreciation tax, obviously, we covered on the previous two slides. So when we look at the EBITDA margin of 18% this year compared to 28% in 2023, it is clear that weaker prices result in significant margin compression year on year. The slide on the screen seeks to explain the movement in net cash since December 2023. You recall that at 31 December 2023, the net cash balance was about 10.2 billion rand. For clarity, this balance excludes cash held on behalf of employee and community trusts, as well as balance sheet investments such as the Green Fund and self-insurance structures on the balance sheet. We've paid 1.6 billion rand to investors in dividends, which comprises the final dividend of 2023 of 10 rand per share and the 2024 interim dividend of 2 rand per share. Furthermore, we spent 601 billion rand on the share buybacks executed during the year. We generated 5.3 billion of net cash from operating activities. We continue to invest in the business and have spent approximately R1.7 billion on sustaining CAPEX and a further R1.7 billion on the Elders and Zibulu North Shaft life extension projects during the 2024 year. In addition, we made a significant contribution of 970 million rand as cash collateral against the environmental guarantees in Australia, with a further 204 million rand contributed to the Green Fund in South Africa, as required by the providers of our environmental guarantees. Notwithstanding these cash movements, the net cash balance at 31 December 2024 was a healthy 8.7 billion rand. Our capital allocation framework remains the cornerstone of our strategy and prioritises returns to our shareholders. Our approach is guided by the funding needs of our projects, and accordingly, as July mentioned earlier, the Board considers it appropriate to continue to reserve R100 million for the completion of Elders, R800 million for the completion of the Zabulu North Shaft project, and then we also reserve R400 million for the gas project. We've declared a final dividend of 1.5 billion rand and a share buyback of up to 300 million rand. The trusts will also receive 172 million rand in relation to the performance in the second half of 2024. This results in a net cash buffer of 5.4 billion rand. In addition, we also have access to 3.2 billion rand in under-ordered facilities. With that, let me now hand back to July to talk us through the 2025 guidance.