Thungela Resources Limited

Good day, everyone, and welcome to Tungela's 2025 Interim 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 to 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 cautionary statement, we will start with our CEO, Julijn Glovel, who will share Tungela's performance for the first half of 2025. Our CFO, Dion Smith, will then talk through the financial and operational performance for 2025, and after this, July will conclude the presentation. This will be followed by a Q&A session. 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 your questions 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 your 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 that unless otherwise indicated in the presentation, the group financial results include the results of the engine business at 85% until 28 February 2025 and 100% from that date. Now, please allow me to hand over to our CEO, July Global.

Thank you Hugo and good day to everyone on the call. Before I get into the detailed results, let me extend a warm welcome to Mr. Moses Madondo, our incoming CEO who has joined us in the room as part of our handover. Today I'm pleased to share the 2025 interim results with you. These results demonstrate our ability to control the controllables. We report these results against the backdrop of geopolitical tensions and dislocations of the free trade order as we know it, creating significant uncertainty in the key demand markets for seaborn thermal coal. Our strong balance sheet has enabled the business to navigate challenging market environments such as the conditions we are experiencing at the moment. Safety is our first value. We are proud to report that we have operated for two and a half years without a loss of life. We remain unconditional about protecting the lives of our people. The increasing geopolitical uncertainties and tariff escalations are disrupting global supply chains and demand for energy. Our response has been to do what we do best, to control that which is within our control. In South Africa, we increased production year on year despite the abnormally high rainfall in the first half of the year, while at Ansham, production was impacted by challenging geology. We have also been proactive in our approach to shielding the business from current volatility, which has contributed 1.4 billion rand to our earnings. We continue to invest in our strategic projects that are crucial to building a long life in sustainable business. Elders is now producing export-sellable production, and the Zibolo North Shaft is on schedule and on budget. In addition, we have also acquired a further 15% interest in the Ensham business and now 100% of the mine. The board has approved a distribution of 87% of adjusted operating free cash flow, continue to distribute in excess of the dividend policy of a minimum of 30% of adjusted operating free cash flow, showcasing the strength of our balance sheet. Let us now look at the summary of the group results. The group recorded 8 million tons of export-sellable production for the first half of the year, on the back of productivity gains at Zibulo and Mafube. The impact of softer price environment across the Richards Bay and Newcastle benchmark core prices continues to impact our financial results, with the benchmark core prices in South Africa and Australia declining by 9% and 22% respectively. The group had a net cash of 6.3 billion rand at the end of the reporting period after a capital expenditure of 1.2 billion rand. Earnings per share came in at 1.93 rand or 193 cents. The board has approved total returns to shareholders of 3 rand per share comprising of an interim cash dividend of 2 rand per share and an equivalent of up to one rand per share in share buybacks. This demonstrates our commitment to deliver shareholder returns through the cycle. Turning to safety, we remain steadfast on our safety journey as we seek to embed our safety strategy across the business. In the first quarter of the year, we saw an increase in the number of accidents in the business and have taken appropriate action to reverse the adverse trend. At Anshim, the team has adopted improved safety practices with a strong focus on visible felt leadership, high-risk work, and reporting of hazards. If we move to rail performance in South Africa, it is encouraging to note the further improvement in the rail performance in the first six months of the year. TFR achieved an annualized run rate of 54.3 million tons compared to 51.9 million tons in 2024. In fact, the annualized run rate at May 2025 was at 55.5 million tons prior to the derailment in June. As in prior years, Transnet performed the annual maintenance chart in July and managed to successfully complete the majority of the planned activities, with the balance of the work to be completed during normal maintenance. Now, earlier I touched on softer pricing environment, so let's unpack this. In the first half of the year, we continued to see strong demand for coal, which was mainly driven by the U.S. and Europe. but partially offset by the lower demand from China and India. Prioritizing reliable, affordable and secure energy supply is at the heart of energy policy in both China and India in order to partly avoid a repeat of the energy shortages that previously plagued these economies. This has resulted in higher in-country production in both China and India. As a consequence of higher in-country production, combined with turbulent energy demand, the elevated stocks built at the major import hubs have been sticky. This has impacted sea-borne thermal coal demand, leading to lower coal prices we are seeing today. In South Africa, the Richards Bay benchmark coal price was 9% lower than the first half of 2024. while the benchmark core prices in Australia were 22% of the first half of 2024. Discounts in South Africa remained broadly flat in the first half of the year. In Australia, our marketing team achieved a premium of 6.6% to the Newcastle benchmark price as a result of a higher proportion of fixed price contracts in the first half of the year. We expect the premium to revert to a full-year discount in line with 2024. Let's however pause and reflect on the long-term fundamentals of coal. We remain confident in the long-term fundamentals of the role of coal in the energy mix. The International Energy Agency reported in its coal mid-year update published in July 2025 that the outlook for global coal demand remains firm. Countries prioritizing energy security and diversification continue to drive up demand for coal. As a result, global coal demand grew by 1.5% in 2024 to reach a record high level and demand in 2025 and 2026 is expected to stay at these levels. Coal remains a reliable and affordable power source and is in strong demand by a number of developing Southeast Asian countries with expansive growth and development ambitions. Supply, on the other hand, is expected to remain under pressure and reduce over time as investment in new coal mines is limited. Stringent regulatory requirements and widespread social and political opposition to the development of new coal mines has resulted in an increase in the consolidation of coal houses. The lower quality of in-country production within these countries provides companies with high-quality core operations like Tungela with a significant structural advantage. Let me now hand over to Dion Smith, our CFO, to unpack the financial results.

Thank you, July, and to those online for making the time to dial into our interim results presentation today. Our interim results are reported in the context of materially softer prices, and foreign exchange rate headwinds compared to last year, coupled with a number of operating challenges during the period under review. Notwithstanding these realities, we continue to navigate an uncertain and volatile operating environment by focusing on those elements which we can control. As July mentioned, some of the strategic highlights for the period include the progress we have made on acquiring the minorities in the ancient business, approving the gas project extraction program and demo plant, and transitioning critical skills from hoodwip to elders as we continue to ramp up. In reflecting on our interim numbers, our earnings reduced significantly compared to the first half of 2024, driven mainly by the impact of weaker coal prices, resulting in an earnings per share of one rand 93 cents. The group generated adjusted EBITDA of R691 million in H1 2025 at a margin of approximately 5% compared to R2.1 billion in the same period last year, with a margin of around 13%. Cash flows from operations for the period was R1.2 billion, which includes a working capital unwind of R690 million, as well as inflows from realized foreign exchange contracts, around R453 million. The adjusted operating free cash flow of R484 million is net of the sustaining capital of R703 million for the period. The group had a net cash balance of R6.3 billion as of 30 June 2025. We announced that we are returning R421 million to shareholders through a combination of a cash dividend of R2 per share as well as the share buyback of up to R140 million. Taking a closer look at the income statement, our revenue is down mainly due to the coal price weakness. Operating costs are slightly lower than the comparative period, and we'll unpack this in more detail later. We've provided for the restructuring cost of R285 million, and that relates to the closure of Godewa. and EC Bonnello. We are providing for this one-off cost as a result of the progress we've made in the labour consultation process at 30 June 2025. We've recorded a net finance income of R1.3 billion and that includes the R1.4 billion in gains from foreign exchange contracts. Our income tax and effective tax rate remains elevated due to the non-deductibility of certain group operating costs. South Africa recorded export production of 6.4 million tonnes at an FOB cost per tonne of 1,264 rand a tonne. And Ensham recorded 1.6 million tonnes of saleable production and stockpiled a further 280,000 tonnes, and that was run-of-mine coal, which did not report into saleable production for the first half. The FOB cost of R1,904 per tonne is above the higher end of the guidance range as a result of the lower production denominator, which we expect to normalise in the second half of the year as we crush that ROM. Export equity sales for the group amounted to 8.3 million tonnes, supported by improved rail performance in South Africa. In terms of capital spend, we've spent 1.2 billion rand across the group, with, as I said before, 703 million of sustaining capital and 511 million of expansionary capex. Let's now look at revenue in more detail. The revenue bridge between H1 last year and the first half performance this year is predominantly a story of coal prices and FX, with a combined impact for the group of 1.6 billion rand. We observed a pronounced currency impact with stronger producing currencies relative to weaker US dollar, adversely impacting revenue as our export sales are all US dollar denominated. The overall revenue impact of export volumes was broadly neutral with a revenue benefit from additional export volumes in South Africa countered by the lower volumes at ancient. Domestic volumes in South Africa have decreased period on period due to both decrease in production and sales at Issy Bonnello, which was heavily impacted by abnormally high rainfall, as well as the fact that the reed flake colliery volumes still included up to the sale of that operation in November 2024. Moving to operating costs. Realties are lower due to weaker realized prices. The impact of inflation continues to be felt across both South Africa and Australia, but remains below actual escalation across the regions we operate in. The acquisition of the 15% in Ensham resulted in an increase in production costs, but this is offset by a decrease in commodity purchases from LXI. Stockpile utilisation was lower in the first half this year compared to last year, which resulted in favourable inventory movements. If you look at FOB cost per ton in South Africa, unit cost is up by approximately 6% compared to the first half of 2024. This is mainly as a result of the decreased domestic revenue offset in the FOB calculation resulting from the lower domestic sales period on period. As a reminder, The numerator used to determine our FOB per tonne includes the cost of domestic production in total operating cost, which is then reduced by the domestic revenue. Given the reduced revenue at Issi Benalo following the extreme weather events in the first half, we experienced an FOB cost per tonne headwind of around R85 per tonne, which is expected to normalise in the second half of the year. At Ensham, the increase in FOB costs excluding royalties has been driven by inflation, lower volumes, as well as the higher selling and logistics costs. The lower production was a result of geological conditions which impacted production and quality. Ensham produced, as I said earlier, run-of-mine coal of approximately 280,000 tonnes in the first half that did not meet the immediate contractual quality requirements. These tonnages were mined but not crushed. This means that most of the costs have been incurred, but the material is not yet reporting as saleable volumes, skewing the relationship between the numerator, which includes these costs, and the denominator, which does not include the volumes. Once these volumes are crushed and report as saleable production and second off, we expect to see favorable impact on the FOB cost per tonne into the full year. The team has now secured the quality appropriate sales contracts to ensure this call can also be sold. The cash evolution slide on the screen seeks to explain the movement in net cash since December 2024. Net cash at 31 December 2024 was around 8.7 billion rand. In the first half, we've returned 1.7 billion rand to investors in the form of dividends and share buybacks. We generated 1.2 billion of net cash from operating activities. In terms of investment spend, 1.2 billion in CAPEX and we acquired additional 15% interest in NSHIM. We also contributed R188 million to the Green Fund to increase the cash collateralisation of our environmental liabilities in line with our commitment to guarantee providers in South Africa. After taking into account these cash movements, the net cash balance at 30 June 2025 was R6.3 billion. So despite a challenging first half, our robust balance sheet enables us to continue to fund our investments through the cycle and to also continue to prioritise returns to shareholders. If we reflect on the net cash of 6.3 billion, we continue to reserve 800 million for the completion of the Zibulu North Shaft LIFX as well as the gas projects. We then return all excess cash above the 5 billion to Shelvers, which is an aggregate 421 million rand through a combination of the interim cash dividend and a buyback. The Trust will also receive an aggregate of 31 million rand. It is important to emphasize that total returns of R3 per share, including the buyback, is aligned to show the returns in the first half of 2024, notwithstanding a more challenging environment. The Board believes the buffer of R5 billion is appropriate given current uncertainty globally, including commodity price and foreign exchange rate volatility. Let's now turn to guidance, starting with South Africa. On export saleable production, the year-to-date run rate would bring us to the bottom end of the full-year range, but we must recognize that production, especially at Kwezela, has been significantly impacted by abnormally high rain events in the first quarter. We are accordingly expecting a stronger second half, in line with past periods. Furthermore, we expect production at Elders to continue ramping up. We remain confident that we will deliver on guidance, and the range therefore remains unchanged. On FOB cost per tonne, this is already within the guidance range. With a production step-up in H2, including domestic revenue increase from Isibunelo, we expect to come in closer to the lower end of the range in the full year. The ranges for sustaining and expansionary capital remain appropriate as capital spend is weighted towards the second half of the year. At Ensham, simply doubling the export saline production from H1 would only take you to 3.2 million tonnes, well below the lower end of the guidance range. However, given the plans in place, as well as the fact that we expect volumes which have been mined but not yet crushed, to report through to saleable production in the second half, we expect to come in at the lower end of the guidance range. FOB cost per tonne for H1 is above the higher end of the guidance range currently, but the additional production in the second half will see unit cost trending towards the upper end of the guidance in the full year. Sustaining capital at Ensham is expected to come in within the range of R700 to R950 million. It is important for me to highlight that given current macro uncertainty, we will continue to carefully monitor the sustaining capital expenditure in order to further preserve balance sheet flexibility. We will of course ensure that any such austerity does not impact the future sustainability of the business. With that, let me now hand back to July for concluding remarks. July.