Anglo-American coal spinoff Thungela Resources notified the market on Thursday that it has signed an amended Long-Term Agreement (LTA) with Transnet, regarding coal rail capacity and rates.
Transnet’s agreement with Thungela as well as other Coal Export Parties (CEPs) binds the state-owned entity to a minimum contractual rail capacity of 60 million tonnes (Mt) for the financial year ending March 2023.
The rail and ports giant will have room to review this agreement, with the intent of increasing capacity, every six months.
Another condition of the new LTA according to Thungela relates to rail tariff escalations which will now be applied as from 1 April 2022 and for the remaining period of the amended agreement.
Performance and ‘underutilisation penalties’ will continue to be applied in line with the revised agreement.
“Thungela management is appreciative of Transnet’s constructive engagement in the negotiations, during which time bulk coal rail services and export sales continued,” the coal giant says in its Sens statement.
“The conclusion of the deed of amendment, and the spirit of collaboration between Transnet and Thungela in achieving this, is encouraging.”
Thungela’s shares were buoyed over 4%, trading at around R322.07 a share, by 13:00 on the JSE following the statement to the market.
Transnet rail woes
In mid-April, Thungela put out a note informing the market of Transnet’s intention – through its Transnet Freight Rail (TFR) arm – to issue a precautionary force majeure in relation to its coal rail service to the Richards Bay Coal Terminal (RBCT).
At the time Transnet cited several challenges including rife vandalism of its coal lines, insufficient maintenance and a lack of locomotives as reasons why it could no longer honour its coal delivery agreement with CEPs.
According to Thungela, prior to enforcing the force majeure, Transnet was only able to deliver 58.3Mt of coal to the RBCT in 2021. This was almost 20Mt less than the terminal’s annual capacity of 77Mt.
Transnet in June announced a lifting of the force majeure, concluding agreements with nine of its coal exporters.
Over the last year the coal producer has benefited from higher coal prices, with the onset of Russia’s invasion of Ukraine in February catapulting prices almost three-fold.
The outcomes of elevated coal prices were already visible in Thungela’s half-year financial results, which it released on Monday.
Thungela’s interim profit for the period ended June 2022 came in at R9.6 billion, up dramatically from the R351 million the coal producer reported in the comparative half-year. Additionally, Thungela’s revenue for the period rose 161% to R26.17 billion.
Despite facing challenges with Transnet, the group reiterated that it is still on track to meet its goals for the rest of the year, reassuring the market that Transnet’s operational woes will not have a material impact on the company.
“At this stage, however, Thungela does not believe that these developments will have a material impact on the Group’s operational outlook which was published as part of its interim results for the six months ended 30 June 2022 announced on Sens and RNS on 15 August 2022,” Thungela notes.