Thungela Resources share price stable despite shelved buyback

Rising coal prices and strong first-quarter earnings have helped the Thungela Resources share price rise since the start of the year. While the company’s share buyback programme didn’t impress voters at its AGM last week, the stock has remained flat.

The Thungela Resources [TGA.L] share price has had a bumpy past few weeks, but the announcement that its shareholders voted against a share buyback plan didn’t seem to deter investors. The company said that a special resolution to allow it to repurchase shares received 66.77% of support, failing to meet the 75% threshold.

The South African mining firm’s share price has been flat since the day of its AGM on 24 May, seeing a slight lift of 0.6% from 1,254p to 1,262p on 31 May.

Thungela owns seven mining operations in the Mpumalanga province of South Africa and exports to major markets such as India, Asia, the Middle East and North Africa. It was spun out of mining giant Anglo American [AAL.L] last June with the final 8% stake being sold in March this year. The move was sparked by shareholder pressure about the environmental impact of coal mining. “Anglo American has been pursuing a responsible transition away from thermal coal for a number of years now,” Anglo American CEO Mark Cutifani said.

Shares in the company had debuted on the London Stock Exchange at 150p in June but have risen steadily since then, hitting an all-time high of 1,369p in April 2022. As of 31 May, the stock is up 256.3% year-to-date.

Surging coal prices

Thungela has been boosted by a surge in coal prices as demand continues to rise. And, like other commodities, coal has been driven upwards by the war in Ukraine and its impact on global energy supply chains.

The ICE Newcastle Coal Futures price was $401 per metric tonne on 30 May, far above the $94 per metric tonne it was a year ago. “There’s just not enough to go around,” Ernie Thrasher, the CEO of Xcoal Energy and Resources, said in March.

Despite the rejection by shareholders last week, Thungela is also benefitting from investor interest in its dividend policy.

Rupert Hargreaves, as reported by MoneyWeek, said the group “set out with a policy to return at least 30% of earnings to investors as a dividend, but it has already outlined plans to return 63% of 2021’s income. That’s a dividend of 94p per share or yield of over 7.8%”.

Record coal prices lift revenues

The company made a profit of R6.9bn in 2021, up from a loss of R400m in 2020. Revenues came in at R26.3bn, up from R3.8bn a year earlier.

“We expect to benefit from continued robust demand which, coupled with shrinking global thermal coal supply, has driven thermal coal prices to record levels. The market tightness provides a rationale for capital allocation decisions that offer various opportunities to build on our core - these could be either internal projects or acquisitive,” the company said after the earnings announcement.

According to Bloomberg, Thungela’s CEO July Ndlovu has plans to develop new coal resources and is keen to continue investing in mining.

The group added that it was striving to reduce carbon emissions from its operations and “chart our pathway to net-zero by 2050” and it has investment backing from firms such as Abrdn and Vanguard, which have made much play about their green credentials.

However, concerns remain, including a recent revelation about a toxic spill back in February at one of its old coal mines, which spoiled farmland and killed thousands of fish. The group has been ordered by South Africa’s Department of Water and Sanitation to repair the damage or face legal action.

Despite these headwinds, a consensus of four analysts have a ‘buy’ rating on the stock, according to MarketScreener. Investor sentiment is being boosted by short-term factors such as Ukraine and soaring prices, but the longer-term picture is still unclear.

Coal continues to be phased out as governments and businesses strive toward net-zero carbon emissions. But given Thungela’s focus on emerging markets and the long path to green transition, investors could expect demand to stay healthy.