South African-based coal mining giant, Thungela Resources Limited (JSE: TGA), reported impressive financial results, posting record profitability for the year that ended 31 December 2022, as European demand for coal surged amidst Russia’s ongoing invasion of Ukraine.
Thungela posted a 93% year-over-year increase in revenue while reporting a stellar 162% year-over-year increase in profit for the reporting period as global macroeconomic conditions favoured the mining giant throughout 2022. Moreover, surging coal prices amidst high demand saw Thungela report a 108% year-over-year increase in earnings per share (EPS). With such “outstanding results and [a] solid liquidity position” bolstering the company’s financial outlook, shareholders saw Thungela report a significant 456% year-over-year increase in dividends per share (DPS) which saw the mining giant declare “a total dividend for 2022 of R100 per share, representing 76% of adjusted operating free cash flow of R18.1 billion for the year.”
Despite Thungela realising triple-digit profit growth, CEO July Ndlovu expressed his concern over logistical restraints amidst “uncertainty regarding Transnet’s performance.” He announced that the South African-based producer “is looking to acquire more overseas coal assets” amid deteriorating logistical issues “at home.” Even though Thungela posted record financial results, coal shipments declined by 10% to approximately 13 million tonnes in 2022, with “those sales expected to fall further” as Transnet grapples with a collapsing local railway network. Uncertainty over Transnet’s performance has resulted in Thungela being unable to provide sufficient guidance for 2024, which has done no favours for market sentiment as of late. With President Cyril Ramaphosa stepping in “to direct Transnet” to assist the state-owned entity in reaching efficient operating capacity, market participants will carefully gauge whether this new venture has future value for mining companies such as Thungela Resources.
Technicals
The price action on the local coal mining giant has been declining steadily over the past few months from the highs last seen in September 2022. For the bull case, a short-term trading opportunity could exist if the price action pushes above R200.00 (black dotted line), which could be the first resistance point in the price for the bulls. If the price breaches the resistance, the share price could reach the next significant resistance level at R222.00 (black dotted line) per share.
The bears could see the price action continue its downtrend toward the primary support level at R178.38 (red line), which could be the first support level in store for the bears. Suppose the downtrend persists and the primary support level at R178.38 is tested. In that case, the possibility exists for either a retracement to higher levels or, if the support does not hold, the price action could decline to the lower support level at R153.49 (black dotted line) per share.
Summary
Depending on how Thungela Resources mitigates the effects of a collapsing railway network under Transnet, the possibility could exist for a long above R200.00 to the next significant resistance at R222.00. If the recent downtrend persists, the primary support level at R178.38 could be watched closely as a potential entry point for the bulls. Still, the potential exists for the primary support level not to hold and for the price action to decline toward lower support levels.
Sources: Bloomberg, News24, Thungela Resources Limited, Trading View
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