Thungela Resources Limited (JSE: TGA) has navigated a recent journey marked by fluctuations, encountering hurdles in the market. Over the past month, the company witnessed a shift, with its share price retracting by more than 14% from the heights it reached in October. This adjustment aligns with broader trends as South Africa’s primary thermal coal shipper faced headwinds from decreasing coal prices, mirroring the 14% downturn in coal futures during the same period.
Operational challenges compounded the situation. Inflationary pressures strained the company’s workings, while the consistent underperformance of South Africa’s mining transport rail system operator, Transnet, constrained export volumes. These combined factors led to a significant drop in profits from R9.6 billion to R2 billion in the latest half-year.
However, amidst these hurdles, Thungela Resources remains steadfast in its strategic pursuits. The company, fortified with a net cash balance of R13.6 billion, is poised to pursue growth opportunities. CEO July Ndlovu reinforced the company’s commitment to diversification and asset acquisition, exemplified by the recent acquisition of the Ensham coal mine in Australia for R4.1 billion earlier this year.
Maintaining a robust financial stance allows Thungela Resources to continue investing in assets while ensuring the ability to reward shareholders with dividend payments. This resilience stands as a testament to the company’s stability during challenging economic climates, underscoring its capacity to navigate and thrive in the face of adversity.
Technical
On the 1D chart, a breakdown emerged from an ascending channel, sending the share price plummeting below the 25-SMA (green line), 50-SMA (blue line), and the longer term 100-SMA (orange line). This shift in momentum is confirmed by the price opening below the daily pivot point at R156.49, as the momentum is firmly tilted in bearish favour.
However, the 61.8% Fibonacci retracement golden ratio at R149.68 is not far away, offering a promising support level to the current downturn. While the bulls will be hoping to find buyers at this level, a breakdown could exemplify the recent pain, potentially triggering a larger downturn toward R144.42 and R139.82 in the longer term.
Should support be found at R149.68, the share price could retrace its recent losses, with a breach of the pivot point and Fibonacci midpoint at R157.11 signalling a potential trend reversal. Resistance could then be met at the 50-SMA around R166.83 before moving higher toward R169.24 to confirm the sustainability of the reversal. A breach of the 50-SMA could trigger a retest of the breakdown point of the channel around R176.38 in the longer term.
Summary
Thungela Resources has been facing challenges from falling coal prices, operational challenges at Transnet, and inflationary pressures that strain their operations. However, the company kept looking ahead, with its focus remaining on strategic growth through acquisitions, which could unlock growth when the commodity cycle turns. The support at R149.68 could be a key level in the upcoming sessions to determine whether the share price will continue its recent descent or whether a retracement could occur to retake some of the selloff.
Sources: Koyfin, Tradingview, Reuters, Moneyweb
Piece written by Tiaan van Aswegen, Trive Fnancial Market Analyst
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