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The coal producer faces volatile commodity prices and growing investor backlash against companies that are ‘anti ESG’
Thursday 09 Dec 2021 Author: Tom Sieber

Despite observing a recent moderation in thermal coal prices, £518 million coal producer Thungela Resources (TGA) is on track to deliver a bumper maiden dividend – with a recent trading update (6 Dec) giving the shares a significant lift.

The South Africa-based operator, spun out of Anglo American (AAL) in June, has seen benchmark coal prices moderate from $210 per tonne in October to $141 by the end of November though the discount at which its own coal sells to this price has narrowed.

The fourth quarter is also seeing an improvement in export equity sales. These had been affected by failings at state-owned rail operator Transnet, which has been struggling to get production to port.

Mindful of coal price volatility, the company wants to maintain a significant cash buffer but with 8 billion rand or £377 million on the balance sheet at the end of November it has plenty of funds available to distribute to shareholders. It has committed to pay at least 30% of free cash flow as dividends and will announce its first payout alongside full year results in March 2022.

Despite the post-update rally for the shares, Thungela’s valuation remains highly discounted. Based on Liberum’s forecasts it offers a 2022 dividend yield of 12.8% and a free cash flow yield of nearly 60%.

This low valuation reflects the market’s increasing emphasis on avoiding fossil fuels, as sustainable investing grows in popularity and as governments move to phase out coal usage.

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