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Coal miner dubbed ‘worthless’ in net zero world reports 3,000pc increase in profits

·3 min read
Coal miner dubbed ‘worthless’ in net zero world reports 3,000pc increase in profits
Coal miner dubbed ‘worthless’ in net zero world reports 3,000pc increase in profits

A mining business dubbed “worthless” just 14 months ago has seen profits jump almost 3,000pc thanks to a scramble for coal provoked by Russia's war on Ukraine.

Thungela Resources, which mines coal for power stations in South Africa, posted profits of 9.6bn ZAR (£485m) for the first half of 2022, compared to 351mZAR (£17m) last year.

The reversal of fortunes comes less than two years after a City analyst declared the business worthless.

Thungela was spun out of Anglo-American in June 2021 after the FTSE 100 mining giant came under pressure from shareholders to ditch fossil fuels.

At the time, research outfit Boatman Capital argued Anglo-American had been over-optimistic about future coal sales while understating future costs. “Our valuation of Thungela is zero,” Boatman said.

Many countries have been trying to turn their back on coal in recent years due to its impact on global warming. Following commitments at the Cop26 United Nations conference on climate change last November, organisers said coal was being “consigned to history”.

However, demand for the polluting fossil fuel has soared since Russia’s invasion of Ukraine. The conflict has disrupted global energy supplies, sending the price of oil, gas and coal sharply higher.

High gas prices as Russia restricts supplies to Europe have pushed many economies back towards coal as an alternative, even if in some cases it is only temporarily.

In the UK, Kwasi Kwarteng, the Business Secretary, has asked coal-fired power generators that were due to close in September to stay open this winter in case they are needed for back-up power supplies.

Germany is also reopening mothballed coal power plants, with Germany’s economy minister, Robert Habeck, describing it as a “necessary evil”.

But with demand rising, supplies of coal have been constrained as traders shun Russian products. Other major exporters including the US and South Africa have struggled to get their products to market due to infrastructure problems.

Analysts at Fitch Ratings believe coal loaded at Australia’s Newcastle port, a key benchmark, will average $320 per tonne this year, compared to about $185 per tonne in the final quarter of last year.

Thungela sold its coal for an average $240 [£198] per tonne in the first six months of 2022, compared to $75 per tonne in the same period last year.

The company’s shares have climbed more than 600pc since the demerger in June 2021, from about 200p to 1,414p on Monday afternoon, valuing the company at about £1.9bn.

They climbed 1.49pc on Monday as Thungela announced the profits and an interim dividend of 60ZAR per share.

In its half-year results, Thungela’s chief executive, July Ndlovu, said: “Demand for affordable energy sources such as thermal coal escalated amid the energy security crisis which was exacerbated by the escalation of the Russia-Ukraine conflict.”

Other coal miners have also posted strong results. Glencore this month declared a record $18.9bn in half year profit, boosted by soaring coal prices.

The FTSE 100 mining and trading giant last year took full control of Colombia’s Cerrejon mine, buying out its partners BHP and Anglo-American.

Overall, global coal production has fallen only slightly in recent years even as investors try to move away from the product due to its impact on global warming.

Global production was 8,173m tonnes in 2021 compared with 8,180 - 8,256m tonnes a year between 2012 and 2014.

Despite strong interim results, Mr Ndlovu said Thungela’s ability to take full advantage of high coal prices was hindered by problems on the railways.

Theft of copper cables, insufficient maintenance and other problems have crippled the freight network run by state-owned Transnet. Thungela depends on trains to transport coal from mines to ports.