Thungela branches out of SA with R4bn Australian acquisition

July Ndlovu, CEO of Thungela Resources.

• Thungela Resources will acquire the Ensham coal mine in Australia.
• The deal forms part of the group strategy to diversify out of South Africa. 
• Thungela believes the asset’s purchase price is attractive and will have a quick pay-back period.
• For more financial news, go to the News24 Business front page.

Thungela Resources has announced the R4.1 billion acquisition of a majority stake in the Ensham coal mine in Australia as the coal miner moves to diversify out of South Africa.

Thungela said the purchase consideration of AUD 340 million (R4.1 billion) was attractive for a controlling stake in what is a “highly cash-generative thermal coal asset with long-life potential”.

Thungela will acquire an 85% interest in Ensham from Idemitsu Australia. The remaining 15% will continue to be owned by LX International (LXI).

The deal will see Thungela gain operational control of Ensham and, subject to certain existing arrangements, will also have the right to market and sell its proportional share of the coal produced by the Ensham coal mine.

“This will provide Thungela with access to the Japanese and other Asian markets where demand remains strong” and will “better balance the group’s price exposure by providing access to the strong Newcastle export coal price, complementing the group’s existing exposure to the Richards Bay benchmark coal price”, the company said in a statement.

The deal comes 20 months after Thungela, South Africa’s largest export coal miner, was spun out of Anglo American.

“This acquisition delivers on our strategy to pursue geographic diversification through a commodity we understand and in which we have a right to win,” said Thungela CEO July Ndlovu. “Given the similarity in operating methodology between Ensham and our South African underground operations, we can leverage our core skills to create value.”

Ndlovu said the deal would create resilience for Thungela, mitigating its exposure to a single country, being South Africa. Thungela is pleased to be entering Australia, a leading mining geography with a successful track record of thermal and metallurgical coal production and “reliable, well-established port and rail facilities”, he said.

While Transnet’s poor performance is impacting coal exporters like Thungela, Ndlovu told News24 the acquisition would have happened irrespective of Transnet’s troubles. “It’s just a good business decision,” he said, noting that Thungela remained committed to its South African operations and would work closely with Transnet to help resolve its challenges.

The high-margin mine is expected to be value and earnings-accretive, with a short payback period of two to three years.

The asset produced approximately 3.2 million tonnes in 2022 and will provide scale to Thungela. It also has the potential for increased production in the future. Subject to the extension of the existing mining approvals, the Ensham coal mine has a life of mine through to 2039.

Thungela said the mine is being acquired from a responsible and reputable mine owner. Asset ticks all boxes of investment criteria. The group said the mine would be incorporated into its net zero strategy as it works to decarbonise its portfolio.

The Thungela share price of R220 was essentially flat in Friday morning trade.