Thungela Resources : 2022 Interim results short-form announcement and cash dividend declaration

THUNGELA RESOURCES LIMITED (Incorporated in the Republic of South Africa) Registration number: 2021/303811/06

JSE Share Code: TGA

LSE Share Code: TGA

ISIN: ZAE000296554

Tax number: 9111917259

('Thungela' or the 'Company' and, together with its affiliates, the 'Group')

2022 Interim results short-form announcement and cash dividend declaration

THUNGELA DECLARES INTERIM DIVIDEND ON BACK OF RECORD HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2022 ("H1 2022")

KEY FEATURES

• Thungela remains committed to operating a fatality-free business and has completed 12 months without a fatality.
• Profit for the reporting period of R9.6 billion in a volatile operating environment (H1 2021: R351 million).
• Adjusted operating free cash flow* of R8.9 billion resulting in a robust net cash* position of R14.8 billion (H1 2021: R3.0 billion).
• Interim ordinary cash dividend declared of R60 per share, resulting in R8.2 billion returned to shareholders.
• SACO Employee and Nkulo Community Partnership Trusts to receive a distribution of R500 million in keeping with commitment to create shared value
• Elders production replacement project approved by the board, enabling us to maximise the value of our existing assets and support livelihoods in the region.
• Full year guidance for export saleable production revised to 13.0Mt to 13.6Mt, reflecting the on-going inconsistent and poor rail performance by Transnet Freight Rail (TFR).

• Full year guidance for FOB cost per tonne* revised to R1,025 to R1,065 per tonne including royalties, or R885 to R915 per tonne excluding royalties. Guidance for capital expenditure, both sustaining and expansionary, reiterated.

KEY FINANCIAL INFORMATION

Financial Overview
Rand million (unless otherwise stated)	H1 2022	H1 2021	% change
Revenue	26,176	10,046	161
Operating costs	(10,119)	(8,670)	17
Profit for the reporting period	9,630	351	4,427
Earnings per share (cents)	6,723	313	2,048
Headline earnings per share (cents)	6,723	305	2,104
Dividend per share (cents)	6,000	-	n/a
Alternative Performance Measures*
Adjusted EBITDA	16,679	1,888	783
Adjusted EBITDA margin (%)	64	19	45pp
Adjusted operating free cash flow	8,934	(1,682)	n/a
Net cash	14,815	3,043	387
Capital expenditure	568	1,284	(56)

pp - percentage points change period on period

Message from July Ndlovu, Chief Executive Officer

The first half of 2022 has been one of good progress on a number of fronts:

• We have continued our relentless pursuit of operating a fatality-free business and have not recorded a loss of life in the last 12 months.
• We have delivered another set of exceptional financial results driven by elevated Benchmark coal prices in a volatile operating environment.
• We launched the Thuthukani supplier and enterprise development programme to support local business and stimulate job creation.
• The board has approved the Elders project, a key element in delivering our strategy.

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.

Coupled with supply constraints in major coal producing regions, this resulted in the price of thermal coal increasing to unprecedented levels.

Thungela's ability to fully take advantage of the strong price environment in the first half of 2022 was hindered by TFR's continued underperformance. A consistently well run logistics corridor between Mpumalanga and Richards Bay is crucial not only for coal exporters like Thungela, but also for the South African economy with coal exports generating billions of Rand in tax and royalty revenues.

Notwithstanding the impact of the rail performance on export equity sales volumes, we achieved record adjusted operating free cash flow* of R8.9 billion. As a result the net cash* position stands at R14.8 billion at 30 June 2022.

Creating value

Delivering attractive shareholder returns while maintaining disciplined capital allocation remains a cornerstone of Thungela's strategy. Our robust cash flow generation and substantial net cash* position allow us to declare an interim ordinary dividend of R60.00 per share. This represents a payout of 92% of adjusted operating free cash flow*, once again substantially higher than the minimum payout ratio of 30% per our stated dividend policy.

Considering the increase in our share price, together with the 2021 final and 2022 interim dividends, Thungela has generated a total shareholder return of 1,138% from listing through to the end of June 2022.

The EPP and CPP will receive a distribution of R500 million, in addition to the R273 million received by the trusts in relation to 2021. These distributions cement our people as our partners and will allow us to create a lasting legacy for our communities.

Thungela is also committed to building sustainable livelihoods in our host communities and has launched an enterprise and supplier development programme called 'Thuthukani' which is focused on providing hands-on entrepreneurial business support and mentorship, loan funding and technical development to small enterprises in the regions in which we operate.

Operating responsibly

We remain committed to operating responsibly. As a result, in addition to the

R188 million contribution made to the Green Fund in the first half of 2022, we will make a further discretionary contribution of R200 million in the second half of the year to increase the quantum of cash set aside for future environmental obligations.

Remediation work in response to the uncontrolled release of water into the Kromdraaispruit and Wilge river on 14 February 2022 continues to progress well and we remain committed to restoring the river system.

Delivering on our strategy

Aligned to our strategic pillars of maximising value from existing assets and optimising capital allocation, the board has approved the development of the Elders project which has been an integral part of Thungela's equity story from the outset. The project has been approved at a total capital cost of R2 billion (in 2022 money terms). The purpose of this project is not to add incremental volumes to our production profile, but to replace volumes from the adjacent Goedehoop operation as that mine comes to the end of its life. In keeping with our commitment to make environmental, social and governance considerations a key driver of our capital allocation strategy, the social implications relating to the project were carefully considered. Elders will sustain regional jobs and existing community suppliers.

We also rigorously evaluated the potential environmental impacts of the project. While initial plans were for the development of an opencast mine, we have since opted for and approved the construction of an underground operation which will result in superior returns and a materially reduced environmental footprint. Furthermore, we are undertaking a study to evaluate the viability of a solar-powered energy solution for the complex which should result in both cost and emissions efficiencies.

We continue to strive towards reducing our carbon intensity. The targets set prior to the demerger have been met and we have started the journey towards setting more ambitious intermediate carbon reduction goals as we chart our path to net-zero by 2050. Our disclosure and reporting processes are constantly improving and it is our intention to be compliant with the recommendations set by the Task Force on Climate Related Financial Disclosures (TCFD) by the time we publish our 2022 full year results and announce our new targets.

Looking ahead

Energy security, reliability and affordability concerns in Europe have highlighted the importance of coal in the energy transition. Coal is set to remain a critical input for affordable and reliable power generation, not only in the developing world, but also in highly industrialised and developed nations which have recently increased their reliance on coal to meet their energy needs. We are monitoring these trends and their

implications for Thungela's strategy in the short to medium term, with particular attention given to exploring opportunities for geographic diversification.

The Zibulo North Shaft life extension project studies are progressing well and we expect this project to be tabled for board consideration in early 2023.

Operating a fatality-free business and ensuring exceptional shareholder returns are crucial to earning the trust and support of our stakeholders. We remain committed to delivering on our purpose of responsibly creating value together for a shared future.

Group Operational Outlook

	2022	2022
	Revised	Previous
			guidance
Export saleable production (Mt)	13.0	- 13.6	14.0	- 15.0
FOB cost per export tonne* (Rand/tonne)	1,025	- 1,065	870	- 890
FOB cost per export tonne excluding	885	- 915	850	- 870
royalties* (Rand/tonne)
Capital - sustaining (Rand billion)	Unchanged	1.6	- 1.8
Capital - expansionary (Rand billion)	Unchanged	0.1	- 0.2

Rand amounts in the table above are in real money terms

In response to TFR's inconsistent and poor rail performance we have curtailed production, thus affecting our ability to take full advantage of the strong pricing environment.

Taking into consideration TFR's execution since our Pre-Close and Trading Statement issued on 13 June 2022, the anticipated rail performance for the remainder of the year remains of concern. While we continue to implement mitigating actions, this uncertainty has necessitated a review of our full-year guidance for export saleable production and unit cost.

We have accordingly taken the view that the level of rail performance has not improved sufficiently to warrant confirmation of our original guidance for export saleable production. This guidance is accordingly revised to a range of 13.0Mt to 13.6Mt for 2022 (down from 14.0Mt to 15.0Mt previously guided).