Thungela Resources (JSE: TGA) earnings recover as higher coal sales and Ensham output provide support

Thungela Resources Limited (JSE: TGA; LSE: TGA) entered its latest interim reporting period with a sharp earnings recovery, but the headline profit increase requires careful interpretation. The company guided for first-half earnings per share of R10.75 to R11.10, compared with R1.93 a year earlier. Headline earnings per share were expected at a lower R4.60 to R4.95, although that would still represent growth of 140% to 158%. The wide gap largely reflects an approximately R1 billion non-cash benefit linked to the sale of the Kleinkopje mining right. The more important question for shareholders is how much of the underlying coal-market improvement translated into operating cash flow and sustainable capital returns.

Thungela’s August 7 trading statement put expected attributable earnings between R1.3 billion and R1.4 billion for the six months ended June 30, 2026. Expected headline earnings were considerably lower at R580 million to R630 million.

At the midpoint, that implies attributable earnings of approximately R1.35 billion and headline earnings of about R605 million. The roughly R745 million difference illustrates why statutory profit alone is not the best measure of the operating recovery.

The underlying business nevertheless entered the period from a stronger position than a year earlier. International thermal coal prices improved, export sales increased and Ensham production recovered. South African logistics also became more supportive as Transnet Freight Rail moved greater volumes.

That combination makes the current period more interesting than the spectacular EPS percentage suggests. Thungela is moving from a 2025 earnings downturn toward stronger coal economics, while simultaneously replacing mature South African mines and trying to maintain its shareholder-return model through another volatile commodity cycle.

Why does Thungela Resources’ huge EPS increase overstate the underlying earnings recovery?

The biggest difference between statutory earnings and headline earnings comes from Kleinkopje.

Thungela completed the sale of the Kleinkopje mining right associated with Khwezela Colliery as part of its portfolio optimisation programme. The transaction resulted in an approximately R1 billion non-cash reduction in environmental provisions for the areas transferred.

That accounting effect benefits statutory earnings. It is excluded from headline earnings because it does not represent ordinary recurring coal-trading profitability.

This distinction changes how investors should read the percentages.

At the midpoint of the trading statement range, EPS would be approximately R10.93. That is about 466% above the R1.93 reported for the comparable first half.

Midpoint HEPS of around R4.78 represents growth closer to 149%.

A 149% improvement in headline earnings is still substantial. It shows that the recovery extends beyond accounting adjustments. But it is materially different from describing Thungela’s underlying operating profitability as having increased almost fivefold.

The same distinction matters for valuation and dividends. A non-cash reduction in an environmental provision can increase accounting profit without putting the equivalent amount of cash into Thungela’s bank account.

Cash generation therefore becomes a more useful test than EPS when assessing how much economic value the first-half recovery created.

How much did higher coal prices really help Thungela after the South African rand strengthened?

Thermal coal prices were significantly more supportive during the first five months of 2026.

The Richards Bay Benchmark averaged $104.25 per tonne through May, compared with $91.78 per tonne during the first half of 2025. That represents an increase of approximately 13.6%.

Thungela’s realised South African export price increased from $78.13 to approximately $87.60 per tonne, an improvement of roughly 12.1%.

However, the currency moved strongly in the opposite direction.

The rand averaged approximately R16.40 to the US dollar through May, compared with R18.39 during the first half of 2025. As a result, Thungela’s realised South African export price translated to approximately R1,437 per tonne, broadly unchanged from the comparable period.

That is one of the most important details behind the earnings rebound.

A South African coal exporter benefits when dollar coal prices rise, but part of that advantage disappears when the rand strengthens. Thungela therefore experienced a substantial improvement in its dollar selling price without receiving the same percentage increase in rand revenue per tonne.

This puts more emphasis on volumes and costs.

If realised rand pricing is broadly flat, higher profitability must increasingly come from moving more tonnes, improving mine productivity, controlling unit costs or reducing other expenses.

The first-half sales performance suggests Thungela made progress on the volume side.

Why did Thungela export sales increase about three times faster than production?

Group export saleable production was forecast to increase 4% to approximately 8.3 million tonnes. Export sales were expected to rise 12% to 9.5 million tonnes.

That divergence is significant.

A mining company does not need current-period production and sales to move at identical rates. Inventory can be drawn down, third-party coal can be purchased and improved logistics can allow previously produced tonnes to reach customers.

Third-party sales provide part of the explanation. Thungela expected those volumes to increase from approximately 0.2 million tonnes to 0.7 million tonnes.

South African export sales were forecast at around 7.5 million tonnes including third-party coal, compared with 6.6 million tonnes in the prior period.

Improved rail performance also helped.

Transnet Freight Rail was running at an annualised rate of approximately 60.8 million tonnes during the period. Thungela said it had also been able to use rail capacity allocated to producers that did not have sufficient product available to fill their slots.

That matters because South African coal miners spent several years struggling with a logistics system that prevented available production from reaching Richards Bay Coal Terminal efficiently.

Better rail utilisation can increase cash generation even without a dramatic increase in mining output. Moving inventory through the export chain releases working capital and converts mined coal into revenue.

For Thungela, sustained rail improvement could therefore become an important source of operating leverage independent of commodity prices.

Can Annea and Khwezela replace the production disappearing from Goedehoop and older mining areas?

The relatively modest movement in total South African production conceals a major transition between individual mines.

South African export saleable production was forecast at approximately 6.3 million tonnes, only 2% below the comparable 6.4 million tonnes.

Underground production, however, was expected to fall 13% to 4.1 million tonnes.

Goedehoop provides the clearest example. Production was forecast to decline from approximately 1.4 million tonnes to only 0.2 million tonnes as the mature operation approaches the end of its economic life.

Zibulo was expected to fall from 2.2 million tonnes to 1.8 million tonnes. Production was affected by conveyor and support-service challenges while the business transitions toward the new Zibulo North Shaft.

Annea is replacing much of the lost production.

The operation was expected to produce approximately 1.0 million tonnes during the first half, compared with only 0.1 million tonnes a year earlier as the new mine ramps up.

Opencast operations are also contributing more. Khwezela production was expected to rise 63% to approximately 1.3 million tonnes, while Mafube remained broadly stable at 0.9 million tonnes.

The result is a portfolio that is changing considerably without creating an equivalent collapse in group production.

This is strategically important because Annea and Zibulo North are replacement investments rather than optional additions to an unchanged production base. Their purpose is to sustain Thungela’s South African output as older resources decline.

The real test is therefore not simply whether Annea grows rapidly from a low starting point. It is whether the combination of Annea, Zibulo North and stronger opencast production can maintain competitive group volumes and unit costs as mature operations disappear.

Why is Ensham becoming more important to Thungela even though Australian coal pricing was complicated?

The acquisition of Ensham has materially diversified Thungela beyond South Africa.

Australian export saleable production was forecast to increase 25% to approximately 2.0 million tonnes during the first half. That would represent roughly one-quarter of expected group export saleable production.

The operational recovery is meaningful because Ensham experienced difficult geological conditions during the comparable 2025 period.

Pricing provides a more nuanced picture.

The Newcastle Benchmark averaged approximately $124.79 per tonne through May, substantially above the comparable period. Yet Ensham’s expected realised export price was around $107.50 per tonne, slightly below the $109.28 achieved in the first half of 2025.

The disconnect largely reflects contracted pricing.

Thungela had committed some tonnes at fixed prices before the sharp increase in Newcastle coal prices. Approximately 360,000 tonnes were also being invoiced at the 2025 contract price while negotiations continued.

As a result, Ensham did not immediately capture the full benefit of the stronger benchmark.

This creates potential second-half upside if contracted pricing resets while production remains strong. It also creates timing risk because benchmark prices could soften before the operation fully captures the earlier increase.

Ensham is nevertheless increasingly important to Thungela’s portfolio. It provides production diversification, access to Australian logistics and exposure to a different coal-pricing structure.

A larger Australian contribution also reduces the extent to which Thungela’s group production depends entirely on South African rail performance.

Why does Thungela’s expected R6 billion net cash position matter more than the R1 billion accounting gain?

Before the interim results, Thungela expected net cash at June 30 to fall between R5.9 billion and R6.1 billion.

The midpoint of R6.0 billion would represent an improvement of approximately R900 million from the R5.1 billion reported at December 31, 2025.

That comparison needs an important qualification.

The expected June balance included roughly R1 billion of cash generated from foreign-exchange derivatives. The improvement therefore cannot automatically be attributed entirely to underlying coal operations.

Even so, the balance sheet remains one of Thungela’s most important strategic advantages.

The company endured an extremely weak 2025 earnings environment, recognised R8.8 billion of non-cash impairments and reported a statutory loss of R7.1 billion. Yet it still ended the year with R5.1 billion of net cash.

That liquidity allows Thungela to invest in replacement mines, maintain its assets and return capital without immediately relying on external funding when coal markets weaken.

The first half included approximately R600 million of South African capital expenditure, comprising roughly R500 million of sustaining capital and R100 million of expansion expenditure. Ensham sustaining expenditure was expected at around R250 million.

Those investments show why cash cannot simply be equated with surplus capital.

Thungela must retain enough liquidity to fund its mining portfolio through commodity cycles while meeting rehabilitation, operating and development commitments.

The significance of a R6 billion net cash balance is therefore resilience, not simply the potential size of the next dividend.

Why is Thungela’s cash-flow number more important than EPS when judging the next shareholder return?

Thungela’s formal dividend policy targets a minimum distribution equal to 30% of adjusted operating free cash flow.

That makes adjusted operating free cash flow the most important financial number for assessing shareholder distributions.

The contrast with EPS is especially relevant in the current period because approximately R1 billion of the expected statutory earnings improvement comes from a non-cash transaction effect.

Thungela has previously demonstrated that its board is willing to use balance-sheet flexibility when determining distributions.

During 2025, the group generated only R396 million of adjusted operating free cash flow for the full year. Yet ordinary dividends and the share repurchase associated with the year totalled approximately R701 million.

That represented 177% of adjusted operating free cash flow.

The board was able to exceed its minimum distribution framework because Thungela maintained substantial liquidity and believed its balance sheet could support the returns.

That does not mean the same approach must continue indefinitely.

The stronger first-half earnings environment improves the possibility of shareholder returns, but cash conversion still matters. Higher coal sales should support operating cash inflow, while capital expenditure, working capital and currency movements can alter the amount ultimately available.

A high-quality earnings recovery would therefore show headline profit and adjusted operating free cash flow improving together.

A large EPS increase accompanied by weak free cash flow would be much less meaningful.

How should investors read Thungela’s share-price position after a volatile 2026 for thermal coal?

Thungela’s market performance has reflected far more than company-specific earnings.

The share price has been highly sensitive to thermal coal prices, exchange rates and geopolitical developments. During June, the stock experienced unusually large daily moves as energy markets reacted to Middle East developments.

The latest company-hosted share-price data currently retrievable remains dated July 31, when Thungela closed at R101.20 on the Johannesburg Stock Exchange. That was well below its 52-week closing high of R180.61 but above its R73.10 low.

The wide range illustrates how aggressively expectations for coal profitability have changed.

A share price well below the 52-week high does not by itself mean Thungela is undervalued. The earlier peak incorporated a different set of coal-price, currency and geopolitical assumptions.

Likewise, stronger first-half earnings do not automatically justify a return to previous highs.

A sustained rerating would require evidence that stronger coal pricing, improved logistics and higher Australian production are translating into durable free cash flow rather than a temporary earnings rebound.

That is why investors are likely to look beyond the statutory EPS figure. Cash generation, realised coal prices, unit costs, second-half production guidance and capital returns provide a more reliable picture of the earnings power available to shareholders.

What will determine whether Thungela’s first-half recovery can survive the next coal-price reversal?

Several parts of Thungela’s operating position have improved.

Export sales are higher. Ensham production has recovered. Annea is replacing tonnes lost from Goedehoop. South African rail availability has become more supportive. The balance sheet also entered the reporting period with substantial liquidity.

Commodity pricing has provided another tailwind, although the stronger rand diluted much of the benefit when South African realised prices were translated into local currency.

The combination makes the underlying recovery more credible than the Kleinkopje accounting gain alone would suggest.

What remains unresolved is durability.

Thermal coal prices can move sharply in both directions, and Thungela’s 2025 results showed how rapidly earnings can weaken when price assumptions deteriorate. The company therefore needs to convert favourable periods into cash while maintaining low-cost replacement production.

The strongest evidence will come from three areas.

Annea and Zibulo North need to sustain production as older South African mines decline. Ensham needs to maintain higher volumes while improving realised pricing. Transnet Freight Rail needs to preserve enough capacity for increased South African production and inventory to reach export markets.

If those operating improvements persist, Thungela will be less dependent on exceptionally high coal prices to generate shareholder value.

The first-half trading guidance already shows that earnings have recovered substantially. The more demanding question is whether cash generation, mine replacement and logistics performance have improved enough to make the next downturn less painful than the last one.

Key takeaways from Thungela Resources’ first-half 2026 earnings recovery

• Thungela guided for first-half EPS of R10.75 to R11.10, compared with R1.93 in the first half of 2025.
• Expected HEPS of R4.60 to R4.95 represents growth of 140% to 158%, showing a substantial underlying recovery even after excluding major non-headline items.
• An approximately R1 billion non-cash benefit associated with the Kleinkopje mining-right sale explains much of the gap between EPS and HEPS.
• At the midpoint, expected attributable earnings of R1.35 billion exceed expected headline earnings of around R605 million by approximately R745 million.
• Group export saleable production was expected to rise 4% to approximately 8.3 million tonnes, while export sales were expected to increase 12% to 9.5 million tonnes.
• Richards Bay Benchmark coal prices improved significantly in dollar terms, but rand appreciation limited the benefit to South African realised revenue per tonne.
• Ensham production was expected to increase 25% to approximately 2.0 million tonnes, strengthening Australia’s contribution to the group.
• Annea and higher Khwezela production are increasingly important as Goedehoop declines and the South African portfolio transitions toward replacement mines.
• Thungela expected net cash of R5.9 billion to R6.1 billion at June 30, although approximately R1 billion reflected cash generated from foreign-exchange derivatives.
• Adjusted operating free cash flow, sustainable unit costs and cash returned to shareholders remain more important measures of the recovery than the statutory EPS increase alone.