•     Export saleable production relating to our South African operations is expected to be 12.1Mt for FY 2023, marginally higher than the mid-point of the guidance range of 11.5Mt to 12.5Mt issued in August 2023. The removal of three underground sections in response to poor rail performance resulted in a decrease of 7.6% compared to the prior year (FY 2022: 13.1Mt).

•     Export saleable production at Ensham⁴ for FY 2023 is expected to be 2.9Mt (on a 100% basis), higher than the expectation of 2.7Mt that prevailed upon completion of the acquisition - this increase is primarily due to an enhanced focus on productivity. The attributable export saleable production from Ensham for the Group in FY 2023 is expected to be 0.8Mt - this represents 85% of the total production for the four months from completion of the acquisition to the end of the year (refer to Annexure A).

•     FOB cost per export tonne excluding royalties for the South African operations for FY 2023 is expected to be at the low end of the revised guidance range of R1,120 to R1,200/tonne issued in August 2023 - this is due to higher-than-expected domestic revenue offsets and a positive movement in the non-cash rehabilitation provisions. Including royalties, the FOB cost per export tonne is expected to be at the low end of the revised guidance range of R1,170 to R1,250/tonne.

•     FOB cost per export tonne excluding royalties at Ensham⁵ is expected to be approximately R1,947/tonne for the period from completion through to the end of the year (refer to Annexure A). Including royalties, the FOB cost per export tonne is expected to be R2,342/tonne.

•     Export equity sales for the South African operations are expected to be relatively stable year-on-year with 12.1Mt for FY 2023, compared to 12.2Mt in FY 2022.

•     Export equity sales for Ensham⁴ are expected to be 3.0Mt for FY 2023. The Group expects to recognise 1.2Mt of sales, representing 100% of the sales in the four months following completion of the transaction (refer to Annexure A).

•     Capital expenditure for the South African operations for FY 2023 is expected to be R3.0 billion, at the lower end of the guidance range. This consists of R1.4 billion relating to sustaining capital and R1.6 billion relating to expansionary capital for the Elders and Zibulo North Shaft projects.

•     Capital expenditure at Ensham for FY 2023 is expected to be R1.0 billion (on a 100% basis) - this relates to sustaining capex only. The Group is expected to recognise R0.3 billion which represents the attributable capital expenditure incurred in the period from completion through to the end of the year on an 85% basis (refer to Annexure A).

•     The Group had a net cash position of R10.5 billion on 30 November 2023. In December 2023 we received the Ensham economic benefit deed payment of R0.8 billion. We also expect to pay R2.1 billion in taxes and royalties in South Africa in December 2023. Taking into account these movements, as well as expected cash generation from operations and capital spend for December, net cash is expected to be approximately R9.6 billion at the end of 2023.

Managing the impact of continued poor rail performance

The inconsistent and poor Transnet rail performance continued to weigh heavily on the South African coal mining industry and indeed on the Group's results in the second half of the year. The annualised industry run rate dropped from 48.0Mtpa in H1 2023 to 45.9Mtpa in the second half of the year through to the end of November 2023. This results in an annualised run rate of 47.0Mtpa for the year to date, below the 50.3Mt railed in 2022.

The deterioration in the second half of the year has been primarily attributable to an increase in security related issues as well as locomotive failures. The coal industry, including Thungela, continues to work closely with Transnet to remedy the security situation and has been supporting Transnet through additional security coverage since November 2023. A sustainable solution is dependent on the procurement of spares for the locomotives supplied by the Chinese locomotive supplier CRRC, either directly from CRRC, or from alternative suppliers. Thungela and the coal industry recognises the need for urgent intervention and RBCT (on behalf of the industry) has placed orders with alternative suppliers for critical locomotive spares. Transnet is also in the process of procuring locomotive spares from alternative equipment manufacturers.

In response to the continued rail underperformance, we curtailed production at three underground sections earlier this year and instituted free-on-truck sales in order to better manage stockpile capacity at our operations. We continued to truck coal from our operations to nearby sidings, allowing for further rail loading options and reducing the risk of train cancellations. The wider distribution pattern and our rapid load-out terminals are physical infrastructure advantages which allow us to benefit from additional trains when TFR experiences problems on certain sections elsewhere on the line. As a result, the Group expects to rail 12.0Mt in 2023.

Update on the Ensham acquisition

Earlier this year, we announced the acquisition of the Ensham thermal coal mine in Queensland Australia, marking a significant milestone on our journey to geographic diversification, and we successfully completed the transaction on 31 August 2023.

It was imperative that the acquisition be value accretive for shareholders and the transaction was structured to enable Thungela to benefit from the economics of the Ensham Business from the lock-box date of 1 January 2023 through to completion. We are pleased to report that the Group has received R0.8 billion in cash through this mechanism, higher than initial estimates. Together with the final closing adjustments, this results in a reduction in the purchase price of the Ensham Business from the initial R4.1 billion, to approximately R3.2 billion.

The acquisition substantially increases Thungela's coal resource base and provides access to new markets, notably Japan, as well as exposure to the Newcastle Benchmark coal price. The Ensham sales book consists of volumes sold against the Newcastle Benchmark coal price, the Japanese Reference Price as well as fixed price contracts with large utilities.

Thungela assumed control of the operations on 1 September 2023, resulting in an enhanced focus on productivity. We are confident that the mine should produce 2.9Mt (on a 100% basis) in 2023, higher than our initial expectation of 2.7Mt at the time of completion of the transaction. The integration of Ensham into the Group has progressed well and we completed the transition of all services from the previous owner on 30 November 2023. Key areas of judgement in relation to the acquisition of the Ensham Business, and the impact thereof on the financial results for the year, are in the process of being finalised.

Commitment to capital allocation framework and shareholder returns

In South Africa we also continue to make good progress on the Elders and Zibulo North Shaft projects which are on track with regard to both the expected completion schedule and total expected spend. By the end of 2023 we expect to have spent a total of R1.6 billion on the two projects, with a further R2.8 billion expected to be spent in future to complete the projects.

While agile operational performance has allowed the Group to navigate challenging rail and price headwinds this year, a degree of caution pertaining to balance sheet flexibility remains appropriate as softening coal prices have put the Group on a lower cash generation trajectory.

Disciplined capital allocation remains a cornerstone of Thungela's strategy, and our capital allocation strategy continues to be informed by the funding requirements for our projects as well as the continued uncertainty relating to rail performance. Accordingly, the board considers it appropriate to maintain a cash buffer of R5 billion as well as to continue to reserve the cash required for the ongoing execution of the Elders and Zibulo North Shaft projects.

The board also reaffirms that it is committed to shareholder returns in accordance with Thungela's stated dividend policy, which is to target a minimum payout of 30% of adjusted operating free cash flow⁶, and the Group's capital allocation framework which prioritises the return of capital to shareholders while maintaining balance sheet flexibility.

Our disciplined capital allocation approach, agility and enhanced resilience have served us well in 2023, enabling us to execute on our strategic priorities, adapt to changing market conditions and ensure that we are able to continue to create superior returns for our shareholders in the long-term.

Deon Smith

Chief Financial Officer