Thungela Resources (JSE: TGA): (JSE: TGA): Earnings Down 80%, Dividend Shrinks

0:00 Welcome back to the Sunday Morning Maze Dive, a feature of the Money maze where we take one jazz stock making headlines, strip away the corporate sugar coating and break it down South. You know what's really going on. I'm your host, Jay. And today we're talking about Tongue Life, the darling of South African retail investors and the coal exporting heavyweight that's been the toast of dividend crowd for the past few years. But this week, Dongala served up a trading update that didn't just pour cold water on the party, topped over the cooler ice and all earning, told everyone to go home. So the headline number, and it's not exactly the drop anyone wanted to.

0:40 Anguilla now expected half year earnings per share and headline earnings per share to be 78 to 85% lower than last year. Last year for the first half, they were rocking 9 Rand 52 a share. This year somewhere between 1 Rand 40 and 2 Rand 10. That's like going from a full spur rack of ribs with onion rings to splitting a stale fit cook with someone you don't even like.

1:07 The share price didn't exactly clap from this news. It slid on the Jazz almost immediately. And if you had the stock in your platform watch list, you probably heard the collective Ochnio Transnet from retail investors nationwide. So why did the wheels fell off? Well, this isn't one of those oops, we made a small accounting error situation tongue. Ella's problems are big, ugly and it's not going to go away overnight.

1:34 Coal prices have cooled faster than a cold drink on a Durban beach front. Thermal coal prices were riding high for years thanks to global energy crunches, supply disruption and post COVID rebound. But now Mount Richard by export prices are down 14% and the Australian export benchmark has slipped 11% year on year. When you're selling coal for less and you don't have a fancy sidelining cappuccino or sneakers, revenue takes a beating. Then transmit the gift that keeps on not giving. Our national logistics champion has been about as quick to fix its problems as the government's been to clean up corruption in the government service.

2:17 Which is to say, you might be waiting a while. Bottlenecks in the rail and ports main. Tongela had to physically limit how much collared produced because honestly, what's the point of mining the stuff if it's just going to pile up like uncollected Robert rubbish? Then we've got a 285,000,000 Rand in restructuring costs. With the hood of work and easy Bonello mines heading towards their twilight years, Tongela has been forced to restructure and that clean up bill is a hefty 285,000,000.

2:50 For that kind of money you could have bought every South African Aburi role and still had enough left for tomato sauce and a coke. So let's have this awkward dividend conversation. Let's not pretend you're a lot of Tangela popularity comes down to each juicy dividends in its primate was handing out payment so big they made some reach Look stingy Retail investors loved it because the cash rolled in whether the share price was up, down or sideways.

3:17 But here's the harsh truth. You can't hand our champagne chicks when you're earning ginger beer money. With an earnings drop this severe, the interim dividend to be announced in August is almost certainly going to be thinner than a knickknacks packet after two bites. If you were banking on that prior to fund your monthly Bri, now's the time to consider cheaper voice, smaller gatherings and hoping your mates will arrive with their own meat.

3:44 Let's look at the strategic outlook. Is this a bruise or a long term break? Eastern Gala finished? No, but the days of easy money might be behind it for now. They stole S Africa's largest thermal coal exporter and countries like India and China are still buying the stuff. But they not without challenges and these are not small. Global demand is softening Tina.

4:09 Energy transitions are happening whether coal likes it or not. Then we've got transmits favourite game of guess the train timetable. It still chokes export volumes, rising operating costs while everything from labour to compliance is pricier. You've got aging assets worth major mines approaching the end of life. Then you've got investor pressure. ESG focused funds treating coal like pineapple on pizza.

4:35 The strategic decision for holders is this. Are you betting on a coal price rebound or are you just here for the yield? Because if it's the latter, that yield could look very different over the next year or two. And justice, in case you ETF holders thought you off the hook. Well, sorry, Even if you've never clicked buy on Tangela shares directly, there's a very good chance you own a piece of it through your ETF.

5:02 Pretty much any Top 40 tracker has Tongela inside. It's not a giant chunk, but when multiple resource counters by having a bad quarter, well, it adds up. So don't be shocked if your ETF statement looks a little less cheerful next time. Tongela drop is part of that story. But let's get into a little bit of history. How did we get here? Well, Tangela was spun out of Anglo American in 2021.

5:27 Basically Anglo said you guys take the coal and we're going to focus on that stuff that won't get us side eyed at the ESG cocktail parties. Investors who got in early, they were rewarded coal prices think ballistic post COVID and Tungala was printing cash dividends flowed like Castle Lager at the rugby final. But Kohli's cyclical business and cycles don't last forever. Anyone who's been in resources long enough knows the draw. When the good times roll, they've really roll. And when they turn, well, you get a trading update like this. So let's get to your CHEAT SHEET for this episode. EPS and HIPS forecast 1 Rand 40 to 2 Rand 10 versus mine ran 25 last year.

6:12 That's a drop of between 78 and 85%. Why won't lower coal prices translate bottlenecks and that 285,000,000 Rand restructuring impact? Well, you'll probably have smaller dividends, share price hit, and their ETF drag. The next big thing, August, full interim results and different announcements.

6:35 So let's get to your stockpile starter pack for the JSE Jedi That Tune Edition. If your investment strategy was based on writing Cole's cash Wave, it's time to check whether your surfboard still floats. The tide has gone out fast. However, that doesn't mean it came over, but it does mean that you can't keep sipping cocktails on the sand while your ship springs a leak. Keep an eye on those results in August and check whether this is a once off tumble or the start of a longer decline. Either way, now is the time for informed, rational investing, not panic selling or blind doubling down. And while my jokes may be rougher than transmit track maintenance schedule, remember this is not financial advice. Please do your own research and speak to a licensed advisor and I'll catch you next Sunday for another maze dive. Same time, same place, same sarcasm.