Please note that this event is being recorded. I'd now hand the conference over to Ryan Africa, Head of Investor Relations. Please go ahead, sir.
Thank you very much. Good afternoon, everyone, and welcome to this afternoon's investor call following the release of the CFO pre-close statement earlier today. I'm Ryan Africa, Head of Investor Relations for Thungela, and I'm joined on the call, of course, by our CFO, Deon Smith. Today's call will be run through both an audio webinar as well as a conference call facility. Deon will present an overview of the key elements in today's release, and thereafter there will be a Q&A session until we close the call shortly before two o'clock South African Time. Turning to Q&A. For those wishing to ask questions today, we ask that you please join the session using the conference call facility provided, as we'll only be taking questions through this facility.
In order to ask a question during the Q&A session, please dial star one on your keypad and this will register your intention to ask a question. Once the Q&A session starts, the operator will then open your line and ask you to go ahead with your question. To reiterate, we won't be taking typed questions submitted through the webinar platform today. It is possible to dial into the conference call facility only shortly before the Q&A session and directly from your computer. If you are planning to do this, I encourage you to register for the conference call in advance of the Q&A session, as you will need the link sent to you upon registration.
Finally, a reminder that this morning's announcement is now available on the Thungela website and that today's session will be recorded, and the recording will be made available on the Thungela website from later this afternoon. With the logistics out of the way, please allow me to hand over now to Thungela's Chief Financial Officer, Deon Smith.
Thank you, very much, Ryan, and thank you for everyone having taken time to join us for this pre-close call. Yeah, full year ending 31 December 2023, and expecting to report more detailed results to the market in March next year. But clearly, keen to update our stakeholders on progress and where we expect to end in this year. Before we go into any of the detail of the announcement that you would have seen on RNS or SENS this morning, clearly, Thungela's leadership remains absolutely focused on safety as a business. We were devastated by some of the more pronounced incidents in the mining industry that you would have seen over the last couple of months.
And our thoughts and prayers go to those families, colleagues, our friends in some of the mining companies that have seen absolutely devastating impacts on their employees and the lives of their employees over the last couple of months. Clearly, as an industry, we have a lot to do to work towards a fatality-free industry. And at Thungela, that's one of our key priorities, our key values. And so therefore, we still mourn the loss of Breeze Mahlangu , who passed away early this year following an incident at our Zibulo operation late last year. We are, however, deeply thankful for all the hard work from our various operations in keeping our people safe, and pleased to report that we've been fatality-free since that incident.
Now, clearly, in reflecting on the results of our business, we sought to update you in the short SENS we released this morning on some of the key metrics. But allow me a couple of minutes to just walk you through, and that might help us set up the discussion in such a way that there are the appropriate links for you to ask any questions you deem necessary to help you form a view on what to expect for our full year results. Our results are definitely marked by a different level of demand for coal this year compared to 2022, and it was introduced over the winter period, where we experienced a much warmer winter than I think Europe anticipated. And as a result, gas stocks, coal stocks, which remain higher.
Our key market focus has been in Asia Pacific, where clearly the demand remained high, but prices softened quite considerably in 2023 compared to 2022. You would see from the SENS that we've averaged Richards Bay API4 around $123 a ton, and compared to last year's $270 a ton, and that clearly resulted in a very significant margin squeeze. In terms of the Ensham Business in Australia, which prices against the Newcastle benchmark, you would see that that price has also taken a similar and averaged this year around $175 a ton compared to $300 in the prior year.
Interestingly, in terms of the amount that we achieve, and as a reminder, that is a combination of both a quality differential as well as a quality discount, that gets us to a price realization below API4 of about 85%. So therefore, our discounts have narrowed to around 15% in this year. Which, if you recall correctly, in the first half of the year, it was slightly higher at about 18%. It continues to narrow, and the reason for this is, as API4 actually contracts, given the lag between when orders are placed and when coal is priced, there's a natural contraction that's happening in that term discount. But we're expecting those type of levels to prevail in the short term.
Interestingly enough, in the Ensham Business, where when we report results, you will note that we will focus on the last four months of 2023. So that's from September 2 to 31 December 2023, as that was the effective date of the transaction when we reached the full completion of that transaction that we announced on the 3rd of February. We'll consolidate 85% of that business, recognizing that the 15% is owned by LXI in the underlying Ensham Business. Other than for revenue line items or sales, where we'll recognize 100% because we acquire 100% of the coal from Ensham, or sell 100% of the coal from Ensham, and then we'll recognize the balance 15% in the purchase of coal.
So when you look at those numbers, you'll see that, in Ensham, we've achieved, or we're likely to achieve a slight premium to the Newcastle benchmark price. And that premium of about 10% in the last couple of months is mainly due to the fact that some of the Ensham coal sales are against fixed price contracts. So the Japan Reference Price being the most predominant fixed price contracts that are in place at Ensham. And that is around 50% of the sales book of Ensham in the last four months of 2023. And those fixed prices were obviously struck much earlier in this year, in 2023, when prices were higher than what they currently are, which has resulted in that premium for the last four months.
Therefore, that average realized price is approximately $153/ton for the period since completion. In terms of exportable production, so this is what our operations have produced in South Africa. We're expecting the full year 2023 number to come in at about 12.1 million tons, which is marginally above the midpoint of the range that we provided you earlier this year. And clearly, it's slightly lower than the prior year's 13.1 million tons, and that's because we removed three underground sections earlier this year in response to the continued poor rail performance.
You'll also note that when we talk at year-end about our coal volumes and inventory vol, those numbers have reduced from just around 3 million tons to just below 2 million tons over the course of 2023. Clearly, producing less, selling the same, but also selling FOB cost on truck sales has contributed to the reduction in those coal stockpiles. In terms of export saleable production at Ensham, we expecting the full year 100% number to come in at around 2.9 million tons. Fairly pleased with that performance of the Ensham M ine since completion. You might recall that the run rate up to the end of August, when we announced the completion, was about 2.7 million tons.
With the right focus on productivity, Ensham has continued to make strides on its run rate, and therefore, we're seeing a much higher run rate currently that will enable them to come in at that 2.9 million ton for the full year. In terms of FOB cost per export ton for the South African operations, both including and excluding royalties, we're expecting the actual final number to come in at the low end of the revised guidance range that we shared with the market in August. And that's sort of a positive or at the low end, due to a number of factors.
Yes, the denominator is slightly above the midpoint, but also, we achieved slightly higher domestic revenue prices, so offsets, on that, and also, a slight positive movement on the, rehabilitation, provision compared to last year's, slight, increase in that provision. In terms of Ensham's, FOB cost per export ton, expected at approximately, AUD 1,950. So AUD 1,947 is what we've put in the SENS. That number is, for the last, couple of months of this year, a bit higher than what we would like to see it, and we'll work on that in, the new year and provide, appropriate guidance when we, announce our results, in Q1 next year.
Including royalties, which in Queensland, from the first dollar is around 7%. That number is about ZAR 2,300 a ton. So while the cost a ton at Ensham is higher than the SA business, clearly the margins are still fairly attractive, given the sales book against Newcastle, and some of the fixed price contract. In terms of the actual sales for export equity sales in South Africa, you would see that, for full year, we're expecting it to be broadly flat compared to last year, about 12.1 million tons. At Ensham, we're expecting it to be slightly higher than production, so full year, 100% at about 3 million tons. And therefore, if you look at the 100% number in relation to that-...
We're likely to recognize those two 1.2 million tons of sales as a result of Ensham over the four months that we had economic control of and operational control of Ensham. In terms of capital expenditure, we've previously guided a range that include sustained CapEx as well as our two LifeX projects, Elders and Zibulo up to ZAR 3.3 billion, and we're expecting to report a lower-end number at around ZAR 3 billion for the full year. Those projects, notwithstanding that spend run rate, is on track and on schedule, and therefore the coal delivery dates are unaffected by the slightly lower spend in total this year.
We expect to still spend around ZAR 2.8 billion across those two projects during next year and the year after, to complete both Elders and the Zibulo North Shaft. You might recall, originally, we announced those projects. In aggregate, the spend is about ZAR 4.4 billion, and ZAR 2.8 billion of that is yet to be spent in 2024, 2025. In terms of Ensham, the full year CapEx, it's about ZAR 1 billion, on a 100% basis, and therefore around ZAR 300 million of that will be consolidated into our accounts. Our cash position remains fairly strong.
At the end of November, that net cash balance was about ZAR 10.5 billion, and given the fairly chunky tax and royalty bill in South Africa that's payable twice a year, next one is in December, about ZAR 2.1 billion. Net of some of the other movements in our cash, such as the economic benefit from Enyobeni, that is our proportional participation in Enyobeni's cash flows from 1 January 2023 until end of August of about ZAR 811 million, brings us to a net or anticipated net cash balance at the end of 2023 of approximately ZAR 9.6 billion. Now, clearly, our results continue to be impacted by the fact that our operations run on a constrained basis in South Africa.
That constraint is mainly as a result of Transnet. You'll see in the sense, we set out some of the calendar year annualized numbers, which are slightly different to the numbers TFR would report given their financial year, or different dates compared to our cutoffs. But you'll see that the annualized industry run rate in H1 this year was about 48 million tons, and in H2 so far it's around 46 million tons, slightly lower. But notwithstanding that, you might also recall that we said for us to hit the lower end of our production numbers, we needed to get to around 47 million tons in the second half. Now, clearly, we're not there, yet we are hitting the midpoint of our exports available production range.
And you might ask, "How is this possible?" We've set out a couple of sentences to help the market understand the dynamics around that. The key reason for our performance and not taking any of the hard work away from the teams on our end and Transnet's end to achieve this outcome, but our run rate on trains were higher than what we anticipated as a result of a number of things. But most notably, the use of our rapid load out terminals, as well as the wider distribution network.
So essentially, Thungela continues to operate a set of sidings that enable Transnet to perform well through our sidings, and as a result, we have achieved a very good rail outcome in the second half of 2023. Clearly, our objectives and Transnet objectives are very much aligned in continuing that type of performance, but it does require a lot of hard work and engagement between Thungela and Transnet for us to achieve that type of outcome. In terms of the Ensham acquisition, I've spoken to some of the numbers which so far have yielded very pleasing outcomes for us.
If you look at the original announcement, where we were anticipating to pay around ZAR 4.1 billion for our interest in the Ensham Business. After reducing that with the 811 million ZAR economic benefits since 1 January, as well as a bit of working capital adjustment, you'll see that the net outflow, cash outflow for that interest is around ZAR 3.2 billion, which is, we still believe an attractive entry point into that business, and we expect that business to be accretive, both in terms of cash generation and earnings into the future. Clearly, in South Africa, we need to complete our key life extension projects, Elders and Zibulo North Shaft.
These are absolute top priority for the business, and we're expecting, as I said earlier, to complete the spend program over the next, or within the next two years, with about ZAR 2.8 billion still expected to be spent. In terms of capital allocation, we've set out our perspectives on the cash that we have on our balance sheet. We remain absolutely focused on the appropriate level of returns to shareholders. And the board will clearly reflect on the balance to be achieved before we come to the market with our results in March.
We've previously said we believe that it's prudent and necessary to continue to maintain around ZAR 5 billion cash buffer, which represents about two and a half months worth of spend for our business. We also believe that reserving or preserving some cash to complete those two projects, Elders and Zibulo, represents the right answer. So that on top of the five, is about ZAR 2.8 billion at the end of the year. But clearly, what is sacrosanct to us, is to continue to fund our dividend, and our minimum payout target is clearly 30% of our adjusted operating free cash flow, and that remains a cornerstone of our capital allocation framework.
Now, clearly, where we are in the market today, our focus is very much on controlling what we are able to control, beyond safety, our production run rate, our cost, our CapEx, are the elements that feature very highly in terms of our management agenda. We believe that controlling those and doing our best on those, and then enabling the improved performance on Transnet through various initiatives that we run through RBCT, but also directly and engagements with Transnet and government, are absolute paramount in us, for us, to enable us to continue to deliver superior results and returns to our shareholders.
With that, I want to conclude that we take that role very seriously, and the responsibility of that is not lost on us as a management team. And we thank you for the trust that you've placed in us, and continue to place in us to manage the business in that manner. With that, I would like to hand back to Ryan, and open to any questions that you might have for us.
Thank you very much, Deon. We will now turn to Q&A. A reminder for those wishing to ask questions, we ask that you please join the conference call facility, as we'll only take questions through this facility today. In order to ask a question during the Q&A session, please dial star one on your keypad, and this will register your intention to ask a question. Operator, please open the lines for the first question.
Thank you very much, sir. Ladies and gentlemen, just a reminder, if you'd like to ask a question, you're welcome to press star, then one to place yourself in the question queue. Our first question comes from Tim Clark of SBG. Please go ahead.
Hello. Thanks very much for the update. Really appreciate it. A couple of questions from me, please. Just the first one on Ensham. You know, we've been waiting to, with bated breath, to hear what you're seeing once you get your sort of feet in the under the mat as such, and get operating. Just what opportunities you see, how you sort of see productivity, and anything that you can give us, any further color you can give us on Ensham. And secondly, within that Ensham question, just on hedging, just to help us with whatever hedging we should put into our models for you know, next year, and how long that hedge book lasts, et cetera. That would be appreciated. I've got one or two other questions, but I'll pause there.
Hi. Hi, Tim, and good, good to hear from you. So, Tim, our first focus at Ensham was really a continuation of the business and the transition of it. And, as a result, I just returned actually this morning from Australia. We're very pleased to report that the transition of and separation from Idemitsu into a standalone business in Australia went seamless over the December, the first of December period. We're able to pay our first payroll, accounts payable runs, and so forth, and run on our own IT systems. So our initial focus was very much a sustainable, responsible transition and separation from Idemitsu, which we're pleased has gone well so far.
In terms of our initial view of the operation, we remain to be excited about the prospects for Ensham. Unlike our South African business, where clearly the key constraint so far has been access to rail. There are fewer constraints in the Ensham environment. Or certainly, the constraints that exist are constraints we can work hard on solving ourselves, rather than being dependent on another party exclusively to solve those. So we're excited about the prospect. The resource body is very, very significant, about 1 billion tons. The opportunity to introduce an additional production unit at Ensham is still there.
We're working through the detail, the permitting and the like to achieve that, and once everything's in place, we could increase that run rate that you're seeing at the moment, at around 2.9 for this year. Hopefully we could shift that up. Proportionately, there are four production units. Hopefully, we can get a fifth in there, and get productivities up, and that would help on the denominator. It'll help on the cost per ton, but certainly the cash generation of that business also. The CapEx, you would know, Tim, from the SENS at AUD 1 billion, for a single mine, is higher than what our South African operations run at.
We think there might be opportunities to optimize that a bit, in some ways, doing some of the capital at our work in South Africa rather than relying on the Australian CapEx. So there are opportunities to run to. Nothing that we've seen so far in Ensham scares us. Very similar mining methodologies. Very excited about the morale of the people, and the skill sets of the people at Ensham. Very excited about the opportunities that that operation holds for us. So, actually, a very, very good feedback, in a nutshell. In terms of your question on hedging, we do not have hedges per se, or swaps in place.
What we do, however, have at Ensham is that on an annual basis, a proportion of the coal sales are struck against the Japan Reference Price. Some of the sales are against fixed price contracts with utilities, so with power utilities rather than Newcastle. And for the last four months of this year, as I said earlier, it's around 50% of the book are against those type of fixed price contracts and 50% of the sales are floating against Newcastle. We have not yet entered into any of those contracts for next year. We need substantial contracts for next year, and once we have, we will certainly communicate that detail.
So for next year, I have to assume that it'll all be Newcastle, and that price realization should be just shy of Newcastle. So a couple of percentage points below is what we've seen the long-term average run for Ensham has been. But if we find favorable fixed price contracts for Ensham, we will certainly enter into those, and, and flag those to the market, Tim. But for now, there isn't anything to report in terms of hedging at Ensham.
Thanks. That's very, that's very helpful. Thank you very much, Deon. Can I just ask beyond that, just into the broader group in South Africa, and you had some hedges in place at some point in time. Was the current result impacted at all or bolstered by hedging at previously higher prices? Firstly, and then secondly, are there any, you know, should we be thinking about any hedge book impacts for this year, for the coming year?
So, Tim, in our results in the first half, you would see a slight tailwind, as a result of those final hedges, as prices came down. A very, very small tailwind this year, therefore, nothing significant and no hedges in place in the South African business either, as we sit here.
Okay, super. And, and then just my last question, just on TFR. If we look at those run rates that you gave us, that, which were very helpful, 48 million tons in the first half, 46 million tons in the second half. Should we be thinking about a, sort of, a little bit of a loss into kind of productive capacity or, or sales next year? You've done very well to use your, your trucking and your, your sidings, so congratulations on that. Very positive outcome. But just should, should we think about a lower run rate just because that's where TFR have been for the second half, or is that too punitive?
So it would be difficult for us to predict TFR's run rates into the next six months or a year right now. And the reason for it is we are sitting at the edge of our seat to understand various spare parts that we've through RBCT supported TFR to acquire. These spare parts, engines, these compressors and all of the loco ingredients get to arrive in a staggered fashion. One, two, we've also helped TFR over the last couple of months reintroduce a full-time security outfit relative to the partial outfit that was put in place earlier this year or mid-year TFR.
And therefore, some of the low run rates we've seen as a result of, I dare I say, a slip in security relative to what it was in the first half of the year. If those initiatives, both security and the spare parts, deliver the results that some of our TFR colleagues with the most realistic view predict could happen, then I think a further deterioration in the run rate would be appropriate, but rather a slight improvement. But, Tim, when that improvement arrives, I think remains slightly opaque because it is linked on when the new security initiative as well as the spare parts take traction.
... Yeah, I'll pass on to someone else. I've got some other questions, but I'm sure others want to ask. So thank you very much. Really greatly appreciate it.
Thank you. Thank you, Tim.
Thank you. Ladies and gentlemen, just a further reminder, if you'd like to ask a question, you're welcome to press star and then one to place yourself in the question queue. At this stage, I don't seem to have anybody, anybody else in the question queue. I do have Tim Clark still, if you'd like to go ahead and ask further questions.
Yeah, thanks. I mean, the key thing that I wanted to try and assess is just when we look at the Anglo guidance that we got last week, Friday, Kumba gave us guidance effectively of completely flat production going out over the next few years. I just wondered if you could give us some kind of indication of whether you're a bit more optimistic than that. I know that I've sort of half-asked that question, you know, earlier, but just whether you think that there is very low-hanging fruit that could come through. I mean, the iron ore line didn't fall down, you know, as much as the coal line. I think the coal line is down almost 40% or thereabout, whereas iron ore is down 15%.
So that's the first one I wanted to ask you. And then the second one is just, you know, we've had a lot of reports out of some of your peers of redundancy programs and cutting costs and removing employees. I just wonder, you know, what you guys have been doing. Are you just using attrition? I would imagine, I mean, you've had a very good cost result, so I'm sure that you are using various levers without necessarily putting them into sort of front and center. But just what levers are you pulling on costs, given this lower production rate that we're desperately hoping will reverse, but are living with?
Yeah. So if I maybe if I can start with the easier of the two, believe it or not, on the second part of the question. Tim, when we took the three sections of production out earlier this year, you would recall that we did not launch a restructuring process of some sort. The reason for it is because we indeed flagged that our intent is to use and rely on attrition to achieve most of that outcome for us. Given we have a fairly good understanding of the age of our workforce and the age at various operations.
The second reason why we've not accelerated down that path is because, if you look at the life of our operations, clearly, Goedehoop is coming to an end fairly soon. And yes, while Elders is ramping up, it does give us the opportunity, in that handover to put the most optimal mine in place, if that makes sense. So there's no point in restructuring now and restructuring again in a year's time when we have an operation closing. We have pulled every single lever we can think of, so far to keep our costs intact. And we'll continue to do so.
It's squeezing the lemon, it's ensuring that we spend on what we need to spend, and continue to apply a level of austerity, given we are constrained through this denominator. But we are not yet at the point where we need to necessarily restructure our business. We have, in the prior year, you might recall, stopped a number of open cast sections, and sections of mines. But there, Tim, we have, we've chose to stop sections in areas where we use contractors, and therefore, also at that point, avoided a broad restructuring. So we have used other levers than the big knife, so to speak, so far.
It continues to be the right answer for us, because we also know how critical some of the bord and pillar skills are to our business. Retaining those for the ramp up at Elders and retaining that for the continuation at Zibulo is also very critical versus needing to train up and recruit people at that point in time. So, could we operate even more thrifty if we took harder decisions? Possibly, but I think those would not have been the most optimal decisions for us in having to ramp up a new operation in the shape and size of Elders within the next couple of months. On the more difficult question you're asking on production into the future.
Our impact on the line has been felt, in our view, earlier than the impact on the iron ore line from a timing perspective. Yes, it's been more pronounced, but it was over the last three odd years rather than over the last year and a half. Therefore, I think iron ore and other lines have had a more Damascus moment compared to what we've had to do to our business about 2 years ago already. You might recall in 2018 odd, we were running 17 odd million tons, and now we are reporting a 12 million run rate. So we have already put in a lot of the hard work historically, rather than having to make announcements today.
Okay. Thank you very much, Deon. Really greatly appreciate it, and all of the best for the holidays. Thank you.
Yeah, thank you very much, and the same to you, Tim.
Ladies and gentlemen, just a final reminder, if you have asked a question, you're welcome to press star then one, to place yourself in the question queue.
... I can see that we have no further questions in the queue. If you do have any further questions, please do feel free to get in touch with me via email. My email is ryan.africa@thungela.com, and I will get back to you. With that, please allow me to hand back to Deon to close out the call.
Thank you. Thanks very much, Ryan, and thank you again for everyone that has made time to dial in to today's call. I mean, clearly, in listening to the discussion, the challenge for us as a business continues to be resolving some of the key medium and long-term bottlenecks. We are encouraged by some of the smoke signals out of government over the last couple of weeks in resolving the Transnet challenges that have been building now for a number of years. We're encouraged by the boldness at which government seems to now look at the issue and the potential reforms required around rail.
We remain hopeful that that would not only provide relief for us as a company, as an industry, but also as a tax base in South Africa. We're very excited, clearly, about the prospects around Ensham and the results of that acquisition. We believe that thermal coal has a good place in the energy mix for a number of years to come. Improving our portfolio through the geographic diversification and delivering on some of these strategic priorities we've set ourselves as a team has really gone a long way to improve the resilience of our business into the medium and longer term, alongside the two LifeX projects in Elders and Zibulo.
For us, we need to focus on some of the improvement areas for our business, including our competitiveness from a cost perspective across Ensham and our African business. And ensuring that whatever capital we spend, we get absolute value and payback for it. And those priorities, alongside our continued focus on safety, remains top of mind as we move into 2024. I continue to thank you for your interest in following our developing story and observing us as we seek to create value for a broad range of our stakeholders. And thank you for your ... Have a lovely afternoon, and if we don't speak, have a good festive season, we'll again in the new year. Thank you very much, all.
Thank you, sir. Ladies and gentlemen, that concludes today's event. Thank you for joining us, and you may now disconnect your lines.