Good day, ladies and gentlemen, and welcome to the Thungela Annual Results Analyst Presentation. All online attendees will be in listen-only mode. There will be an opportunity to ask questions when prompted. Please note that this event is being recorded. I'd now like to hand the conference over to Mr. Ryan Africa. Please go ahead, sir.
Good morning, everyone, and welcome to Thungela's First Annual Results and Strategy Update Presentation. I'm Ryan Africa, Head of Investor Relations for Thungela, and I'd like to take a couple of minutes to introduce today's agenda and to explain how the day will run. Before that, please allow me to draw your attention to a couple of important messages from our lawyers. While you take a moment to read through the disclaimers, a reminder that the annual results documents are available on the Thungela website, www.thungela.com, under the results section on the Results tab of the Investor section. This presentation can also be found under the Investor Presentations tab, or alternatively can be downloaded from the webinar pane. Today's session will be recorded, and the recording will be available on the Thungela website from later this afternoon.
A transcript of the session will also be made available on the website in the coming days. Let's start with the agenda for today. Our CEO, July Ndlovu, will talk through Thungela's 2021 highlights and will also provide an update on our ESG approach and the progress we've made on ESG this year. Our CFO, Deon Smith, will then talk through the operational financial performance for 2021, and after this, July will provide an update on Thungela's strategy. We will then have a Q&A session of approximately one hour to give those on the call and webinar the opportunity to ask questions. We will then close the call at approximately 1:45 P.M. Turning to Q&A. For those wishing to ask questions directly, we ask that you please join the session using the conference call facility provided, as we can only take direct questions through this facility.
In order to ask a question during the Q&A session, please dial star 1 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. For those joining via the webinar, you'll have the opportunity to submit questions via text, which will then be read out during the Q&A session. It is possible, of course, to follow today's session across both platforms simultaneously, although you will have to mute one of the sessions to avoid interference. Please bear in mind that there is a 30-second delay on the webcast. It is also possible to dial the conference call facility only shortly before the Q&A session and directly from your computer.
If you are planning to do this, I do encourage you to please register for the conference call in advance of the Q&A session, as you will need the link sent to you upon registration. Now, with those logistical matters out of the way, allow me to hand over to our CEO, July Ndlovu, to take us through Thungela's first set of annual results.
Thank you, Ryan. Good day to everyone on the call. It is with great pride that Thungela shares its inaugural set of annual results with the market today. Let me start by introducing you to our purpose: to responsibly create value together for a shared future. Four very simple phrases with deep meaning for us. Our purpose is really the core of what we do as a business, and is the North Star for all decisions, choices, and actions we take. Now, let me briefly discuss each of the key elements of the purpose. Starting with the phrase responsibly.
We are acutely aware that we're a carbon company, and that this comes with a unique set of responsibilities to our society at large in terms of our environmental impact, the development of our host communities, and the need to provide affordable and reliable energy to the markets we serve. We are only custodians of the mineral endowment on behalf of the people of South Africa, and our solemn duty is to maximize the value extraction in a responsible way. We have developed a value focus strategy and fit for purpose ESG framework, which I'll come back to during the course of this presentation. What of the phrase create value? Value creation in a responsible way is crucial for the longevity of any company, and I'm pleased to report that nine months since listing, Thungela has created substantial value for you, our stakeholders.
This is evidenced by the strong share price since listing and our dividend declaration today of ZAR 18 per share or ZAR 2.5 billion in aggregate. Together, this recognizes that the role each one of us in Thungela plays has an impact on local and global economies, the communities we operate in, and the lives of our people. It is our responsibility to create long-term sustainable value for all our stakeholders. Two of the most important constituents of this group, of course, our employee and our host communities. Through our Employee Partnership Trust and Nkulo Community Partnership Trust, these two groupings each hold a 5% fully funded interest in our South African core operations.
We've declared a distribution of ZAR 273 million to this trust today. Lastly, for a shared future, we are building a future-oriented business, unwavering in its pursuit of serving the needs, the energy needs of society and creating value for decades to come. While the fundamentals of our business remain strong, we recognize the need to future-proof our business through maximizing the full potential for our core, the existing assets, with a focus on executing production replacement and life extension projects. We also need to look for future diversification opportunities and options. I will elaborate on this during the Strategy Update section of today's presentation. When we listed on the seventh of June last year, the share price on the JSE on that day closed at ZAR 21.90.
I'm immensely excited and proud to say that we are today returning a staggering 82% of that Day 1 closing market cap to shareholders in the form of a dividend. Our shareholder register has evolved since listing, and we have a diverse shareholder base. We made a number of promises at listing, and delivering on our promises in 2021 became the single most important priority for us. We're single-mindedly focused on delivering those promises. Let me share some of those highlights. Our safety performance has improved, but of course, this is scant consolation in a year in which we lost a colleague, Moeketsi Mabatla. Our journey is not done until everyone goes home safely every day. The business has returned to profitability, with profit for the period of ZAR 6.9 billion.
Cash generation was particularly strong, generating adjusted operating free cash flow of ZAR 3.9 billion. This is what drives our dividend. At the end of the year, with a cash balance of ZAR 8.7 billion. I've already mentioned that we have declared an inaugural distribution of ZAR 273 million in aggregate to the employee and community share ownership schemes. Since listing, we've applied the Thungela Lens to both capital and corporate costs, and today we report significant progress. Finally, we've declared our maiden dividend of ZAR 18 per share or ZAR 2.5 billion. We intend to seek authorization from shareholders at the forthcoming annual general meeting for a potential future share buyback program.
With those highlights out of the way, I want to look at some of them in a little bit more detail, starting with environmental, social, and governance or ESG for short. We've developed a fit-for-purpose ESG framework. You'll see that when we speak about ESG, we mean E, S, and G, not only the narrow perspective to focus on environment and even the narrower lens of only emissions. As a mining company, we of course realize the importance of environmental stewardship, encompassing the efficient use of resources, land stewardship, and biodiversity, as well as climate risk management. The UN Sustainable Development Goals enjoins all of us to place society's development needs at the center of what we do. In that regard, we recognize the importance of the social aspect.
In other words, the impact we have on our people, communities, countries we operate in, and the markets we serve. This is indeed an area in which Thungela intends to spike, making sure that each decision and action we take can and will lead to a promising future for these key stakeholders. Finally, it is important that our business is underpinned by robust governance, transparency, responsible decision-making, and inspired leadership. Looking at safety and health, the loss of our colleague, Moeketsi Mabatla, on 23 June was a devastating blow for us. We continue our relentless pursuit of being a fatality-free business, and we are working hard to achieve this through our safety strategy. This strategy is built around three pillars: back to basics, work management, and culture change, which we developed through an extensive engagement with our employees.
It is continually evaluated for suitability and effectiveness and adapted accordingly. Through our efforts, today we report a reduction in total recordable case frequency rate, which has improved from 1.51 in 2020 to 1.35 in 2021. While pleased with this improvement, we'll not be satisfied with our safety performance until every employee returns home to their loved ones without harm every day. We must and will eliminate fatalities and accidents from the workplace. While COVID-19 continues to have a profound impact globally, the significant work done to address the pandemic's effects on our workforce enabled us to successfully manage its impact through the successive waves. As I mentioned previously, we're very proud to have declared a distribution of approximately ZAR 136.5 million to each of our employee share partnership trusts.
This gives meaning to creating shared value and a lasting social impact. I'll talk to our ESG aspirations as part of the strategy, but let me pause for a moment to emphasize again that the E in ESG is about more than only emissions. We continue to make good progress on rehabilitation and the efficient use of resources. In terms of Scope 1 and Scope 2 emissions, we have now exceeded our target of reducing emissions by 15% from the 2016 baseline. We are disappointed to report an incident on 14 February 2022, when mine contaminated water from an old closed shaft accidentally discharged into the natural river system. The impact on the ecology for the 60 km from the mine to the Loskop Dam mouth was significant. The immediate actions taken have made the river system water safe for use.
We are now in the process of developing a longer term plan to restore the water ecosystem to its normal state. Strong governance underpins the rest of our ESG approach, and indeed the way we do business, how we work, what we prioritize, and why we take action. We have a strong and experienced board. The majority of our directors are independent, and in the coming months, we hope to add another independent director to the board. We are committed to ensuring that the board appropriately reflects diversity, and accordingly, we aim to appoint a black female director. The board has ultimate responsibility for strategy and governance, including ESG matters. We welcome the increased levels of transparency and governance, which is required by the JSE listing requirements and the UK Listing Rules.
In terms of ESG, we are required to report in line with a number of important global standards, again, improving transparency and accountability. With that, let me now hand over to our CFO, Deon Smith, to take us through the detailed operational and financial performance. Deon?
Thank you very much, July. We're certainly very proud to present to you our first set of annual financial results. Profit for the period was ZAR 6.9 billion, while headline earnings, which is earnings before one-off adjustments such as impairments, came in at ZAR 7 billion. CapEx and OpEx in ZAR 10 billion. Adjusted operating free cash flow, which is essentially cash flow from operations less sustaining capital expenditure, came in at just under ZAR 4 billion. As July mentioned earlier, this performance enabled us to declare a maiden dividend of ZAR 18 a share, which represents around 63% of adjusted operating free cash flow. Yes, July, that is around 82% of Day 1 market cap. Our export saleable production at 15 million tons came in at the midpoint of the updated production guidance we shared with the market in October.
As mentioned, our earnings also benefited from good cost management, which I'll unpack a bit later. On a pro forma basis, which is consistent and comparable year-on-year, our FOB cost per ton came in well below guidance of ZAR 838/ton with a reported number of ZAR 812/ton. That was notwithstanding the pressure on the denominator. I'll unpack each of these numbers as we step through the rest of the presentation. While we're clearly very pleased with the financial results of the business, it was delivered in the context of a fairly challenging operating environment for Thungela. Compared with past years, and notwithstanding two maintenance shutdowns, rail performance was very poor and progressively deteriorated over the year into Q3 2021. We observed a slight improvement, as you'll see in the graph, into Q4 and again in Q1 2022.
The annualized run rates are still well below what we require in order to produce at our full installed capacity and potential. The slight performance step up in Q3 and Q1 can be attributed to the joint industry TFR interventions, such as the security intervention. We are, however, still hopeful that the ongoing procurement initiatives will contribute to improved performance and stability by TFR in 2022. The single most important step by TFR since the rapid deterioration in 2021 was no doubt the introduction of 40 additional locomotives, which should theoretically result in up to 25% more capacity on the coal line. These locomotives were introduced in March 2022, and we're expecting to see all else obviously being equal, some or hopefully all of this step up from Q2 this year.
Due to this poor rail performance, we were only able to export around 13.9 million tons, which is 16% down on the prior year. We, however, focused on maximizing the rail utilization and our earnings by implementing a number of actions which we've spoken about previously. Firstly, you'll notice that we prioritized our export equity sales in the second half of 2021, and accordingly railed almost no third-party tons in this period compared to the 926 in the first half of 2021. Our second half export equity sales were accordingly 7.3 million tons, up 11% on H1 2021. Secondly, we also optimized our export product mix, focusing on railing the highest margin, highest energy content coal, given the limited rail availability. You will therefore notice that our higher quality sales were 80% in H2.
That's 5 percentage points up on H1. As a result of our rail optimization strategy and given certain on-mine stockpiles reached full capacity in late Q3, we also throttled production at higher cost operations as well as mines where we could more easily avoid stranded costs. Whilst we're pleased with the outcome of our actions and the positive impact that has had on our earnings and cash flow, we absolutely recognize that a more sustainable answer must be a much improved rail performance by TFR. We will therefore continue our focus and our efforts on that as an outcome and continue close cooperation with TFR on that journey. Reflecting on this benchmark coal price graph on the screen, 2021 was a tale of two halves, not only due to our mid-year listing, but also with prices showing strong momentum in the second half of the year.
Our full year realized price was just shy of $104 a ton, compared to $75 in the first half and $130 a ton in the second half. The coal price recovery into the second half benefited from supply side constraints across Australia, Indonesia, and South Africa on the one hand, but also a robust recovery in demand across various regions following the global pandemic. Discounts also narrowed in the second half to 13% from 23% in the first half. Approximately 2% of this shift was as a result of a lower marketing fee, which is clearly sustainable into the future. The changes to our product mix in order to optimize our rail utilization also played a key role in the more narrow discounts.
The largest driver was however strong market demand, which resulted in a price premium rather than a discount on at least two of our branded products during the second half. As prices pulled back post-October's highs, we entered into a number of coal swap transactions at firm prices in line with the realized price achieved in H2 2021, so much higher than our average price in 2021. The aim of these coal swaps, which was entered into in terms of a board mandate with a minimum cash margin and a maximum volume, is to underpin the sustainability of our lower margin mines, where we felt it necessary to lock in firm margins for operations that are throttled back due to poor rail performance. We have improved and added to these positions recently, given the very strong pricing environment post the tragic events in Europe.
The net future effect of these coal swaps, recognizing we continue to sell physical coal in the market during the exact same pricing periods as the paper trades mature, is that we achieve a firm price and a firm margin for approximately 10% of our 2022 coal sales. Turning to our operational performance, I'll refer to the pro forma comparison, recognizing that is most comparable on a year-on-year basis. The single largest reduction came from a conscious decision to remove higher cost production from our portfolio. We completed the restructuring in H1, and you will accordingly see the restructuring costs mainly related to Bokgoni open pit operation within Khwezela in our income statement.
The Navigation Pit, which replaces Bokgoni production, was not fully ramped up as originally planned due to the decision to curtail production as mine site stockpile capacity filled up on the back of the poor rail performance. We continue to ramp up productivity initiatives at our lower cost operations, which partially offset the headwinds we experienced at operations where production had to be curtailed due to full stockpiles. You may recall that one of these productivity initiatives is the so-called Prime Section Deployment, whereby two rather than one continuous miner would cut coal in a single underground section. This initiative has resulted in a step change in performance where ground conditions allow for it, and we have accordingly achieved five sections which each produced more than 1 million tons of run of mine coal. Without these prime section deployment, this would have been three sections.
Our good production performance contributed to the increase in revenue of ZAR 8.1 billion compared to 2020, notwithstanding lower sales in 2021. The main driver, clearly, of the increases in revenue was however the improvement in benchmark coal prices and price realization, partially offset by a stronger rand. That's all on the left-hand side. On the right-hand side of this graph, operating costs reduced by about ZAR 3 billion compared to 2020. The key drivers for the reduced cost footprint was firstly, the reduced production at Bokgoni, which was the high-cost production. Secondly, reduced rail costs due to lower volumes having been railed. Then lastly, the reduced corporate costs.
The impact of this significant increase in revenue, and clearly the reduction in cost is clearly visible in our results, with a cost reduction particularly important as we seek to remain globally competitive on a unit cost basis. If we now turn to that unit cost, a lower production denominator in 2021 as compared to 2020 was by far the most pronounced headwind when looking at unit costs. This headwind, titled TFR Performance, increased our unit cost by more than 10% in 2021, but was partially offset by lower rail costs, as inventory build was mainly at mine sites and not at the port.
The net unit cost result on the right-hand side of this graph of ZAR 812 a ton compares favorably with a guidance of ZAR 830 as a result of the tailwinds set out in the balance of the slide. These include the decision to remove the higher cost production site, Bokgoni care and maintenance, reducing our corporate costs by approximately ZAR 350 million a year compared to our target of about ZAR 250 million a year, and also a lower non-cash rehabilitation charge year on year. In short, good cost decisions and good cost management resulted in a reduction in the FOB cost per ton, notwithstanding a lower export saleable denominator. For Adjusted EBITDA, I will again focus on the pro forma numbers, which resulted in a 2021 full year number of about ZAR 10.1 billion.
Other than the positive, uncontrollable benefit of price and FX, you will see that the most significant negative impact on our EBITDA was the lower export sales of approximately ZAR 2.6 billion. This impact however was either more than offset by lower costs of ZAR 1.7 billion, inventory build of ZAR 1.4 billion year-on-year and lower rehab charge of about ZAR 400 million. Our EBITDA margin of 38% also compares very favorably with the -5.6% margin we achieved in 2020. We do believe that the decisions we've taken resulted in a much more resilient business with stronger earnings potential through the commodity cycle. It's important to pause on our 2021 working capital build, seeing this, its significance.
As you can see, our working capital increased by about ZAR 3.2 billion, of which ZAR 1.8 billion was during the first half of 2021, and a further ZAR 1.4 billion in the second half of 2021. The inventory build was pronounced given the poor rail performance, and as mentioned earlier, resulted in us utilizing fully our on-mine stockpile capacity. Our inventory balance at the end of 2021 was approximately 2.8 million tons, of which 400,000 tons was at the RBCT port with a balance on mine. Receivables continued to increase throughout the period, mainly as a result of higher prices. You may recall that around 85% of our revenue is from export sales and our debtor, that is Anglo American Marketing, contractually receive export revenue two weeks after the end of the month of sale.
We are therefore expecting our receivables balance to hit an all-time high in March 2022, the month we are now, given the unprecedented high prices we are seeing in the market today. Payables decreased mainly in the first half of 2021 due to the cleanup work completed post our new ERP implementation towards the end of 2020. Our working capital balance is therefore higher than normal and is likely to moderate as rail performance improves, other than clearly the continued healthy build-up in receivables. Let's turn to capital expenditure. When we set out on this demerger journey, we anticipated and duly guided capital expenditure of up to ZAR 3 billion in 2021. We also either flagged our intent to review every policy and every capital decision through a Thungela Lens.
This approach enabled us to reduce our guidance to the bottom end of the original capital range of around ZAR 2.6 billion. Today, we are confirming our total actual spend for 2021 of ZAR 2.3 billion. We thereafter deferred around ZAR 200 million capital expenditure from 2021 into 2022, and that was mainly as we throttled CapEx alongside the operations where we were forced to curtail production due to poor TFR performance. We have now also been able to review our future plans and capital expenditure through this Thungela Lens. The most material capital expenditure headwind we face is no doubt the global inflation outlook, given the impacts from the conflict in Europe and its associated sanctions.
We will monitor these impacts closely, but based on our current assessment, we continue to feel comfortable to lower our sustaining capital outlook to between ZAR 1.6 billion and ZAR 1.8 billion per annum. The ZAR 200 million deferral into 2022 is also included in that guidance. We plan to approach our board for approval of the Elders production replacement project at a real capital cost of approximately ZAR 1.9 billion to be spent across 3.5-4 years starting in 2023. In early 2023, we will also consider the Zibulo North Shaft life extension project at a real cost of around ZAR 2.2 billion to be spent across four years starting from 2023. The approach, scope, and capital intensity of these projects were reviewed and continue to be refined as we seek to optimize the investment case in capital phasing.
We are pleased with the work to date, with Elders, for example, now envisaged to cost around ZAR 1 billion less than initially envisaged, as set out in the 2015 study and subsequent CPR reports we issued as part of the pre-listing documentation. Let's stay on the balance sheet for a minute. Our total environmental rehabilitation provision at the end of 2021 was ZAR 6.75 billion. That's up from ZAR 6.2 billion at the end of 2020. The increase was driven, other than the annual discount movement, by the inclusion of Mafube as well as the results of our annual review by an independent external environmental advisor. We spent around ZAR 500 million on physical rehabilitation activities, which also clearly reduced the liability assessment at the end of 2021.
The balance sheet liability is covered by around 52% by cash collateral of ZAR 3.5 billion, and that's up from the 47% at the end of 2020. Our provisions remain materially above, specifically by about ZAR 2.6 billion. The regulatory requirement of ZAR 4.1 billion, as we seek to provide for these liabilities on a basis that's more consistent with the new Environmental Management Act, of which the regulations are likely to become effective in June 2022. We will continue to review the level of provision as well as cash collateral and adjust these to most accurately reflect our view of the future cost and appropriate levels of funding.
As July mentioned earlier, our strong earnings enabled us to fund ZAR 3.2 billion in working capital buildup, as well as ZAR 2.2 billion in the sustaining capital work. Net of these items, as well as the rehab spend and taxes, we reported ZAR 3.9 billion of adjusted operating free cash flow for 2021. With an effective tax rate of 7.6%, our taxes were, as anticipated, lower than what is expected into the future, given the assessed loss carried over from prior periods. Our dividend policy is to return a minimum of 30% of adjusted operating free cash flow to shareholders, which would have resulted in a minimum dividend payment of ZAR 1.2 billion.
At the end of 2021, we either had ZAR 8.7 billion in cash, which compared to the upper end of our liquidity range of ZAR 6 billion, enabled us to consider higher returns than that ZAR 1.2 billion to shareholders. The board accordingly declared a maiden dividend of ZAR 18 per share or ZAR 2.5 billion in total, which represents 63% of that ZAR 3.9 billion adjusted operating free cash flow. That's clearly materially above the 30% commitment. The 30% dividend policy portion is therefore approximately ZAR 8.50 per share, and the additional amount of ZAR 9.50 per share brings us to an ordinary dividend of ZAR 18 per share.
In addition to this ZAR 2.5 billion dividend to the owners of Thungela, again, as July said earlier, we've also declared a dividend of ZAR 273 million to the employee participation and Nkulo Community Participation Trusts. Net of these dividends, which total ZAR 2.8 billion in total, our residual cash balance at the end of 2021, assuming we paid all of that end of 2021, remains at the upper end of the liquidity range of between ZAR 5 billion-ZAR 6 billion, which we continue to believe is appropriate to maintain during and following periods of strong prices. Let me now turn to our immediate production cost and capital outlook before July casts his eye to the horizon for the next and the final part of today's presentation.
We forecast export saleable production at 14 million-15 million tons for 2022, taking into account a gradual rather than immediate recovery in TFR performance. This represents an annual TFR industry run rate of 60 million-65 million tons, compared to the 58 million tons in 2021. That is a 3%-12% step up from 2021 performance levels. In 2022, we also expect export sales to more closely align with export saleable production, given that we have now largely utilized available on-mine stockpile capacity. Subject to TFR's performance recovery, we expect export saleable production to recover and exceed 16 million tons from 2023. As mentioned when we spoke about the CapEx outlook, inflationary pressures are currently increasing across the various commodities and consumables.
These factors, coupled with a lower production denominator in 2022, are likely to weigh on the group's unit cost. We expect our 2022 FOB cost per export ton to range between ZAR 870 and ZAR 890 per export ton, with the bottom end of the unit cost range, assuming we get to the upper end of that production guidance. Importantly, the unit cost includes a mining royalty of approximately ZAR 20 per ton, and that's payable to the South African government. The royalty could increase very materially if current benchmark coal prices were to prevail for the remainder of the year. While the royalty calculation is not exactly linear, the minimum rate is around 0.5% of gross sales revenue, and the maximum is around 7%, and that's based on a regulatory calculation of our EBIT margin.
Clearly strong prices equals high royalty. FOB Cost per Export Tonne guidance for 2023 and 2024 is expected to moderate as a result of higher production and productivity improvements which offsets geological inflation into the future. As mentioned earlier, our sustaining capital has been reset to this range, 160-180 as a result of reviewing capital through this Thungela Lens. We envisage the approval of two projects, Elders in 2022 and Zibulo early in 2023, and accordingly, today we initiate guidance on expansionary capital expenditure. The expansionary capital expenditure range is around ZAR 100 million-ZAR 200 million in 2022, and that mainly represents feasibility studies and initial setup costs for Elders.
The CapEx run rate on expansion increases to between ZAR 700 million and ZAR 900 million by 2024 when both Elders and Zibulo are in execution. We expect total execution CapEx to peak at around ZAR 1 billion per annum over that four-year development period. Before I hand over to July, it would be amiss if I don't flag that the very tragic conflict in Europe is resulting in an unprecedented escalation in prices across the energy complex and commodity prices in general. Now on balance, the impact of the sanctions against Russia is more likely to benefit than harm our business in the short term, as recently evidenced by the massive increase in energy and coal prices. We are, however, not blind to the risks and extreme uncertainty that this conflict holds to us and the markets that we serve.
We are carefully assessing these developments and risks to ensure we are appropriately positioned to manage through this period of uncertainty. With that, let me hand back to July for an update on our strategy. Thanks. July.
Thanks very much, Deon, for that overview, an excellent and very pleasing set of numbers. What I would like to do now is to turn to the future of our business. We are nine months old, and we have started to look and define our strategy. Despite this being early days, we wanted to share several perspectives and guardrails with you to help shareholders form a view of our future and prospects and areas of focus. It is difficult for anyone to predict the future, particularly in the areas of energy policy and future of fossil fuels. We, however, believe that the mega trends and change that comes with these, as set out on this slide, is probably much more certain.
For example, last year we observed the geopolitical tension between China and Australia, which remains a key feature in the coal markets even today. Deon has just spoken to the most tragic conflict in Ukraine, again because of geopolitical tensions. While no one can, with any degree of accuracy, predict the impact of energy prices as a result of the conflict and sanction, the reality is, or will likely become, that energy security and affordability now trumps other considerations in the near term. I think the conversation as we speak today, whichever newspaper you read, is nothing other than securing energy supply at affordable prices in most geographies. The implication of geopolitics, which places national interests ahead of global interests, has clearly been supportive to the case for traditional energy sources such as coal.
A number of these mega trends are likely to be supportive of Thungela in the near to medium term. There are, however, indications that certain of these trends could also undermine the longer-term attractiveness of coal, and therefore threaten our business beyond the existing life of our assets. In reviewing the various impacts on our business and recognizing the level of uncertainty these trends bring, we have identified four strategic pillars which are on the right-hand side of this slide, which should enable us to deliver on our purpose, just as a reminder, to responsibly create value together for a shared future. These four strategic pillars, as we set them out, not necessarily. I don't want you to read them as priority one from left to right. These are the pillars that will support us in delivering our purpose.
Of course, some of them underpin this business, and some of them help us to create the future. The first one being driving our ESG aspirations, maximizing the full potential from our existing assets, which is our core today. Creating future diversification options, and lastly, optimizing our capital allocation. I would like to unpack each of these four pillars in a little bit more detail. As a carbon company, we recognize the importance of addressing climate change. Transitioning to a low carbon sustainable energy mix requires looking at sustainability from a broader rather than narrow ESG perspective. We make a significant contribution to our employees and communities in South Africa more broadly, and need to carefully consider the socio-economic implications as well as the timing and pace of transitioning to a low carbon future.
We are a very small puzzle of the global puzzle, but recognize the importance of our role in achieving this balancing act the globe has set out to realize. We are accordingly committed to do two things, develop a pathway to net zero emissions by 2050, subject to the requirements of the countries we operate in and the markets we serve. I need to be clear here, because the markets we serve and the countries which we operate in, we have committed to net zero targets that vary between 2050 and 2070, and therefore, as we develop our pathway, we need to take that into account. This approach recognizes, obviously, that a transition to net zero is as much a technology transition as it is about choices of cleaner sources of energy.
Secondly, we commit to continue to reduce the carbon intensity of our existing operations. As you'll see in the rest of this presentation, ESG becomes a compass for decision-making across the remaining three pillars. We have developed an investment criteria that I'm sharing with you today, and our investment evaluation criteria falls into three categories. The first one being responsible stewardship, the second one asset portfolio, and a third one, which is shareholder value creation. In our view, the ESG criteria is set to drive responsible stewardship and will help avoid indiscriminate investment in coal assets. These criteria will also push us into a considered transition to a sustainable energy mix. Therefore, assets and projects where we do not enable incremental and additional carbon emissions should all things being considered be favorable. The second criteria should marshal us towards progressively upgrading our asset portfolio.
Our view remains that only the most competitive coal assets should produce while the world transitions into a new energy future. This is the reason why metrics such as the position on the cost curve, payback and capital intensity are integral to our decision-making. Taking a balanced approach to capital allocation, and therefore placing focus on long-term shareholder value and returns, remains a non-negotiable hurdle to our investment decision-making. Of course, these set of metrics speak for themselves. The second pillar talks to our core and is aimed at maximizing the full potential of our existing assets. We monitor and track a very broad range of levers as we seek to maximize the full potential of the existing asset base. All of these initiatives ultimately seek to improve the competitive position and cash generation of the assets we own and operate today.
The initiatives we summarize on this slide was the full-time job for my executive is a ticket to the game as we ensure that we remain the best possible operators for our mines, our plants, and the infrastructure we use ultimately to create value. There is no future without this core delivering attractive cash flows. This pillar enables other long-term value accelerators and strategy pillars. For example, operational productivity and cost improvement initiatives help us earn the right to invest in production replacement projects. These projects seek to convert resources into reserves at and around our existing operations in a manner that optimizes what we own today. Two examples of such projects is what Deon mentioned in his capital guidance, starting with Elders.
We own a portfolio of high-quality resources and reserves that, together with our strong balance sheet, enables us to potentially pursue value-accretive projects, such as this one. We plan to present this Elders project for board approval in mid-2022. This Elders project benefits from contiguous, mature and efficient infrastructure, and will replace declining coal production volumes from Goedehoop over the next couple of years. Deon spoke quite a bit about the work we've done on capital intensity using the Thungela Lens. This project was initially envisaged to cost ZAR 2.6 billion in 2015 money terms, or around ZAR 3 billion in today's money terms. Applying the Thungela Lens reduces that planned CapEx spend to less than ZAR 2 billion in real terms. The development timeframe is around three and a half years, with the CapEx spread equally over this timeframe.
If approved, Elders will produce high-quality export coal from an underground operation of similar size to Greenside for more than 10 years. We are also exploring co-extraction of domestic coal volumes to augment the business case. When you look at the investment criteria that I shared with you earlier, Elders rates very favorably against that evaluation criteria. The second project is the Zibulo North Shaft life extension. Zibulo is obviously our flagship operation in terms of scale and economic contribution. The North Shaft project would deliver production replacement tonnages for the Zibulo open cast, which ramps down in 2026. The project would extend Zibulo's life with around 10-12 years and cost roughly ZAR 2.2 billion in real terms. We seek to place this project before the board in early 2023 for approval.
The development timeframe is around four years, from around 2023 to 2026. Given the importance of our capital allocation principles, we continue to review the appropriate sequencing of activities and spend, and we endeavor to keep the total annual expansion capital to roughly ZAR 1 billion in real terms while these two projects overlap. We continue to study a number of other replacement projects, such as Clydesdale at Khwezela, the Daily Swap in a new basin in the Waterberg, which also contains our coalbed methane gas project near Lephalale. These are likely to be sequenced should the demand for thermal coal continue into the future beyond the current 5- 7-year horizon. Let me look at diversification options.
The longer trend, longer-term trends I spoke of earlier, coupled with some of our most recent experiences with rail constraints in South Africa, makes for a compelling diversification case. Let me be clear here. We have got concentration, single country, single commodity, single region, if you like, and we are entirely dependent on a single piece of infrastructure, and Deon spoke to the impact that it has had on our business. As we develop a pathway for the future of our business, assessing buy versus build options is clearly important. This is particularly important given the recent observed thermal coal assets transaction low valuation multiples. It goes without saying that geographic diversification of coal assets is obviously an option for us, provided we're able to secure quality thermal coal assets at reasonable valuations.
We also think that acquiring a producing coal asset provides a neutral contribution to the global carbon footprint, which supports the ESG investment criteria we covered earlier. We would also rank the benefit of transparent disclosure and accountability, as well as the ability to apply our ESG standards to coal target assets. We recognize that commodity diversification is more desirable, but it is equally more complex as we seek to expand and de-risk sources of revenue into the future. In that regard, we may well pursue early-stage assets in geographies where Thungela can compete. Again, only if we can secure these opportunities at compelling valuations. We'd, however, only consider doing so where we believe we have a right to win and we can leverage Thungela's core skills. We'd also consider the investment or wind down of high cost stands, in addition to the restructuring steps we took around Bokgoni.
We'll carefully evaluate other options, such as the use of selective disposals to enable our diversification and portfolio upgrade into the future. Looking at our capital allocation, we will, notwithstanding the aspirations I've just spoken about, remain focused on a balanced and disciplined capital allocation approach. We need to maintain a liquidity buffer given the volatile price nature of our commodity, especially experienced in the last few years. The buffer is key to deliver on our promise to pay a minimum of 30% dividend payout through the cycle. We intend to seek shareholder approval to potentially consider a share buyback into the future, should this be considered appropriate. These options will be carefully evaluated against any project options we continue to study. Any investments must clearly compete with additional shareholder returns. I probably have made a bigger issue of this buy versus build, idea.
Let me give you a little bit of color what I mean. We recognize that society needs to transition to a sustainable energy mix, but believe that this should take place in a responsible and coordinated manner, a manner that ensures secure, affordable and reliable energy to society. We also recognize that developing the full suite of our thermal coal projects have the potential to exceed our current production profile. While development of our potential projects supports some of our social objectives and commitment to South Africa, it is not always compatible with the desired global shift away from coal. We'll accordingly evaluate acquisition opportunities that may be superior to organic increases in production, noting the environmental benefits of replacing a declining tonnage profile with producing assets versus adding new coal projects.
Let me give you a simplistic depiction of what potentially could happen. This slide is a simplistic illustration of the global implied carbon benefit should we find a path to buy rather than build replacement project. Of course, given the lumpy nature of what you buy, you potentially could actually in the initial early years exceed your current profile. That actually should come down as we begin to execute our net zero pathway. If that were to happen, obviously that clear part, that top little triangle on the right end of that slide, would be completely extinguished, therefore reducing carbon units on the globe.
This perspective, however, does not detract from our stated objective, which is to define a pathway to net zero by 2050, subject to the markets we serve and the countries we operate in. Let me wrap up before I hand back to Ryan for questions and answers. We have shared a lot more than our 2021 results today, but let me leave you with the following key messages. Thungela is committed to running a fatality-free business, and every effort will be made to ensure that everyone, and I mean everyone, returns home safely every day. The market fundamentals underpinning coal demand remain robust and supportive. We are exceptionally pleased with the excellent operational and financial performance, notwithstanding the rain, rail constraints and COVID-19 headwinds.
Our robust performance has enabled us to pay around 82% of our Day 1 market cap back in dividends to our owners, that is ZAR 2.5 billion. We are also very pleased to pay ZAR 273 million into our community and employee trust, which completes the circle of our purpose to responsibly create value together for a shared future. Finally, we have set a net zero target for 2050, and are committed to charting a pathway towards this during the course of the next year. I look forward to providing you with an update on this in due course. Ryan, back to you to take questions.
Thank you very much, July. We will now move to Q&A. A reminder that if you wish to ask a question directly, please join the conference call facility using the link you'd have received upon registration. Dialing star 1 will indicate to the operator that you'd like to ask a question. For those who have submitted questions via the webinar platform, and I see there are quite a number of them, I will be reading those out. Operator, please could I ask you to open the line for our first question.
Thank you. First question comes from Brian Morgan of RMB Morgan Stanley.
Hi, guys. I have two questions from my side. Do you want me to ask them one at a time or together?
Happy to put together.
Hello?
You can ask all of them together, Brian.
Okay, perfect. Fine. On the guidance assumption that you've assumed for TFR, so basically on the basis that TFR runs 60 million-65 million tons for 2022 up from 58 million in 2021, is that as a result of the new locomotives or the refurbished locomotives that they're bringing onto the line? That's number one. Then obviously part of that is what are they running as at the moment or the first few months of this year? Have they been running at that 60 million-65 million tons annualized number? Then the second question is on the strategy update, and particularly with reference to the diversification into other commodities.
It's quite a big departure from what you spoke about last year, May, when we had the Capital Markets Day. If you could just tell about that a little bit. Is this in response to issues raised by shareholders? Have shareholders requested that you look into diversification into other commodities? Could you chat a little bit about timeline? Is this something we should expect imminently, next three years, next five years? And then how would you fund this? Would this be cash built up in the balance sheet? Just if you could answer those ones, please.
Brian, happy to kick off with TFR.
Yeah.
Can you hear me? Sorry, I just wanted to make sure that I'm being-
Yeah, absolutely fine.
Fantastic. I had a mic problem earlier. Apologies. Your numbers are correct around 60 million-65 million tons is the assumption that we're making. It is important to note that TFR declared capacity of 70 million tons for 2022. If you look at the 40 million additional locos on the coal line, and if you overlay those, which came online in March, onto their full year capacity, using their base of 58 million last year, that should bring TFR theoretically to more than 70 million tons. Clearly, TFR in their own calculations might have been slightly conservative in the 70 million, and clearly we are even more conservative in what we are signaling at 60 million-65 million tons.
We wanna see a sustained demonstrated performance at those type of levels before we would revisit our production plans. Recognizing that clearly we wanna free up some stockpile capacity before ramping up all of our operations to its full potential. The answer to your other part of the question around are we seeing the capacity already? No, not yet. Clearly the reason is it was introduced during March, and currently the integration into the system is no doubt still taking place. We're probably only expecting to see that step up from April onwards.
Brian, your question on diversification. I think the way to think about our strategy is the following. First and foremost, our job is to deliver the best value out of what we own today, which is our core. If we're going to grow, we're going to grow from that core. Secondly, given the concentration that we've got into a single geography, a single commodity, and the concentrated risk associated with the infrastructure which we have just spoken about, I think it stands to reason that we should look at other opportunities. If we look at other opportunities, we should look at opportunities in thermal coal, first and foremost, because that's where our capability is. That's what we know. Quite frankly, that's where opportunities seem to be at compelling valuations today.
That's why we talk about a geographic diversification. Again, looking at something that gives us a little bit longer life, which is why we make the point about the geographies where we operate and the markets we serve. Get maximum value from what we've got. If you're going to look at diversification, in the first instance, it'll be in coal in other geographies for the reason that I've just explained. I would say in the next decade, you probably will start seeing us looking at diversification into other commodities. The reason for it is very simply that if you want to build a long-term sustainable business, you've got to de-risk your revenues and diversify those revenues. The best way to describe this is the customer gets what he wants.
Society says we should diversify from use of coal. The timeline could be uncertain, but my view is that we'll see a decline in use of coal over the next 2-3 decades. Therefore, if we want to build a long life business over the next decade, we should be looking at other sources of revenue. That is not really a today question. I don't want you to ask me next year and say, "Where is the acquisition in other commodities that you spoke about?" That is a lot longer term than the first two. That's why you notice what we've done is we're actually announcing production replacement projects first and foremost. It's about our core. We get approached with lots of opportunities in thermal coal.
Given that we're a carbon company, that's what we are, we think it stands to reason that we should look at those, again, if it's compelling, and only then should we cast our eye over the other one. I know it's probably one of those strategically appealing things to diversify into commodities. It's complex. Today we probably will pay a very high valuation, so that's not a today priority for us. We'll look at it.
Okay. Sorry, if we could just chat about the cash requirements for any acquisitions potentially. Would you be looking to build up a balance sheet buffer, or would you assess it at the time?
I'll leave that to my CFO because we think there are creative ways to fund them, but let Deon answer that question.
Yeah. Brian, I mean, our primary focus is clearly, as we generate cash to return that, what we believe is excess to shareholders, we would also evaluate the market opportunities at that point in time. As I think July said, rightfully so, most asset prices are elevated, so we wouldn't necessarily wanna play in the market in that period of time. If there is an opportunity, we'd look at the available funding at that point in time, recognizing the limited funding available for thermal coal businesses. To me it's a case by case, depending on the nature of the asset and the timing of it. We certainly wouldn't necessarily in the first instance seek to build up massive reserves in order to potentially fund something. We remain committed, therefore, to return the appropriate cash to shareholders as we earn it.
Cool. Thank you very much.
Thank you, Brian. Operator?
The next question. Thank you. The next question comes from Ben Davis of Liberum.
Hi, guys. Can you hear me?
Hey, Ben.
Yes, we can hear you, Ben.
Loud and clear.
Hey, hey. Great. Thank you very much. Yeah, just had a couple of questions. Firstly, on the projects. I'm just curious in terms of like price assumptions or just simply what the price assumption was used in the reserve calculations for these projects. Whether it's sort of standard set for, you know. Have you used higher long-term prices or is it still very much the same, what we were seeing a few years ago?
Happy to field that one off the bat, Ben, then you can go through the rest of your questions. We typically refer to WoodMac, and I know that when we sort of said that six or eight months ago, it was really tough to think that we would see $85, $90 a ton, with $460 in the current month being hit. We're still using the same assumption, the WoodMac-type range of $85 to early $90 a ton as we look at resource to reserve conversion. For our capital project investment evaluation, so the criteria that July spoke about earlier, payback and the like, we would use a consistent set of numbers for that also. We certainly do not want to try and time an approval of a project during the heat of a market as we're seeing at the moment or vice versa.
Gotcha. Obviously, I mean, with the heat of the market, I mean, just in terms of cash build today or what we've seen year to date, I mean, from my numbers, I mean, obviously price has been fairly substantial. Where is the cash position as sort of end of March?
Yeah, maybe before I sort of give you the cash number, you've got to recognize that prices only really started rallying again in March, so we haven't seen that cash flow in our balance sheet yet. We, as I mentioned earlier, when I spoke about accounts receivable, we're hitting an all-time high at the end of March, so in about eight days' time, roughly. Therefore, we'll see that cash really come into our balance sheet from about April onwards. End of May, our cash balance should be around ZAR 12 billion.
Very nice. That's a lot that can be done with capital returns. I mean, on capital returns, so the buyback, look at seeking buyback approval, in terms of what, obviously is, I guess, it's time to come, but, what sort of levels would you be targeting in terms of the amount of buyback as a maximum?
Ben, we wouldn't have necessarily considered that just yet. As you can imagine, our dividend and returns to shareholder policy is on earn it first. While it's great to high five for the first three months, we still have a couple of months to go. In our minds, we would, like we've done now with the most recent dividend, present a range to the board and seek their wisdom and guidance on what that could be. Clearly, we've historically said that at a minimum, we would like to return 30% of our adjusted operating free cash flow as a dividend, and then clearly, to the extent that there's headroom to do anything beyond that, we'd be quite keen to return that.
Clearly if shareholders are amenable at the AGM to potentially consider doing so by way of a buyback. It could be therefore whatever we return in excess of that 30%.
Gotcha. It would be announced at the next interim results.
Correct. Roughly, I think.
Yeah.
I think mid-August is the timing currently for that announcement. Thanks, Ben.
Perfect. That's all for me. Thanks, guys.
Thank you.
Thank you. The next question comes from Jacques Conradie of Peregrine Capital.
Hi there, July and Deon. So from my side, just a quick comment on the ESG and capital allocations, points you made. I mean, we're shareholders, and from talking to other shareholders, I think all your current shareholders own your business because you are a coal producer. I think if anything, I mean, the world's probably [audio distortion]
[audio distortion]Not to under-recognize the inherent uncertainty in any of these trends and say, as we continue to monitor these trends, if we need to react and respond to a faster pace of transition from coal, then we need to have done the work that allows us to be able to do that. That's why, you know, to Brian's question, I said, look, diversification into the other commodities is probably longer term into the next decade than something that we are actively pursuing as we speak. Because I agree with you, the fundamentals are still very robust from where we sit.
Okay, thanks a lot. Yeah, I mean, I think you've certainly got our support and probably the vast majority of your shareholders to stay focused on that kind of strategy. I mean, from my side, investment bankers love doing deals and they love fees, so they're gonna pitch you lots of other deals, especially when you're sitting on a healthy cash balance. From our side, to send them back again and say, "Come back next decade, please." Thanks a lot.
Thanks. Thanks a lot.
Thanks.
Thanks a lot.
Thank you. The next question comes from Mark van der Spuy of Wexford. Thank you. Mark, your line is open. You can ask your question.
How about now? Can you hear me?
Yes.
Can hear you now. [crosstalk]
Yes, we can hear you clearly.
Please go ahead.
Yeah, my apologies. Just a clarification. I'm sorry, I'm thinking in dollars. ZAR 12 billion at the end of May is post the dividend, is that correct?
Hi. Hi, Mark. No, that would be prior to funding the dividend. The actual cash flow of the dividend would probably happen somewhere in early May, so therefore the end of March, ZAR 12 billion is before having funded that cash dividend.
Okay. No, I appreciate it. We misheard you. I thought you'd said May, so that's why I was wondering. Can you say anything about the average realized prices in Q1?
Wouldn't want to necessarily spoil the fun eight days before the end of the quarter, but needless to say, the price levels in March has been absolutely staggering relative to what we've ever seen before. You might recall last year we earned an average of $104 a ton, and that was in the balance between $75 a ton in H1 and $130 in H2. In Q1 this year, clearly we've beaten on some of those levels already.
Okay. You'd mentioned 10% is basically what you've sort of sold, you know, subject to swaps and that that's not subject to any kind of margin requirements. First of all, I just wanna confirm that. The second thing is, have you increased that or is 10% the number we should be looking at?
We've maintained about a 10%, but we've pushed the period slightly longer. The percentage is still around 10%. In fact, you'll see that if you look at our accounts, that at the end of the year, the position was about just over 900,000 tons, so it's actually 7%-ish, so a lot much lower percentage. We've continued to build on that and obviously clearly improved that margin that we've been able to achieve and no mark-to-market margin calls on that.
Okay, good. Just one final one for July, which was any sense on sort of geographic areas where people are trying to get out of thermal coal assets? I mean, is it Australia? Is it Colombia? What's sort of left? What's out there that you're considering?
All of the above. We're seeing interest exit, interestingly, in all the major coal producing regions. The reasons differ, though. It's not just, you know, ESG pressures. We're now beginning to see other people saying, you know, maybe the market is right for us to monetize our investments and go and invest money elsewhere. Yeah, we're seeing a variety of reasons, but it's all geographies that are coal producing, not just a couple of them.
I would assume that would also include the U.S., Canada.
Maybe not. To the best of my knowledge, we haven't let anyone from Canada give us a call. Yes, we have received calls from the U.S., from, dare I say from Russia, Indonesia, India, Australia. I can carry on. Africa.
There we go.
I can carry on. Part of it is because we are a carbon company. We have nothing else. People know that in fact we're probably the natural owners of carbon assets.
It makes perfect sense. So good. Thank you very much. Good luck.
Thanks, Mark.
Thanks, Mark.
The next question comes from Luvuyo Mboyi of Investec.
Hello, Luvuyo.
Good afternoon, guys. Can you hear me?
Yes.
Yes, we can hear you clearly.
First of all, congratulations on your strong results.
Thank you.
Just a question on how should we be thinking about the discount of your realized price with the benchmark, given the improvements that we expect to see on the rail side, which would obviously impact your product mix going forward and your inventory level. How should we be thinking about that discount on the benchmark price? Going forward.
Thanks, Luvuyo. We've previously said that we think discounts in the medium to longer term should hover around 20-odd%. You might recall we said that when we achieved H1 23% discount to the benchmark price, which now narrowed in H2 to 13% in order to settle at around 16% on a full year basis. Clearly from the 13% to the 20%, there's a lot of headroom. You might recall that there are three elements to that. The first element, the 2% narrower discount, we absolutely believe is sustainable. That's in a lower contractual marketing fee. The balance of it is very much a factor of what the markets do and supply, demand. We're currently continuing to see narrow or tight discounts.
It would be difficult for me to give you the exact number, but I'm quite confident that it's unlikely that it'll go back rapidly to 20% again.
Thanks for that. Secondly, can you just give us a brief update on the project that you're busy with Nasonti? I think you had mentioned or indicated that you should start producing there in March. If you can give us any feedback on that, and whether those volumes would go into the export market or in the domestic market, and the quality of the product that would be produced from that project.
Yes. Certainly. We indeed started ramp up. That ramp up continues. We've delivered our first coal in March, as we said we would. They're currently building up sufficient stocks so that we have motivation to redirect trains to that siding in order to pick up some of that stock. It's a 4-8 product, but notwithstanding that it's lower in its energy content, it's probably one of the highest margin coals that we would be transporting this year. If I say highest, probably top five in our product mix.
I guess that's quite important because, quite often when we talk about giving the highest margin ton of coal on the train, I don't want anyone to assume it's always the highest quality.
Mm-hmm.
We are driven by margin, not quality. This Nasonti project, we're really proud of what the team has been able to do to deliver a 4-8 product at such margin.
Okay. The cost, if you can give us the operating cost from that operation.
For Nasonti, Luvuyo, I possibly need to get back to you. From memory, I think it's ZAR 350 per ton, excluding port and rail, so that would make it ZAR 550 per ton, roughly. Now you can do your margin calc and figure out why it's
Okay.
High margin.
Okay. Got you. Thanks, guys. That's all from me.
Thank you. At this stage, I'll hand over for questions from the webcast.
Thank you very much. There are a couple of questions that have come out on the webcast. I will read through them, quickly, Deon and July. The first question on the webcast is from David Fraser at Peregrine Capital. We heard about very high spot prices being paid currently by European buyers for quality coal parcels. Has this been your current experience?
Happy to say, David, that has indeed been the case. We've never seen these levels of prices in March. Clearly, that doesn't feature into the cash balance that Mark asked about. It doesn't feature into our historic results, but absolutely, March has just been an unbelievable month from a pricing perspective. I would also like to remind you that we don't sell parcels. We essentially get or achieve the average price of a particular month. We're still in March. Currently, I think the forward curve suggests around $330 a ton for March, roughly. Some trades having happened at around $465 a ton on screen. Very healthy prices. Clearly, we from April, when we get revenue on that, we would be a beneficiary from those prices.
Thank you very much, Deon. The next question comes from Sandile Magagula from Umthombo Wealth. If Thungela were to close all mines today, how much of the rehabilitation would be covered by current provisioning? Secondly, how is Thungela planning to reduce Scope 3 emissions?
I'll take the first part of that question, given that it's the easy scientific answer, Sandile, which is the following, that if you look at current prevailing legislation that's in place, let me just make sure that your question is today, it would cost us around ZAR 4.1 billion to rehabilitate and restore our mining operations, but that's based on existing legislation today. You might recall we've got a balance sheet provision around ZAR 6.75 billion, and as I said earlier, that's more costing into the future, or our provision picks up what we anticipate might become requirements into the future. That's why the difference. Thanks, Sandile.
Your question on Scope 3, I mean, we're working very hard on Scope 1 and Scope 2. Scope 3 is typically people who consume our products in the markets that we serve. Our approach going into the future is going to be to work with our customers to ensure that they make the right technology choices to impact Scope 3 emissions. That's the reason why I make the statement that the journey to a low carbon intensity future is as much a switch from fossil fuels to cleaner energy sources, as it is about a technology transition. Because they can, in fact, reduce the emissions by choosing the right technologies. I think that's what we need to do to work together with the value chain. Clearly that is not in our full control as we speak.
Thank you very much, July. There are a number of questions on the webcast which I think have been answered in responses to the calls on the conference call as well, so I won't be reading those out necessarily. The next question is from Wayne Kluckow from Universal Leaf Africa. Given the current firm commodity prices as a result of the geopolitical crises in Europe, is the South African government aware of the potential losses to the fiscus? And how long do you believe it will take Transnet to address the challenges at TFR?
Look, I can, with absolute confidence, confirm that the South African government is aware of the issues at Transnet and the impact it is having, in terms of the South African coal industry. Because we as the coal industry are engaging with Transnet, with the Department of Public Enterprises, National Treasury, the Department of Mineral Resources and Energy, so we're working together. Your second part of the question, which is how long would it take Transnet to resolve their problems, I wouldn't want to speak on behalf of Transnet. That is probably a question better answered by Transnet. Our role is to collaborate with them to find solutions and work as hard as we can to accelerate the resolution of this. How long it will take, I think is best answered by Transnet.
Thank you, July. The next question is from Seleho Tsatsi at Anchor Capital. Is it possible at all to hedge current thermal coal prices, and is there any appetite to do so?
Hi. Good afternoon to you. It is not necessarily possible to hedge all coal prices for a variety of reasons. Firstly, we don't have a board mandate to do so. Our mandate continues to hedge up to a maximum quantity of coal production in order to achieve the position whereby we continue to sell the lion's share or all of our coal in the physical market and clearly just lock in a firm margin on a portion. The second reason is liquidity in the market. There isn't necessarily always that level of liquidity to do so. The combination of reasons, no, we wouldn't seek to do so.
Thanks, Deon. I'm just going to a related question from Thishan Govender, which I think you've partially answered, Deon. Thishan Govender from Truffle Asset Management, could you talk to your strategy on why only 10% on your swaps? How much could you realistically sell forward, and at what maximum maturity? And talk to some of the net realizations on these swaps versus the one-year forward API forecast.
I'll steer clear from a detailed answer on the last bit of your question, which clearly isn't necessarily a market information at this point in time. On the first two, we would look to put in place at a very firm margin a firm price that we're comfortable with around 10% of our forward production. We could push that to 15% or 20% based on the board mandate, but we would only do so if we really feel that there's an opportunity without reducing that forward curve or without impacting our price realization into that forward curve. Clearly, there's a spread in that forward curve, which is what you're hinting at.
Safe to say what we've been able to lock in on a realized price basis, as I said earlier, has been materially above the prices we've achieved last year, which would give you a very good indication that it's very strong net realized pricing.
Thank you very much, Deon. The next question is from David Baker at Baker Steel. The 20%, withholding tax is a big sticking point given you are moving to 28% and potential 7% royalty. A buyback makes more sense. Any comments?
Hi, David. Yeah, absolutely. A very, very good comment. You've got to recognize, we've put out a sense subsequent to the initial sense of our results this morning, so there's a second sense also. I take it, David, that if you look at the double taxation agreements or treaties between South Africa and a number of countries across the globe, for example, the U.K. has a relaxation of a or a relief of about 10% or up to 15%, so that withholding tax could be 10% or even 5% for U.K.-based shareholders. Notwithstanding that, it is a sticking point, absolutely right.
Therefore, as I said earlier, we would look to return not only a dividend, but we're also actively looking at potential buybacks, and that's why we're looking to secure that type of, undertaking or approval from shareholders at the upcoming AGM.
Thank you very much, Deon. The next question is from [inaudible] . What are your long-term marketing plans once Anglo American, once Anglo Marketing rolls off, and what is the expected cost benefit?
The answer to your question is working through those options. We have to look at options such as extending with Anglo, for instance, or going to somebody else, or bringing this internally. When we are ready to share with the market what decision we have taken, taking into account obviously, not just a cost issue, but the benefits of having direct access to the market, and the intelligence that comes from it and our ability to blend and do other stuff with our own product, we'll share that decision with the market. We're not there yet.
Thank you very much, July. We'll move to the last couple of questions now on the webinar. The next question is from Bruce Williamson from Integral Asset Management. What is the estimated total rehabilitation cost for Kromdraai? Do you expect the authorities to impose a fine on Thungela?
I'll ask Deon to talk to the cost of rehabilitation. The question on whether the authorities will impose a fine, we have been in constant engagement with the authorities, and they did issue a press statement to say that given the leadership we had shown and the transparency we had shown, they were not looking to issue a fine on us. That's as far as we know today, but I can't tell you what will happen in the future if they do change their mind. As far as we know, it's unlikely.
In terms of the first, Bruce, your first question on the quantum of liability. In our balance sheet at the end of last year, we had around ZAR 1.6 billion chalked up to Kromdraai, which is split. That's part of the ZAR 6.75 billion . Yep. That ZAR 1.6 billion is chalked up, half of it to restoration and rehabilitation, the other half to water treatment, so around ZAR 800 million each.
Thank you very much, Deon. The next question is from Gerard van Rooyen from M&G Investments. Gerard's got a three-part question, but I think we've addressed two of the parts already, so I will only read out the first section. Please elaborate on the geographical span of Thungela's market, specifically to which markets the majority of volume is exported.
Deon, do you want to take that?
Yeah. Gerard, that position moves, as you can imagine, from time to time, as we've seen the shifts in the market over the last number of months. Historically, India has always been a very key market for all South African exports. Roughly, I think around 40% historically of South African quality coals have reached India. Other markets that feature heavily includes the likes of China, Bangladesh, Vietnam, Sri Lanka, et cetera. More recently, obviously Europe has started playing a bigger role.
Actually it's fairly broad and fairly wide, but leaning towards the east, as you can imagine, given that we have a freight differential advantage and our shipping originates from Richards Bay, and therefore, our coals are very competitive into the East, especially as a blender with some of the lower quality Indonesian-type coals.
Thank you very much, Deon. The last two questions, if there are. Also, if there are no further questions on the line before we close. The next one is from Anthony Nathan at ARC. Again, a question I think we've touched on before, but I will read it out here. What will be the basis for deciding on dividends versus buybacks?
Happy to make a start on that. I mean, clearly, as you look at the method of return, the needs and requirements of your shareholders is quite important, and you would refer to the question that David Baker asked earlier. Therefore, it is factors such as the efficiency of the return, also the relative valuation of our business in the market, and also the quantum thereof. It would not be meaningful to launch a program if it's not of the appropriate size. There are clearly a couple of factors ranging from efficiency, scale or size and alternative application for that capital.
Currently, we believe we have a very attractive business, and that's why we are approaching the AGM to potentially get that mandate to invest in our own business through by way of a buyback. That sort of should give you a hint that, at what we've looked at historically in the market, we believe that our business is quite attractive and therefore would like to own more of it if possible.
Thank you very much, Deon. The last question that we'll take from the webinar is from Jonathan Bloom, from Bullion Invest. Would you consider paying dividends on a quarterly basis?
We haven't necessarily reflected on that question yet, and I don't think it is high up on the agenda at the moment to do so. Clearly, I assume that companies that do so get the question, would you consider monthly after that? We, to be honest with you, have not yet considered that. Thanks for your question. We'll certainly write it on the board and reflect on it at the appropriate time. Thanks.
Thank you very much, Deon. Thank you, July. I see there's one last question has come in before the buzzer. The last question we'll take on the line or on the webinar is a follow-up from Zachary [inaudible] . Do you see any banking appetite coming back to provide you with term debt?
Zachary, we haven't had any detailed discussions with banks on that yet. As our bank balance has grown, we have certainly been approached by more and more banks to potentially do business with Thungela. Which is pleasing because I think it underpins that recognition that energy security is starting to become a more important feature in the globe, and therefore, I suspect some banks are also wanting to play a more responsible role in that transition.
Thank you, Deon. Thank you to everyone, both on the line and through the webinar who've submitted questions. I will wrap up the Q&A session here. I see that there are no further questions on the line. If, of course, you have any follow-up questions, please do get in touch with me via email. My email address is ryan.africa@thungela.com, and I will get back to you. Ladies and gentlemen, thank you for your participation on the call today. With that, please allow me to hand back to July to close out the day.
Thanks very much, Ryan, and thanks very much to everyone on the call for joining us. We obviously are very excited and proud to be reporting the kind of results we reported today, to be able to deliver on our promises, but more importantly, really just to be able to reward the shareholders who trusted us and supported us through the journey of demerging what in some instances could have been considered an unloved commodity. Clearly, we are committed to our business, we are committed to our assets, we are committed to the markets that we serve, and we intend to do what is right and deliver returns to our shareholders. Thank you very much.