TNGRF (TNGRF) Q2 2026 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to Thungela's 2026 Interim Results Presentation. I'm Hugo Nunes, Head of Investor Relations. And I would like to take a couple of minutes to introduce today's agenda and to explain how the day will run. Joining us on the call today is Moses Madondo, our Chief Executive Officer; and Deon Smith, our Chief Financial Officer. Moses will begin with an overview of the group's performance for the first half of 2026 and provide an update on market conditions and key industry drivers. Deon will then take you through the financial results for the period. Moses will conclude the presentation before we open the line for questions. 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. [Operator Instructions] Over to you, Moses.

Thank you, Hugo. Good afternoon, and good morning to those joining us on the call today. June 2026 marked 5 years of Thungela's existence as a stand-alone listed entity. In these 5 years, we have created and returned value to our shareholders and stakeholders. We have done this by reshaping the portfolio, advancing life extension projects and maintaining the financial flexibility required to build resilience through the cycle. In this period, we returned just over ZAR 23 billion to shareholders through dividends and share buybacks as well as approximately ZAR 2 billion to the community and employee trust. This demonstrates our purpose to responsibly create value together for a shared future. As August began, I marked my first year with Thungela. I'm encouraged by the dedication of our employees and the continued support of our shareholders. I'm proud of what we have achieved to date with a strong first half performance, underpinned by consistent operational execution and financial discipline. We are focused on delivering the business of today that enables us to earn the right to build the Thungela of tomorrow. With that, let me start with one of our most important measures in the business, the safety of our people. Safety and health remain at the core of everything we do and is the foundation on which decisions are made. We have operated fatality-free for 3.5 years. This reflects the continued focus across the group on getting the basics right, effective work management and building a strong safety culture. The group's total recordable case frequency rate improved to 2.62 in the first half of the year from 2.83 in 2025. Ensham's total recordable case frequency rate improved significantly to 5.52, displaying the alignment with Thungela's work practices. This includes the site's focus on visible fair leadership, hazard identification and continuous safety improvement. In South Africa, we are pleased with the reduction in reported injuries. We did see a slight regression in the frequency rate because of the reduced number of work hours following the closing of Goedehoop, Isibonelo at the end of 2025. We remain unwavering in our commitment to keep our people safe, ensure that everyone returns from work safe and healthy each day. Now moving on to business performance. Our first half performance demonstrates the resilience of the business and the benefits of disciplined execution. Adjusted EBITDA increased to ZAR 1.3 billion, supported by higher benchmark coal prices, increased sales volumes and lower operating costs. Earnings per share increased by 467% to ZAR 10.95. Cash generation was particularly strong, reflected in the net cash of ZAR 6.1 billion at the end of June 2026. Accordingly, the Board has declared an interim cash dividend of ZAR 5.50 per share. In addition, the Sisonke Employee Empowerment Scheme and the Nkulo Community Partnership Trust will also receive ZAR 57 million collectively. We are pleased that this is the 10th consecutive dividend that will be paid to shareholders since our listing in June 2021. These results demonstrate solid operational execution in South Africa and Australia. Let us now turn to operational performance. Operationally, the first half reflected a number of positive improvements. Group export saleable production increased by 6% to 8.5 million tonnes. Export equity sales increased by 7% to 8.9 million tonnes. This was supported by improved rail performance in South Africa and higher sales from Ensham. In South Africa, export saleable production was broadly in line with the prior period despite Goedehoop North ceasing operations at the end of 2025. Khwezela recorded a strong first half performance and was 1 million tonnes up on the prior period. At Zibulo, year-on-year production was lower. This was mainly due to challenges from underground infrastructure in the current mining footprint that will be retired as production shifts to Zibulo North Shaft. This feature is transient, and we, therefore, remain confident in the full year production guidance. In Australia, Ensham delivered a strong production uplift with a resultant improvement in unit cost performance. Full onboard cost per export tonne improved by 23% compared with the prior period. We invested ZAR 705 million in sustaining capital expenditure during the period. This spend focused on maintaining the long-term sustainability and reliability of our assets. Having delivered a strong operational performance, it is important to understand the market metrics that influence these results. 2026 started with prices at similar levels to 2025. Following the onset of the conflict in the Middle East, coal markets experienced volatility and coal prices strengthened. These price increases were on the back of energy security concerns that support global oil, gas and coal prices. As a result, the average Richards Bay benchmark coal price increased by 15% for the first half of the year, and the average Newcastle benchmark coal price increased by 25%. The increase in Richards Bay benchmark was moderated by lower demand from North and South Asia. Another key feature of the period was the continuing strength of the South African rand. The U.S. dollar has remained weak, while positive sentiment for emerging markets and South Africa-specific economic factors have kept the South African rand strong. A strong rand impacts the relative competitiveness of South African exporters. This reduces the benefit derived from translating U.S. dollar revenue into rand, while most operating costs remain locally denominated. This places margin pressure and limits the currency-driven advantage South African producers traditionally enjoyed. Against that backdrop, improved rail performance allowed us to maximize the benefit of the stronger pricing environment. Rail performance improved during the first half of the year from the level of approximately 48 million tonnes last observed in 2023, the North Corridor achieved an annualized run rate of 59.9 million tonnes, a 5.5% improvement compared to 2025. We are particularly pleased that these improvements have been achieved without significant capital investment by Transnet. Our view is that this performance is expected to remain at these levels in the near term with potential for further upside. The rail improvement reflects the collaboration between industry participants and Transnet, together with higher locomotive availability, security improvements and operational enhancements. Export sales in South Africa increased to 7.4 million tonnes as we utilize additional rail where value-accretive opportunities existed. Third-party coal sales of 602,000 tonnes allowed the group to capture additional value in a stronger pricing environment. This demonstrates the value of our agility. In summary, the first half of 2026 demonstrates the resilience of Thungela 's business model and benefits of focused execution. We delivered improved safety performance, stronger export sales, higher earnings, robust cash generation and balance sheet strength. With that, let me hand over to Deon to take you through the financial results in more detail.

Thank you, Moses, and thank you to those online for making the time to dial into our interim results presentation. The first half of 2026 reflects a meaningful improvement in financial performance compared to 2025 first half results. A highly volatile market resulted in currency headwinds and coal price tailwinds. We were, however, fortunate to have benefited from much improved TFR rail performance in South Africa with access to markets we've last seen in 2020. Adjusted EBITDA increased 91% from June 2025 to ZAR 1.3 billion, and net profit increased to ZAR 1.4 billion. Our cash generation for the first 6 months includes ZAR 1.1 billion in realized gains from foreign currency instruments. Adjusted operating free cash flow, which is essentially our cash flow from operations was ZAR 1.9 billion, including those FX instrument gains. This measure of cash flow is also net of what we've spent on sustaining capital during the period under review. Headline earnings per share, which excludes the noncash profit from the sale of the Kleinkopje mining right of approximately ZAR 1 billion increased to ZAR 4.80 per share. The business maintained a robust balance sheet with a net cash of ZAR 6.1 billion at the end of June 2026. Overall, the results demonstrate the benefits of the stronger operational performance, improved export sales volumes and disciplined cost management. And as a result, we're returning ZAR 773 million to shareholders as an interim dividend. Let's look at the income statement in a little bit more detail. And so notwithstanding the closure of Goedehoop and Isibonelo at the end of 2025, our revenue still increased modestly to ZAR 15.2 billion, driven by stronger export sales volumes and higher benchmark coal prices. The impact of stronger coal prices was however offset by the stronger operating currencies against a generally weaker U.S. dollar. Operating costs decreased compared to the first half of 2025. This is largely due to the structural changes following the end of life at Isibonelo as well as Goedehoop. Operating costs also benefited from the acquisition of the remaining 15% stake in Ensham in February 2025, as we no longer acquire 15% of the coal production at market prices. Our cost efficiency efforts continue to deliver on our internal targets, but were offset by higher purchases of third-party coal and selling expenses related to increased export volumes. These factors supported adjusted EBITDA of ZAR 1.3 billion with the South African operations generating an EBITDA margin of around 6% and in Australia, Ensham margin around 16%. Below EBITDA, there are 3 important items to note. The first is the ZAR 1 billion noncash profit recognized on the disposal of Kleinkopje mining right. So this transaction became effective on the 15th of June, and the profit mainly resulted from the derecognition of the related environmental liabilities. Secondly, our foreign exchange derivative gains continue to provide meaningful benefits, although lower than in the comparable period due to lower currency volatility. Thirdly, the effective tax rate increased mainly due to accounting treatment relating to deferred tax assets, both in South Africa and in Australia. Together, these resulted in profit for the reporting period increasing to ZAR 1.4 billion. Revenue growth remained modest despite significantly higher benchmark prices, and that was largely due to the offsetting currency impacts. If you look at higher export prices, which contributed around ZAR 2 billion in additional revenue, and that was mainly in South Africa. Realized prices in Australia increased only marginally given that last year in 2025, our revenue benefited from higher fixed price contracts in the first half. Increased export volumes added close to ZAR 1 billion between South Africa and Australia. These benefits were offset by a stronger rand, which reduced reported revenue by approximately ZAR 1.7 billion for the period. The average exchange rate reduced by almost ZAR 2 from the first half of 2025 to the first half '26. That was from ZAR 18.39 to ZAR 16.41. Domestic revenue declined following the closure of Isibonelo and Goedehoop at the end of 2025. So looking at our price realization in a bit more detail. South Africa realized export prices increased to approximately USD 89 per tonne compared to USD 78 per tonne in the first half of 2025. The average realized discount of 15.7% widened, therefore, from the 14.9% as a greater portion of our sales book was in the mid-quality range in this period. We expect the full year discounts to remain within this range, if not tighten a bit in SA. At Ensham, the realized price averaged approximately USD 111 per tonne, reflecting a discount of 13.3% compared to USD 109 per tonne, reflecting a premium of 6.6% in the prior year first half. The widening of this discount was as a result of our fixed price contracts, which were concluded ahead of the price rally caused by the Middle East conflict. We expect the full year discount against NEWC Index to narrow slightly as we seek to conclude certain fixed price contracts, which if these were to have been concluded in the first half of the year would have resulted in a narrower discount around 12% rather than 13.3%. Without the ForEx headwind, revenue growth expressed in rand would have been considerably stronger. Looking forward, the near-term dollar weakness is expected to continue, but we also expect coal prices to hold a higher floor as the Middle East situation remains highly unstable. Let's now turn to cost performance starting in South Africa. FOB costs, including royalties, increased to ZAR 1,374 per tonne from ZAR 1,264 per tonne. The main drivers were inflation, lower production volumes and higher selling costs associated with increased rail and export sales volumes. The closure of Isibonelo and Goedehoop had a positive impact on FOB cost per tonne. Although first half costs were higher than the comparable period, performance remains within guidance, and we expect costs to further moderate towards the end of 2026, and this is as production run rates improved during the second half, in line with what we've observed in prior periods. While South African cost increased, Ensham delivered a particularly strong production performance, which benefited unit costs. Ensham's performance continues to highlight to us the value of diversification within our portfolio with FOB cost, and this is the measure including royalties, reducing significantly from ZAR 1,904 per tonne to ZAR 1,466 per tonne. The largest contributor was a 37% increase in production, which improved operating leverage and lowered unit cost. Improved operational efficiency and disciplined cost control contributed further to the lower unit cost number, which also benefited from the stronger South African rand, which reduced the translated cost base on consolidation. The FOB cost of ZAR 1,466 per tonne was below the lower end of the guidance range for the first half of 2026. Moving from cost to cash and capital allocation, let's turn to our cash generation for the period. Adjusted operating free cash flow for the period increased substantially to ZAR 1.9 billion from ZAR 484 million in the first half of 2025. This was driven by stronger adjusted EBITDA, material foreign currency gains, those are from derivative instruments and a working capital release of about ZAR 500 million, and that was based on the timing of sales and payments from customers. After funding sustaining capital, paying taxes and meeting environmental funding commitments in the period, the group still generated substantial free cash flow. Let me now turn to that cash evolution for the period. So the group generated healthy cash flows in the first half as cash from operations was supported by improved earnings as well as realized cash inflows from the foreign derivative settlements. We funded ZAR 705 million of sustaining capital expenditure and ZAR 104 million of expansionary capital in the period. We also contributed ZAR 100 million to the Green Fund in South Africa and established an investment arrangement of around ZAR 180 million linked to life of mine property access at Ensham in Australia. Importantly, despite these investments and commitments, the balance sheet strengthened during the period, and our net cash increased to ZAR 6.1 billion. A strong balance sheet remains a central component of our capital allocation framework. Our framework continues to balance 3 fundamental objectives. First, maintaining balance sheet resilience and liquidity. Second, funding sustaining capital and our environmental obligations. And then thirdly, returning capital to shareholders whilst retaining flexibility to pursue opportunities to grow in a manner that further enhances our ability to prioritize returns to shareholders over time. Maintaining balance sheet flexibility rather than only focusing on the minimum cash buffer alongside the investment evaluation criteria remains a cornerstone of our disciplined capital allocation approach as we selectively evaluate opportunities to grow or extend the life of our business. At period end, the group not only held ZAR 6.1 billion in cash, but also had ZAR 3.2 billion of undrawn facilities. The Board has determined that maintaining a strong liquidity position is appropriate given the current uncertain market conditions and potential opportunities available to the group. Board has declared an interim dividend of ZAR 5.50 per share, reflecting a distribution of ZAR 773 million or over 40% -- 41% of adjusted operating free cash flow generated in the first half of 2026. The underlying principle remains unchanged, disciplined capital allocation and long-term value creation for shareholders. Having covered earnings, cash generation and capital allocation, let me conclude with our outlook for the remainder of 2026. Starting in South Africa with export saleable production. The year-to-date export saleable run rate would bring us to below the bottom end of that full year range. We ever consider the production challenges of our underground operations to be transient, as Moses said earlier. We are accordingly expecting a stronger second half in line with past periods and remain confident that we'll deliver on our full year guidance. FOB cost per tonne is already within the guidance. And with the production step-up in the second half, we expect to remain within range for the full year. The range for sustaining capital also remains appropriate as capital spend is typically weighted towards the second half of the year. At Ensham, export saleable production is trending above the upper end of the range. However, current operating plans continue to support delivery within that guided range for the full year. FOB cost per tonne for the first half is well below the bottom end of the guidance range, and that also contributed to the translation benefit of reporting currency on consolidation. Unit costs in the operating currency remain on plan and considering the uncertainty of exchange rate movements, we believe that the cost guidance remain appropriate at the stated exchange rate. Sustaining capital at Ensham is expected to come within the range of ZAR 500 million to ZAR 700 million. Overall, current operating plans support delivery within our full year guidance ranges. With that, let me hand back to Moses for concluding comments.

Thank you, Deon. Thungela remains committed to responsible stewardship, ensuring that the value we create delivers lasting benefits for our communities beyond the life of our operations. For the reporting period under review, there were no significant Level 3 to Level 5 environmental incidents. We have made significant progress in delivering on our social and labor plan commitments. Nkulo Community Partnership Trust advances on its mandate to create a lasting and positive impact in host communities. Our investment in education, infrastructure helps to create a safer, inclusive and conducive learning environment. Thuthukani and our enterprise and supplier development program continues to build local economic capacity. Since its inception in 2023, a total of 185 entrepreneurs have graduated from various programs and are now contributing to local communities and economies. I'm confident about the next chapter of our business, underpinned by a strong balance sheet, a portfolio of quality assets and a strategy focused on resilience and growth. Following its review of the strategy, the Board reaffirmed the company's strategy to grow earnings and build resilience through the cycle with a focus on creating long-term value for shareholders. Our priorities remain clear, maximizing the value of our existing assets, building future optionality to support long-term growth and pursuing selective growth opportunities where we can leverage our expertise. Underpinning these priorities is our focus on safety and ESG, the strength and capability of our people, technical and operational excellence and disciplined capital allocation. Our capital allocation framework continues to prioritize returns to shareholders. That is after funding environmental obligations and investing in capital to sustain our business. As I conclude, let me reinforce the key priorities that guide our business and underpin our long-term value proposition. First and foremost, safety and health remain at the core of everything we do. Nothing is more important than ensuring that every employee and contractor return from work safe and healthy each day. Our commitment to an unwavering zero harm culture is not nearly an operational objective. It is a fundamental value and shapes every decision we make across the organization. Secondly, despite ongoing market volatility, external challenges and external challenges, we remain focused on driving growth and operational excellence. We have maintained our full year guidance. This reflects our confidence in the resilience of the business and the quality of the asset base. At the same time, we advance life extension and optimization projects. This will further strengthen the competitiveness of our assets, enhance operational performance and sustain cash generation over the long term. Our third priority is portfolio optimization. We remain disciplined in allocating capital to opportunities that offer the greatest potential for value creation and support our strategic objectives. In South Africa, we continue to advance our portfolio optimization approach to position our assets to deliver attractive returns while strengthening the overall quality and resilience of the portfolio. Finally, our ability to execute our strategy is underpinned by the strength of our organization and our people. We will build leadership depth organizational capability and technical expertise to support our growth ambitions and deliver sustainable long-term value. Thank you. Let us now turn to questions, Hugo. Thank you.

Thank you very much, Moses. [Operator Instructions] Operator, please could I ask you to open the lines for the first question.

First question comes from Shashi Shekhar of Citi.

Can you hear me?

Yes, we can, Shashi.

I have 2. The first one is on depreciation. So I was wondering why the number is so low compared to the last year? And what is the normalized level of depreciation we should estimate going forward? And my second question is on dividends. Well, you have a net cash position of around ZAR 6.1 billion and thermal coal prices, they are also at decent levels. So why not a higher dividend compared to what you announced? Considering the cash buffer is around ZAR 5 billion. So if we account that, you still have ZAR 1.1 billion excess cash.

Good to hear your voice. So in terms of the depreciation, clearly, the big delta period-on-period has been the impairment. If you look at our PPE balance in the comparable period, from memory, it was around ZAR 20 billion. It's come down by that impairment of more than ZAR 8 billion at year-end. So therefore, we have reset that level of depreciation. And if you reflect on what a forward-looking rate could be, currently, what you're seeing is likely to be what we see into the future, absent any other, obviously, material movements in our PPE balance. So the impairment is the single biggest reason behind that reduction. In terms of the dividend, we -- you are correct that the Board has a lot of flexibility. We have a minimum dividend policy of 30% return of adjusted operating free cash flow, but there isn't necessarily a maximum on that. And therefore, it's very much a view that the Board takes at a point in time, how best to balance returns to shareholders through the cycle. And what you would have seen in this instance is that had we declared the absolute minimum dividend based on the 30% of adjusted operating free cash flow, mathematically, that would have been around a ZAR 4 per share dividend. The ZAR 5.50, therefore, reflects a higher payout compared to the minimum policy, but it is a balanced outcome relative to a number of forward-looking factors also playing into that clearly is one, the level of volatility in the market, not only in coal prices, but FX. But then two, also reflecting the fact that the Board wants to retain a resilient balance sheet in order to also take advantages of any further growth opportunities, whether that might be investment in our gas project or other factors.

The next question comes from Patrick Mann of Investec.

So I think -- I mean, you spent a bit of time explaining the realized price in Australia and it was flat year-on-year in dollars and in dollar terms, actually lower despite the sort of -- well, because of the swing from a premium in the last year to a discount. So I understand it's a portion of all that is fixed cost contracts. But can you just help us think about how should we think about your leverage to new prices and what sort of lag does it come through with? So I think, Deon, you said it goes from 13% to 12%. But is that on the updated or the higher benchmark price now into the second half of the year, for example? That's my first question.

Patrick, good to hear from you. Yes. So clearly, what has happened in the Newcastle market is that the actual absolute market level increased much faster than what you would have seen in API4. So I think NEWC was around 25% up compared to the prior year, whereas I think API4 was only around 15% up compared to the prior year. In our Australian business, there are a couple of features in that a large portion of our coal exports is under fixed price arrangement. And one of those, in particular, only settled after the results announcement. And that is for a couple of hundred thousand tonnes in the first half of 2026, where our coal deliveries were still being done at sort of around $110 prices and settlement with that fixed price contract is likely to be closer to the $130 a tonne mark. And therefore, once that comes into the book, clearly, that 12% that I spoke about is the realization or discount rather than 13%. We do see a widened discount in that market, and that is mainly as a result of a much higher NEWC compared to -- in the prior period, but also as a result of supply-demand dynamics in that market. So it's something that we expect to continue for the next number of months and hopefully, in time, moderate again.

As a follow-up, and it actually ties in very well to what I think you were just saying there. I mean, if I read your results, you don't -- and correct me if I'm wrong, you don't sound particularly bullish on the outlook for coal -- for thermal coal. So for South Africa, you're talking about India being price sensitive and the high freight rates that we're seeing. And then for NEWC or for your Australian business, you're saying that the exporters are not necessarily competitive versus the alternative supply in Northeast Asia. Whereas I think maybe versus the market, I think people are looking at gas levels, gas storage levels, what's happening in energy prices and to be honest, scratching their heads as to why coal prices aren't higher. Can you maybe just elaborate a little bit more on those market dynamics that you're seeing? Because I think it's very interesting.

Absolutely, Patrick. I mean just for absolute clarity, everybody on this side of the line are coal bulls. So we do believe in the medium- to longer-term fundamentals of coal. We appreciate the dislocation in the energy markets that we saw in March, the geopolitical impacts on it. We absolutely appreciate the low levels of gas storage at the moment in Europe, the continued uncertainty in the Strait of Hormuz and the energy challenges that, that is likely to bring to the world. But I think we're moderate in our outlook because there are a number of other factors at play. Also, we're seeing increased domestic supply in both China and India. We're seeing a level of buy-at-home focus by those geographies. And so therefore, there are a couple of realizations that it's not a one-way street. If you then balance that with that increased domestic supply side capacity, you would see that, that's also come with its fair share of safety and other challenges, which we remain hopeful that, that would obviously underpin coal prices in the second half. We've also seen reduced hydro energy off the base of weather and lower rainfalls. And clearly, we're expecting a post monsoon recovery in India as temperatures increase post the rainy season. So obviously, we see all the green shoots in the market. But at the same time, we want to be cautious that we haven't necessarily seen in the forward curve similar to what you've not seen, we have not seen these factors play properly into the forward curve yet, which means that the market is probably seeing more than what you and I are seeing at the moment. And that's why our commentary remains fairly modest at this point in time.

The next question comes from Tim Clark of SBG Securities.

Can you hear me?

Yes, we can, Tim.

I've got a couple of questions. Let's start off with just Zibulo, the challenges at Zibulo. Fully appreciate that you're transitioning to the North Shaft. Just wonder if you could give us a little bit more color on timing. Should we anticipate a similar type of scenario for the second half of this year? Or how long does it last? Maybe that's the first question.

Tim, thank you for the question. Yes, we did see challenges in the first half of '26 at Zibulo on the back of the main shaft environment where the team has really been pushing to the boundaries and limits of the mine as we ramp up effectively the extremities of mining in the environment and begin to shift towards the North Shaft. And as a result of that, we've seen challenges with infrastructure, longer belts and therefore, more support required because of the extremities of the mine that we -- but part of this would have been expected. We are starting now to transition towards the North Shaft, so which means we're going to pull back some of that infrastructure and start to cut back in terms of the stretch for the team in that respect. And so we do expect an improved H2 as a result as we continue to shift the center of gravity of the operations towards the North Shaft.

And then sort of an optimal level was in the first half of next year or maybe the second half of next year or halfway towards that?

So we do expect that Zibulo should be performing at this level in the second half of the year. We've already seen some of the improvements to come through in Zibulo.

My second question, Deon, just on derivatives. Can you just -- you spoke to us in June just about what you've got outstanding now, what the forward-looking derivative position is. I wonder if you could give us a reminder on that or an update.

Tim, I must confess, I can't remember exactly where we were when we spoke last, but I can tell you where we are now in that we continue to place instruments into the future to convert, obviously, our dollar revenue into the best possible rand number that we can find. And at the moment, we have -- for the second half of 2026, we're fairly confident and there's a detailed note in the financials that you can unpack to see where I get this from. But we're fairly confident in the conversion of about $390 million of FX in H2 at just below ZAR 18. In 2027, what you might not see in the note is that we have about $120 million at conversion of ZAR 18. And then in 2028 in the first half, we probably have about $60 million to convert confidently at around ZAR 18.53 roughly. So that's our forward positions at the moment.

That's super helpful. Just maybe my third question, just -- and I'll make this the last one so someone else gets a turn. Just on your rehab, you spoke about being fully covered once Goedehoop North goes out. And you've built up quite a strong Green Fund and rehab position. You've been working down the rehab you've sold some of the rehab. Are we at a sort of inflection point now where some of these costs and cash outflows for rehab are going to slow down? Or do you anticipate that there's still -- we should -- I was just wondering if as we reach that full cover point if there's an inflection?

I think it's a very good question, Tim, in the context of the broader capital allocation framework. We're not at that 100% coverage in SA yet. We expect to potentially get there by end of the year on the basis of asset growth and moderating our liability. But yes, we will certainly be at that inflection point in early 2027, correct.

Does that mean that post that point, you might put cash into the Green Fund and bring the rehab down? Or does that decision still sort of sit there? Or does it mean that, that's done and dusted? Sorry, I'm not enough of a rehab specialist, I understand.

Yes. So no, it is a good question. It very much depends on where our assessments come out at the end of this year. As you might recall, once a year, we have a very comprehensive assessment about -- to establish a full extent of our liability. That work lands about in November. And then when we get to talk to you about full year results, we'll have a good sense as to what our best estimate is of our forward-looking liabilities. We also then take a legal view on what the NEMA, the likely NEMA outcomes would be relative to the department, the minimum regulatory provisions. And as you'll see, there's a very big delta between those 2. But all of that work will happen around year-end, and we'll be able to answer some of your follow-on questions, which I no doubt will come early next year more confidently than what we can do so today.

The next question comes from Brian Morgan of RMB Morgan Stanley.

Could you help us just bridge out the interim cost guidance, ZAR 1,306 in the first half and then lower end of the guidance is ZAR 1,480 in the second half. It suggests a big lift in the second half. You haven't changed the guidance. So just what's driving that?

Brian, good to hear from you also. I think a similar question was actually asked online also and happy to answer both in the same breadth. On balance, our FOB cost guidance for Australia is probably fairly conservative relative to what we have achieved and what we're likely to achieve in the second half. But having said that, typically, many of the increases in that part of the world occur midyear. So therefore, we are expecting higher cost run rate. But then what -- an important feature, Brian, is that in the first half of the year, we've had a particular impact in that the translation from the Australian dollar cost per tonne into rand benefited clearly the rand result relative to our guidance. And very difficult to see what the Australian dollar does relative to the rand for the second half of the year. And therefore, on balance, we remain fairly conservative in not updating that guidance to a lower number at this stage.

Okay. Cool. And then the second question is with Annea and Zibulo North ramping up. Could you just give us a steer on the sort of SA portfolio FOB costs and are they going to be higher or low once those 2 are in? And then if you could also maybe just couple that with your expectations around discounts once those 2 mines are in.

Absolutely. So if I can start with the FOB cost per tonne. If you look at the current run rate in South Africa and what the resultant FOB cost per tonne was, you'll recognize that as a result of being slightly less than optimal in our SA portfolio, and this has much to do with what Moses just referred to you to in that Zibulo is operating a very wide footprint currently and that as that old shaft comes to its end and most of the production units move to the new North Shaft, we should see a contracting footprint, a contracting absolute cost spend, and with a higher denominator, we should see that the structural improvement in the FOB cost per tonne. So our view is that the SA portfolio should be able to consume inflation over the next year or 2. So therefore, in real terms, we should see a slight reduction in our cost per tonne over the next number of years. That's as Annea and Zibulo ramps up to its nameplate capacity. If I then cast back to discounts, I mean as you can appreciate, it's almost like forecasting the actual coal price a year or 2 out. So very difficult for us to reflect on what the coal prices would do a year or 2 out. But in terms of contained energy, clearly, Zibulo has with the North Shaft coming online, shifted its average quality level slightly lower than what it used to be. So in the past year, we were producing closer to a price equivalent of [ 6,000. ] It's now closer to [ 5,850 ] for the most of it. And therefore, we've now seen a slightly higher discount in South Africa. Whilst we see that narrow a bit for the remainder of this year, this is probably the new norm, and that's ceteris paribus and all other factors, given a slightly lower contained energy at Zibulo. Annea is very similar to what we retired at Goedehoop. So we're not seeing a portfolio shift in quality as a result of Annea.

At this stage, we have no further questions from the telephone lines.

Thank you. We'll move to some questions online, Moses. Herbert from Absa asks around Transnet. What is your full allocation on rail? What is the current delta to actual availability? And will this trigger an adjustment to our mine plans to take advantage of the current improved rail performance?

Herbert, thank you for that question. So our allocation is based on RBCT at 23.5% at about 16 million tonnes, we were at 13.5, 14 -- 14.5 -- 14 million tonnes would be our allocation. And as you would have seen, our operations, we were able to respond to that run rate and deliver to the tonnages in RBCT. So we do expect, of course, that any other increase gives us an opportunity to take more advantage of whatever our capacity we can still get out of our operations. And of course, where opportunity allows, you would have seen some of the third-party also come through as we take advantage of that opportunity in the market. In the longer term, we do have projects that you would have had us refer to in the past, opportunities on our -- foreseeing opportunities in Annea and Zibulo. So we do have opportunity to continue to build on our delivery to the market.

Great. Thank you. Deon, a question from Jandre Pieterse from Umthombo Wealth. What do you expect in terms of working capital in the second half of the year?

Yes. So, Jandre, we -- obviously, there are 2 elements that's very difficult to predict, which is the price and the FX. And those 2 have a direct impact on accounts receivable. So if I put accounts receivable to one side, which is very difficult to anticipate or predict, we're expecting our inventory to rebuild slightly in the second half. So you might recall that at the end of last year, we had about 1.6 million tonnes or over 1.6 million tonnes. At the end of June, we have about 1.4 million tonnes in stock. So there was a slight inventory drawdown in the first half of the year. We expect that to be rebuilt slightly in the second half of the year. But fortunately, we see a lot of that coal at bay or at port because the rail is no longer such a big constraint or a constraint as it was. So we expect a slightly higher inventory number. And in accounts payable, we expect a fairly consistent number. So no real surprises on working capital. But then obviously, as I said, it very much depends on December prices and FX and sales, which is difficult to predict at this point as to where accounts receivable will land at the end of December.

Thanks, Deon. Any more questions online?

Thank you, sir. I've got no questions on the telephone lines.

Thank you. With that, we'll wrap up the Q&A. If we were not able to get to your question today, please do get in touch with myself or Shreshini via e-mail. Thank you, everyone, for making the time to join our results presentation today, and we wish you a pleasant afternoon further.