55 % of market cap in net cash, 2 × EV/EBITDA—coal value at the cycle floor
Beyond the ESG Blind Spot: Finding Value in Thungela Resources
Today I am presenting what I consider one of the best vehicles for exposure to the thermal-coal market. The company is still producing solid EBITDA at multi-year price lows, using the downturn to consolidate its operations, and offering both strong upside if prices rebound and meaningful downside protection if they do not.
Consider a few headline figures. The market capitalisation stands near 630 million dollars, while net cash totals roughly 340 million dollars, leaving an enterprise value of only about 290 million dollars. Even at today’s muted prices the business is generating healthy EBITDA; in 2022, when coal prices spiked, it earned 1.7 billion dollars on that measure. How can a balance sheet like this trade at such a valuation? Capital allocation is not the culprit: management is buying back shares, paying dividends, extending mine lives, and has just taken full ownership of its Australian operations.
Opportunities in investing rarely appear twice, yet cyclicals sometimes give us a second shot. Thungela owns some of the highest-quality thermal-coal assets in the world and now trades at a bargain multiple. With low operating costs and expanding life-of-mine plans, the potential return is compelling.
A brief history sets the stage. Thungela became a popular name in 2021 after Anglo American spun it off. Coal prices were soaring, ESG-constrained funds were selling, and the shares turned into an almost twenty-bagger once dividends were included. Contrary to the view that such chances come only once, valuation has again fallen to what look like giveaway levels. Coal prices are depressed, yet the company holds more cash than ever and still generates substantial free cash flow.
What follows is an in-depth review of the so-called “black gold” opportunity: the broader thermal-coal thesis, the company’s mining operations and expansion projects, its capital-allocation framework, and an evaluation of cash generation at current prices. We will finish with a valuation under several price scenarios to show why today’s market is offering another unusually attractive entry point.
This post is too long for an email, so I recommend reading it on Substack. Just click the title and you’ll be redirected.
1. Coal market:
In earlier notes we discussed coal as the ultimate contrarian bet, an idea endorsed by investors such as Mohnish Pabrai, who bought shares at prices higher than those available today. Back then the focus was on metallurgical coal, which appeared more resilient and likely to retain demand for longer. Demand for met coal has since weakened, yet—unexpectedly—the thermal-coal market now looks healthier and more compelling. Because today’s featured company stands to benefit from that shift, this is an opportune moment to revisit the thesis. Below I will attach the other coal-related pieces I have written for additional context.
Why this opportunity exists
The main reason is that most European and American investors—who command the bulk of global capital—have written off coal as investable. That dismissal has been reinforced by the rise of Environmental, Social and Governance (ESG) mandates, which render coal “uninvestable” for many large banks and institutional funds. As a result, coal assets trade at depressed valuations even though they remain critical in parts of the world, especially in developing economies. Where coal demand persists—or even grows—this undervaluation offers a persuasive opportunity for contrarian investors. Thermal coal is in an even deeper valuation trough than met coal, yet its fundamentals are intriguing: underinvestment is more acute, and prices are low enough to encourage continued use.
In Thungela’s case these global dynamics overlap with the complexities of operating in South Africa and maintaining a dual listing on both the JSE and the LSE—features that many investors find off-putting. Nevertheless, the underlying value is present even if market prices do not increase.
Thermal coal market
The narrative around thermal coal is shifting. While demand continues to decline in Europe and most developed economies, the opposite is happening in many emerging markets. China is now approving and building new coal-fired power stations at record levels, underscoring coal’s continued role in the global energy mix.
In today’s energy landscape, renewables remain intermittent and, in many jurisdictions, relatively expensive. Nuclear power still faces public resistance. Coal therefore keeps its place as a reliable baseload fuel that is not about to disappear. Year after year analysts have predicted a sharp drop in Chinese coal demand, yet consumption has consistently exceeded those forecasts. Admittedly, Chinese demand growth has slowed this year, and spot prices have fallen: Newcastle high-CV thermal coal touched the ninety-dollar level in April 2025 before recovering to about one-hundred-and-ten dollars.
Forecasts now suggest that global coal demand will plateau through 2027 rather than fall outright. Many agencies assume that coal use will not rise to new highs, yet these outlooks seem inconsistent with the construction pipeline. Just take a look at this picture, the red circles are coal power projects in construction.
Recent data show a wave of projects moving from approval to construction in China. According to County-Office coal plants typically take four to seven years from ground-breaking to commissioning, so projects started over the past two years will lock in demand well into the 2030s. China alone already burns roughly thirty per cent more coal than the rest of the world combined, and further capacity additions from both China and India should more than offset planned retirements in developed countries. The United States, which had targeted large shutdowns under earlier policy frameworks, has already delayed or reversed a number of closures.
If the developed world succeeds in retiring two-hundred gigawatts by 2035–2038, that reduction will still be dwarfed by the five-hundred-and-thirty gigawatts of new capacity under construction or planned in China and India. In short, global projections that predict flat or declining demand appear optimistic and will likely require repeated upward revisions.
Overall as of the last coal report published by the IEA the projections looked like this:
The International Energy Agency’s most recent coal outlook anticipates global consumption growing at roughly 0.7 per cent per year over the next few years, with upside risks centred on China and India. Even under those modest growth assumptions, shifts in trade patterns could reduce total seaborne imports as the big Asian consumers turn to domestic supply and draw down inventories.
On the supply side the picture is tight. High-CV thermal coal, measured by the Newcastle benchmark, has come under pressure over the past year, falling into the ninety-dollar range before rebounding to around one-hundred-and-ten dollars. At those prices mines above the ninetieth cost-percentile are losing money. Historically, the ninetieth percentile—about one-hundred to one-hundred-and-five dollars today—acts as a reliable floor. In severe downturns prices can dip toward the seventy-fifth percentile, or roughly eighty to ninety dollars, but rarely remain there for long.
With thermal-coal projects starved of capital, new supply is unlikely to appear at current price levels. Forecasts point to stagnant or declining output outside China and India. Those two countries could raise production, but Chinese coal is generally lower in calorific value than high-quality Australian grades, so China will remain an importer whenever overseas prices are attractive. Export supply is set to fall slightly faster than import demand, reflecting both mine depletion and stricter ESG constraints on financing.
In terms of exports, we are seeing even further declines that imports by 10 bp, and with some additional closures that we could see at current prices.
At present the market shows a surplus of roughly twenty million tonnes, yet that balance could swing into deficit later this year if low prices force marginal producers to shut and if weather patterns lift power-sector demand. The Newcastle benchmark’s recovery from April’s lows to the one-hundred-and-ten-dollar range suggests the cost-curve floor is already asserting itself. Consensus forecasts sit near one-hundred dollars for 2025 and the mid-nineties for 2026. Given that prices around one-hundred dollars correspond to the ninetieth-percentile cash cost, there is limited downside unless demand weakens dramatically. Historical episodes show that when prices hit the cost curve’s upper decile, supply cuts follow quickly, supporting a rebound.
The rest of this report will revisit past cycles in which thermal-coal prices converged on marginal-cost levels, examining how quickly production responded and what that meant for price trajectories. After that we will delve deep into Thungela.
1980s–1990s: After the oil shocks of the 1970s drove coal demand (and new mine investments), the 1980s saw a supply glut and improving mining productivity. Global coal prices declined and then flatlined through the 1990s thedocs.worldbank.orgthedocs.worldbank.org. In this period, prices stabilized around $30–$40/t (nominal) – effectively a floor defined by the costs of higher-cost producers at the time. Large exporters like the U.S. slashed costs (U.S. coal mining productivity doubled between 1985–1995 thedocs.worldbank.org), enabling low-cost supply to flood the market. High-cost mines (e.g. many UK deep mines and U.S. Appalachian operations) were forced to close or consolidate when prices fell to their cost of production. By the late 1990s (e.g. 1999), Newcastle spot prices hit all-time lows in real terms, reflecting a market that had bottomed at the marginal cost of supply. In effect, the price could not drop much further without wiping out a wave of high-cost capacity – indicating it had reached the upper percentile of the cost curve where producers capitulate.
Early 2000s: A cyclical upswing in the 2000s (driven by China’s boom) lifted prices off those 1990s lows, but when demand temporarily faltered around 2001–2003, prices again tested support levels. Industry commentary from that era often pointed to the “cost floor” of seaborne coal – essentially the 90th-percentile cost – as a backstop. Indeed, prices in the early 2000s appeared to bottom out near $27–30/t, which was roughly the breakeven for the marginal Australian and U.S. export mines at the time. As expected, supply adjustments (mine closures and cutbacks) in high-cost regions prevented prices from staying below those cost-floor levels for long. Once demand picked up mid-decade, prices surged well above production costs.
Mid-2010s (2014–2016 slump): This period provides a clear example of the cost curve imposing a price floor. Following a supply glut and slowing Chinese demand, Newcastle thermal coal spot prices collapsed by 2014–2015 to levels well below their post-2000 average. By mid-2015 the spot price was around $55–60/t, down ~60% from 2011 highs argusmedia.com. At those prices, “a significant share of seaborne thermal coal supplies [could not] recover their costs of production,” according to the Reserve Bank of Australiaargusmedia.com. In fact, analysis by Carbon Tracker indicated roughly half of 2014’s export volume failed to cover even cash operating costs at prevailing pricessekitan.jp. Put another way, the price had fallen to about the 50th percentile of the cost curve – an unsustainable level where up to half the industry was unprofitable. This extreme situation could not last: producers responded by aggressively cutting costs, idling mines, and deferring projects. Notably, despite prices languishing below the 90th percentile cost for an extended period (thermal coal “traded below the 90th percentile for the past three years” through 2015)ft.com, outright mine closures were slower than one might expect. Many Australian and Indonesian miners slashed expenses (labor, diesel, etc.) and benefited from currency depreciation to survive the downturn argusmedia.comargusmedia.com. Take-or-pay logistics contracts also incentivized Australian producers to keep output flowing despite thin margins argusmedia.comargusmedia.com. Nonetheless, the market eventually reached a floor: Newcastle prices bottomed around $50–55/t in 2015, essentially equal to the cash cost of the highest-cost 5–10% of mines. Once supply curtailments kicked in (and China imposed import restrictions on low-grade coal, tightening the market), prices rebounded sharply in 2016. In retrospect, ~$50/t proved to be the 90th–95th percentile cost threshold in that cycle – the level at which enough production was cash-negative to halt further price declines woodmac.com.
2020 (COVID dip): The demand shock from COVID-19 briefly pushed Newcastle prices down to the mid-$50s per tonne in mid-2020, a four-year low comparable to 2015’s trough. Again, this price was near or below the cash cost for a large chunk of global supply. Reports at the time noted many producers were operating at a loss in 2020 iea.orgiea.org. However, the pandemic disruption was short-lived. By late 2020 into 2021, supply discipline (and a post-COVID demand recovery) lifted Newcastle coal off those lows. The $50–60/t level once more marked a de facto floor enforced by the cost curve: any lower and substantial production would exit. Indeed, Wood Mackenzie observed that market analysts traditionally view the 90th percentile of costs as the “sustainable floor” price for coal woodmac.com. That rule of thumb held true – prices did not stay below the high-90s cost percentile for long.
Recent extremes (2021–2022): In contrast to troughs, the 2021–22 energy crisis saw Newcastle coal spike to record highs over $400/t (driven by post-pandemic demand, supply tightness, and war-related disruptions). This price was far above the cost curve – beyond the 100th percentile, as virtually every mine globally was wildly profitable at $400+. Such episodes are unsustainable, and as expected, prices have since fallen back toward the cost-supported range. By early 2023, Newcastle prices dropped under $150, and in 2024–2025 they settled near the current ~$100 level as the market rebalanced. The cost curve thus reasserted itself: exorbitant prices attracted supply and curbed demand, while on the downside, prices have now retreated to the upper-cost-tier support level around the 90th percentile.
Historically we are in a good support price for coal, any major price decreases will cause a deficit in the market, our pick for today is certainly cheap even without expecting price increases.
2. Introduction to Thungela:
Thungela is a South African thermal-coal producer formed in 2021 when Anglo American demerged its domestic coal division. Since listing, the group has benefited from the sharp rally in coal prices that followed the post-pandemic energy crunch. Its assets consist of low-cost South African mines that ship high-quality coal through Richards Bay, together with the Ensham operation in Australia, which was consolidated in early 2025 after Thungela bought out the remaining minority interests. The company also owns equity in the Phola processing plant and holds an indirect interest in the Richards Bay Coal Terminal, giving it control over both beneficiation and export logistics.
The review that follows looks first at production, mine lives and current growth projects, then at the environmental liabilities that sit on the balance sheet, and finally at valuation under several price scenarios.