EXECUTIVE SUMMARY

Thungela was formed when the South African thermal coal operations demerged from the parent company and listed on the JSE and LSE in June 2021. As a result of the demerger, Thungela had to set up its own treasury department.

Financial Director Deon Smith approached TreasuryONE, South Africa’s largest managed treasury services provider, to assist with the set-up of a treasury department that runs on world-class treasury technology. Within just four weeks, Thungela’s treasury function was up and running – utilising TreasuryONE’s team of experts.

UNLOCKING VALUE FOR A TREASURY TEAM

CENTRAL TREASURY POLICY

Thungela’s newly established treasury required a treasury policy outlining operating procedures for managing cash and liquidity, investments, and foreign exchange risks. One of the benefits of partnering with TreasuryONE is having access to seasoned treasury professionals who understand and implement best-practice treasury and risk management processes.

TreasuryONE assisted with the treasury policy and ensured compliance by incorporating the policy into the Treasury Management System configuration for all treasury processes.

TREASURY MANAGEMENT TECHNOLOGY

The Treasury Management System (IT2 TMS) provides the necessary treasury framework, treasury modules and bank and ERP connectivity channels that an advanced treasury would need. TreasuryONE hosts and supports the IT2 TMS, and there is no reliance on internal Thungela IT resources.

Thungela’s treasury processes are solely managed and maintained on the IT2 TMS by the TreasuryONE team and provide critical on-demand information through various reports.

BANK CONNECTIVITY

The existing TreasuryONE bank connectivity network meant that all the connectivity channels to ensure 100% cash visibility for the Thungela banking footprint were already operational and needed no development.

CENTRALISED CASH MANAGEMENT

Anglo’s shared services previously performed all cash management activities. After the demerger, Thungela received a R2.5bn cash injection from Anglo and had to manage 19 bank accounts across 2 different banks.

As leaders in the provision of Treasury Management Systems (TMS), coupled with our capabilities to integrate with all banks, TreasuryONE provides 100% cash visibility on all accounts’ balances and transactional information.

Cash management was crucial for Thungela’s treasury. Being responsible for the seed money and meeting operational cash flow requirements necessitated vigilant cash balance and cash flow monitoring. Cash flow requirements are submitted to TreasuryONE via the IT2 TMS on a daily basis, which in turn allows TreasuryONE to ensure that the required funds are in the right account at the right time and in the right currency.

MONEY MARKET FUNDS / INVESTMENT MANAGEMENT

Since its listing, Thungela has produced strong full- year results based on solid operational performance and a favourable market and price environment. These results led to a net cash position of R8.7bn at the end of 2021, which had to be optimally invested under Thungela’s investment policy.

TreasuryONE actively monitors and tracks 12 money market funds that suit any corporate investment policy. The money market funds complement the daily cash management strategy as they provide similar liquidity to overnight bank call deposits but at higher returns and diversified counterparty exposure.

With a system-generated detailed see-through investment analysis, the team can quickly identify any deviations from policy or counterparty exposure.

OPPORTUNITY COST OF EXCESS CASH

With a net cash position of R8.7bn and being a resources company, Thungela must ensure that cash is managed optimally, especially when things are going well. Opportunity cost – the cost of having excess cash in minimal interest-bearing accounts instead of being optimally invested – is an efficient key performance indicator for any cash management strategy. TreasuryONE monitors cash balances and FX proceeds daily to ensure minimal amounts are left in low interest-bearing accounts.

TreasuryONE assisted Thungela with the maiden dividend payments in April and September 2022. We managed the cash and foreign exchange settlements to ensure the funds were available exactly when needed. Doing this reduced the opportunity cost of holding excess cash in current and CFC accounts and the transaction costs associated with the foreign currency transfers.

FOREIGN EXCHANGE RISK MANAGEMENT

Thungela produces an annual 15.0 Mt of high-quality export thermal coal destined for export markets generating foreign exchange exposure. TreasuryONE’s highly skilled market risk team navigates the risk areas of foreign exchange, interest rate, and commodities and achieves competitive execution rates in a fast-moving and complex marketplace.

The TreasuryONE Dealing Desk works with the Thungela finance team to time the execution of the agreed strategy based on expert analysis of market conditions and outlook. This is to optimise the average performance and avoid buying at the market highs and selling at the lows.

Further, the team has designed an effective hedging strategy for Thungela based on Thungela’s treasury policy and specific business requirements. The strategy, combined with our expert knowledge of the technical and fundamental features of the foreign exchange market, takes care of all the hassle of foreign exchange transaction confirmation, settlement, regulatory compliance and reporting.

BENEFITS OF USING TREASURYONE’S MANAGED TREASURY SERVICES

  • Access to a team of experienced treasury resources
  • Access to the world-class IT2 TMS: hosted, implemented & supported
  • The TreasuryONE bank connectivity network solutions
  • Access to economic and market advice
  • Cost-effective solution
  • Reduced risk

“Following the completion of the demerger, we already had a treasurer on board. It was a “no-brainer” to approach TreasuryONE and select the services we thought we could deploy and benefit from, such as our own TMS, as we were accustomed to it and the benefits have a clear ROI.

The objective was to set up a treasury operations department for the Thungela team whilst managing the cost.

TreasuryONE’s team jumped in and immediately provided the new Thungela finance team with centralised FX dealing services, cash and liquidity services, and set the team up with access to the IT2 Treasury Management System.

We were up and running within a few short weeks as a result.”

Deon Smith, FD, Thungela