What Does Bisichi’s 23% Rise Mean For Thungela Resources Shares?

Bisichi (LON: BISI) shares are up 23% this morning on the back of their trading update – the interesting question being well, what does this mean for Thungela Resources (LON: TGA)? They are both in the South African coal business and although one is a tiddler, the other a giant, we'd expect market conditions to be at least comparable for both of them.

Bisichi has given a trading update this morning which says that results are likely to be well ahead of expectations. “Company expects to report results for the six months ended 30 June 2022 which are very substantially ahead of the results reported for the 12 months ended 31 December 2021.” The reasons for this being that “weekly API4 coal price averaged $238 per metric tonne” and “coal market conditions have continued to remain strong since the date of the Full Year Results announcement. ”

So, prices are holding up, export volumes are at least as good as they were (sales of coal within South Africa are not so exciting, given the difficulties over actually getting paid, it's exports that make a company here) and so results are going to be well ahead of expectations.

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Bisichi is a pretty small company though, market capitalisation is only £20 million or so. So definitely a tiddler in the world of coal mining which trends towards being a large scale operation. On the other hand we might take this statement of market conditions as being a useful indicator for what we might expect from Thungela Resources. That's a giant (it's the demerged Anglo American South African coal business) and if coal market conditions are good for one then they probably will be for the other.

Thungela has said that the market is good but not as recently and quite as vehemently as this from Bisichi.

This is one of the things about natural resources shares. They are price takers – the market price they can gain for their output is set by the market itself. They don't get to increase prices through branding, or clever tricks of any sort – that's the price for coal so that's the price they get. What this means is that if one company within a sector is gaining good prices then it's a very reasonable assumption that all the others in the same sector are too. The gold price rises, all gold miners get higher prices for their output.

This is very different from more competitive markets where, say, the fact that Apple can get premium prices for iPhones really doesn't mean that so can some no name Android supplier. Quite the opposite in fact. So competitive issues work rather differently in resource companies than they do in most other markets. This is also what economists would call the “free market” outcome, producers are price takers, not price formers through brands or other activities.

Bisichi is a small company but it is indeed in the South African coal production business. Thungela Resources is a very large company which is also in the South African coal business. We can – and should – take those Bisichi tales of market conditions as being similar to those being faced by Thungela. Which is an interesting heads up about the larger company, isn't it?