RE: TGA trading statements not adding up - "missing" expenses7 Aug 2022 17:03
Nope that’s incorrect tedmak as far as I understand things. The capital support agreement was valued at R916m in March 2021 and used a base coal price of R1175 / $70. If the coal price had fallen below $70 then the capital support agreement would have been used to offset the price received by TGA and the cash received from AAL would have been deducted from the $916m derivative asset on the balance sheet and recognised as a cost on the P&L.
As it turns out the opposite has happened and the coal price has rocketed. Each dollar above the $70 minimum sales price in the capital support agreement increases the notional loss on the AAL agreement. At $140 coal the notional ‘fair value loss’ on the derivative would be equal to the initial contract at R916m, at $210 it would be R1.8b and $280 it would be R2.7b. The benchmark Richard’s Bay coal price at 30/06/22 was ~$330, so the fair value loss would have been booked at ~R3.4b. The full model for the derivative asset valuation is of course more complex and includes a volatility adjustment, however there is no doubt that the FV loss recorded in H1 will be huge.
In summary, as TGA would have benefitted and received cash if the coal price had fallen, accounting rules dictate that if the price of the underlying asset increases then the company has to record a notional loss until the contract no longer applies.
Once this contract with AAL expires in December 2022 then the notional loss will be reversed as the capital support agreement no longer applies.
There will also be realised losses from the coal swaps that settled in H122, exactly how large these will be depends on the coal price when the contract was closed.
Basically, there is very little point in trying to do a full reconciliation of revenues vs expenses unless you are privy to the specific derivative detail!
Sign In
Follow the stocks
