140: Deon Smith

‘My career has largely been mining and finance and I haven’t regretted it for one second.’

Thungela Resources was recently spun out of Anglo American as Anglo exited coal, CFO of Thungela, Deon Smith provides insight to the opportunities that lie ahead despite the longer-term uncertainty around fossil fuels.

CIARAN RYAN: Today’s podcast is sponsored by Draftworx, which provides automated drafting and working paper financial software to more than 8000 accounting and auditing firms and corporations. CFO Talks is a brand of the South African Institute of Business Accountants. It’s my great pleasure today to welcome Deon Smith, who is the CFO of the newly listed, that’s listed on the Johannesburg Stock Exchange, of Thungela Resources. Now that was previously Anglo American Coal, it operates seven mines, delivering coal to various international markets through the Richards Bay Coal Terminal, as well as to Sasol’s synfuels plant in Secunda. Thungela was spun out of Anglo American in June 2021, just a few weeks ago. Deon has been at Anglo since 2006, working in various positions. Prior to this role that he currently has, he was head of corporate finance at Anglo American South Africa and he led a team that drove the disposal of Anglo American’s Eskom-tied domestic coal operations, and that was completed in 2017. More recently, Anglo has been in the news a lot following the listing and the coal spinoff of Thungela, and Thungela holds 90% of Anglo’s thermal coal operations, with the remaining 10% held collectively by employees and a community partnership. First of all, welcome Deon, I guess we’re talking to you from Johannesburg, correct?

DEON SMITH: Yes, good morning and thank you very much for having me. That is correct, I’m based in Johannesburg and our head offices are in Rosebank nowadays, we moved from the CBD recently.

CIARAN RYAN: Okay, so the big building in town is no longer where you are located, you’re now in Rosebank.

DEON SMITH: Correct, we’ve moved and we’re just down the road from the fire station in Rosebank, fairly recently, we did so during the Covid pandemic. So if you visit us, you’ll see that our offices are Covid-friendly, open spaces and a fairly new culture that we’re trying to drive through Thungela Resources. Clearly, also, we’re in a location that into the future would continue to attract the right type of people to work at Thungela. So we’re very pleased that we made the move during the course of the last 12 months.

CIARAN RYAN: I just want to pursue that point about a Covid-friendly office set up, just explain what that is, this is something new to me.

DEON SMITH: Yes, I think historically many companies, especially global organisations, like Anglo American drove at an outcome whereby open plan and space utilisation was a key performance indicator for facilities, teams. As a result, in many UK based head offices, Singapore head offices and other offices that Anglo American had across the world, and I don’t think Anglo only, many global corporates, there was certainly a drive for open plan square meterage utilisation. What we’ve done during, clearly, designing an office layout whilst the pandemic was still ahead of us, was to create spaces, so sufficient boardroom spaces, larger than typical boardrooms to enable face-to-face interactions whilst still maintaining social distance. Pause areas that are also conducive with sufficient distance between people. So conducive of the right type of the atmosphere, but also observing the necessary health protocols. As a result, when you come to visit us, you’ll see that we certainly didn’t win any awards when it got to a space utilisation. But equally, we are not expecting every single person to be in the office every single hour of the day, which was I think an expectation in past organisations, but currently, and into the future, now that we’ve all learned to work remotely, like we’re doing this interview today, that certainly has become a much bigger feature of our business. Therefore, our level of occupancy in our office is unlikely to ever be at full occupancy in any event. So I think a combination of a number of features has created, in my mind, a very workable space, even in the midst of a pandemic.

‘There were a number of challenges in creating this business.’

CIARAN RYAN: Okay, I think we’ll cycle back to that and how you actually manage the team and keep controlling what’s actually happening in the organisation, given this new environment that we’re in. But if we can just turn to Anglo American Coal South Africa for a bit, which is now been spun off and rebranded as Thungela, this has all happened in the last few weeks. So this has been a tumultuous period. Before we came online, you were talking about, it was actually not just this month, this last 18 months has been massive for you, and maybe just explain what kind of evolution took place over that 18 months?

DEON SMITH: Yes, certainly, I think the last month was a busy period from an external market, media perspective, as you would have picked up, with the actual demerger on June 4 and the listing on June 7 in Johannesburg and London. We also had some interesting coverage of our listing process and the shape and size of our business. But if I cast back to the starting point of the journey in Anglo American, you mentioned in your introduction also that Anglo has been on this journey of exiting from thermal coal for some time, and in my prior life, I played the lead role in some of that with the creation of [unclear] Resources when we sold the Eskom-tied mines to that consortium. But in the last 18 months in packaging and preparing a business of this nature for the merger is certainly not an easy task in that many of the legal entities and structures are not necessarily simply owned by a single holding company. So the restructuring steps to create a consolidated entity and selling and moving entities within Anglo American and stripping out Anglo corporate services that used to be held and owned by the entities that was the demerged back into Anglo American, extracting joint ventures out of certain commercial structures and injecting them into the asset perimeter. We had to implement a new ERP system, so we went on to SAP on October 5 last year. That SAP project was also challenging because we did so, again, during the pandemic, and where you have 1,300 users go live on a SAP system. Anybody who’s been involved in such an implementation over a 12-month period would know that that is quite a challenging time, doing that without being able to host classroom training and to a population of at least 500 people, which shared computers on mine sites, historically, which can no longer be, given Covid, nor could we have bought and imported sufficient laptops to enable that transition because the borders were closed at the time and China certainly didn’t want to send us 500 PCs. So there were a number of challenges in creating this business as a standalone operation and carving it out of Anglo American before we even got to the listing day.

All of that was not only hard work and, as you can imagine, threw a lot of challenges in our direction as we journeyed through it. You also had in the back of your mind, the challenging equity story in that we’re listing into a market with a lot of uncertainty, given the ongoing pandemic and uncertainty as to asset prices into the future with supply and demand in the energy complex.

CIARAN RYAN: Could you just give us the high-level view of the company, it consists of seven months, it’s also got a stake in the Richards Bay Coal Terminal, and for people overseas, that is the primary means for exporting coal from South Africa. But if you could just tell us what kind of coal mines are we talking about and what happens to the coal that’s produced, a lot of it being exported, but some of it being sold locally. We’ve already spoken about Eskom-tied coal, so a lot of that coal presumably going for local electricity production.

DEON SMITH: Yes, we operate the seven mines, of which three are underground operations, Zibulo, Greenside and Goedehoop, and then there are four open cast operations, of which one, as you rightfully pointed out, supplies Sasol’s synfuels operation in Secunda. We have one operation that supplies Eskom and then the balance of those seven operations, other than those two, are mainly export mines. So we export around 16 million tonnes of high quality thermal coal product, which is around 80% of our revenue comes from that 16 million tonnes through Richards Bay Coal Terminal, where we own a 23% stake in that coal terminal. So our business, whilst we sell 30 million tonnes, 80% of that value is only the 16 million tonnes export product. Our business has various life-of-mine assets, some with fairly short life, given short contracts, and some with lives around eleven years, and with a couple of life expectancy projects that we continue to look at and study, not necessarily to grow the footprint of the business but rather to maintain the footprint of the existing business. Many of our shareholders have expressed a preference for maintenance of production output, rather than necessarily growth of a production output, for obvious reasons. We all have high conviction of thermal coal markets for the next year or two, absolutely for the next five to ten years, but when you get to 15 years and beyond, with a move away in the next two decades or three decades possibly from fossil fuels, we are monitoring that life of our business quite carefully and what we invest in.

CIARAN RYAN: So we’re really talking about a business which has got a life of ten, perhaps 12, years and then it’s going to be retired, correct?

DEON SMITH: That could be the scenario and outcome, but equally we could also extend the lives of some of those assets. For example, one of our flagship operations currently has around a nine-year life and we’ve got a life extension project, which isn’t extremely capital-intensive, and once we invest in it, or if we invest in it, it extends the life of that asset to around 19 or 20 years. That’s one example, we’ve got more of those. So the business could have a ten, 12-year life, it could also have a 20-year life. When you talk about the thermal coal operations as we see them today, that type of decision-making as to the life of this business is clearly something that will be on the board’s agenda over the next couple of years as we understand the life extension capital investment options and the future supply and demand. The big question is clearly around that demand picture and whilst mainstream media in the Western world is clearly of the view that there will be a very aggressive move away from thermal coal, I think that’s true for Europe, and I think it’s true for the US. However, if you look at the east where there’s material energy poverty across most economies, in India 600 million people don’t have access to reliable, sustainable energy, in China the figures are even worse. Those countries are in dire need of a consistent, affordable source of energy to continue its economic growth, something that the Western world has achieved many decades ago. Therefore, the demand that we see out of the east and not only China and India, but Bangladesh, Vietnam, Pakistan, a number of these countries, is still robust for at least the next two decades. So if that is indeed the case with where we are in the Richards Bay Coal Terminal on the eastern side of the African continent, we clearly enjoy a freight differential and, therefore, we’re able to supply, in my mind, highly competitive tonnes into those markets that we think will demand coal for many decades to come.

CIARAN RYAN: It is a question that comes up a lot and the environmental pressures are getting quite huge. Anything to do with carbon or coal is coming under fairly relentless attack from all sorts of NGOs, environmental groups and so on and so forth. Was this a factor in the spinning off of Thungela from Anglo American or was it one of the reasons, it was just the international environmental pressure?

DEON SMITH: I wouldn’t want to comment on behalf of Anglo, but I certainly have a good enough understanding of their logic and rationale, which is a bit nuanced. Simply put, they have for many years recognised that a large portion of their shareholder base has expressed a preference not to hold onto assets that has thermal coal or fossil fuel exposure. But equally there a number of their shareholders who have expressed a desire to continue to hold onto thermal coal. What do you do as a management team in Anglo American when you’re faced with that type of dyssynergy is you provide your shareholders with the optionality. So that’s exactly what Anglo has done in demerging Thungela, it has given shareholders who would like to continue to hold or actually potentially increase their exposure, the opportunity to do so, and that’s why our listing venues are Johannesburg and London. Equally, investors who are holding coal can continue to hold Anglo American plc, which as you might have seen in the last week or so, has also now reduced their thermal coal footprint even further when they exited from the Cerrejon Mine, well, their 33% stake in the Cerrejon Mine in South America, opposite Glencore. So clearly that driver from their shareholder base was the primary consideration, rather than necessarily purely this is climate change because selling an asset or unbundling it to your shareholders doesn’t do anything about the carbon footprint, it rather just gives shareholders choice.

Quite often the most interesting deals don’t always see the light of day.’

CIARAN RYAN: You’ve got quite an extensive background in corporate finance, which is very important in the Anglo American context, and you’ve been involved in the acquisition, disposal, restructuring of billions of rands of assets over the years. Maybe take us through some of the landmark deals that you have been involved with over those years.

DEON SMITH: Quite often the most interesting deals don’t always see the light of day, so I can keep you busy for probably longer on those than what I can keep you busy on the landmark deals. But to name a few that we drove out whilst with Anglo American, we played a very instrumental role in restructuring the Anglo American platinum business. You might recall that business had a very different footprint about ten years ago, and over a period of about four or five years, we exited from Rustenburg platinum mines, and you might recall that transaction with Sibanye Gold at the time. We also sold Union Mine to Siyanda. We sold, as you mentioned earlier, the three Eskom-tied mines. We acquired a couple of things, a stake in a platinum mine from a JV partner during the same time. So yes, a couple of billion rand of transactions but all in all, being a second hand mine salesman for a couple of years has taught me enough about what’s important in terms of value for a business and a company. That I think has helped me in positioning Thungela and our business in a manner that provides an attractive equity story for our shareholders today. If you can sell an asset, you can certainly list an asset because the drivers behind it are very similar.

CIARAN RYAN: Thungela, of course, has attracted a lot of press commentary because of the subject we’ve been talking about, Anglo exiting coal, there you are having done all of these deals over the years on behalf of Anglo American, sitting there as CFO for Thungela Resources. One of the reports that was published around about the time that that was listed was from Boatman, which suggested that the shares are worth zero, I’m talking about Thungela shares, because of the unfunded environmental liabilities. Yet it seems that there was a lot of debate about this and I see investors disagreeing with this Boatman assessment. I’m interested to hear your take on how you value a coal portfolio in times like this, when anything carbon generating is put under the microscope, like it was with Thungela.

DEON SMITH: It’s a good question and I think you’re correct that the market probably disagrees with the Boatman report, recognising where it comes from, a known short seller, in pushing a particular agenda rather than necessarily fact. I think our first price crossed on the JSE at R25 a share, we probably up more than 50% from that point over the period of time, which is inconsistent with I think what even the most well-versed analyst anticipated, mainly as a result of the flowback that is likely to have come and still come from exchange traded funds and others that may not be able to hold Thungela as a pure play. It is a difficult business to value mainly as a result of its exposure to external drivers, of which the forecast is not easy. The one being the actual thermal coal prices, and two, the rand/dollar exchange rate, most of our expenditure is in rand. If you look at those two factors alone, about a year ago today thermal coal prices were hovering around US$60/ton and they’re north of $100/ton today, and that clearly is a big driver of our cash generation. But then offsetting that somewhat is FX, where last year the average FX that we achieved when converting our dollars were R16.46, I think spot today is just north of R14, and that is very material cashflow swing, a negative swing in FX for us also. So it is a difficult business to value unless you have high conviction.around those elements and certainly we do, we certainly see a market hungry for coal in the east. We see a declining supply base out of South Africa and many countries, mainly as a result of the lack of investment in new thermal coal mines. The capital for coal mines has certainly dried up and as a result that supply as mines deplete faster than our mines, is unlikely to get funded. That reduction in supply and a similar reduction in demand it bodes well. We think that clearly that demand for coal is likely to continue. If you look at the average age of coal generation fleets in India and China, it is half, if not a third, of the age of fleets in Europe and the US. So those fleets still have 20, 30, 40, 50 years of life ahead of it and certainly there isn’t coal for that period. So it’s a difficult business to value because of that but if you have conviction in that future looking coal price, then clearly the easiest valuation is to look at it’s forward yield and the cash generation. What we sought to do in the capital markets day is provide the market with very good information around the cost profile, the capital profile and, therefore, all you need to do is plug in your own view on price and FX, and you get a forward-looking cash generation perspective for the business, which gives investors the ability to value the stock, which clearly has helped in the share price over the last couple of months or weeks.

‘We have future environmental liabilities of around R6.5 billion.’

CIARAN RYAN: I’m just looking at the share price now, it traded on June 15 at about R28, it’s now at R38. As you say, that’s a substantial jump in price and anybody shorting this at the moment would be in some serious pain. You’d have to start unwinding your shorts, I would imagine, as they say in the investment business. But just talk about this thing about unfunded environmental liabilities, I’m sure you’ve addressed this quite extensively in the last couple of weeks, but for people who are listening, just remind us what are they actually talking about here, unfunded environmental liabilities and why you believe they’re so wrong about this. They that I’m talking about is Boatman, which is the short seller that put out a report, they were obviously positioning themselves to make money from the share price of Thungela dropping, which has not happened.

DEON SMITH: Absolutely, let me talk about the facts and the merit, I think the Boatman report is unfortunate and I can spend hours or days on shooting holes in that but I don’t think that will achieve anything. Let’s rather just talk about what are the true facts and what is funded and unfunded. So when you look at Thungela’s balance sheet today, we have future environmental liabilities of around

R6.5 billion. So what is that? That is a net present value of a future cashflow liability to decommission and rehabilitate and treat water in and around the operations. That provision is, certainly our view as a board, best estimate of what that future real financial obligation is. If you take current legislative requirements, so not what we’ve provided, but just what we have to provide for as a minimum in terms of the MPRDA, at the end of 2019, we did a detailed assessment, and that number was around R3.9 billion. So why are we R2.5 billion over provided, the reasons are extensive but let me touch on two. There’s a new environmental management act, NEMA, and financial provisioning regulations, which were originally published in 2015, and it has now been postponed almost yearly. Most recently, it was postponed in June 19 2021 into 2022, postponed by another 12 months. In terms of NEMA, there are a number of incremental requirements for mining companies in South Africa and some of them we actually agree with as a reasonable obligation for a mining company like us to assume into the future. As a result, we’ve increased our liabilities from that R3.9 billion to the R6.45 billion. So that’s our provision, that’s on the liability side of the business. Now, if I talk on the asset side of the business, we have in trust standalone around R3 billion, which is ring-fenced and dedicated to discharge that environmental liability into the future. That’s the R3.9 billion I spoke of. In addition to the R3 billion, you might have also picked up that on day one Thungela received an additional cash injection from Anglo American of around

R2.5 billion. So as we sit here today, we are cash flush, we don’t have any debt, R2.5 billion on the balance sheet, plus the R3 billion, so we have around R5.5 billion of firepower all in all, as we sit here today. That R5.5 billion needs to meet this environmental liability of R3.9 billion based on the regulations today. If NEMA comes in in the future, clearly that R3.9 billion would increase we believe to around R6.5 billion and that’s why we have provided for that. Therefore, there isn’t a material unfunded environmental liability to speak of. We believe that we are appropriately funded but in order to mitigate that gap between the future potential liability and our cash resources, we have also set up what we call a green fund, and we invest around R180 million into that green fund, and that green fund is essentially aimed to top up the cash reserves that we have dedicated to mitigate those future liabilities. So over time that R180 million would grow alongside the R3 billion to get us to a position, which will be fully funded for future liabilities, which I think is a responsible thing to do for coal mining companies, given the longer-term uncertainty around fossil fuels.

CIARAN RYAN: Thanks for explaining that. Can we we turn for a minute to your team and just some of the practical aspects of running an accounting and an auditing team in the organisation. Tell us a bit about the team, you’ve already spoken about the Covid protocols, you’re half working from home and from the office, and you’ve got social distancing right into the boardroom. What kind of team do you have, what is the level of skills that you’ve got there within the broader Anglo combine?

DEON SMITH: Hands down, probably one of the strongest teams that I’ve worked with in my career. The remit of my role is beyond the traditional finance only or beyond accounting. So included in the CFO role at Thungela is strategy, business development, capital management, audit, as you can imagine, supply chain, company secretarial, legal, mineral, property rights, permitting, financial reporting, management accounting and so on. Then also information management and investor relations. So that’s the shape and size of the team and of those roles around 70% of the jobs and the people existed immediately prior to demerger and we’ve had to build 30% of the team. The team that we’ve had to build is to recognise where we’ve traditionally received services and guidance from Anglo American. We are now required to stand on our own feet as a standalone sustainable business. In that journey we had to create a treasury team, we had to create a standalone tax team, we had to create an investor relations team and an information management team. Those are the key teams that didn’t exist in the Thungela standalone. I still think that there are really good skills available in South Africa but what we wanted to do is give people within Thungela or the old Anglo American coal business unit, the opportunity to grow themselves into new opportunities and as a result, rather than populating the team from outside, we’ve really given talented youngsters an opportunity to step up with a bit of support, a bit of guidance, but to step up into many of these roles that I’m talking about. It’s an exciting journey, not only for us, therefore, but also for them as we use the benefit of having a very strong team of 70% populated already and just add on this 30%. The culture of the team is absolutely phenomenal, near family in terms of similar vision, similar anticipation, similar drive and entrepreneurial excitement about building a business, using this opportunity that we’ve been given quite graciously by Anglo American. So actually, it is an exciting team to be part of and has a good balance of very experienced stable hands, but also young talented people coming in to help us think differently and do differently in order to improve on what we have and to get the best out of these assets that we’ve been entrusted with.

CIARAN RYAN: How many people are we talking about in the finance team altogether?

DEON SMITH: If you add the mine sites finance teams with the centre, so I exclude the supply chain organisation, it’s probably on 70, and including the supply chain organisation, probably about 150 people, roughly.

CIARAN RYAN: That’s a large team and obviously there’s reporting difficulties, logistical difficulties in keeping that team connected and on the rail, so to speak, how do you manage that?

DEON SMITH: Yes, it’s certainly not easy that’s for sure. I have a close relationship with my direct reports, both in terms of social and workwise through WhatsApp groups, through Microsoft Teams, regular meetings and engagements, cameras on, not always cameras off. I also have a good trust relationship with all of them and as a result, most of our time is spent on understanding their priorities, understanding what I need to do to enable their delivery and their output, what I need to do across the broader organisation from a functional integration and clarity perspective. But then their roles are individually to keep the teams motivated and focused. I think one of the greatest challenges we’ve had is in this problem that I’m sure that all of us have struggled with, is that quite often it’s easier to get a quick piece of work done yourself than set up a Teams call or a Zoom call and explain a piece of work to somebody else, and then delivering it over electronic media, rather than being able to huddle around a PC or a whiteboard or a piece of paper. That’s been by far the biggest challenge, and I think it has in some ways disempowered a lot of junior people as senior people get jobs and tasks to do and know what is required in order for us to be successful, but are unable to necessarily leverage the horsepower in the broader organisation to achieve the output. But we’ve discussed it as a team, we’re focused on it, we’re not blind to those challenges and we’re pushing ourselves and forcing ourselves to empower people to do their jobs and deliver on a particular output. As I have that close contact with my team, I’m expecting each of them to have contact with their teams and so forth in order for us to deliver on what’s expected of us. But also, separately you can imagine that there are some benefits in this working world that we’re in today and those benefits are that people monitor or watch electronic communication more closely, WhatsApp, email, than what they have in the past and, therefore, it might be easier in some ways to keep people aligned to what we’re trying to achieve, rather than relying on water-cooler discussions to get people aligned. So there’s been some benefit also and I think the team has coped really, really well in dealing with this challenge of not being able to see each other face-to-face daily.

‘Whatever you touch, comes from one of two places, either it’s been grown or it’s been mined.’

CIARAN RYAN: Great, we’re running out of time here, but I’ve got a couple of questions. Just give us a little bit of a sense of your background, your career path, where you grew up, went to school, and what drew you to accounting?

DEON SMITH: I was born and bred in Johannesburg and I’m still extremely happy in this part of the world. I attended Hoërskool Linden and then Rand Afrikaans University, nowadays it’s the University of Johannesburg, it’s a fantastic university. I studied accounting for a couple of reasons, while growing up I was a typical boy, I enjoyed playing outside with a rugby ball certainly more than sitting inside studying. But maths and numbers came fairly easily to me, so it was a fairly obvious choice to do something with numbers, given that that meant I could spend more time outside and less time studying. Accounting was fascinating, value, economics and finance has fascinated me from an early age and actually even mining from a very early age. What fascinates me is a comment that Mark Cutifani made a couple of months ago, our CEO at Anglo American, he said whatever you touch, comes from one of two places, either it’s been grown or it’s been mined. There is no other physical matter and that’s such an important outcome of mining. I think the value that mining has for communities and people, employees, suppliers, and shareholders, and government is just disproportionate to the negative impacts from mining. Therefore, it’s such a positive industry, and finance and accounting is a critical element of it, given that it’s a capital intensive industry and my whole career has actually hovered around it. When I did my articles as a chartered accountant with KPMG, I did so in energy and natural resources. When I left and I did a bit of consulting, I even ran an IT company, it was a risk management software and mainly resource intensive or extractive industries. I joined Anglo American and fulfilled a number of roles from risk management, internal audit to accounting, to corporate finances, as you pointed out earlier, to capital management and capital allocation. So my career has largely been mining and finance and I haven’t regretted it for one second.

CIARAN RYAN: What’s your view of the skills required of the modern CFO? Is he more than just a bean counter? We do have this very cliched view of the CFO, the backroom guy, he’s the guy who looks after the Excel spreadsheets and he keeps all the figures in order, but that’s not the case.

We’re talking about a guy who’s pretty much an upfront, out there, they’ve got to have good communication skills, they’ve got to be able to present these numbers in a way that people can understand them. Is that your understanding of the CFO?

DEON SMITH: Yes, absolutely, I think the last time I heard bean counter and CFO in the same sentence was probably a couple of decades ago, rather than a couple of years ago. I do think the CFO role has evolved over time, financial reporting is a necessity for stakeholders to understand the shape and size of the business, that’s absolutely true. But if the only thing that a CFO does is report on what has happened rather than spend time understanding what will happen and forecast the business or create value indeed in the business through strategy or business development or unlocking value, then actually it’s not really a CFO. To me that’s just a financial accounting person. I don’t think historic financial accounting is difficult or requires much judgment, it’s a fact-based science and, therefore, a fairly easy science. Sciences that require a bit more foresight and this moment of what might happen, I think is much more complex and that’s where a CFO can really add value. So the role of a CFO today and into the future needs to be much more of a partner to a CEO, recognising that the commercial realities, judgment calls are the more important elements of a future of a business role than its past, which actually you can do very little of.

But as you also say, it is important to be articulate in how you’re able to share with shareholders and with stakeholders, what has happened in the business and why it’s happened. But I don’t think that is their primary skill set of a CFO, I certainly think it’s much more forward-looking than backward-looking.

CIARAN RYAN: Yes, there’s quite a bit of research that’s been done on this in overseas universities, on the competencies required of the CFO. There’s a study from CA to CFO and these competencies are things like what we’ve been talking about throughout this conversation, it’s team management, it’s leadership, it is strategy, it is communication, a lot of the softer skills that are not really taught in the accounting schools. The South African Institute of Business Accountants actually saw this as a gap in the market and introduced the CFO (SA) designation, basically in recognition of those softer competencies that are not taught in the accounting schools. I guess you would agree with the sentiment that a lot of these things, a lot of these skills, are picked up on the job, they’re not something that you’re going to learn in school. Would you agree with that?

DEON SMITH: Absolutely, it’s very encouraging that people have spotted that as a gap and that you have started actively looking at how to fill the gap. It’s very disheartening to engage with young chartered accountants, recognising the very big differential in skill set and attributes from what gets taught out of books and what’s really required on the job longer term. I agree with all of that, and I think even more so it is incumbent on all of us as leaders in business to force and to push our employees and our mentees to really make an effort to get beyond the numbers and beyond the books, and to understand the key drivers of value in our business, but also the softer skills of how to take people along and how to create value out of those numbers and an understanding of those numbers. I think the journey that you’ve started is something that I’m quite keen to progress, not only in our organisation, but also more broadly, given that the perception about what finance people do certainly has to change in order to get the best out of what typically is really, really smart people who I see coming through all of these accounting designations and studies. They are typically smart people and what we need to do is arm them with all the right tools to deploy those smarts in a manner that can achieve economic growth and benefits for themselves and the society that they’re working in. So it’s a very exciting journey that we’re all on.

Biking the back roads to Sun City

CIARAN RYAN: Great, okay, a couple of quick last questions here. What do you do in your downtime?

DEON SMITH: I haven’t had a lot of downtime of late, but I have a mountain bike, which has some dust on it. On my most recent adventure I did a 160-kilometre ride to Sun City, which was good fun with a couple of friends, and I went to the bush over the last weekend.

CIARAN RYAN: Did you take back roads or did you go on the main road to Sun City?

DEON SMITH: No, it’s mountain biking, so it’s mostly back roads. The distance and the elevation wasn’t that challenging but it was mainly dirt roads. It was good fun, six hours of downtime that I don’t have to think about the real world out there and you can just focus on peddling and making it through a bit of a storm and a bit of a wind. So that’s good fun to be out on the mountain bike. I also enjoy the bush, so I really do try and get out to the bush from time to time. I was out there this last weekend and I try to get there as often as I can.

CIARAN RYAN: I didn’t know that there were back roads that you could take to cycle to Sun City, and it took you six hours to do that?

DEON SMITH: Yes, around five hours, 58 minutes with a couple of good comfort breaks, eating lunch and so on, on the way there. From Hartbeespoort Dam, or that region, heading north it’s mainly dirt roads all the way to Sun City, through a couple of rural areas and townships, and we had great support along the way, as you can imagine. So you should dust off your bicycle and join us next time.

CIARAN RYAN: [Laughing] Okay, great. Are there any books that you would recommend, anybody who comes in has got to have a book recommendation for us on CFO Talks?

DEON SMITH: There are a couple of books that I have really wanted to read and most recently a colleague of mine gave me a copy of one of them called For the Glory: Eric Liddell’s Journey from Olympic Champion to Modern Martyr by Duncan Hamilton. I have just started it and so far, I can absolutely recommend it. Another one I can recommend, which depends on the genre you enjoy, but if you really want an impact on your life and change your life, you can read a book called Running for My Life – One Lost Boy’s Journey from the Killing Fields of Sudan to the Olympic Games by Lopez Lomong and Mark Tabb. Lopez is a young boy from Africa who made it all the way to the Olympics in the US. If you’re not shy of crying while reading a book, then Running for My Life is certainly life changing, it was for me. I can keep you busy with a couple of other books if you have time.

CIARAN RYAN: Eric Liddell, who is he? The name doesn’t ring a bell.

DEON SMITH: He’s an Olympic hero, he was a youngster who was involved in sports all his life and, essentially, in the face of adversity he was the star of, you might recall the movie, Chariots of Fire. He refused to compete in the Olympics for religious reasons but then he won a gold medal in the 400 metres, notwithstanding that. So there’s a bit of a twist to the story.

CIARAN RYAN: Right, so he was a very religious guy, if I remember from the movie, and the race was on the Sabbath, and he refused to run because it was the Lord’s day of rest.

DEON SMITH: Correct and the path of fame and fortune is something that he gave up, he chose to be a missionary in the country that he came from originally, which is in China. Then the Japanese invasion happened, so there are a number of twists, I’m really looking forward to finishing this book in the next couple of days.

CIARAN RYAN: Wow, okay, what a fascinating discussion. I want to thank you, Deon, for coming on and sharing those insights. There’s so much happening in your life, it’s like an absolute tornado has cut through there with what’s been happening with the listing and what happened prior to that. I’m quite delighted, just looking at the share price here, that it’s gone up so significantly in the last few weeks, it’s a tremendous validation I think of the work that you’ve done, and I guess the team has been able to breathe just a little bit now for the last couple of weeks.

DEON SMITH: I hope they have because we’ve got interims on the horizon in the next couple of weeks. So I certainly hope that the team is fully rested for the next journey and the next challenge. I don’t think there were any winds that we weren’t able to manage but hopefully we can keep the winds in our sails rather than in our faces.

CIARAN RYAN: Well, we’ve got to get you back on again, maybe a little bit later in the year when things have settled down and progressed a bit, it would be great to have a catch up with you again and just see how the year has gone. What a strange time first of all to be listing, to be involved in the coal business, we’ve got the lockdown, there are challenges, and I think you’ve really shared some wonderful insights for other finance executives, how you tackle things, and you really sound as if you plan things out well, you sound very calm, there’s no particular stress. Maybe that’s not immediately evident in your voice tone, but it sounds like you’ve got things under control.

DEON SMITH: I certainly hope so but thank you very much for having me on your show, it has been good fun talking to you.

CIARAN RYAN: Great, thanks very much. That was Deon Smith, who is the CFO at Thungela Resources.

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