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That got your attention! Small exaggeration on production for effect.
I'm familiar with all the bear cases, all I'm saying is that the SP has tanked so maybe a lot of that is factored in. 2020 could see a bounce back in chrome prices for a number of reasons (production curtailments being one) and if they do Tharisa would definitely be worth looking into.
Ragnar - SLP's 4E PGM of 75-80k p.a is the equivalent of 6E PGM of 100-110K 6E PGM. THS report on 6E basis and are at the 140K Oz p.a. ballpark. It's still not proven they will successfully increase to 160K 6E PGMs. Additionally as THS is classed as a miner falling under Mining Charter and BEE, the THS Minerals entity which the PGMs falls under is 74% THS only, with the remainder BEE.
On top of that their AIC is significantly more than SLP's, THS is $892 per Oz. This is in comparison to SLP's 6E which would be in region of only $500 AIC per Oz on 6E basis.
The most concerning thing about THS is not only the significant Capex costs for expansion outside of AIC, but the "Stay In Business" (SIB) Capex costs pushing their AIC right up and a recurring feature. SLP will make far more free cash because of their much larger margin, even with lower production. And that's even assuming THS can successfully expand to 160k 6E Oz.
I personally believe we're heading for a recession/ major slowdown even before corona hit and I don't see any major reprieve for chrome. The chrome side of the business could be a millstone round their necks for years to come. Spending $53m on a fine chrome project through debt and continuing loss making chrome business, SLP could end this calendar year with $70m Net Cash (not even incl. their trade surplus of $34m) and THS could end it Net Debt $30m+. If THS delay/ suspend the fine chrome project until conditions are better, I may change my opinion. But their SIB Capex and AIC is still very concerning, proving it's not Qty alone that matters. Of course if calendar Q1 20 report shows a 40K 6E PGM Oz meaning they're on track for 160k and increase should also reduce the AIC per Oz, could be a turning point.
I believe THS report their results on a 6E basis so a more accurate comparison is SLP produce roughly 100koz and THS produced 140koz. Their first quarter production was 34koz and they are hoping FY production will rise to 160koz.
PGM production making up for losses from their chrome production is a valid point but worth noting chrome production is expected to increase this year and continue to make up the bulk of costs.
2019 figures state $177m revenue vs $148m costs (p13). Chrome averaged $162/t in 2019. Breakeven was likely around $145/t so with increased chrome production and prices expected to dip below $120/t in the coming weeks it's not one I would touch right now.
Chrome is indeed tanking. But no one is really interested in their chrome. Tharisa produces twice as much PGMs as SLP. Perhaps the market has been slow to catch up like it did with SLP. I do plan to take a closer look and crunch some numbers to see what the potential boost to cash flow would look like.
And for all the other reasons Visitor mentioned in his 6:09 post earlier (apologies missed that).
Gold over chrome right now. Obviously Pd/Rh over gold but SLP looks to have exhausted itself from the recent run. The likes of SHG, TSG, HUM, PAF, CEY, HGM are beginning to gain interest and have momentum now IMO
Has not the price of Chrome imploded though? Just going from memory recent pricing suggests $125/t down from $160/t in latest report.
I don't question that Sylvania (SLP) is a better short, medium, and long term PGM play than Tharisa (THS). God knows, I have enough shares in this company, which I have no intention of selling, especially with the current P/E hovering around all of 5.
All I'd say about Tharisa is that a misprice had occurred. The market dropped Tharisa down to c. 75p on the back of some pretty disappointing results in November. The share had flatlined since then, completely ignoring the fact that PGM prices had boomed, and that thus THS's revenues will have substantially increased. (I make it by about 25% overall - even allowing for the most recent dip in chrome prices.) IMO, that's an inefficient market, and an opportunity to profit as Tharisa's share price corrects back to a more "normal" valuation.
Think I was bit too quick with my negativity yesterday on THS to 88 - appears to have gone up 10-12% yester (although not sure on the spread which was over 5% yesterday before the rise). However medium to long-term I still standby my assumption SLP is the better PGM play - particularly the only pure PGM play:
- THS' Ferro Chrome 42% will be loss making at $135/ tn.
- THS Net Debt of $12m compared to SLP's Cash position of $33.8m (and of course on top of this SLP has huge trade balance owed to it of $34m due to 4-month delay between SLP providing PGMs to when they get paid by refiners (trade receivables + contract assets minus trade payables).
- THS have huge Capex requirement in 2020 of $117.2m. They need financing/debt/equity for fine chrome Vulcan Project of $52.8m. With Net Debt and huge Capex requirements, not clear if THS can pay a dividend this year.
- THS produce circa 6E PGMs 140k p.a. compared to SLP's 4E PGM of 75-80k (100-105K 6E PGMs if comparing like to like). THS AIC is $892 per Oz compared to SLP's AIC of $629 on 4E basis, so on 6E basis this would be circa $500 only. SLP's margin per Oz is much larger. I'm not convinced based on their Q4 2019 results THS can meet a 160k per Oz production and appear to be hit far more by Eskom load shedding than SLP due to nature of their sites.
- THS is a better play if you believe Chrome will recover, however with China on its knees and the coronavirus, I can't see Chrome recovering anytime soon. Perhaps where it might have started to recover within 6 months from now without Corona, may be looking more like 12-18 months with collapse in construction etc. And when I state recovery, I mean back to levels over $180/tn.
- The leftfield positive developments for THS is the huge Karo Resources Zimbabwe Project (THS have 26%) and for SLP it's potential news on Volspruit.
Our little Sylvania got a mention in today's Times as one of 2 listed London companies which produce palladium (along with Tharisa). The Tempus recommends avoiding gold but buying Pd!!
Unfortunately the article doesn't mention how to buy palladium, its recent parabolic price action (meaning it could correct at any time) and the high volatility which makes it unsuitable for most investors. But perhaps SLP and THS may get a little support today.