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Tiger, socialist candidate, and favourite for president, Castillo’s spokeswoman did say very clearly this week that they would not nationalise mines but make the share of profit the Peruvian people get (tax) more equitable, which seems fair they are very poor and have been horrendously hit by Covid, but would reduce profit for shareholders a bit. Also not allow some Newmont mines contaminating water. Nothing about this in the Hoc forward statement. Predictions for the Mexican president’s effect on mining was dire but it has not proved as bad as expected. THS has the same thing in effect in S Africa with the much mooted chrome tax. I agree on Edoardo, hedging his bets by selling. On selling the market in general I also agree, I sold Tui a few days ago and reinvested that in Tharisa, so pretty much all I have is mines, though if there is a general market downturn could hit car buying sentiment, but Tharisa could have much lower PGM prices and still make a hefty profit. All the best
Hi Sotolo! (Off topic) I worry about HOC. The candidate who is leading (according to the opinion polls) in the upcoming Peruvian Presidential elections is running on a platform which includes nationalising the country's mines. Of course, it's not that simple - the new President (if elected) would need to get congress to pass laws to do that, etc. But, overall, it's concerning for the future of mining in Peru. This, by the way, is why I think Eduardo Hochschild sold so many of his shares. He saw this coming. Centamin, I'm not sure about. I'd be tempted to wait until the results are out and to see how the market takes them. For myself, I've backed out of a lot of shares this week, as I sense a top is in and a sell-off is coming. But Tharisa I'm holding, through thick and thin.
Wise words Tiger, and I wouldn’t have the fun of being here but for you so thank you again. There is maybe a fourth reason, the sword of the new chrome tax hanging over THS? On another note I was thinking of selling a few Hoc today to buy some Cey in advance of tomorrow’s results. The figures, if as predicted, will be lousy; tho the market know this it could hit the shares; on the other hand the prediction was so lousy they could turn out a bit better or there could finally be news of new concessions and W Africa that never comes? Maybe just stick with what I have.
Hi Sotolo! You can play with numbers in all kinds of ways. So, yes, you're right that if the rhodium price collapsed all the way back down to zero, Tharisa would lose 50% of its revenues and more than 50% of its profits. But then if nobody needed chrome anymore, Tharisa would lose 25% of its revenues, and more than 25% of its profits. And so on for each metal. And (hooligan question), what makes gold so inherently valuable anyway? At least rhodium is "backed" by a proven industrial need. And, yes, Tharisa's dividend policy isn't particularly generous in the abstract. Officially, it is "a minimum of 15% of Net Profit After Tax"; in reality, they usually pay out about 17.5%. This means the dividend is covered at a ratio of 6:1 or more, which is very high. BUT, two things need to be added to that statement: 1. Even though Centamin are paying out all of their profits (and more, I think) in dividends, and Tharisa only 17.5%, the actual yields of the two companies will come in similar at 6% to 7% this year. This is due to the huge difference in the market caps of the two companies, despite their generating roughly comparable revenues. 2. Growth capex is a good use of money. $50m spent now on the Vulcan fine chrome plant means approximately 400,000 tons per year of ultra-cheap chrome extra for the foreseeable future. And that means higher profits in future years. We don't have the numbers yet, but if the PGM smelting plant has similar economics, I'll be delighted that Tharisa are putting their money to good use there as well, rather than paying it out in dividends. Finally, I can suggest only three reasons why Tharisa is currently so undervalued: 1. The share price is being suppressed by the great Fidelity sell-down (which hopefully will be over soon); 2. The market isn't paying attention, and will wake up to Tharisa once the interims are out; 3. The market does indeed believe that rhodium prices are not sustainable, and that they will crash back down to a far lower level (say $5,000/oz) shortly. Perhaps there is a bit of truth in all three of these reasons.
It could be that THS pay out a 6% divi based on the current SP. That would equate to roughly a 9p divi for the full year. In actual fact, I think the full year (next 2 payments) may be greater than 9p based upon 160k oz. With reinvestment of capital and growth those building a position at this level could be seeing a very nice dividend in the future basing it on current SP and future yield.
Tiger two questions: , if Rhodium revenue were to disappear wouldn’t profits more than halve ie isn’t rhodium contributing half revenue but more than half profits? Second could two reasons we are valued so much less than Cey, first because many investors don’t believe the rhodium price and think it is in an unsustainabke bubble however hard substitution might be? And maybe more important Cey pays out most of its profit in dividend, while THS reinvests nearly 85% of its profit which may turn out to increase profits later, or not if metals collapse, but whatever is less secure than Cey paid now. Cey is supported by that massive yield, still 6% though halved? Just some thoughts
Hi Sotolo! I agree with Total Trader - you can't really isolate the profit margin for any one of the metals that Tharisa mine, you have to take the operation as a whole. And, as a whole, Tharisa's revenues are increasing rapidly (and its profits should follow). As for a comparison with Centamin, it raises an interesting question. Centamin is a FTSE 250 stock which trades at a high p/e. Tharisa is an AIM stock which trades at a (very) low p/e. But why is one rated so much higher than the other by the market? Both are single mine operators in African jurisdictions (Egypt / South Africa) of roughly similar difficulty. Both have ample resources in the ground and very long life of mines. Both pay dividends and are net debt free. Last year Centamin reported $828m in revenue and $315m in profit, with an EPS of 13.5 cents per share and a p/e of 12.8. We know that the figures for Centamin this year won't be as good. In contrast, Tharisa's revenues, annualised at today's basket prices, are probably around the same as Centamin's last year, and I'd expect their annualised profit to fall in a similar range. Yet, Centamin's market cap is £1.33m and THS's market cap is £395m. That's really quite a difference, and for what exactly? Yes, Centamin has a larger cash pile than Tharisa at c.$300m, but that doesn't begin to justify such a huge difference. I believe the answer is simply market inefficiency. And that Tharisa will catch up in time.
Operating profit margins are difficult to calculate. To get Rhodium you need to mine Chrome and begin the PGM process so how do you split the costs? THS do split the costs on a total PGM basis but it would be very difficult to split out the exact costs of Rh, Pd etc. In house THS will do this but I would never expect it to be published. Once costs are covered about 55% of increased PGM revenue finds it's way to THS's bottom line. i.e. every $100 increase in the PGM basket equates to $55 in net profit. On 160,000 Oz's per year that $100 increase equates to an extra $8.8m in bottom line profit.
Tiger two quick questions, first if Rhodium is 50% of revenue is it a considerably higher percentage of profits, as at this high price costs are only a small proportion, while with chromium the profit margin must be much lower? And second it seems Centamin may have the opposite problem to THS, here we know profits will be far higher but the market hasn’t taken full account so when they figures come out in May the share should shoot up. With Cey we know profits will be under half this year but many board members don’t seem aware. So when the first quarter comes out as predicted the shares could fall as many haven’t expected it?
What is most interesting about palladium is that Nor Nickels q1 results just came out revealed that although the mine closures significantly reduced nickel and copper production the long lag in smelting processes and use of chlorine leaching residues have meant that they actually had large increases palladium production over the first quarter with palladium production up 40% quarter over quarter, so the markets have been tight despite this big increase when we assumed there was a supply shock in the other direction, to me this indicates that pricing is not a short term blip and indeed we may actually see a fall in supply the future as the smelting is such a long process ....
Sorry I do keep writing ruthenium when I mean rhodium, early senility, of course it is rhodium I meant whose rise is so much more important to us than Palladium’s but all rises welcome. Nice to see Cey perking up, THS seems a little stuck waiting for something that can take it through its tantalisingly near all time high. It is surprising how very little the share moves through most days.
Ho Sotolo! You keep doing it - it's rhodium and not ruthenium! I mean, ruthenium is booming, it's up over 1000% over the last four years. But it started off at only $40/oz, and even now (at $425/oz) it makes up only about 1% of Tharisa's revenues. Rhodium, meanwhile, is a cool 50% of Tharisa's total revenues.
Shame Palladium is a small percentage so even a 50% price increase would only add 3.5% to revenue: now a 50% rise in ruthenium…would take us through £2.. Anyway I am happy if both just stay at the stratospheric levels they have achieved for a while longer