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Have recently invested in THS and SLP thanks to tips from TigerByTheTail.
Did my usual research and decided to buy in. Thanks to all the posts on this tread and for the shared knowledge on the PGM operation and financials.
Mike - thanks for detailed insider knowledge on commercial side of contracts between likes of THS and their refiners (Impala and Sibanye). I had a chat with the old CEO of SLP before retirement and whilst he didn't give away anything confidential, on my query as to refiner's fees/ margins and why the margin appeared to fluctuate, he confirmed my suspicions it was a mixture of fixed costs and %, like you've confirmed here.
I have to admit for simplicity purposes, I'm one of the people that use the ballpark 15% for "back of the packet" calculations. In past THS Accounts when comparing reported PGM basket prices versus Revenues, I've noticed a difference of 13-15%, so for simplicity and to be conservative I just always round up to higher 15% when posting here.
When THS Interims are released on 27 May, i'll update my calcs for "Refiner fee/ margin" and PGM & Chrome AISCs etc. The THS Interims are normally incredibly detailed, far better than other AIM stocks or even FTSE companies I follow and still provide a lot of the detail you find in their audited annual accounts. They still helpfully break down their revenues by Chrome + PGMs for example in Interims.
Thanks Mike - and well explained.
it's good to have somebody on the board that has experience of the industry.
H1 is as good as known since we have THS's declared volumes and prices.
Overheads we estimate but they are reasonably well known.
F/X is always the odd one but that is on our side over H1.
We are unclear on the total value of adjustments but again a good number and straight to the bottom line, greater than $20m looks a certainty.
And so we wait !!
Sotolo/TotalTrader,
Effectively yes.
1) THS deliver conc to smelter and the invoice with revenue "A" is raised but this is only a PROVISIONAL invoice value based of THS's estimated/sampled PGM content and current PGM prices which is the "fair value" shown in the accounts and other costs (so the circa 15% costs are allowed for here, I think the discount is now less than this).
2)The smelter undertakes the assays and their results might be higher/lower than THS's estimate or sample, THS will no doubt have already sampled and know the PGM content, in some contracts the buyer/seller will exchange assays are providing the difference is small the buyers assay will rule but if the difference is great then either party can ask for a retained sample to go to an independent sampler to act as referee. Once the assays are agreed the buyer/seller will agree a day to price fix the contained PGM;s and it is only at this stage that the actual final price of the PGM's is LOCKED IN.
once the weights/assays/metal prices /impurity penalties/treatment charges are agree then THS can raise a final invoice "B" (and cancel the original invoice).
so "A" the provisional value,can be greater than "B", the actual final value and the Fair value Adjustment in the accounts, is the difference between "A" and "B". With rising metal prices then "B" will be greater than "A" (other things being equal) so I agree with Sotolo that we can expect some stonking gains.
Just another rider to this, is that we are assuming that THS does not do any "hedging" in the form selling on futures markets (derivative). There is no futures markets for rhodium but there are futures markets (such as COMEX/LME) for platinum and palladium and gold. All the evidence up to now is that THS does NOT do any "hedging" (and this does incur additional trading costs) so we are assuming it has not changed. Obviously hedging would give some insulation when PGM prices eventually staert to go down.
Another point is as the concs take 2-4 months to finalise which is a massive stretch on cash flow (the smelter may pay part in advance on agreement of assays) from the accounts is looks like THS is factoring part of this with Nedbank at LIBOR + 356 points (or prompter payment for effectively a discount of about 3.64%/year) although they will need a bigger limit with the bank at current prices!
My final point- a lot has been said about the net smelter gain of about 15% which I think is now already lower. While it is in THS's interest to upgrade the concs as much as possible I do not see them being able to do the full phase of ore to all of the individual precious metal s in the form of ingot or grain or sponge. Rather for me if they can reduce that 15% discount to nearer 5-10% then that is the best they can do without a truly massive investment and ongoing cost. No doubt the 1mw furnace is now upgrading the concs (possibly only containing 3000 ppm PGM's) to a matte with 30-60% metallic content.
Thanks Mike,
So from a financial perspective we have - correct me if I am wrong:
1) THS deliver conc to smelter. At this point the invoice is raised and this is the revenue we see in the accounts - let's call this "A". (I believe the contract price will be similar to the fair value price shown in Note 22 of the accounts but with a slight variance to reflect THS's market view - it would be commercially naive to publish the actual contract prices).
Question - I am assuming the contract price allows for the Net Smelter Margin of circa 15% and so this is removed at the front end i.e. at the time of invoice "A".
2) The smelter undertakes their assays, takes off any percentages for impurities etc and 3-4 months later comes up with an actual value of the conc based upon market prices - let's call this "B".
Question - I would assume that in the master contract there would be a "pain & gain" clause. I.e. if the value of "B" is above the value of "A" then the upside is shared by an agreed percentage (80% THS, 20% Smelter would be my opening guess). Equally if the price goes the other way then the pain is shared.
So the Fair Value Adjustment that we see is the difference between A & B less any "pain & gain" percentage.
Thanks Mike, your presence and post much appreciated; so the first half figures will be based on the PGM prices jun-nov/dec when the main contributor now, Rhodium, was getting on for half what it is now, but our second half should be stonking as already mostly baked in? I
Hi all,
This is my first post so please be gentle.
From working in precious metals a long time ago the PGM concentrates will be delivered to the 2 smelters based on valuation against a master contract. The smelters will assay first and will not price fix against official PGM prices until the assays have been agree which could be 2 to 3 months after despatch from THS. So even if THS delivered to Impala in say this month,April they will get the PGM prices when the material is price fixed in say June/ July, so on a rising rhodium market they get the benefit of the higher price a few months later. I am guessing this is work $30 m in H1/2021, the same as all of 2020.
The smelter will deduct an amount off the assay for each precious metal, say 1%, and will make a deduction off the precious metal ,say 1%. Then there will be penalties for certain impurities which are hard to remove and an overall fixed treatment charge.Remember on rising PGM prices the total discount will rise but the percentage of total deduction will fall as the treatment charge is a fixed amount.
I see much has been said about a possible 15% PGM mark up f THS
We will get a very good idea next week when SLP release their Q3 results. They include financials so it will be very informative from their perspective and give an insight into THS's half year results.
Great post Total, sorry makes your head hurt but as you say profit is always subject to manipulation, esp in these circumstances, but we do know there will be quite a bit more of it coming from these elevated prices, enjoy the aspirin lay back and see what comes in the next financials
It's very difficult to calculate a value. Notes 5 & 22 in the accounts explain how it is calculated but I have never managed to come up with an actual value myself. The PGM adjustment for the whole of the last financial year was $30m for PGM's.
I only started to record THS's basket price from June 2020 so don't have the data going back to look at the whole financial year. SLP's I do have and from July 19 to end of June 2020 their basket price hardly moved ($2,069 to $2,006) so as an assumption I would say that THS's hardly moved. If the adjustments came from the following 4 months SLP's basket price was $2,782 so let's say a $700 increase, again assuming THS's is similar then this accounted for the $30m over a year.
However, the fair value adjustment is not solely based upon the increase in the basket price it is also a reflection of what THS use as their estimation of fair values also shown in Note 22 of their accounts. In this way it is a very manipulated number and can be used to offset a poor period with a better one or vice versa, it can also be used to "chunk" out the balance sheet.
Confused? Me too - it makes my head hurt trying to work it out. All we can really say is that it should be a large number and JDevereaux's number could well be in the right order. My feeling though is that THS will hold some back to act as a cushion for future reporting - I know I would.
On that basis, my calculation suggests H1 sales adjustment could be around $70m - $80m. Which should drop straight to the bottom line.
I believe so. Just like SLP, an adjustment is made to reflect the difference between the two amounts.
So revenue is initially recognised based on the basket price when delivered to the smelter. But the actual invoiced revenue is based on the basket price 4 months later? Is my understanding correct?
Hi Jd!
Yes, it's about 4 months (though it seemingly grew a little during the Amplats shutdown).
It's always worth remembering that with almost all miners "trade receivables - trade payables" ends up being a negative number (i.e. money is owed to others). But with Tharisa and SLP "trade receivables - trade payables" is a big positive number (i.e. THS and SLP are (on balance) owed money to come in later).
Does anyone know the time lag between inital recognition of PGM revenue and final settlement date? I think with SLP this is around 4 months. I'm assuming it's similar for THS? If so, the revenue adjustment/ fair value adjustment of debtors in H1 results is surely going to be astronomical.