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Hi viable, the diversification could be in other metals, I know that iron/manganese and nicke1 lhave been mentioned in the past but I think the diversification is possibly more likely to be upstream benefication such as chrome products/chemicals and changes in the PGM concentrates. I remember someone mentioned in the past on this board that the commercial PGM contracts with Impala and Sibanye would end in October this year and give THS chance to look at some other options including their own induction furnace to convert some of the PGM concentrates with say 200 parts per million of PGM to a crude PGM matte with say 5000 parts per million of PGM. This would still have to be sold to a precious metal smelter/refiner but this might reduce the transport costs (THS is probably moving say 20,000+ tonnes of PGM concentrates/year plus it might speed up the current turn-round of up to 4 months and reduce overall costs and give opportunities to sell to other smelters in S Africa and even elsewhere export.
Hi raxfactor, thanks for your valiant number crunching. It is a useful way looking from an AISC's point of view. But looking at the numbers in the same way as the THS accounts i see that you have not allowed for the "other operating expenses"which were $44.8m in FY 2021 and allowing for this in your calculation would give ebitda $139.54- 44.8 other operating expenses x 0.75 (tax) x 0.74 (BEE) = $52.58M/271M shares =19.4 cents EPS. If the other operating expenses increase to say $50m in FY2022 then the EPS reduces to 18.3 cents so you are getting much closer to my figure.
Your IASC comparison between the two years also ignores PGM fair value adjustment/exchange rate movement/inflation/any reduced cost reduction per tonne from increasing production.
Thanks for your numbers which helps the debate!
Hi raxfactor, thanks for your valiant number crunching. It is a useful way looking from an AISC's point of view. But looking at the numbers in the same way as the THS accounts i see that you have not allowed for the "other operating expenses"which were $44.8m in FY 2021 and allowing for this in your calculation would give ebitda $139.54- 44.8 other operating expenses x 0.75 (tax) x 0.74 (BEE) = $52.58M/271M shares =19.4 cents EPS. If the other operating expenses increase to say $50m in FY2022 then the EPS reduces to 18.3 cents so you are getting much closer to my figure.
Your IASC comparison between the two years also ignores PGM fair value adjustment/exchange rate movement/inflation/any reduced cost reduction per tonne from increasing production.
Thanks for your numbers which helps the debate!
Hi Mike below is how I arrived at 28/29 eps
First off I ref p22 from the last results to calc AISCs and what discount THS pay to the quoted basket price, for both PGMs & Chrome.
PGM cost of sales $205m
PGM production 157.8k oz, 205÷157.8 = $1299 (AISC)
Discount to basket price THS state $3074 basket price
PGM revenue $353.4m, PGM production 157.8k oz. 353.4 ÷ 157.8 = $2239
2239 ÷ 3073 = 0.728 of basket price THS achieve.
To calc outcomes from basket $2400, 165k oz production.
2400 × 0.728 = 1747.2 - 1298 = 448.3 × 165k = $73.9m
Chrome
Chrome cost of sales $147.1m
Chrome production 1506kt, 147.1 ÷ 1506 = $97.67 (AISC)
Discount to chrome price, THS state $154/t chrome price
Chrome revenue $203.8m, chrome prod. 1506kt, 203.8 ÷ 1506 = $135.3/t price achieved.
135.3 - 97.67 = $37.63/t
To calc outcomes for 1750kt
1.75m x 37.63 = $65.85m
Total ebitda 73.9 + 65.85 = $139.54m x 0.75(tax) × 0.74(BEE) = $77.56m ÷ 271m shares
28.6cents eps
Yes, in Kent, but worked across southern Africa for 35 years (including Johannesburg).
I thought we might be in for another 3 - 5% today. Wrong.
Phoevos going overtime on Twitter.
Am keen to learn direction of "diversification".
Hi raxfactor, thanks for your input and confirmation you are nearer feyzz's figures than mine. It is good to get a cross selection.
I agree the chip shortage will eventually ease but it will be 12 months or more until we are "back to normal". Similarly on the freight rates, more vessels will help but again this takes time.
Out of interest where is the main difference from my figures, is it higher revenue or lower cost of sales?
Hi viable, I thought you where in S Africa but from your last response you are UK based?
Addendum
As Jhb opens 2 hours before we do it might be practical to follow the ticker over there.
The exchange was quite active late pm today.
https://www.tharisa.com/share-price-information.php
[An active day. Not unexpected though. Tomorrow might even be better.]
I don't know enough to add anything useful to the topic.
My Joey contacts are mostly pensioned off. Those who remain have said conditions are difficult:
viz. Eskom tariffs up again plus blackouts, although slightly improved;
Transnet, i.e. to Durbs/Richard's Bay, is a basket case; and
road haulage has gone through the roof.
Also, it might be advisable to keep track of bunker oil prices.
They are not coming down at present.
Plus I have no idea of RiverGrande default consequences/ $300bn is, if accurate, a big number.
Hi guys,
Based on the assumptions I have run my calcs and come up with PAT $76m with eps of 28 cents so I think that makes me closer to feynzz than Mike.
By the way I no Einstein, so like you I would be interested in other opinions.
Hopefully as we move into next year the chip shortage will ease, so demand increases for PGMs to push prices higher, more bulk carriers make their way into shipping to stabilise those rates for buyers and generally demand turn out better than it is right now.
Even though, with these assumed figures compared to FY 2020 we are doing much better, its very hard to compare future expectations with the year now closing which was incredible.
THS is not standing still and through increased output is managing to offset lower prices, with Zimbabwe waiting in the wings.
Hi Feynzz, I agree about your stock offset from the end of fy21 to end of fy2022 and would normally balance out but that only happens if production is steady, as I commented below , with production growing in 2022 the "lost" revenue in 2022 should be higher than the "lost" revenue in 2021.
I agree that there are early signs that freight costs are steadying off and fallen in the shortterm but I do not expect rates to fall next year but you might be right. While I have increased my freight services by 23% for2022 compared to 2021 most of this is due to the higher volumes and I have assumed a 6% inflationary increase.
the Stockopedia figures are very dependant on the PGM and chrome concentrate prices the analyst assumed several months ago when they did their projection and they might be right and they might be wrong. Don't forget THS's own in house broker, Peel Hunt, was predicting an EPS just one month ago, when they had the actual production figures, in the high 50's and we know the actual figure was lower. My prediction is based on PGM basket of $2400 and chrome concentrates at $160, I am not saying these are right or wrong, just that they are my starting point for some serious debate. At the moment my personal opinion is that the PGM average price for FY2022 will be similar to $2400 but that the chrome concentrate price will be a bit higher and average $170-190/tonne.
My figures are just for debate and to stimulate some serious discussion.
HI Mike, your comment about inventory being unsold at year end applies both ways, so the inventory from FY21 will be sold in FY22 so it should balance things out to an extent. We will have to wait and see what the freight costs are in 2022, there is early evidence that these are now on a downward trajectory albeit still quite high.
I was looking at the Stockopedia forecasts as well and they have got NPAT in excess of $100m in both FY22 and FY23 although that I agree may be a bit ambitious.
Hi Feynzz,
you know that production does not necessarily mean revenue. They can be a slight lag between production and getting it out of the door and invoiced particularly when production is growing and there are logistical issues. For example PGM production FY 2021 was 157,800 oz but sales were only 151,500 oz or 4% lower. Another factor was that in 2021 PGM revenue recognised at a point in time was $375.036 m but then there was a $15.35m reduction for "quality adjustments" presumably reduced weights/moisture /overestimated PGM content when initially invoiced (see p.63 in the accounts). Also the auditors, Ernst + Young like other auditors are taking a tougher view to revenue "Sales revenue is recognised on individual sales when control transfers to the customer" (see p 62 in the accounts) so for example hundreds of tonnes of chrome concentrates might have been despatched from the mine and sitting at the port waiting for shipmen or actually on a vessel half way to China but if the terms are CIF Chinese port then THS cannot include this as revenue because control has not transferred to the customer. So my 165,000 oz of PGM revenue is based on 170,000 oz of production and my 1.75m tonnes of cr revenue is based on 1.8m tonnes of production.
I agree that the weaker USD ZAR exchange will reduce local costs when transferred to USD but I think there is a partial currency hedge in this so that foreign currency losses appear in the accounts (in 2021 when the ZAR strengthened against the USD and so increasing costs there was a net foreign exchange gain of $15.477m).
Yes , I remember the comment that the variable cost of production from the extra chrome out of Vulcan will be about $10/t and help to reduce variable costs but this is only part of the costs, don't forget the freight rate to port and sea freight costs have increased, Eskom is increasing electricity prices by 15% in January and depreciation kicking in for Vulcan could add $26/t ($53 million over say 10 years/say 200,000 tonnes/year).
Breaking down the cost of sales, I calculate the mining proportion will increase by 14% over the 2021 level (reef mined looks like increasing by 8% volume this year plus 6% inflation). I calculate the processing will increase by 21% (the above percentage increase in mining costs above plus the additional costs of manning/running Vulcan plus depreciation. Finally for 2022 I have state royalties at $14.2m,selling costs increasing by 15% to $80.2m and freight services increasing by 23% to$42.3m.
For other operating/admin expenses I have allowed a 10% increase for higher volume plus 6% for inflation so the 2021 total increases from $44.822m in 2021 to $50.7m in 2022.
Basically I agree that the variable processing cost for chrome will fall with the higher volume but that costs in other areas are rising to offset this.
as I say by all means check my numbers out!
also important to note that the PGM basket price in FY20 was $1700 and they produced 143k PGMoz when they had an EPS of 16.2c so getting to a lower number with production at 170kPGMoz and basket at $2400/oz and a much larger chrome production with lower variable cost/unit doesn't make sense.
Hi Mike,
Your numbers don't tie to what I have got. I get closer to 29c EPS for FY22 based on $2400/oz PGM and $160/t Chrome. Your numbers also look strange because they are lower than FY20 when Tharisa produced 143kPGMoz. I understand the cost pressures but still look pessimistic. The USD ZAR exchange rate right now is much more favourable than the average of FY21 which should also help. Vulcan should help reduce the cost per unit for chrome. I remember Phoevos saying that the variable cost per each additional unit produced from Vulcan would be c$10/t. Based on that I expect a c10%-15% reduction in the unit cost of Chrome. I have used 170k PGMoz and 1.8mt chrome in my calculation as that is the mid range of the guidance.
Also regarding your theory that the next 2-4 years of Tharisa's profit would be invested in Karo. This may or may not be true as I am certain that the project will be financed using project finance. Ofcourse Tharisa will have to fund a % using its own cash but that amount could be as low as 10%-20% depending on the deal they get with their lenders. I am anxiously waiting for more info on Karo as I need to see that to make my own view on whether I want to stay invested or not.
Hi Visitor, no problem as I put it out there for inspection so by all means pull it apart.
I have total revenue as $587.3m (pgm 165,000 oz x $2400 basket as 79% payable=312.8m;cr 1.75m tonnes x 160 less 35 transport to port=218.7m,agency say 45.0m,manufacturing say 2.4m, Salene 8.4m).
less cost of sales 453.4m less cost of sales Salene 7.6m= gross profit $126.3m.
plus other income 0.8, no foreign exchange adjustment, less other operating/admin expenses 50.7, less other operating/admin expenses Salene 0.8= results from operating activities $75.6m
plus finance income 1.8,less finance costs 2.0,less share of loss of adjustment 0.3= Profit Before Tax $75.1m, tax @ 28%=Profit After Tax $54.1m
attributable to owners of the company x 77% =$41.7m
say 272 million shares= EPS 15.3 cents
current share price 115p @ 1.33= 153 cents= forward P/E 10.0
So as you can see I am allowing for the increased volumes in the revenue and also in the cost of sales and other /admin operating expenses and assumed inflationary cost increases of around 6% in 2022.
I agree there will be less cashflow going into capex but at current metal prices profit will be down and so the total 2022 FCF will be lower than 2021. Besides we probably will lose some of the existing cash in the bank and some of the lower 2022 FCF to finance the expected further investment in Karo which will probably not generate any cash flow for 2-4 years.
Let me know what you think.
Mike - I would be interested to understand how you calculated 16c per share for 2022 particularly with the increased guidance, which will increase revenues and through economies of scale decrease costs on per oz / per ton basis to partially offset other increased costs.
"FY2022 production guidance of between 165 koz to 175 koz PGMs (6E basis) and 1.75 Mt to 1.85 Mt of chrome concentrates. COVID-19 remains a risk to the Company and guidance is premised on the current level of economic activity being maintained"
Separately from a cashflow point of view, with $50m spent on Vulcan Project Capex in 2021, capex requirements will be far less this FY2022 and add to the cash build.
Thanks. A good reveal, indeed.
(I alter my route on Zim exports in part - via Beira, not Maputo.)
Hi viable,
yes this is a one third drop in warehouse stocks at Chinese ports which at first sounds supportive of prices but I think it reflects a very temporary slow down in demand in China reducing imports rather than an increase in demand eating into stocks and this is reflected is slightly reduced chrome concentrate prices in recent months. Since the second half of October energy prices/shortage have started to hit high intensive energy production in China ( a combination of higher costs to import coal/gas/oil just as domestic hydro electricity generation has been hit by lower summer rainfall), in some areas high intensive energy users like stainless steel producers are only allowed to produce 2 or 3 days out of 7. This is temporary and will probably end when the Chinese winter eases in Feb and chrome concentrate prices will hopefully start to creep back up above $160/tonne.
The elephant in the room is that even though cr prices have increased to $160-180/tonne this year from about $145/tonne last year this increase does not even cover the increased internal freight(rail/lorry) to port or sea freight costs to China which have increased about 50% over the last 12 months, on top of that are gas/electricity costs which have literally doubled/tripled this year alone.
THS has had a truly fabulous 2021 partly due to higher production but mainly due to higher PGM prices but the cost of sales and admin costs have also dramatically increased. Much has been said about THS being undervalued but the stock markets are forward looking . I would ask all to guestimate the 2022 EPS based on current prices (PGM basket below $2400/oz and cr $160/tonne CIF but with expected cost increases in 2022 I believe the figure will be below 16 cents (less than half the figure in 2021) , giving a P/E of about 10 at the current share price but a cut in dividend if recent and future profits are absorbed into financing Karo which might not contribute to the bottom line for 3-4 years.
We are relying on higher prices to maintain our performance.
https://twitter.com/tharisa_sa/status/1467815522960134155/photo/1
To those who know more than I do:
How significant is stock depletion to THS?