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Hi Sotolo
You are right to be concerned. Prices are falling in pretty much all metals plus the situation in SA seems to be going from bad to worse. I've just read about record power outages due to attacks at power plants. But then what are the alternatives:
- other miners in other jurisdictions. Broadly the same problems although metallic and geographical diversification is good
- physical assets. They are going nowhere price wise in a recession and yield nothing
- fixed assets they are now yield 3% plus for USD denominated assets with a maturity of 1+ years. Maybe but capital losses loom if rates go further
- developed country shares. They are certainly in favour and I do have some shares in these economies but so much is valued not on fundamentals but on a wing and prayer that somehow tech will deliver
- cash. Yes you have optionality but not much else
So I am left with the feeling that stocks like this are worth holding on to. They have very low PE which will protect them to an extent. They throw off cash and will continue to pay dividends. They are low cost producers so will eventually reap the rewards when higher priced mines are knocked out. They are managed by tough resourceful people which is an asset worth investing in in any industry in any jurisdiction.
I'm calling Mr Market wrong on this and we'll see whether votes turn into weights (to paraphrase Benjamin Graham )
No one else here? I have waited over a week to reply. Sorry Visitor I thought I was very clear that I think next year’s PE is very hard to calculate as no one knows next year’s PGM (and chrome) prices. However I have been suggesting they will fall (as they have begun to) and believe if the world enters recession they will continue to. In a bear market people see prices falling and assume PE’s will too, just as the US S&P PE has fallen over 20%, however they forget that earnings will fall too, pushing PEs up again unless prices fall further. I too am holding on but expect THS to a pound at least and even at that price with considerably lower earnings a higher PE next year. Let us all hope I am wrong, but each week shows lower metal prices and thus much lower profits.
Sotolo - I was responding to your erroneous statement "Also with Rh the main constituent of our PGM basket down 40% since start of March I expect our forward PE might be rather higher than you suggest".
You were implying that PE was rather higher than I suggested based on CURRENT PGM and Chrome prices, not forecast. The fact you thought PE was "rather higher" than 3-4 now and I showed it to be circa 2 is quite telling in terms of how you may view THS. It will also means your forward assumptions based on potential reduced PGM and Chrome prices will also be completely wrong.
Let's see if your pessimism on PGM and Chrome rings true this time - it didn't when you were predicting Rhodium back in the low 1000s about 1yr ago. However this time the global markets are looking more ominous and I do agree and think prices will reduce, however will not have the impact on PE of 8x + you have forecast as your initial assumptions are incorrect.
With markets so so bearish, already in a recession (imo) and S&P500 back at 3,700, when will the US Fed do a complete 180 and start reversing interest rate rises and QT (S&P < 3,000?)? Perhaps sooner than we all think and there's no way the markets and economy as a whole will handle another 75bps interest rate hike by FED. Laughable that Powell keeps stating the US Economy is in a strong position - a far bigger lie than his "inflation is transitory" statement! I still tend to think in USD terms we're heading for a stagflationary recession and when the Fed pivots, it can't stop a deep recession, but it will weaken the USD and support commodity prices in USD.
No doubt there is short-term profitable trading to be had and if FTSE and S&P500 collapse before a Fed pivot, you can sell out and buy in, for now though until I return to UK and have more time to keep an eye day-to-day on news and investments, I'll be lazy and hold. Not great strategy for today!
Sotolo- it is always good to have expected numbers about the current period and the medium term, which is the solid basis to start on.
I totally agree with you that the biggest thing affecting us next year will be PGM and chrome prices certainly more so than higher costs which iI believe are considerably more predictable. After PGM/chrome prices I would say the biggest thing affecting us next year is the performance on Karo (will it be on time and budget) before price inflation.
I agree that PGM prices could fall further and I am old enough to see some of the big swings of the last 20 years but then it is all down to what we believe might happen. I do not see the PGM basket falling by say more than 10% in the next 12 months (which is still a big drop) so perhaps I am not as pessimistic as you are although I do believe that world stock markets could have a torrid second half of the year until higher interest rates settle down (hopefully we a slowing down rather than having a full blown recession). But also I see the fundamentals for chrome as being even better. Demand in China/Indonesia is still growing and most major exporting countries are producing less.
So I am always willing to discuss the forward picture as well as the near term facts. Ultimately if you are extremely negative on the THS prospects you could always sell out and move on.
Mike thanks for your kind words and thoughtful analysis, this is such a lovely and respectful board. Visitor, thanks too, however the much appreciated detailed sums you do with past and current figures dont really apply looking beyond this year’s figures, that are happily over half baked in, as no one can calculate next year’s profit or this PE without making a big assumption about next year’s prices. Looking forward to the next year the biggest thing affecting us will probably be PGM and chrome prices, (even more than higher costs), one can only shoot from the hip taking a macro view on these. If a recession were to halve this year’s average price, which is perfectly possible, then profits might quarter. On the other hand if inflation put them up 50% profits might double. I admire your detailed analysis of where profits would be at these prices, and thank you for it, most encouraging as long as next year prices stay the same, but my view is that the current fall will continue for now as rates rise, so this year’s profits will be a bit lower than you expect and next year our PE might be considerably higher (or share price lower), but as we know even the experts have very little prescience.
Hi Mike - thanks for updated calcs and yes I agree with them.
I should have clarified my numbers are "annualised" from today to work out a 12 month EBITDA + profit based on today's PGM basket and chrome price for illustrative purposes to counter some assumptions on impacts of a reduced PGM basket. So agree Profit will be less for actual FYE Sept 2022 on basis we of course already know 1H 2022 Interims of $102m Profit after tax.
On THS' actual PGM realised price compared to "spot" basket, I would also agree on your circa 20% discount rate, now I've also calculated and compared the JM PGM Prices averages for 1H 2022, rather than using basket price reported in THS Interims.
All, I have just watched England lose 0-4 at home which is a bit of a damp squid and then I check this out.
At the end of the day (literally) I value the opinion of Sotolo/IC152/Visitor and everyone else. I have learn over the years that none of us are perfect and that it is always good to listen to the opinion of others but sometimes some more than others and certainly calculations help that can be commented on by others.
Sotolo- you are correct that I did not expect the 6% + drop today and a dropis an absolute drop and IC152 I cannot disagree with your sentiment.
I prefer to have hard numbers to crunch and then add in the market sentiment.. At the end of the day the actual numbers will not lie even if they take linger than we expected to peek through.
That is why I like that Visitor has backed up his views. Visitor -your profit before tax estimate for this financial year based on the current prices is $255 million, I have $243 million (I see that you are working on a PGM discount of about 14% but I have commented before that the actual figure is nearer 19%- the industry average is about 15% BEFORE any fair value adjustment, but this is based on a typical 200-400 parts per million PGM content per 1000 kg of PGM concentrates but the typical average for Tharisa iPGM concentrates s only 100-120 parts per million (Karo will be similar before any smelting) and rhodium the most valuable element has the highest melting point and being the most expensive element is also the most expensive to isolate and treat. I wish that everyone would take on board that THS has a high value basket but that this means it is abnormally expensive to process particularly given the typical PGM content. Don't forget their will be a PGM fair value hit which at the moment I estimate will be - $5.4 million for the year. Then I think everyone does not realise that the chrome concentrates are probably sold 1-2 months in advance of invoicing . Finally in the medium term I think that the additional running costs/interest costs of progressing with Karo will be $6-10 million in H2 which cannot be capexed as depreciation.
Given the vagaries in these numbers and what our prices will do between now end the end of September, and freight logistics will delay some shipments (even if it is produced and despatched from the mine- a 40,000 tonne chrome shipment will not be included unless shipped so even if 95% + gets to port and the vessel is waiting for the last truck then it does nor count as an invoiced sale included in sales/turnover so at a time of internal and external logistical problems the emphasis is on invoiced sales/shipments rather than sheer production).
So Visitor and I might be 5% + apart but we are on the same page and it is always good to crunch numbers at a time of stress.
If you think my numbers are garbage then we can discuss and see what we both agree and disagree on.
Visitor, re: your last para -
I give most of it (incl. I3E, JSE, SQZ) a tick but am now cautious on assertions with nearly all of them. My bias on THS has been badly exposed although the stockholding has remained untouched. Belief will continue but I have to admit to a couple of reversals where it was fortunate to escape unscathed.
SLP, where I had a fair sum (but exited @ £1.10) is another surprise. And they have been busy with buybacks which have had no effect in arresting the slide. I obviously would hope THS gets back to £1.70 very soon.
We are in turbulent times
Sotolo - how the hell are you working out your PE calcs?! Could you please back them up rather than shooting from the hip. Everything is being pummeled at the moment except oil price (not oil stocks though, which have also declined irrespective of oil price). Unless someone sold their THS and put it in cash (doubt it), it's been a zero sum game at losing 10-20% in other similar stocks.
On THS specifically and using the last 1H 2022 March Interims:
Chrome AISC is circa $110/tn at ZAR 15.3
Chrome is currently at $295/tn, with discount of 12% applied to THS realised price = $260/tn
Chrome Margin of $260tn - $110tn x 1.8m tns = $270m EBITDA
PGM AISC is circa $1,200oz at ZAR 15.3
PGM Basket currently $2,380oz, with discount of circa 14% applied to THS realised price = $2,050oz
PGM Margin of $2,050 - $1,200 x 170,000oz = $145m EBITDA
So overall based on today's prices, that's $415m EBITDA, after D&A and tax etc. perhaps $300m. Considering 1H 2022 6 months Interims had Profit after tax of $102m with far lower Chrome ($175tn) and PGM basket only circa 10% more than now, $300m even though "back of packet" calculation shouldn't be too far off. Now since March there has been more inflation, but there has also been a depreciation in both the ZAR and GBP reducing THS costs. But conservatively let's lop another 15% off Profit for inflation, so $255m.
THS current market cap is £370m ($444m). Based on $255m Profit after tax, THS is on a Forward PE of less than 2, not taking into account the $20m+ cash in bank and the extensive open pit expansion in Zimbabwe that will double PGM production in 2yrs. Pretty ridiculous PE when open pit mine life is 20yrs+
I've been extraordinarily lucky to have most my assets in oil and gas stocks (BP, I3E, JSE, SQZ, GKP and SLE, although latter not so lucky as suspended for nearly 1yr awaiting RTO!) , but am very comfortable riding the THS ups and downs (I know everyone's timelines are different though). At some point eventually I will look to reduce my oil exposure into increasing my gold, precious metals and copper stocks and THS remains top of my list. However do want to see if there's any cash build this Q3 June 2022 and if not, explicit reasons why not (expansionary capex etc. etc.).
I am with you Sotolo. Held on too long. It’s a great company and the chrome made me stay in. I think we are well undervalued even with lower PGM prices. There is a backlog of new cars waiting to be built so I expect a rise at some point.
Mike, sad that I posted less than two working says ago how amazing THS holding up in light of much reduced basket, and that the share price has immediately fallen over 10% .....but I didn't sell. Story of my life is posting when a fall is coming, as also often on Centamin, and never being able to bring myself to do so, I imagine this will near 100 again relatively soon but I am still not selling, hope others are wiser. I remain a long term holder tho expect either PE will double to 8 as profit falls or price will fall to keep it the same, but will still get a decent dividend and hopefully the tightening will end before the electric takeoff stops PGMs picking up with the economy, so will come good. I think you are right Mike that this will fall less than some investments but a fall is still a fall and while miners benefit form inflation they certainly don't from recession; always very much appreciate your wisdom
….the S African bulk chrome price CIF Chinese ports for 6-10th June was $290-300/tonne, largely unchanged in 2 months. Chinese chrome stocks at ports on 2nd June were 2.37 million tonnes, down 19,000 tonnes on the week before. Chinese high carbon ferrochrome total production for Jan-April was a record high.
Even at current prices I still expect the PE for this current year to be under 4 based on the current share price..
With the current cycle of interest rates depressing the economic picture plus the shortage of semiconductors hitting PGM demand I am not surprised at the current price level. Lower PGM prices are now a double whammy with Karo built into the picture But you have to take a look at where prices might be in 6 months when most expected interest rate increases will have have happened or are built in.
I believe that positive drip feeding on the progress of Karo plus expected positive news on Q3 production plus the underlining value will prevent us falling as much as some other investments.
Sorry visitor the figures I was looking at had Chromium 99%Min China Spot fall $500 on 1st June again yesterday, smallish falls but reversing the uptrend. Also with Rh the main constituent of our PGM basket down 40% since start of March I expect our forward PE might be rather higher than you suggest. Still of course good value which is why I hold but less room to take account of the coming economic slowdown imho. Sensible Tiger pointer this out a month ago and had exited at considerably higher prices expecting these falls and sadly more. - they. Seem daily at the moment. I continue to say I am surprised THS has held up better than the market so far if now it os beginning to catch up.
Sotolo - are you only looking at THS?! The whole market is collapsing today! FTSE by 1.7%, FTSE 250 2% and S&P500 2.5%.
You also keep mentioning chrome prices going down, they haven't! They're at a very high 295/tn as posted by THS today on twitter. I don't mind negativity to be prudent and protect investments, but at least be accurate.
If one was to actually calculate a Forward PE of circa 3-4, THS is still incredibly undervalued not overvalued, even with current PGM prices. For me the one area holding me back from adding anymore is the cash build has not matched my expectations. However I expect this will correct over 2H or at least explained through expansionary capex spend.
It's definitely a time to be prudent though in all investments and if not on sidelines, chose shares with low forward PEs and strong cashbuild (even still when stress testing for lower commodity prices). I still mainly remain in oil and other commodity plays like THS, as to be on sidelines in cash with 10% inflation is a hard pill to swallow, but may pay off for those if there is a massive market collapse!
Well less than 2hrs trading after posting it is amazing THS holding up on Fri pM it is sadly down again, the market was quicker than usual to cotton on, of course still overvalues at current and falling PGM and chrome prices but market is I hope looking beyond the recession, rather than working in a old world of PGM prices, and car and stainless steel etc sales, to when vehicle sales etc start picking up rather than falling but that could be a while!
Well I spoke a little soon as it has taken a 5% lurch but still hasn’t nearly caught up and a way to go but as said an hour ago of course chromium is helping but that is down a bit too, most encouraging that the market is looking beyond the coming slump viz ths even with this 5% off, or less encouraging just hasn’t caught up yet and this 5% is just the first of quite a few I expect as we probably head back towards a hundred if PGM’s continue to fall and chrome follows with a recession
Amazing how well THS is holding up in light of much reduced basket that continues to fall, of course chromium is helping but that is down a bit too, most encouraging that the market is looking beyond the coming slump viz ths or less encouraging just hasn’t caught up yet?
viable, you obviously have decades of experience, I have just checked and Richards Bay deep port opened in 1976-46 years ago!
Internal transport appears to be getting worse and the increasing demand for coal is just adding to the congestion for Transnet .Using road transport is three or 4 times more expensive than rail although at the current chrome price Tharisa can afford to pay it. Today the South African chrome price for 40-42% CIF Chinese port is still $290-298/tonne bulk. As at 27th May the chrome stock at Chinese ports was 2.427 million tonnes, just 17,000 tonnes up from a week before.
From the H2 financial statement it looks like the total cost of getting chrome to China was $80/tonne (internal rail/road to port $42/tonne and sea freight $38/tonne). I think this cost will be 25% higher in Q3 based on increasing congestion, higher fuel prices and continuing high demand for 30,000-65,000 tonne Handysize/Supramax/Ultramax vessels (for the latter with you S African interest you might want to check out Grindrod Shipping, GND on the JSE or GRIN on the NASDAQ, but a similar business is TMIP on the FTSE or a useful indicator is the Handysize Baltic index).
I think the THS share price is holding up pretty well in difficult market conditions. There are a number of questions that hopefully THS will provide information on this Quarter and if PGM/chrome prices stay where they are I am confident the share will be higher.
Enjoy your 4 day weekend!
@ 19:08 Mon. - Although out of touch with current shipping procedure the post took me back to previous times: We used to ship Zambian production out of Beira, Zim/Rhodie stuff out of Maputo, and Transvaal/Gauteng metals through Durbs and later Richard's Bay when it opened. In recent times the main logistical obstacles have been protests/unrest, Transnet theft and rising haulage costs with Eskom putting another spanner in the works.
In UK/Europe we are in unknown waters. In SA I had a long skype chat with a Capetonian last night. Conversation was largely on local W Cape issues, which are mounting. The detail is not especially important. Suffice to say the SA scene has stumbled along since 1994.
I am not overpleased with THS reversal as 170p seemed a fair discounted value. As stated previously the company remains core to my AIM p/f. It is doing reasonably well in comparison to March/May performance with a 25-year Aviva growth fund.
The upcoming 3c divi will ease matters.
(Another 4-day holiday weekend is something I am not used to. It's becoming SA-like with all its workless days.}
Target recovery is now 80%
If the target recovery is still 82% it was operating at nowhere near capacity for the bulk of the half and only approached 65% at the very end of Q2. I would say it was even less than 31% for the quarter looking at production levels. First production was only in Q2. They have confirmed guidance as recently as mid-May (with only 3.5 months to go) so they must be confident on grades and Vulcan so I have nervously adopted the low end in my expectations
I'm not a fan of Karo just yet, need to see the FS and get an idea of costs (without having to travel to Cyprus to read the fairness report) and how one operates in a hyperinflationary environment. Then again I'm not really a fan of any greenfield project as I have been swept up by the wave of shareholder returns and sweating existing assets. But perhaps it is foresightful of management to be investing in this environment where companies seem very nervous to commit to major projects, which will no doubt have price implication 3-5 years down the road
Hi Ragnar, I know what you mean by using the spot price. At least a stopped clock is right twice a day!
Likewise I think the Vulcan hot commissioning has been slower than I would have liked. The Company says that Vulcan was 65% operational by the end of H1BUT THE h1 chrome recovery figure of 66.7% suggests that Vulcan averaged about 31% throughput over the 6 months. I think we might struggle to hit 1.75 million tonnes of chrome production in FY/2022. To hit it we would have to produce 973,300 tonnes in H2. To make matters worse, the freight logistics is slowing down freight shipments and we are even having to ship part through Maputo, Mozambique as well as Richards Bay/Durban and use road freight as well as rail. It takes 1600 road trips of 25 tonnes each to fill a 40,000 tonne bulk carrier load. In H1 invoiced chrome sales were only 92% of production so with similar problems I am expecting H2 revenue to be based on 910,000 tonnes of despatched sales.
Like you, on a full annual basis of Vulcan and 60,000 tonnes from Salene we should hit 2 million tonnes in FY2023.
For the financials my concern is still with Karo The project is based on starting in about 2 years with CAPEX of about $250 m, operating cost/working capital of $25m and PGM prices at the end of March. On this basis my rough guestimate is that the project has an impressive pay-back of about 5 years. But the PGM price is already down over 10%, the COO is already suggesting the $250m CAPEX might be increased this Quarter (inflation in Zimbabwe is currently running at over 100%/year).
Any CAPEX for Karo in H2/2022 should reflect in an equivalent asset increase but interest and running costs could be $10 m , pulling down the FY/2022 result and it could be over $20m next year.
So at the moment, Chrome is contributing over 60% of our profit but further falls in PGM prices , higher costs and delayed start-up and ramp up at Karo could prove expensive if the payback is extended to over 6 years. Tharisa has promised more information on this in this Quarter.
Hi Mike, next year price hard to predict indeed but no better estimate than spot prices in my view. If chrome guidance is hit at the low end of 1.75mt then that leaves 970mt in H2, 25% higher than H1. Are we going to hit bottom end of guidance of chrome for the full year? Seems like there is a risk we don't with the delays to Vulcan. I'm really looking forward to Vulcan at full production, surely we will see something in costs from this? One everything is at full steam there is a path to 2mtpa chrome. And with prices where there are H2 should be a record on every line though there is a long way to go to September
Ragnar, the last chrome stocks at Chinese ports was on 20th May showing 2.41 million tonnes which was down 201,000 tonnes on the week before. But the stocks in some southern Chinese ports are particularly tight.
The price today on ferroalloynet.com is still showing as $290-298/tonne bulk, the same as last week.
As you point out , PGM and chrome volumes should be up in 2023 but who knows where prices will be so estimating the 2023 result is a real lottery and costs are not going to come down.
It looks like the broker reports are all forecasting a reduction in prices in the near term. EBITDA for 2022 is $263m but for 2023 is only $280m. I would guess there will be an uplift in production for 2023, at least incorporating the full year from Vulcan. If you use the current spot for 2023 you get over $350m EBITDA for the year.
Chrome is key now with close to 60% of revenue at current spot. Keep a close eye on those Chinese port stocks. They are currently around 2.5mt when for the last 2 years it mostly ranged around 3.5mt and as high as 4mt. It does remind me alot of the rhodium boom where it took a long time for the SP to react to the higher price
I noticed that the price fell yesterday in the first 30 minutes due to what appears to be one large seller. I wonder how that seller decided to get out with only 1 hour to read and then react to what are fairly detailed results. Talk about a weak holder who is looking backwards rather than forwards