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Very interesting comparison to SLP Q4 results today (v THS Q3). SLP announced a 54% reduction in PGM 6E production QoQ compared to THS 9% increase. I had penciled in some big reductions in Tharisa full year guidance and was very pleasantly surprised to see guidance significantly above my expectations.
I'm truly gobsmacked by the resilience of Tharisa production and this is one of the reasons why I shifted some exposure to Tharisa. This really highlights the advantage of Tharisa's mechanised open pit and its ability to control its own feed supply. The open pit has 10 year life and then the underground another 20+ years.
PGM prices are up a good 10% in the current quarter although chrome is looking pretty dire right now. I attribute almost no earnings to Tharisa chrome in the current pricing environment but I see significant upside over the medium term. SA production has plummeted and China port stocks are decreasing. Demand is still anaemic but the Chinese auto sector has recovered very strongly (which is a big source of stainless steel demand), global industrial production is back on the rise, though jittery, and Chinese buyers can't resist the need to restock forever. Nickel and iron ore have both made steady recoveries and aren't subject to the same curtailment as chrome.
Hi Ragnar - THS open pits actually have estimated 13yrs left (2033), with 40yrs for the underground mine - PDF page 30 of the 2019 Annual Accounts provides a great little overview, as does the last presentation - the presentation even provides a THS 64 PGM basket split which is think 1st time I've seen them do this.
I've done a bit of a "deep dive" on THS on standalone basis as well as "THS versus SLP" basis just for comparison to explain why I went heavy on THS in the high 50s/low 60s share price and why it's now a bigger position for me than SLP. Like you I have struggled to find time to post, but will try and do so tomorrow, particularly as board is so quiet might be some new food for thought.
Whilst Chrome is struggling, no one is better placed than THS with its low cost open pits to ride it out than THS, even compared to SLP. Both THS and SLP are inextricably linked to chrome as you know: SLP through receiving their PGM rich tailings from Samancor (which will reduce in current climate) and THS as they of course produce both Chrome + PGMs. In fact "lower for longer" on the chrome front actually will benefit THS in long-term far more, as it will mean huge irreversible structural cuts in chrome supply and even before COVID19 entities like Glencore, Samancor and others were cutting production. At $130/tn, THS pretty much breaks even on the chrome, but of course still makes a huge profit on their 140k p.a. 6E PGM Oz. We also have to remember pre-COVID19 the guidance for THS was 155-165K oz of PGMs, increasing to 200K PGMs p.a. post "VISION 2020". This compares to SLP's 68-70K 4E PGM Oz p.a. in a world of low chrome, where they will receive less Samancor chrome tailings and use more of their "dumps" which have lower grade and will mean depleting life of operations (perhaps 8yrs instead of 10yrs in normal climate and 12yrs+ in booming chrome market). THS' mine life is more than double (13yrs open pit + 40yrs underground), before you even factor in their Zimbabwe operations. With 2x more mine life and 2x more PGM production, but factoring in SLP's stronger cash position, THS should be at least 3x market cap of SLP. SLP is currently £141m market cap, THS is £196m.
I think SLP remains significantly undervalued, particularly if they deliver on all ours and house broker Liberum's expectations for a dividend - however THS I believe is even more undervalued. But once I have more time will add more flesh to the bones tomorrow.
Hey Visitor, look forward to reading your ideas. I also have been piling in since February and I think we are on the same page, I've set out a lot of my thoughts previously on this board and also a couple of posts on the SLP board comparing the 2.
I'm excited about Vision 2020 (or maybe we should call it Vision 2021) because if they deliver everything they are planning it will give annual EBITDA of $200m at current prices. This year I think they can deliver $100m even with all the Covid issues. Tharisa have a dividend policy with an actual calculation and I think could pay out an 8% yield this year and a 15% yield next year. Tharisa is perfectly placed for a recovery in chrome, don't know if you saw Glencore's H1 ferrochrome results - down 42% - truly dire state, with the below comments:
The Ferroalloys business has for some time experienced a structurally worsening competitive environment across the South
African ferrochrome industry, including via substantial electricity price increases. In January 2020, a consultation process was initiated on the future of the Rustenburg smelter, and in June 2020, a further process commenced across the entire business, to seek a more competitive operating cost structure. This is an ongoing process with all alternatives being considered.
Hi Ragnar - I came to the same broad conclusions. If THS deliver on completion of "Vision 2020" (2021!), I roughly calculate EBITDA of $195m.
Have to admit didn't work out this FYE Sept 2020 - I looked forward past COVID19 on basis THS can deliver next FY on their guidance of PGMs 155 - 165k PGM oz and Chrome 1.45 - 1.55Mt at the very least, which provides EBITDA of circa $145m.
On dividend, I wouldn't mind too much if they reduced or skipped dividend again for 2021 until they get Vulcan Fine Chrome Project ($52.8m capex) out the way. I do note on their dividend policy: "dividend policy of distributing at least 15% of net profit after tax (‘NPAT’) and capital allocation to low-risk projects". So on the latter it could mean a reduced dividend, although I know they're also looking for financing for Vulcan.