George Frangeskides, Chairman at ALBA, explains why the Pilbara Lithium option ‘was too good to miss’. Watch the video here.
I would suggest watching the TGR FY Results Q&A from 11th Oct.
Q&A 8, 9, and 12 whilst not including current figures do directly and clearly, answer the question over expected profitability and how the next 54,000tpa will be financed. The plan is to employ cash flows and leverage them for debt.
The FY results themselves also give a good insight into ongoing overheads (which are expected to remain stable going forwards) and one can work out how many tons of sales are required at a 31% margin to achieve breakeven. The company is also very clear that it expects to return to the previous year's margins of +55%. now that costs associated with the disruptions are behind them. This will clearly substantially reduce the breakeven production point.
The info is all there but investors have to be willing to pull it all together.
https://www.investormeetcompany.com/investor/meeting/full-year-results-2022-forecast
@ThePublican777 i would encourage you to do a bit more digging. That 75.5% premium (A$0.60 a share) was only the first recommended bid.
The final price paid was A$1.075 a share.
Why? Because there was a bidding war.
@Smalleyus,
I started to put together a comprehensive answer to your last post but then realised it's really not worth it at this juncture.
As I said earlier I really am too busy to be playing games. If you have something you feel is worth sharing with the HMI investment community then I will happily read it and join in a debate around it but this whole I know something you don't is just childish and doesn't belong in what is a very serious business.
@Smalleyus
I didn't leave I just had other things that required my time more than being here. I hold multiple investments across several sectors and so must balance my time accordingly.
Before we go any further you appear to be misunderstanding my core reasons for employing Verde as a means to determine where HMI is heading.
To be clear my goal with Verde is/was to establish Brazilian demand and pricing direction only. So as to gain insight as to what Q3/Q4 could/should look like for HMI. Whilst doing that I have found that Verde produces very telling additional data that is of great use for my analysis of HMI. What I haven't attempted to do is treat any comparison as a like for like because that would be inappropriate.
I note that you feel that you have something interesting to share on the reasons why the CFEM was c. double in the 2021 accounts. I am happy to hear about it and perhaps even learn something but I really don't have time for games. My view is that this is a serious business and time is precious so by all means table what it is you feel is important to the investment case here or don't. What I will say is that attempting to play tease whilst sniping at those you would willingly discuss with isn't going to generate a healthy debate.
Sorry that should have read
$182,000-$97,200 (2%) = $84,800/2 = $42,400 x 100 = $4.24m
Great then if I have the two the wrong way around then I appreciate you clearing that up but it doesn't change the outcome.
Employing your understanding tells us that the NSR matched the revenues in 2021 and so supports the amount of booked revenue reported in that year. The same goes for 2020.
The produce doesn't have to leave the gate because this is an accounting measure only whereby the expense needs to be recognised only and it is clearly matched to sales recognition.
Again, the same goes for the CFEM. This is purely about accounting for the expense in the period being accounted for. So 1st Jan to 31st Dec. So the small difference as you call it would likely be due to each year containing Jan to Nov + Dec of the following year.
That then just leaves this "huge disparities between revenues and CFEM" question which you raised and I better understand now. In 2021 the CFEM figure as you state it to be, came in at $182,000 which is c. 3.75%.
The question of "has been invoiced with CFEM being paid, allowing to be shipped, but revenue has not been collected" we have discussed. As with Verde, customers collect product prior to paying for it but the revenue is booked in the accounts because the deposit has been paid. CFEM must be paid in order for the product to leave the mine gate. So it would run ahead of cash receipts but remain in line with revenues because they are booked prior to collection by the customer.
Whilst that doesn't answer the question in full what it does tell us is that it isn't a negative and I can live with unanswered positive outcomes.
As stated the sum represents c. 3.75% of 2021 revenues which means it cannot be about additional unbooked revenues because at 2% of revenues it would amount to c. $4.25m in unaccounted for revenues which simply isn't possible ($182,000/$97,200 (2%) = $84,800/2 = $42,400 x 100 = $4.24m.
So it must be booked in this manner for another reason which we may never know.
Where I would be concerned is if any of these two figures were less than 2% of the total revenues for the period which isn't the case. So the royalties and CFEM are a red herring and only further support that the revenue figure is correct and that the sales cycle is trustworthy along with the average realised price for 2021.
Great discussion. Have a lovely weekend everyone.
Sorry, my statement that Verde's gap is closing is misleading. I meant that cash receipts are expanding and so it becomes less noticeable.
HMI is on a very steep growth path at c. 57% in 2021 and likely 135% in 2022. Therefore, the cash receipts out way out of kilter with the revenues and so understandably questioned. This is where investigation and research can really help us get an advantage because when one appreciates it, it becomes much easier to understand what a cash cow HMI is becoming and act prior to the pack who will want to see the figures first.
As I said earlier the CEO clearly explained the sales methodology in an investor call. Prior to this, I was struggling to trust the revenue figures because I didn't know at which point it was booked. Therefore, I employed cash receipts/trade debtors instead which came out at about the same figure as revenues. Thus giving me a cross-check.
The FY accounts are fully audited and so the invoices will have been comprehensively checked. If we are to doubt the figures then we must question the auditors as well. After all, this is not a complicated sales and delivery process for HMI.
The FY accounts allow $97,214 for the 2% net smelting return. That reflects 2% of the total sales of $4,860,679. So correct.
Where I was scratching my head was on the 2% previous owner's royalty which I deem to be "royalty expense" in the accounts. It is much higher than 2% but this may be down to how regular the payment is made i.e. backdated. That said the CFEM percentage looks correct to me and as they are fully audited accounts the total yearly average price of $57/t can in my view be trusted.
I would certainly place revenues and booked sales ahead of any ex-owner royalty expense. Be it that I appreciate that you have only stated CFEM.
As for revenue collected HMI's sales cycle is no different to Verde. The only difference is that Verde employ Canadian accounting methods (revenues booked upon delivery) whilst HMI book revenues when the 10% deposit is taken. However, both companies have long feed through times between revenues booked and invoice paid.
Verde's gap is closing somewhat now because their sales cycle has become more established. i.e. stronger regular sales through 2021 but it is still easy to see the sizeable gap between revenues and cash received.
So with all due respect I do feel I have a very good handle on this. I like you couldn't completely buy into the revenues booked until I understood how they were booked. Something I see as poor HMI communication in earlier days as opposed to devious actions.
After finding out the exact method by which sales are booked in the investor call it became clear that the audited HMI accounts give us all we need to work it out.
HMI book full sales post a credit check/10% deposit being taken. Be it that like Verde actual cash collection runs on a longer cycle.
Therefore an analysis of H1 and FY 2021 revenue vs sales figures enables us to determine the average selling prices over each 6-month period.
H1 2021 was particularly low at c. $29/t but H2 then pushed much higher to around c. $69.80/t which then gives us a c. $57/t average selling price for the year. A price that rises to $62/t when adjusted for the average 2022 exchange rate YTD.
I have no beef with Smalleyus. I welcome any negative findings I may have missed. We should be grateful that he/she is prepared to question the negative elements of the investment case so thoroughly. It is something we are all often guilty of falling short on.
If as investors in HMI we can all accept or discount all that is highlighted. If it doesn't undermine the risk/reward too much then it goes a long way to prove that the investment case is solid. So it actually has a lot of worth be it the motives are unknown.
@gotabesirius
The average freight price per ton of imported fertiliser to Brazil as of July was US$100/t. That's c. R524/t which converts to AUD$145/t and that only gets it as far as the port.
That alone remains c. AUD$45 per ton higher than even the best outcomes you will find talked about on Twitter and demonstrates why local plays with guaranteed supply can demand very high prices in 2022.
https://twitter.com/BigBiteNow/status/1547120519396397056?s=20&t=BlKD2TSVz8sVnPfH5WxmKw
https://www.thescottishfarmer.co.uk/news/20264145.brazil-buying-cheap-sanctioned-russian-fertiliser/
To be clear that $50/t vs $57/t is all in AUD. Verde CAD average ex-freight sale price in 2021 was $47. The exchange rate was 1.06.
So that 'dust' sold for more than Verde's average product range in 2021.
This is exactly why I pointed that out when posting about it on my Twitter feed and stated a probable 30% figure for freight (Q1 2022 was 25% of the total $101/t sales price).
At 30% the sales price is still AUD$210/t. Are we to place no value on this because we (nor you) first of all subtracted the freight costs. Have you considered the other side of the coin? HMI sells KP Fertil at the mine gate. Customers, therefore, pick up bulk deliveries with their own transport with the majority of sales aimed at a 300km radius. An argument can be made that this reduces this overall freight cost and allows stronger product pricing to be maintained. Verde on the other hand potentially needs to discount their sales price in order to attract buyers from further away. Bear in mind all we have from Verde is their average sales price per ton and nothing more. It is not geographically broken down so we don't know what their Minas Gerai price is.
This is perhaps why in 2021 Verde's ex-freight achieved price was just $50/t (when adjusted for the 2021 average CAD/AUD exchange rate) vs HMI at $57/t.
Yes, Verde's higher value BAKs sales were lower then and so an allowance must be made for this when available but still in 2021 HMI on average sold its product for more than Verde.
This is a very good example of why it can be very complicated and not all data can be explained so easily first time around.
https://twitter.com/BigBiteNow/status/1555460979345039360?s=20&t=BlKD2TSVz8sVnPfH5WxmKw
For the record, there is no "backtracking" on my part.
I simply believe that whether we are bullish or bearish we all have a responsibility to present the information we find fairly, in a manner that does not 'overstate its worth and in a form that can be double-checked by others.
I also believe Verde is a fantastic read across for HMI but I recognise that it isn't an exact art and so it warrants pointing that out. Otherwise reading that Verde currently sells for AUD$300 risks becoming something it is not. Be it that it is still a wonderful read across to an HMI who sold its product for c. AUD$57 in 2021.
If I really went there I could easily pump the expected HMI sales and such prices far higher without any care for downside risk or those that read it. But such methods come with consequences. Somewhere out there someone gets hurt or loses unnecessarily and that is to be avoided where possible. Investing should be about applying facts and balance. If we lose that then we cannot hope to be successful over the longer term.
In the end, it is the numbers that will do far more talking than we ever can.
This is not about establishing an exact read across for HMI pricing. It is about the general direction of prices/demand and confidence in their strength and that what is very achievable isn't priced into the current valuation.
There are certainly elements/factors of the Verde product makeup and sales approach which adjust achievable prices and so must be respected but there is enough evidence to say that even with a big discount prices and demand are far higher than the current MC currently respects.
Especially when the Verde CEO is quoting CAD $200/t (AUD $223/T) as current prices on 1st July. That does not mean HMI is getting anywhere near that but nor does it say they are standing still at AUD $60-$65/t either.
https://twitter.com/BigBiteNow/status/1555182180028092417?s=20&t=llZBGDiKRzr-yhyWJGCjEA
Verde released revised guidance in May 2022 with the following easily calculable sales prices for each quarter,
Q1 = (CAD) $101,20 (Achieved)
Q2 = $114.50
Q3 = $113.40
Q4 = $103.90
So no indicated discount in Q3 but a c. 8.4% reduction in prices in Q4. That's not significant given the level of achieved pricing and the fact that the plant expansion will be complete by that point.
As for the Baks Transition comment, I don't really see how this applies. Nor really does the reference to 'dust.' HMI has proven that sales in H1 2022 increased significantly compared to the same period in 2021 whatever the content of its product. The read across from Verde is that this should continue in Q3/Q4 and that substantial price rises compared to 2021 are being achieved locally. What the product is really isn't what is important. What's key is does it create sufficient demand and sell for a price that achieves high margins that are relevant enough for the current market cap? The answer to date in 2022 is a resounding yes.
The Verde data indicates demand and price pressures are there such that whilst money has been seemingly wasted on other opportunities it does not impact cash generation enough at this sort of valuation to remove the investment case. Contributors can talk about it until they are blue in the face but it isn't central to what is important when a producing asset is doing so well.
My opinion only.
https://investor.verde.ag/wp-content/uploads/2022/05/Q1-2022-Results-Presentation-Verde-AgriTech.pdf
Appreciated T1995. Then here's another one for you fresh off the press.
https://twitter.com/BigBiteNow/status/1550045453005242369?s=20&t=Gm3jZBVV2QXAQXGIKVyzfA
If you want to gain some true perspective on "lining their pockets" then go take a look at what the Verde Afritech boss paid himself in 2021.
CAD$831,000 + CAD$487k in performance bonuses set against very attainable targets.
Verde made a net profit of just $3.52m in 2021.
Better still he paid himself $971k in 2020. A year of Covid when Verde made just $0.55m net profit.
However, just like HMI that was based on sales revenue and not actual cash receipts.
In both years even when excluding CAPEX spending Verde had negative net cash receipts because just like HMI Verde needed time to build its business (they are c. 1 year ahead of HMI in development be it they have greater end goals) and so true cash generation is only just started in Q1 2022.
In fact, if investors are prepared to analyse the Verde accounts thoroughly then they will likely find a very similar business cycle to HMI but realise that HMI is actually running in line with Verde with the 1-year lag has effectively disappeared.
Whatever the case the boss of Verde has been paying himself at a level that is well beyond the development stage of the business but could be argued is worth it now that the business is throwing off cash. A little patience with HMI in 2022 will I am sure demonstrate the same thing.
PS if anyone isn't on Twitter or would like to grill me on the numbers then I am happy to answer as and when I can.
Hi f15jcm,
Earlier today I put together a couple of lengthy threads which have helped me better understand the cash flows that have and will move through the business as this year further develops.
https://twitter.com/BigBiteNow/status/1544259504648474624?s=20&t=ZV87X0NUEqqbSecahAgavw
https://twitter.com/BigBiteNow/status/1544271552035885057?s=20&t=ZV87X0NUEqqbSecahAgavw
The key to understanding this is appreciating the fact that the trade debtors' total was adjusted down by c. AUD $600,000 on 31st Dec 2021 in order to account for the write-down on the Agrocerrado Produtos Agricolas transaction.
What that means is that at first glance the difference between YE 2020 and 2021 trade debtors was just c. $293,000 when in reality it was more like $893,000 (or $881,000 as recorded in the accounts when adjusted for the exchange rate etc).
This matters because it demonstrates the widening of the trade debtors under trade receivables which shows (in part at least) the growing cash generation of the business. I don't believe you are alone in not appreciating this at first glance.