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Sotolo, your fact about the rhodium price is totally correct and you could have added that 4-5 years ago it was considerably lower still. But the existential question is where could the PGM basket price realistically be in 12 months/5 years/10 years time. You and I have had this discussion before and while the price is jittery we have to have believe in the demand/supply picture. We put our money into THS because we have faith in the business, if we are overly negative on the PGM price then possibly we should not be invested in THS in the first place ( lots of potential investors out there already take that view, they might be right/they might be wrong, we all have our own risk levels).
Even if the PGM price was to drop a further say 10% but based on the current tailwinds from the chrome price and the current $/ZAR exchange rate, then the profitability of THS is still better than it was looking at the start of this financial year when the PGM price was considerably higher. It can be human nature that we sometimes fixate on the possible negative news and overlook the positive news (high chrome price and strong USD/weaker ZAR, don't forget the cheaper sea freight this year and that any extra chrome out of the Vulcan plant due to yield efficiency is costing less than $5/tonne ).
The fundamentals for chrome look particularly good with demand for stainless steel increasing and no real commercial alternative metals to make a steel stainless (manganese and nickel are considerably more expensive).
Like all things in life it is all about balance and judgement!
Hi Sam, as you say, the FTSE 100 was down 2.50% last week with TMI down 1.71%, caused by the latest suggestion that interest rates could be higher and longer than previously expected. Fortunately the TMI debt has probably been locked in for 6-18 months. Last year the Q1 trading update was out on 21st April, as I have mentioned before I expect TMI to remain profitable but at a reduced rate compared to the previous Quarter and the Grindrod quarterly loss to increase. At the moment I think TMI is holding the 83% of shares they own in Grindrod at a fair value of $21/share (the price paid for the majority the shares last year) although the shares are currently trading at $13.39 on Nasdaq and equivalent of $15.7 on JSE.
Based on the current mix of forward/spot charter rates I think the average rate will fall gain in April -June but then start creeping back up after that.
With five and a half months of the currently financial year effectively already locked in, even if we use the lower current Tharisa PGM basket price of about $1930/oz and yesterday's chrome price of $291.5/tonne for the remainder of the year I expect FY profit after tax of $179 million (HI $78 m) which is higher than last year and at the current share price is equivalent to a PE of just 2.0 and a dividend yield of over 8% based on 17% of NPAT paid out to shareholders.
At the moment the market seems to be nervous on the PGM price but the current chrome price is more than making up for that, it looks like chrome will account for around 62% of revenue this FY.
As we keep saying, BONKERS. DYOR.
Sam, I had 3 weeks touring Thailand many moons ago in my 20's!
As both you and Entreprenante point out the BHSI has bottomed out. After the low of 431 on 15th Feb we are now at 601 today, that is still 9.35% down YTD but with the current trend we should be back to December levels within 2 weeks.
I will check the article out, TMI did suggest the lower speeds would help the business.
Entpreprenante, glad to see you are having a look .There is no real definition of Handysize so it can cover vessels up to 50,000 tonnes dwt although most interpretations are vessels around 30k.TMI's Handy vessels vary from 28,250-38,468 and average about 33,600 tonnes the Grindrod Handy vessels vary from 28,200 to 37,700 and average about 33,100 tonnes.
Individual vessel routes can vary quite a bit, for these I like to use Handybulk.com/ship charter rates/Handy which is updated weekly , for example the Continent to East Cost South America route time charter is currently $7,5000/day but $15,500/day going the opposite direction. But for a broader guide to time charters a prefer to use app.powerbi.com Baltic Exchange Handysize Index updated every Friday, this is based on 38k vessels (these are at the upper end of the Handy range and can be described as Handymax) , on the second of 3 pages this shows the current rate as $10,107/day for 4 Atlantic routes (coloured blue on the graph) and $10,513/day for 7 routes (yellow on the graph) , this is the one I use when I say x 18 the BHSI.
I agree with your sentiment on collaboration gains , margins will reduce in the current Quarter but as you say I expect improving margins for Grindrod in April-May.
Sotolo,... for what it is worth , once it is fully up and running on an annualised basis and based on PGM basket at $1640 /oz I have turnover ,as below ,as $301m. Less cash cost of production ($1100/oz x 190,000 ozs, Tharisa's figure which I assume includes all admin/other operating costs ) = gross profit $93 m. Less $17m financing (I have assumed 50% of the $391m pre FOIM costs are borrowed/financed externally at say 9%/year) less say $26m depreciation (say $400 m over 15 years) gives a profit before tax of $50 m, no tax for first 5 years so PAT is the same $50m .Then 59.5% or about $30m is attributable to Tharisa plc and to the Leto Settlement and Zimbabwe government.
This is my basic stab at the figure but I realise I might be interpreting some of the numbers wrongly or have missed things so please feel free for everyone to chip in and between us get a better picture!
Sotolo....in your scenario below, the PGM basket fall from 2140 to 1640 is a fall of nearly 25%, this is dampened slightly due to the PGM smelting loss of say 20% and I am assuming the base metal value (copper/nickel/cobalt) of say $52/year is unchanged.
So my total revenue at $2140 basket is about $377 m/year (190,000 ozs x 2140 x 80% payable =325 +base metals 52) while at $1640 the total revenue is about 301m/year (190,000 x 1640 x 80%=249 +base metals 52)
Welcome back Sam, I thought you had been quiet!
The economic news out of China earlier this week was of a decent bounce back which should support improving charter rates.
I suppose with the current 83% ownership then TMI is the controlling shareholder but that is not enough to totally absorb Grindrod. I suppose the good news for TMI is that it controls Grindrod and did not have to incur debt buying out the remaining 17% and at the same time can decide if it wants to occasionally buy up some of that remaining 17% on JSE/Nasdaq open market if the price is thought right. I assume you saw last week that TMI got paid by the insurers for the vessel trapped in the Black Sea 12 months ago so this will reduce the debt by $15m+.
Thanks Ilya. I am not suggesting anything underhand at all or that this IRR is a new number, just that it is now lower number based on the current Karo PGM basket price and as Sotolo mentions , my calculation might be conservative and the figure is even lower. What was classified as a "world class" asset" just months ago seems a bit less so today.
The PGM price will eventually recover and anyway the share price already reflected these concerns and has never really reflected the value of the Karo project. Tharisa remains grossly undervalued on P/E, enterprise value, net assets value and most other parameters you can think of.
Visitor, no problem at all -we all know how our own thought patterns work which might be different to others!
But you and Sotolo have raised some good points. As you point out, when the Karo PGM Project document came out in March last year the IRR was shown as 47.6% and the return on invested capital 47.0% based on a Karo PGM basket price of $2500/oz. Now the BDO report this week that you have mentioned has the IRR as 26.1% and the ROIC as 30.1% but based on a Karo PGM basket price of $2140/oz.
But if we use the current Karo PGM basket price of about $1600/oz then I very roughly calculate this reduces the IRR to just under 20%. This is worrying when it can fall from 47.6% to less than 20% in just 12 months. It just shows these long term projects are very dependant on the assumptions used. 20% is still an absolutely fantastic number but it has dropped below the Tharisa SA figure but it reduces the wiggle room if it does not start on time or on budget. As you say lets hope any change is the other way and the PGM basket price recovers and the other variables stay in our favour!
Visitor, thanks for the BMO presentation and information, I will take a look.
FOIM= First Ore In Mill (you were close) which should be July 2024).
You mentioned being surprised that the Karo optimisation to 190 k PGM ozs did not soften PGM prices but I suppose this is still a relatively low number compared to some of the big miners!
Sotolo, Tharisa down 2.27% on JSE today to ZAR 2200= 101p.
Yes, PGM basket has slipped further, particularly rhodium , today Johnson Matthey has it down to $9400 and Sibanye Stillwater $9,500.
The current S African 40-42% chrome concentrate price CIF Chinese port is $288-295/tonne down from $290-300/tonne the week before although Chinese consumption seems to be improving so I remain pretty optimistic on chrome.
You are right that the recent PGM fall will reduce the profitability of Karo but I remember the initial internal rate of return was something like 47% so even if it has dropped back to say 40% where else can you get anything near to that. You have now got me interested- I might just have a look at that!
Hi Entreprenante, well explained!
I totally agree that the BHSI is just one of many factors and that it reflects the spot market while shipping companies can forward sell capacity. But it is an important barometer on the state of the market. I like to roughly convert the BHSI into net time charter rates per day for each Handysize vessel. By multiplying the BHSI x 18 roughly converts the BHSI into the current USD time charter rate per day, for example the BHS Index of 556 is equivalent to an current TC rate of about UD 10,000/day for a typical handysize vessel (this will vary slightly depending on the route, age of the vessel, fuel efficiency etc). When the Index was as low as 431 in the first half of Feb the typical TC was under $8,000/day.
In the 31st Dec Fact sheet TMI advised that 62% of fleet days for Jan-March 2023 were already contracted at around $17,200/day , so even if they have to contract the other 38% at say $8,500/day, the overall average would be $13,894/day. I roughly calculate that TMI could currently breakeven at $8,000/day and so will remain profitable in Jan-March 2023.
In contrast Grindrod's Handysize vessels probably only breakeven at around $10,000/day but in their last quarterly summary they said as at 10th Feb for Jan-March they had contracted for 1035 days or about 77% at $9,888/day, assuming say $8,500/day for the remaining 23% gives an overall average of around $9,500/day so their operating loss will widen in this current 3 month period.
The contrast between the TMI time charter and the Grindrod charter reflects which company has made the better choices regarding when to book short term or long term charters and which routes to select.
Other important factors affecting the bottom line are vessel depreciation/age, judging when so buy and sell vessels and controlling all sorts of costs around the world in an efficient manner. TMI continues to get most of the commercial calls spot-on but as I have said before they cannot buck the market .
Sotolo, even if we assume a PGM basket price of $1981/oz for the last 7 months of this FY my previously calculated Profit After Tax of $190 million (based on an average PGM basket of $2200/oz over the year ) drops to $181 million, that is only a 5% drop in PAT ,we can live with that and it is still higher than last years PAT of $167.2 million.
Based on this calculation I have chrome contributing over 60% of revenue.
In the short term the PGM basket is down on the concern of recession and at a personal level , faced with other economic pressures ,people might delay buying or changing their car for a year or so but eventually they will. I believe the longer term picture, meaning 10- 20 years, for PGM's is brighter than most people think, I agree with Freedom4Uall below that the required infrastructure for all electric cars is way behind schedule and the required battery materials such as lithium will not be there at the right quantities and at the right price. Certainly the ICE is a dying product but it will be several decades before it is killed off entirely and by then hopefully other green applications for PGM's have developed as proposed and by that time THS plus Karo remain a low cost producer when a big chunk of the underground miners have been forced to cut back.
Welcome ****nal 58, as you say the BDI is flying, but more specifically for TMI shareholders the BHSI is now 536 today, that is a 24% increase since the low on 15th Feb although it is still down 19% YTD, continue that trend and in 2 weeks it will be back to the levels at the end of last year.
Still a long way to go before this is riding as high as your team at the moment!
hghotshot, I all totally agree,. Also the market is just not adjusting for the USD/ZAR which averaged 16.29 in September 2022(H2 FY2022) but in H1 FY 2023 is currently averaging 17.55 (and spot over 18) with just the rest of Feb and March to go, that is reducing costs in USD by 7.7% which is more than offsetting the current S African inflation rate of about 7%/year. Even working on production at the bottom end of the THS range and the PGM basket price recently dropping below $2200/oz, I am expecting PAT for FY 23 of 190 million (and H1 90 million which is more than broker estimates set 3-6 months ago and would give a forward PE of just 2.0 and forward dividend yield of 7 to 8%.
While I agree the investment in Karo looks like jam tomorrow and the future on internal combustion cars is uncertain and is holding the price down, I hope when the Q2 results come out on 12th April and the H1/23 financial results on 25th May that this can partially rerate in its own right.
Krusty, Yes, even better today, 4.23% up on the day to 493 so that is now 6 days up in a row.
But without being a party pooper it needs to go up a lot more, based on the Oct -Dec 2022 results for TMI and Grindrod and the current BHSI my rough calculation is that profit in Jan-March (last Quarter of the financial year for TMI will be reduced to around $10 million and that Grindrod will make an increased loss (their Q1/2023) of around $30 m, with 83.23% attributable to TMI the total combined loss will be around -$15 million so the net assets value will fall gain but it will still be at a premium to the current share price.
The trend is my firend!
....I am with Larus, surely the option was to buy the shares at the optional discounted price or if they are free shares then she could have just kept them but she has opted to have the free shares/or buy the discounted shares and then immediately resell them. I can understand from a personal point of view she might need the money or cannot afford to hold them but as others have pointed out it is the inferred message it sends out to others.
Yes , she is the COO.
S African 40-42% chrome concentrate bulk price CIF Chinese port today is $290-300/tonne compared to $295-300/tonne last week. Chrome ore stocks at main Chinese ports last reported on 10th Feb at 2.031 million tonnes, down from 2.067 million the week before.
I roughly calculate that chrome will contribute over 55% of THS revenue this financial year.