The latest Investing Matters Podcast with Jean Roche, Co-Manager of Schroder UK Mid Cap Investment Trust has just been released. Listen here.
ic152/Sotolo, I agree with both of your sentiment, the share does appear unloved and the excellent news of the strong USD has not been reflected in the current share price.
If the PAT is actually as suggested I think the price could have a minor increase of say 5-10% as more people become aware of the good numbers but the current market conditions are just too negative to have a bigger improvement.
I think it would take some considerably higher than expected numbers and positive news to move the share price higher. My numbers are based on Q4 PGM production of 41,100 ozs or 175,000 FY and Q4 chrome production of 434,600 tonnes at Tharisa/5,000 tonnes at Salene and a total FY of 1.606 million tonnes. With continuing improvement in Vulcan I have assumed a Q4 chrome recovery of 72.5% so still short of the eventual ~ 80%. Reef milled 5.639 million FY.
We shall find out on the production numbers on 11th Oct.
Hopefully sales have gone well and with improving beneficiation the free cash flow number is surprisingly good. lIKEWISE
Hi Visitor - I agree with your comments particularly on the exchange rates and I expect the next chrome price to be above$210/tonne. I am sure we will get an basic update on Karo with the Q4 numbers on 11th Oct and considerably more detail in the FY results on 5th Dec.
Although the Johnson Matthey rhodium price is still at $14,000 today (and Sibanye Stillwater $14,100 today) on their twitter page on 23rd Sept, Tharisa had their rhodium price at only $12,660 which was a 9.6% discount to the Johnson Matthey price when it is normally trading at about a 5% discount (not sure if this is to do with the phasing out of the Impala contract).
Somewhat of a bloodbath on the LSE today for some blue chip companies so Tharisa has done well to be only 2p down today. Despite the PGM fair value reduction this week knocking about $2 million off the profit after tax, with 2 days to go I am now expecting FY 2022 profit after tax to be $135-140 million, with a PE of about 2.5 and a dividend yield of just over 6% (the interim dividend was 2.39p and I am expecting a final dividend of 4.4 cents @ 1.08= 4.07p).
Looks good!
Hi Visitor, I agree with the points you have made below particularly on understanding how Leto fund their proportion of the costs (possibly it will work like the BEE interests used to?).
On the Special Enterprise Zone in Zim with only 15% corporate tax this will be very small this FY with Salene probably producing less than 50,000 tonnes (expected to increase to 80,000 tonnes in CY 2023) although it will be a sizeable number once Karo is full operational in 2025.
Going back to the 2022 net profit the other two things that I should have mentioned were that in H1 there was a change in inventories of finished products and ore stockpile that reduced the Cost of Sales by $12.862m and I am assuming, rightly or wrongly, that will not happen in H2. Then in H2, while most of the major investment in equipment for Karo will be capexed and show on the balance sheet, I am assuming there will be some operational expenses for Karo which will come through as extra costs on the profit and loss statement.
Hi Visitor, yes net profit in H1 2022 was $101.6m but don't forget this included some big one off numbers that will not be repeated in H2. In HI there was a $48.597m gain on acquisition of subsidiary (Karo) and the corporation tax paid on the pre-tax profit of $124.296m was only $22.67m or equivalent to only 18.24% due to some unusually high tax exemptions so in H2 there will be no $48.597m gain (although of course it will be there in the FY figures, I am assuming no revision downwards) and in H2 I am expecting the tax charge to be back to 26-28% after tax exemptions.
In H2 total revenue will be up on H1 (I am assuming the news on Vulcan/Salene and production numbers will be posative) but similarly costs will also be higher in H2 (I agree the weaker ZAR against the $ will help to keep costs down). So this explains my net profit of $130-135m and Sotolo is pretty much in line, which at current exchange rate of 1.16 works out as £112-116m.
I totally agree with you that this is a ridiculous valuation for THS based on the numbers you mention and PE and dividend yield mentioned by Sotolo. I think net cash at the end of September could be double the $48m you mention if Tharisa is now sending less PGM concentrates to Impala and found a quicker way to speed up the processing (greater in- house beneficiation) which will reduce the PGM trade receivables.
Likewise I agree with you that this will be the first annual accounts without the confusion of the non-attributable shareholders at the year end but part was still there at H1 (the BEE interest which have now exchanged their interest for shares in Tharisa) but don't forget we have signed up for a similar arrangement in Karo which might not be evident until production has started in 2024 (effectively the Zim government owns 15% of Karo Platinum without having to pay any costs with an option to buy more, Tharisa owns the equivalent of 63.3% x 85% and the Leto Settlement the rest).
As I have said before it is good to exchange numbers so if you think my numbers are wrong or I have missed anything then let me know!
On Friday the S African chrome 40-42% price CIF China was slightly higher at $190-200/tonne bulk.
Hi RetiredBanker,hope you are right. A 3rd director also bought 20,000 share on 6th Sept. The directors are not allowed to buy/sell between the end of the financial year at the end of Sept and the publishing of the accounts in November so they are jumping in now, which suggests some optimism and perhaps the numbers will be better than expected.
Your net profit for FY 2022 of USD 150m + looks too optimistic to me but again I hope you are right. I am expecting Profit After Tax to be $130 to 135 million. We will know more after the Q4 production numbers are published in October.
Cheers oufc, thanks for pointing this out.and it is good that Tharisa is active on these things.
Much of the presentation is old information but what I found interesting is that platinum mining production peaked and is getting tougher and more expensive and that the recycling rate is now up to 30% which just reflects the greater use of catalytic converters in ICE vehicles and that these vehicles are scrapped every 8 to 15 years and have a recyclable value.
Hi Visitor, thanks for the information and I agree it would be great to have more news on beneficiation and Karo.
The DC furnace was installed in 2017 and commissioned 6 months later with the aim of converting PGM concentrates with about 100 grams/tonne PGMs in to a PGM pig iron matte with about 1000grams/tonne of PGM's. Initially it was pilot plant production but I get the impression that volumes have steadily improved. I do not believe that Tharisa has the reduction furnace mentioned in the Tamesis report to upgrade the matte further (I might be wrong?). At the moment Tharisa is producing about 53,000 tonnes/year of concentrate but I guestimate that the DC furnace is only capable of processing around 7,000 tonnes/year of concentrate so at best Tharisa is selling say 46,000 tonnes of concentrate plus 1,000-2,000 tonnes of matte to the one or 2 PGM producers.
The Tamesis view that the payability, which I currently believe is about 79%, could be increased "up to 97%"looks far too optimistic to me and will take time and further investment and they forget to add that there is a significant operational cost. Nevertheless incremental improvement will gradually help the bottom line.
Looking at the PGM basket price , Tharisa seems only to be paid for about 93.5% of the contained rhodium; about 86% of the ruthenium and about 95.5% of the iridium content (when compared to the Johnson Matthey and Sibanye Stillwater prices on the same day) although this might be related to the long processing period and part-payment.
With the prices on Friday the PGM basket price is now just below $2300/oz. The price last week for S African chrome concentrates 40-42% CIF China was $180-195/tonne, same as the week before and chrome stocks at Chinese ports was 2.27 million tonnes on 26th August, up 140,000 tonnes from the week before.
….a couple of interesting pictures on the Tharisa twitter page today ("casts cooling down" and visit to Arxo Metals beneficiation site today). Does this mean that they are now converting some on the PGM concentrates to matte on a commercial scale rather than just at pilot plant level? If so will the matte be sold as is or further treated hydro-metallurgically and what does this mean for the PGM payability (as I have said before I believe Tharisa is only getting paid for about 79% of the intrinsic PGM value so it would be great to see this nudge up a few percent although the extra work does come at a cost).
Sotolo, there will be a time lag for the higher energy prices to feed through, the National Regulator in S Africa allowed Eskom to increase electricity prices by an average 9.61% between March 2022 to Feb 2023 but the increase has got to be much bigger next year, although coal does play a bigger role in S African electricity generation compared to European countries. In FY 2021 Tharisa used 200,256 MWh of electricity.
Although Tharisa spent $15.129 million on utilities in FY 2021, their spend on diesel for the same period was $25.614 million (diggers/trucks/back up generators) using 40.1 million litres of diesel in FY 2021. In the 12 months to July this year the commercial diesel price in Rand increased by 69% although when converted into USD the increase is "only" 48%. The oil price does seem to have peaked around May for the time being at least. Let us hope that Tharisa buys a big chunk of their diesel in advance.
While I agree the rising energy prices are not yet fully accounted for in the eyes of most people, in the case of Tharisa with the accounts in USD the local Rand prices will continue to be slightly offset by a strengthening USD and weakening Rand particularly if the social/economic outlook happens as you have suggested.
Generally in recessionary times there is pressure for commodity prices to fall but at a time of rising cost pressures I think most of the price reduction in PGM's and chrome has already occurred. As you have already pointed out , PGM prices are holding up quite well. Some of the big PGM producers are already seeing their production reduce and cost pressures will just add to this particularly for deep mines. The big advantage for Tharisa/Karo is that they are open cast miners with production costs much lower than most producers which means they would be profitable when marginal deep mines are not. While the chrome price has fallen more than I expected in August, again I see any further potential price reduction as limited with the inflationary pressures facing the industry, a few years ago chrome producers could be profitable at $120-150/tonne CIF China but now they need $150/tonne+. Again, Vulcan gives Tharisa a fantastic advantage.
For next year I do not see Tharisa share price falling as you have inferred. At the current share price I calculate we still have a rock-bottom P/E of about 2.8 with dividend yield of about 5-5.5% for this financial year. After 6 years of expanding production next year Tharisa's reef mined will steady out and the emphasis will change to cost control/improving yield efficiencies and getting Karo operational as quickly as possible.2023 will be tougher with increasing costs and the development costs for Karo and I believe the FY2023 PAT will be lower than this year . I think the Rand will continue to weaken against the USD and next year will average 17 to 18 which will soften the cost increases . We rely on positive news on Karo, Vulcan efficiency, improved PGM payability and the solar f
Sotolo, I would suggest that Ilja is busy looking at the investor relations for Tharisa without wanting to speculate on the outlook for the S african economy.
I make the PPM basket now $2381/tonne.
Energy prices are crazy at the moment and disposable incomes in Western economies will suffer but for countries with lower incomes the hit is going to be worse. Likewise I agree that this is going to make the coming recession even deeper.
The sooner the solar farm is built and running the better but I expect this will be 2024.
In 2021 Tharisa spent $15.129 million on utilities (electricity/gas/ water) and based on energy prices this month this figure could more than triple next year until the solar farm is operational.
Hi Visitor-most of my chrome info is from www.ferroalloynet.com and then chrome ore analysis. Even if you are not a paid up member you can ready the first line or two of each article. Today they are reporting chrome ore stocks at Chinese ports has now fallen to 1.997 million tonnes on 12th Aug, a fall of 47,000 tonnes in a week.
As you point out having the 2 metals sectors helps to diversify the business and even though down the chrome situation will bounce back as Chinese producers get back to normal after the covid lockdowns while PGM.'s are showing resilience too. I suppose at these times of high inflation prices cannot just go back to the levels of last year or a few years ago as producers worldwide can no longer profitably produce as those levels. As you point our Western PGM buyers will try to avoid Norlisk palladium which is already in tight supply and the platinum oversupply looks like reducing as some of the big S African producers have suffered production setbacks.
With 1.5 months to go to the financial year end, the lower chrome price will probably reduce PAT by about $5 million but with the share price rise last week this still puts THS on about 2.8 p/e and an dividend yield of 5-6%.
john-not sure who you are with?
I am with Hargreaves Lansdown and while they cannot give me an immediate price for 11,000 shares there is no problem with an immediate quote for 5,000.
But I suppose the family shareholders own a big chunk along with institutional investors. With the dual listing in S Africa and UK this probably has an effect too. I do agree with your sentiment.
Unfortunately after one month of stand off between buyers and sellers in China, last week the S African chrome 40-42% concentrate price CIF China is down to $200-205/tonne, a drop of $40-45/tonne in 2 weeks and the lowest level for about 6 months.
That is a bigger fall than I expected but hopefully there is not further drops to come and chrome stock on Chinese ports have fallen to 2.044 million tonnes on 5th August.
Hi Retired Banker, you have been quiet for the last 3 months!
It is great to hear from you and presumably you are still invested here.
I cannot disagree with your logic but the general market lethargy, concern about commodities (RIO is well below the 8-10 P/E you mention),geography of THS ( I think totally outweighed by the management strength), relatively low free equity and liquidity, particularly the future for PGMs in ICE vehicles and also the green hydrogen future, risk over the Karo investment are all perceived as negative points particularly for big institutional investors and the overall value of THS.
For me THS has already proved that they can deliver, with the odd hiccup which is tiny for the mining industry. Hopefully the general market will come to appreciate this and if nervous then the sheer great numbers will eventually persuade them.
Hi Sotolo, I agree with your sentiment on the Chinese economy but I think their government will reflate their economy while most western countries go the other way (I am expecting a 0.75% interest rate in the US tomorrow followed by 0.5% here in the UK next week).
I think that chrome will fall a little further but the latest weekly chrome stocks at Chinese ports were 2.157 million tonnes on 22nd July, down by 153,000 tonnes the week before so they are still tight. Yes, rhodium has slipped but is still higher than a weeks ago. I thought the Tharisa Twitter information yesterday was interesting that Amplats suggested that recession was already priced into PGM prices (the cynic might say-they would say that wouldn't they) inferring any further downward movement would be limited. I think that the chrome and PGM prices are very nervy at the moment like all commodities and shares and reacting to the latest soundbites. As you have suggested below and others have said recently we have to try and work-out the bigger longer term picture. This is made even more difficult when we have made big theoretical losses in recent weeks but I sincerely believe THS will build from this level. I never like to comment on how much we all put into each share, we all have our own risk tolerance influenced by good and bad experiences and our personal flaws and sometimes good judgement.
In the short-medium term it would be great to hear that the tweaks to the Vulcan plant are now installed and operational and continued updates on the Karo project (capex spend/ external investment/start date) and latest on the PGM beneficiation and solar farm. I just hope that the Karo assets valued rather quickly in the H1 accounts due to their recent purchase are not reduced down in the FY accounts.
Another posative to take is that with the strong USD, the local costs in Rand will convert to less USD in the accounts and offset some of the inflationary increases (although partly offset by a currency loss). I am looking forward to the FY/2022 accounts in November.