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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.
….yes, the S African chrome concentrate 40-42% price CIF Chinese port has fallen $15-20/tonne this week. A $20/tonne reduction is equivalent to about -$8.8 m revenue reduction at my anticipated Q4 production while a PGM basket increase of say $100/oz is equivalent to about +$4.2 m revenue increase at my anticipated Q4 production.
I feel the PGM basket increase this week is based on recent information but the longer term trend is still uncertain.
Again I feel that THS is a real bargain at under 2.5 P/E for this full year and with the 200 day moving average price firmly above 100p but it already represents 10% of my invested funds and I strictly refuse to go above that no matter my personal sentiment.
I agree that the market still views THS as predominantly a PGM business (and so the share price largely follows the PGM prices up and down)and still has to fully appreciate that chrome will contribute over half of the revenue this year and that these two separate commodities do help to diversify the business.
Hi Visitor, we are looking at this at slightly different angles, you have Rh c.12%/Pd 21%/Pt 67%/Au negligible= 100% so this is the 4E (which simply ignores the lesser known ruthenium/iridium contents).
I am looking at the 6E which is the measure that Tharisa uses to calculate their basket. in FY2021 Tharisa say their
prill split is pt 54.9,pd 15.8,rh 9.8,au 0.2,ru 14.7,ir 4.6=100% and in the Karo PGM Project Presentation dated 31st March 2022 they reported the Karo 6E as pd 39.5,pt 42.1, au 8.3, ru 4.1, rh 4.1, ir 1.9=100%.
So my point was that on 18th July Tharisa Twitter was showing the 6E PGM basket as $2318.17/troy oz but if on the 19th/20th the rhodium price increased by $950/oz then if the other prices were unchanged the basket price would increase by about $93/oz (9.8% x 950) to about $2410/oz.
As you point out the ratios will change very slightly.
You are not too pedantic, it is always good to discuss and understand!
Well spotted Swatton/ElProf, the Johnson Matthey rhodium price is usually about $500-700/oz more than the Tharisa price in the basket but assuming that the trend is correct and the rhodium price has increased $950/oz in the last 2 days then at about 9.8% rhodium in the Tharisa basket that puts the Tharisa basket price back above $2400/oz.
Ian.B-after the Q3 production figures and news my latest estimates for FY 2022 production are PGM''s 175,600 oz and chrome 1,604,000 tonnes (for Q4 I estimated an improvement to the Vulcan yields but that the average yield for the quarter is 72.5% even if it gets nearer to 80% by the end of September).
As the Peel Hunt report points out management deliberately targeted PGM production earlier in the year when the prise was high.For FY23 it would be fantastic if PGM recoveries steadily move up to the target levels of 85% (compared to 76.8% in the first 9 months of FY 2022 but I think this could possibly be offset by a lower PGM rougher feed grade which was 1.71/grams/tonne in the first 9 months of FY2022 to say 1.46 to 1.51 grams/tonne (which was the level in 2018-2020 when the PGM rougher feed grade was 80.1 to 84.1%. Hopefully i am wrong about this!
I have spent a few hours in the shade taking this I and find this to be a fantastic and detailed report from Tamesis. I really does put some meat onto the bones and answers some of the questions we have all been asking this year.
As rylidan and viable have already commented it does show that Tharisa is cheap using almost all parameters .They estimate the average NPAT for 2022 to 2024 will be$134.3 million compared to $131.5 million in 2021, so barely growing but with potential after that as Karo kicks in. Their assumptions generally look eminently sensible, although for me, the big variable is the forward PGM basket, they have the Tharisa basket as averaging $2594/oz which is about 9% higher than the current spot price.
They have explained their $113m net cash at the end of September. Payables in H1 included $29.556 m to related parties which is compensation for the BEE Leto Settlement but this has been paid as 13.69m shares and not cash (I believe this was done in Q3?). then the report say that PGM payables will reduce by 25-30% in H2 and then steady out as Tharisa has already given advance notice to Impala Platinum. I am not sure if I am interpreting this correctly but I read this as Tharisa is terminating the PGM call-off contract? If this is the case then it is a big change as Impala has traditionally taken 80% of PGM concentrates and Sibanye Stillwater the rest. If true then what is Tharisa going to do will they sell elsewhere or is this the practical start of the PGM benefication that they have been working on for over 3 years. At the moment the PGM concentrates contain about 100 grams of PGM /tonne or about 0.01%. Converting into a rough matte in the Arxo DC furnace might increase the PGM content by more than 10 times resulting in a faster turn round and higher payability. The report even mentions that Tharisa is 60% of the way to processing PGM'S hydro-metallurgically to increase the payabilty even more and have intellectual property (possibly patents) on this. Hopefully Ilja is allowed to comment on this.
South African chrome 40-42% concentrate CIF Chinese port is $280-285/tonne for 11-15th July, down $5/tonne from last week. So the last 2 weekly movements have been down but in context it is still currently a high price.
Naturally the concern is where will it be in 1/3/6/12 months.
I think there will be a bit of a time lag to Tharisa as presumably they sell in advance for shipment 1 ot 2 months forward , so what they are despatching/shipping in July was probably sold around May (the PGM concentrates are the other way round-effectively they deliver to the 2 S African smelters on valuation and the assay and prices are agreed 3-5 months later).
Visitor, thanks for the link. I am struggling to register for this but I will keep trying and have a good look.
I must admit that I do like hard numbers to discuss even with faults rather than pure sentiment or just our gut feelings. As in all these reports they are only as good as the assumptions they use. I can already imagine the reply from Sotolo that we don't even know what PGM prices will do next year never mind trying to calculate the net present value for the next 10 years! But firm numbers are better than nothing as long as we understand the assumptions.
I agree that the net cash figure of $113m at the end of September looks top heavy and I would guestimate around $80m given the likely spending for Karo, that Q4 chrome production will be slightly up on Q3 and that trade receivables do not reduce because of the ongoing logistic problems.
Hi ElProf, yes I agree with your analogy! It is swings and roundabouts.
The stripping ratio in FY2020 was 12.1 m3:m3 and in FY 2021 11.6m3:m3. I accept that the terrain changes and that THS wants to maintain an optimal mining system.
In fact , according to the FY 2021 accounts the Life Of Mine stripping requirement is 9.8 m3:m3 which is keeping even more for a rainy day!
Hi Ilja, thanks for your reply. My comment about the stripping ratio were totally based on the comparison between Q2 and Q3. I have not commented against the comparison of LOM but it is reassuring that you seem to infer Q3 is an outlier and the long term is to go back to the LOM of 12.