Member Info for Mike1959

Happy New Year Sam , Krusty and everyone. I agree with your sentiment and hope the buy-out eventually delivers yearly savings of say $10-20 million/year which will include delisting Grindrod on Nasdaq and JSE , cutting out duplicated senior management and office functions and increased buying power in things like insurance, repairs and services. But this could take a year or so to bed in and in the meantime the increased debt will mean higher interest costs .
But in the short term these potential savings are being offset by market conditions. As I have said before, TMIP can be in the top quartile of shipping companies for profit but ultimately they cannot buck the market in the long term.
I find the 4.44% price rise today very surprising. The Baltic Exchange reopened today for the first day since 23rd December and the BDHI was down 7.39% today to 614, one of the biggest changes in decades. This is mainly a reflection to the current covid surge in China. In contrast Grindrod Shipping was down over 2% on JSE and Nasdaq and interest in put options exceeds interest in call option on Nasdaq.
Like you, I am positive about the longer term but in the meantime we should be ready for reducing profitability in Q4/22 and even lower in this new current quarter a cut in dividend and a lower share price. Fingers crossed that I am being too negative but we will find out when the TMIP Q4 NAV is announced which would probably be at the end of this month but with the complexity of the takeover could well drag into February.

Likewise, great summary from Visitor and additional comments from SiriusB.
But a few nit picking comments. While I agree the gross cash position was $143.3m in the financials at the end of September, I have the net cash position as less than $80m (depends on which actual formula you use) and even if we take $80m then some of this is currently required for general working capital and so cannot be totally used to finance Karo. Tharisa has mentioned a partial leverage of existing assets over the next 2 years of around $130m which relies the finiancials continue to improve. As you say, this is very dependent on chrome and PGM prices, I calculate the Q1/23 prices as chrome $229/tonne and PGM basket $2323/tonne and like you both I am relatively confident that prices will not collapse. But this also relies on Karo coming in on time and budget and that the Vulcan efficiency continues to improve to the targeted levels. In terms of the major long lead time Capax spends I would expect 30-40% payable on order, 30-40% on delivery and balance on operation. While base metals will make a contribution to the Karo revenue the nickel portion will be relatively minor.
Although the VFEX bond raised $32m (the target was $50m), don't forget that this included $10m from Tharisa owned, Arxo Finance plc so this is effectively is on pocket and out of the other making the net bond value $22m.
As you say, it would be great to know exactly where the rest of the financing is coming from. Again, Tharisa did mention a "Syndicated loan with senior project finance facility with a political and commercial insurance wrap" of about $260m.

On Monday the Zimbabwe Cabinet decided to change its chrome concentrates policy from a ban on exports to a control of prices. So we will have to see if this means Salene Chrome will be started up again?

.....apparently TMIP needed to already own, control or have acceptances for 90% of the Grindrod shares to be able to compulsory buy the balance, so at 83.2% they have fallen short
But as the controlling shareholder they will very likely opt to delist off Nasdaq and JSE which must anyway be one of their big cost efficiency savings.
That would leave the remaining 16.8% of GRIND shareholders somewhat in limbo, faced with reduced marketability they may look to sell out on Nasdaq/JSE (TMIP will no doubt be trying to buy up any shares on offer) or possibly TMIP might make them one final offer to get over the 90% compulsory threshold?

Krusty, you are totally right that is does sound bleak but for me that is the reality.
As at the September Q3 results Grindrod had an impressive $146.3 m in cash which would have risen a little by now except the special dividend of $5 on the 14.07m shares not already owned by TMIP will reduce this by about $70m to about $76m. You are right that this can be used against the $295m it will cost TMIP to buy Grindrod.
And I think TMIP are buying Grindrod at a premium to the end of Dec Grindrod NAV so it is a very good deal for GRIND shareholders unless the TMIP management can unlock some tremendous cost savings and the BHSI index starts to improve.
The Baltic Dry Index, which includes the bigger capesize/panamax/supramax vessels,is currently trading at the highest level since late October. But the BHSI continues to fall. it appears that all of the port bottle knecks and delays of the covid period have almost totally disappeared so the advantage of geared Handysize vessels is partly eliminated and vessel charterers no longer have to scramble to secure capacity at any cost but can now choose the cheapest charter cost per tonne and Handysize vessels will always be more expensive per tonne than the bigger vessels. It is worth remembering that Grindrod earns slightly more from their supramax vessels than their handysize vessels while TMIP has just sold its last supramax vessel.
today the BHSI is down a whopping 1.43% to 691 but this probably reflects the late scramble to secure late charters before the Christmas period lull.

......good question. I had assumed that TMIP compulsory purchases the remaining c 17% that have not accepted the deal at the same terms , $21+$5, but that this will take some time so the 17% will have to wait longer for their money but I might be wrong so it would be good to have this confirmed.

Hi Sotolo/SiriusB- the S African 40-42% chrome concentrate price CIF China is from www.ferroalloynet.com/chrome, do not have a subscription but the price is show in the teaser sentence usually twice a week and this is always within $10/tonne of the Tharisa figure. In addition it reports chrome stocks at Chinese ports on 16/12 were 2.464 million tonnes, down 3,000 tonnes from the week before.
Likewise for the Tharisa PGM basket I generally use the price shown weekly on the Tharisa twitter feed but this was last reported on 12th Dec at $2352/oz. In between I use the daily prices from Johnson Matthey an assumed split of pt 54.9/pd 16.4/rh 907/au 0.2/ru 14.4/ir 4.4% less $20/oz and today this works out at $ 2263/oz. It is a rough and ready guide and I find it is usually within $50 of the actual Tharisa price. Johnson Matthey today is reporting platinum at $1005 and palladium at $1685, as you say platinum is steady but palladium has dropped $250 in the last 4 days and today is the lowest level for over 12 months.

PGM basket down a little in last week but more than offset by Chrome concentrate price now $255-265/tonne CIF China.

Hi Krusty, BHSI down to 705 yesterday.
I agree that doing the deal in cash means no dilution , but it does mean increased debt, buying the remaining 14.07 million of Grindrod shares not already owned by TMIP, at $21 will add around $295 million to TMIP's debt.
And you are right about TMIP's existing Grindrod shares representing a yield of about 16% on the investment. But this is old news and the dividends have already been included in previous TMIP results. With the buy out TMIP does not get the $5/share and I think will not get any dividend for Q4 (anyway this would effectively be in one pocket and out of the other) .Also the market circumstances are totally different, the bulk of these existing shares were bought when the market was rising and now we are buying the rest of Grindrod based on the market in August when the average BHSI was exactly 1000, over 40% higher than the current level.
Regarding future dividends and paying down the debt quickly, I have previously commented i think that the TMIP Q4 operating profit could be reduced to $21m (and a big reduction in vessel values)while the current Grindrod business could be breakeven or a very small profit (compared to PAT of $86.4m in H1/22 and $22.4m in Q3). Based on current market levels and some efficIency savings I think it would take TMIP 3 years to pay off the added debt on buying the balance of Grindrod without any ship disposals or 18months if they sell off 6-8 vessels. Unfortunately I think the dividend will have t o be cut.
I continue to hold as I think the enlarged TMIP will still be trading at a discount to NAV (although considerably lower than it is now) at the end of this year and that the market will eventually turn and ultimately I have faith in the management and business. But we have to prepare for some considerably weaker trading numbers in Q4 and Q1 next year and that the dividend will probably have to be reduced given the reduced profitability and need to reduce the debt.

Hi Visitor, Thanks for your reply. As you say I too hope it is an unrealised currency adjustment explaining why it is on the balance sheet rather than the P+ L. (....at the moment at least). And as you say if USD weakens it could reverse. But what spooked me is that inflation in Zim is now running over 200% annually and the Zim Dollar has gone from 138/USD in March when the interim results came out to around 660/USD today so that is a massive depreciation.

Visitor, I agree with your confusion on the 7C dividend and NPAT, it would be good to have the maths on the Company figures.
Did you ever get an answer to your post of 05/12 asking for an explanation on the big foreign currency loss?

Hi Krusty/Sam/Riverboy- I am hoping the combined TMI/Grindrod to still be trading at a discount to NAV at the end of December, this is the big test for me. As you point out the medium term success of the deal partly depends on paying the debt down quickly and trimming duplicated indirect costs and recovering Handysize fundamentals , particularly improving demand in China (BHSI down to 726 today).
Yes , the dividend cover was over 15 at the end of March but paying out 2 cents/share every quarter costs the business $26.4 million/year and if operating profit reduce and vessel values fall as I fear below then the dividend cover is dramatically shrinking and the business will eventually have to but its cloth accordingly, possibly in the RNS announcing the Q4 results.
Likewise we need some good luck, a wonderful Christmas and New Year to all!

Hi Krusty- you are right to call out if someone has made a mistake or even worse, is knowingly telling a falsehood.
Like you, I am a shareholder , but I think the share price is in the right area given the current conditions and market situation. Much of the information in the RNS today was issued in the Q3 trading update on 27th October, but it is important that this is looking in the rear mirror and we need to take account of what has happened in the current quarter. The Baltic Handysize index today is down to 732 which is a 50.07% drop YTD. My rough calculation is that the TMI Q4 operating profit will drop to $21 m and the vessel value reduce by $44m giving a Q4 reduction in NAV of $23m reducing the NAV/share from $1.70 at the end of September to $1.63 at the end of Dec BEFORE any adjustment for the Grindrod purchase. As i have already commented below, i think that TMI will be paying a premium to NAV for Grindrod which in turn will reduce the TMI NAV even further. Don't forget that Grindrod was not profitable in 2019 or 2020 , although current charter levels are not down to that level yet.
When charter levels are falling the effect is delayed on the business because a chunk of the business is on medium/long term charters, TMI has reported that 59% of fleet days are covered for the financial year ending 31st March 2023 at $18,135/day, but eventually in time this catches up with the quarterly operating profit, the current daily charter rate is nearer $13,000/day (although this varies from around $15,000/day for N America to around $10,000/day in SE Asia .
I agree with the RNS sentiment that there are signs that the BHSI is bottoming out, current charter rates are getting closer to Hady futures rates and that recent signs out of China are positive again. Similarly TMI is doing all of the right things with 73% of vessels current on the higher priced Atlantic routes and only 3 vessels in the Pacific completing their current charter before the end of December, hopefully all of this keeps TMI in the top quartile of vessel operators in terms of profit, but ultimately the business cannot buck the market.
I do not want to appear negative but I would urge some caution even at the current low share price. I will be waiting until the Dec NAV is out for the enlarged TMI/Grindrod which will probably be next Feb. Hopefully the new CO2 fuel efficiency regulations coming out in Jan mentioned by TMI has the predicted effect.!

I think we need to dig a bit deeper into the accounts from Monday. Most of us, including me have been concentrating on the P+L and expected NPAT, and indeed the NPAT was generally considerably higher than expected, particularly with the Cost of Sales benefiting from the stronger USD/weaker ZAR and Zim Dollar.
But what we have missed (and highlighted below by the comments from several on the currency translation loss) is the effect on the balance sheet. In the H1/22 accounts (which already included the Karo assets) ,the property, plant and equipment was valued at $625.831m (@14.62= ZAR 9.15m ) at H1/22 but with the USD strengthening 24% , in the FY accounts as at 30th September the property, plant and equipment was valued at $569.58m , a massive reduction of $56.3 m (even though in ZAR the value had increased to ZAR 10.33m @18.128 exchange rate). This has effectively more than offset the one off gain from the Karo purchase in H1.
Generally Tharisa has a natural currency hedge in which stronger USD/weaker ZAR leads to reduced COS in USD terms but offset by weaker USD fixed assets on he balance sheet and generally one very roughly offsets the other, and vice versa when the ZAR is stronger. But unfortunately having bought the Karo assets effectively as at 30th March and without any real revenue/COS there is no natural currency hedge on these and the asset value at FY/22 will have been reduced accordingly as at 31st September.
Since then the USD has weakened and hopefully the Tharisa management team have already spotted this own goal and put in place some limited FX hedges to help limit these FX swings particularly until Karo is fully operational. I suppose having to live with near 100% annual inflation in Zim is a big learning curve and i doubt if you can successfully hedge ZWL?
Also in terms of the FY/22 result, the Salene Chrome impairment does not help with possibly further impairments required. Even Tamesis appeared unaware of this, in their report of 29th November they put the risked valuation of Salene Chrome as $24m/£20m.
My final gripe is on the final total divi. I always thought (possibly naively to be 15% minimum of NPAT attributable to shareholders rather than "adjusted" NPAT attributable to shareholders. But i accept that the business has got a big CAPEX spend over the next 2-3 years and tapping existing shareholders is cheaper financing that the new bond.
The conventional wisdom is that EPS has peaked and will be lower in 2023 and 2024 with the CAPEX spend on Karo. We really need this to come in on time and we have to be patient.
i always like to end on a positive note so it was good to read that the Impala PGM deal finished in November and has been replaced with a deal with Northam Platinum with improved cashflow but it seems we will still only get paid around 79-80% of the contained value.

I am pleased with the NPAT attributable to shareholders of $153.881m but as you suggest below it would be good to have further detail on the massive negative currency adjustment.
Jammer1- thanks for the explanation, I cannot see note 10 on page 25 of my version but I will keep looking.
Also somewhat low key and previously unmentioned was that Salene Chrome was placed in care and maintenece pending a business review after the Zim government banned the export of chrome concentrates. On its own this is a relatively small investment but this was heralded as the first successful investment in Zim and shows what can go wrong.
On a more positive note, the top shareholder actually increased their shareholding by over 13 m during the financial year.

thanks Visitor, I am at work at the moment so I have not had chance to look at the full accounts or presentation but will look in detail tonight!

....possibly they have bought some USD as a hedge for some of the big CAPEX purchases for Karo?
There has been a massive movement in USD/ZAR exchange rate in the 12 months and it is usually a "natural hedge" as the foreign exchange loss is offset by the reduced Cost of Sales in USD (although perhaps not in ZAR). But Sotolo is right that the figure is much bigger than expected.
As Visitor says we will have to look deeper.
For the final divi calculation i would like to know what is "adjusted" NPAT?
Overall the PAT of $167m is absolutely fantastic-WELL DONE THARISA

Excellent news today, I reckon basic earnings of 53.5 cents will give Profit After Tax of $154 million which is 9% higher than I was expecting!
I reckon the total dividend will be 8.5 to 9 cents.

So the Grindrod deal is confirmed.
Fortunately the BHSI actually increased yesterday, the increase was only 0.13% to 746 but let us hope it is the start of a trend higher. The Baltic Dry Index, which represents bigger vessels is actually up I8% in the last week.

S African 40-42% chrome concentrate price CIF China remained at $220-230/tonne last week. Although Chinese chrome imports in October were 967k tonnes, 35.5% lower than the month before and 30% lower than October last year, suggests China is still not firing on all cylinders.
PGM basket price holding up well.
Looking forward to the annual financial results on Monday 5th December (I assume there does not need to be an announcement on the JSE before that?)