RE: Palladium21 Apr 2021 10:27
Hi Sotolo!
You can play with numbers in all kinds of ways. So, yes, you're right that if the rhodium price collapsed all the way back down to zero, Tharisa would lose 50% of its revenues and more than 50% of its profits. But then if nobody needed chrome anymore, Tharisa would lose 25% of its revenues, and more than 25% of its profits. And so on for each metal. And (hooligan question), what makes gold so inherently valuable anyway? At least rhodium is "backed" by a proven industrial need.
And, yes, Tharisa's dividend policy isn't particularly generous in the abstract. Officially, it is "a minimum of 15% of Net Profit After Tax"; in reality, they usually pay out about 17.5%. This means the dividend is covered at a ratio of 6:1 or more, which is very high. BUT, two things need to be added to that statement:
1. Even though Centamin are paying out all of their profits (and more, I think) in dividends, and Tharisa only 17.5%, the actual yields of the two companies will come in similar at 6% to 7% this year. This is due to the huge difference in the market caps of the two companies, despite their generating roughly comparable revenues.
2. Growth capex is a good use of money. $50m spent now on the Vulcan fine chrome plant means approximately 400,000 tons per year of ultra-cheap chrome extra for the foreseeable future. And that means higher profits in future years. We don't have the numbers yet, but if the PGM smelting plant has similar economics, I'll be delighted that Tharisa are putting their money to good use there as well, rather than paying it out in dividends.
Finally, I can suggest only three reasons why Tharisa is currently so undervalued:
1. The share price is being suppressed by the great Fidelity sell-down (which hopefully will be over soon);
2. The market isn't paying attention, and will wake up to Tharisa once the interims are out;
3. The market does indeed believe that rhodium prices are not sustainable, and that they will crash back down to a far lower level (say $5,000/oz) shortly.
Perhaps there is a bit of truth in all three of these reasons.
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