Member Info for tim000

NCI for May has been published. The aggregate index for the average market mine price of imported and domestic non-coking coal declined nearly 7% in the month to May, and by over one third in the 12 months to May. April had already seen a sharp decline on March. This should result in profitable margins for all power generation, and hence sustained high PLFs. So the new FY has started incredibly well.

I don’t think Cenkos is the least bit interested in OPG, there are almost no institutional investors in the company. You’re right, the latest report didn’t even take account of known events, including a very sharp decline in domestic and Indonesian coal prices, and the government mandate to imported coal gencos. I’m thinking seriously about attending the AGM this year and spending as much time as I can questioning management. There is much to learn about the company’s operations.

I emailed the author of the latest report with some queries, but he was unable to answer them as Cenkos isn’t regulated to engage with private investors!! That tells you a lot about how the system is rigged. Is your monikor related to President Reagan by any chance?

Cenkos published an update on about 20 June, after publication of the Trading Update. Their estimates for FY 23 were informed by discussions with OPG and were no doubt trustworthy. But their forecasts for FY 24 were rubbish and completely misleading. They caused at least one holder to sell up.

The government mandate for gencos using imported coal to produce at maximum capacity was extended to September, ie the whole of H1 FY 24. My understanding is that full capacity for OPG is normally around 75%, in part because wind power gencos take priority over coal power competitors in supplying Tangedco. You raise a good point about the margins OPG earns on sales to Tangedco. We agree that they are on a cost plus basis, but the size of the margin is commercial in confidence. Direct sales to industrial customers I believe are at fixed prices negotiated on ca 3-year contracts, so margins increase as coal prices fall. Your estimates of EBITDA could be right, but I personally don’t want to tie myself to any particular numbers. We agree that all factors are pointing to a sharp recovery in profits this year.

I agree that OPG is exceptional value and should offer a very high yield over the long run at the current share price. But estimating EBITDA for this FY looks impossible to me - too many unknowns. We know very little about pricing since March, although the Tangedco website suggests tariffs should be at least R6.70 per kWh; we know nothing about the mix of domestic and imported coal (the former is much cheaper); and we know nothing about how much of OPG’s generated power is being supplied to its captive industrial customers and how much to the national grid via Tangedco. I agree that PLF should be around 70-75%. It would help if Cenkos’ research notes were better quality, and if OPG had more regular trading updates. On the plus side, the lack of transparency on trading presents a buying opportunity for those of us that follow Indian thermal coal prices. Coalmint is a good source.

During the first half of the year they moved operations to a new, more productive coal seam. It appears this took some time to complete and resulted in substantial one-off capex, which I assume included removal of overburden to access the new coal seam. Hence the drain on cash. Cashflow in H2 won’t have any of these issues, and moreover the higher quality coal will have yielded higher prices. Edward is right that a lot of their profits come from processing both their own, and bought-in, coal; with buoyant demand I’m hoping for exceptional coal sales volumes in H2.

With no broker coverage there are no market profit forecasts. So I think the company is likely to make upside profit warnings once it is certain to make large year-on-year profit increases. As has been alluded to, it did this in early June this year. I would hope they do this again in early December. The Directors seem to have a philosophy of no Investor Relations, preferring to devote scarce managerial resources (just the CEO and CFO) to running the business. This won’t change. So not a trader’s share, but an excellent long-term investment. I’m hoping at some point they announce either a mining acquisition or a new project (renewables possibly). Something to utilize their growing cash reserves.

It’s true ICI-4 futures prices haven’t fallen much, but that is a paper market and won’t necessarily reflect transactions prices in the spot market. All the available evidence is that European demand has fallen sharply after an extended period of stock building, resulting in much weaker prices recently for Australian, South African etc thermal coal. It’s hard to believe that doesn’t also apply to Indonesia. My impression is that OPG has excellent coal traders, who consistently beat the market in finding cheap supplies - and selling surplus coal at a profit. Since PLF has fallen so much this FY, I’m hoping they’ll have made strong profits from selling surplus coal inventory.

I have recently acquired 1.8 mn shares, partly as a hedge against my coal mining stocks.
The annual results statement included some very helpful info on prices and PLF in the five months to end August. From that, I estimate generation (exc deemed units) of 417 mn kWh in the half year (PLF 28.6%) and revenue of £40 mn. Adjusted EBITDA should be about £10-11 mn hopefully, just below the figure a year earlier. EBITDA margin (per cent of revenue) should be similar to the 27% recorded in FY2022.

I don’t think £10 is an unrealistic target. The Sisonke CHPP has annual processing capacity of 2 mn tonnes. This year mining conditions are supposed to be much easier as they move to a new open cast resource. If they could produce say 1.5mn tonnes pa, buy in 500k tonnes pa for processing, and export more than 320k tonnes pa by utilising the terminals at Maputo, Durban etc., then double that target.

I think he would have got about £2.50. He exited in late June and sought advice whether to re-enter.

Alfreddie, I do hope you're currently invested here...such a shame if you're not. Plenty of upside still.

Historically it’s been between 24-31 August, last year the 31st. I’d guess the 31st again. I expect BISI and LAS to publish their results on the same day. Of more interest will be the dividend and what they intend to do with all the cash they’re making. TGA has a dividend yield of about 40%. I would hope BISI tries to be fairly competitive and announces something similar, ie around 50p.

Very wise. The principle of compounding means that an early start to saving has dramatic effects on their value after a decade or so. I recommend reinvesting dividends in the same companies.

Yes, they say cash is king, and LAP won’t object to a nice divi. They’re currently refinancing a couple of chunky loans and the more cash they have, the better the terms are likely to be. A decent divi from BISI might also result in LAS reinstating their own dividend. For example, if LAS fully passed on a 20p per share divi from BISI, LAS’s divi would be 1.04p, currently a yield of about 4%.

Beza, I too have been buying yesterday and today. The mkt cap is basically more than fully covered by the underlying value of BISI shares, leaving £40 mn of property assets (after netting off net debt) in for free.

Glencore has agreed an annual contract to supply Nippon steel with thermal coal at US$375 per tonne. This will set a benchmark for many fixed-price contracts this year. BISI don’t publicise their own arrangements with customers, but this is very bullish news for all miners.

I buy a few most days. Sometimes you have to get in early and/or break the order up into manageable sizes, ie no more than 500 at a time.
It appears that international thermal coal buyers are fearful of not being able to buy during the winter, so are stockpiling whatever is available now, at any price. Large Aussie miners such as WHC report that their Japanese and Korean customers want WHC to commit to long term contracts, price being of secondary importance. Hence strong upward pressure on spot prices. It’s a sellers market at the moment, and all thermal coal miners are making a fortune.

It is a huge increase, unprecedented, and judged to be fanciful by the market apparently. But the company’s mining performance is reported to be little changed compared with last year, and thermal coal prices were 120% higher in H1 than the 2021 average. According to the futures market, prices are expected to average 140% more in 2022 as a whole than last year (ie £135 more per tonne). BISI produce over 1 mn tonnes pa. That’s potentially higher revenues and profits of £135 mn! Of course, BISI sells its coal at a substantial discount to the benchmark prices, so it won’t make anything like that. But it is almost certainly going to be a very substantial amount more than last year.