Member Info for tim000

Hello Beza. I base my cash accounts on the Consolidated cash flow statement of the company, which had £4.432 mn positive cashflow from operating activities in 2021, see p59 of the Annual Report. That's equivalent to 41.5p per share undiluted. The company has stated results in 2022 H1 will be "very substantially ahead" of the whole of 2021. That suggests at least a 100% increase, for any relevant metric. My best guess for the above measure of cashflow is currently £14 mn.

I've compiled monthly BISI accounts, consistent with my estimates for cashflow for the six months to June, and 12 months to December. The accounts are fairly disaggregated for interim and annual accounts, less so for the equivalent monthly accounts, but do utilise monthly coal prices and exchange rates.

BISI would only have started to notice a pickup in cashflow during April, once they had company accounts for March. Hence the relatively modest dividend announced at end-April when they published the annual financial statements. Cashflow then proceeded at over £3 mn per month in April and May (according to my estimates!), resulting in the 6 June profit warning.

I can't allow for lags between benchmark coal prices and realised prices, as I have no information on how long they are, but they do exist. However, at the moment the futures markets are indicating that prices will peak in July, then start to drop off steadily. This may be revised once the August 10 deadline kicks in for the EU to cease buying Russian coal. BISI cashflow is currently expected to peak during the current quarter at about £3.5 mn per month, then slow to £3 mn per month in Q4.

Black Wattle ... "produces high-quality export steam coal" (RNS 20/10/2010). And yet in 2021, TGA averaged export prices for its thermal coal of US$104/t, whereas BISI averaged only US$76/t, a 27% discount. TGA has averaged about US$226/t in 2022 H1, a 117% increase on last year. This increase would have been higher still, only a worse coal mix depressed prices somewhat this year. Since the thermal market has tightened considerably, can BISI negotiate prices somewhat closer to those of TGA for its own high quality coal? The interims should tell us.

Various Annual Reports have hinted at the importance of the relationship with Vunani for future expansion of BISI’s mining activities. To date, nothing has come of these aspirations. Now that BISI is printing money, and sharing it with Vunani, both parties are heavily incentivised to make concrete progress, and now have the capital to do so. Andrew Austin and others have exploited the majors disinvesting from North Sea oil and gas, I wonder whether similar opportunities apply to South African coalfields? If they do, and Vunani has political clout, the longer term prospects for BISI could be astonishing. Totally overlooked by the market as yet.

Whitehaven (WHC.ASX) announced its Q2 results today. Whitehaven benchmark their achieved prices for sales of thermal coal against Newcastle thermal coal prices, the latter averaging US$377/t in Q2 and US$320/t in 2022 H1. The discount to benchmark shrunk from 15% in 2021 H2 to just 2% in 2022 Q2. Moreover, achieved prices inherently lag a rising benchmark due to timing differences related to shipping. So the tightness of the global thermal market had effectively eliminated the discount altogether. Bodes well for BISI export pricing this year.

I was told the company's broker won't publish research on the company because there would be no institutional demand for it, given what I've said. This veil over the company's existence, and the complete lack of private investor interest (PI's are drawn to BEN for goodness sake!), is highly unusual, and explains why we have been given a chance to buy cheaply. My view is that fairly soon, social media will focus on coal stocks, just as it did with bitcoin, lithium etc etc. At that point, we may see PIs flocking to coal stocks, including BISI. And the share price will then go hyperbolic: previous thematics have not been backed by actual corporate profits, whereas coal most certainly is. I think this will happen, it is only a matter of time.

Yes, end-August definitely. There's a small chance that, once the company have a near-final estimate of the P/L account for the half-year, they'll update the market with another profit warning. I think that would be good practice. There's also a small chance that they will provide a brief summary of production numbers in either Q2 or H1 ahead of the interim results. I asked the Board at the AGM to consider announcing quarterly KPIs, and they said they were sympathetic - although that doesn't mean they will start immediately. But I hope they will accommodate this at some point.

There is no chance of an institution ever buying shares in the company - it's too small and far too illiquid. Equally there is very little chance of there ever being a buy-back programme, unless a significant shareholder approaches the company and wants out. But that seems unlikely given the outlook for coal prices.

Yes, most of them are mine!

A very good question, Edward. You could legitimately argue that companies such as Apple, Google, Microsoft were cheaper in their early days, plus some pharma and some oil producers finding large discoveries. But BISI is undoubtedly a rarity, where there has been an enormous profit warning but with only a tiny market reaction.

BISI's AR21 features two measures of performance, EBITDA and adjusted EBITDA (the main difference being that the former includes capital gains on equities). EBITDA was £5849k and adjusted EBITDA was £5028k. The 6 June Profit Warning stated that results at the interims would be "very substantially ahead" of those for AR21. A reasonable interpretation of that would be at least double, so £11.7mn and £10.1mn resp. That would be my minimum guess. It is very likely that profits in H2 will exceed those in H1. So adjusted EBITDA of £20 mn would be my minimum guess for 2022. (My own best guesses are at least double these figures for H1 and 2022.)

BISI's investment fund was £4.3 mn at end-December 2021, of which just over 50% was invested in foreign listed stocks (and nearly 50% in the UK). Assuming the fund is weighted towards coal, the overseas coal staple WHC.ASX increased from AUS$2.61 on 31/12/21 to AUS$4.92 on 30/6/22 (inc an 8c divi). That's an increase of almost 90%. NHC.ASX increased by nearly 70%. At home, TGA increased by 200%. So £1.7 mn capital gains on the investment portfolio at the interims looks feasible.

hxxps://www.spglobal.com/commodityinsights/en/market-insights/latest-news/coal/030322-robust-european-demand-pushes-richards-bay-5500-kcalkg-nar-coal-to-premium

South African 5500kcal/kg began trading at a premium to API-4 RBCT benchmark 6000kcal/kg in March, owing to increased European demand for non-Russian thermal coal. (As I understand it, 6000kcal/kg API-4 coal is a coking coal grade.) I assume BW mines both types of coal, indeed the 39% discount BW realised in 2021 on its exports relative to the API-4 benchmark more or less confirms that. If this is correct, we can hope that the exports price discount to the benchmark has shrunk markedly since March, as more of our coal is sold into the thermal market. (I think this also explains the growing percentage differential between the Newcastle thermal and RBCT API-4 benchmarks observed this year.)

Google Datt Capital Talk Ya Book for a very good recent interview of a fund manager who is buying thermal coal stocks (the interview focuses on Whitehaven Coal, but it is equally applicable to BISI).

…And futures prices are strong too, especially in sterling terms. Today was xd day I believe. The quoted spread is meaningless, I bought a few more at 252p earlier this week but today the price was 275p. But the quoted spread has barely changed.

Obviously your call Alfreddie. I wouldn't worry about the spread, that will tighten up and liquidity improve once the interims are published, if not before. My suggestion would be that you reinvest at least some of your profits. An alternative is to buy some TGA, not quite such good value as BISI but with a small spread, much greater liquidity and a much much higher mkt cap.

Markets for illiquid small caps like BISI are anything but efficient. They take a while to process black swan events such as Russia switching off gas supplies to the EU. But they will catch up, especially when coal prices stay high and BISI announces its interim results. Should be a good day! Hold on to those golden tickets as the cliche goes.

No smoke and mirrors, the numbers are a simple reflection of API-4 Benchmark coal prices. I try to make conservative assumptions for discounts to the benchmark for domestic sales and for exports, and for mining costs, allowing for wage and energy cost inflation. I compile detailed accounts so any forecast errors can be identified and corrected. I'm confident about BISI, the recent profit warning (sic) is a taste of things to come.

Beza, I don’t estimate eps exactly. The company likes to focus on measures of cashflow, excluding non-cash items such as depreciation and amortization. My estimates of cashflow from operations post-tax are about £14 mn in H1 and £34 mn for 2022, using futures markets for coal price assumptions. That computes to over £3 cashflow per share in 2022. That’s my ballpark figure that I’m targeting. This is a conviction holding for me, I’m not going to sell any of my holding. If one believes that South African thermal coal is vital for European energy security as I do, a well-run business with a strong BEE partner and a tiny mkt cap in relation to its outlook for cashflow, is an unprecedented investment opportunity. I own about 1.7% of the company.

Well done Alfreddie for a very good return to your investment.

The Annual Report mentions that Vunani (the BEE minority partner) acquired 6mn tonnes of reserves for Black Wattle at zero cost. As reward, Vunani has been awarded a 50% profit share for those reserves, plus a further 2 mn tonnes it had acquired for BW previously. These reserves were acquired when coal seemingly had no long-term future in South Africa. What is the value to BISI of those 8 mn tonnes? Let's assume margins of US$50/t, annual production of 1 mn tonnes, and an annual discount rate of 10%. On those assumptions, these reserves have a NPV of at least £100 mn to BISI, and the same again for Vunani, whose business model is to acquire reserves for BISI to mine, process and distribute. As a black-owned and managed business, Vunani has opportunities probably not available to some of its competitors. If you're willing to stay the course, the BISI/Vunani partnership could have a tremendous future. And the market is not even properly valuing BISI's current operations, as I show above. The market cap is currently just 25% of the NPV of the 8 mn tonnes reserves, let alone the rest of the coal reserves of the business and the current windfall cashflow.

ES, you're right that the price of domestic coal is a major determinant of BISI's profitability. The data provided by the company indicates that domestic sales in 2021 were slightly loss-making. At the AGM they said domestic prices had started to recover, and googled articles in the media confirm that. But I've no idea to what extent. Without some knowledge of domestic prices, it's hard to know just how high profits will be in the first half.

Beza, it will be interesting to see exactly what the Board choose to do with the windfall. I think some of the windfall will be held as cash, invested in equities and in property. But I agree with you that bumper special dividends will be part of the package. I don’t think a share split helps. A very high proportion of the equity is held by the family and other long-term holders, who won’t be selling. A takeover offer by LAP is not impossible.