Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
Yes Bananaman.
SLP are targeting 70,000 Oz's for the year and THS 160,000 Oz's.
Not for me TBTT, Ru is far too lowly priced to add any significant impact on the basket price.
It has to be Rhodium based - I just can't figure it yet based upon the reported numbers.
When I get time next week I will have a more detailed look, the answer will be lurking in the background somewhere.
Hi TBTT,
Yes I saw that this morning and quickly plugged the numbers into my SLP spreadsheet. It doesn't make sense, it brings SLP's 6E price below THS's - I need more work to look at it closer.
SLP's 4E is always higher than THS's. That said I cannot for the life of me get to $4,576 as a gross for SLP. That would imply that their Rh content is much higher than reported.
Confused but pleased.
An outstanding set of results at SLP today (I am a holder, although not quite as big as THS).
We discussed recently about the Fair Value Impact of the rising commodity prices and SLP gives us a taste of what we can expect from our H1 results.
SLP's adjustment for a single quarter on 17,420 Oz (correct figure to use would be last quarters 18,363 Oz due to the time lag) is $15m !!
SLP does have a higher basket price than THS so this number is reduced on that basis but THS produces more than double the Oz's so I think $15m is the minimum we can expect for H1 and it is most likely significantly higher.
A further listing would require an RNS.
If it does turn out to be true then I would suggest it is merely a 3rd listing on top of the JSE & LSE for regulatory reasons.
THS would almost double the size of the CSE, it's tiny !!
And there go the large sells. A good clear out of Fidelity Shares today.
Hi Mike - i don't think the rules are too closely followed !!
The thresholds for disclosure for UK issuers are 3% and every percentage point thereafter. These thresholds are equivalent to the old s. 198 regime but cannot be imposed on non-UK issuers, to which only the EU Directive requirements apply.
Therefore, in the case of non-UK issuers the thresholds are 5, 10, 15, 20, 30, 50 and 75%.
Previous rules allowing certain interests of investment managers not to be disclosed until they reached 10% have changed. These interests are now disclosable at 5%, then 10%, then at every percentage point thereafter.
Hi Top Tiger - There are probably too many to mention !! He discusses a little on his overall holdings before looking at a few new ones. I've not looked at the new one is any detail yet to understand if I would rate them highly.
Hi JammyC - I had a quick look at RBGP a few weeks ago. The litigation companies seem to be getting some high ratings at the moment. LIT is another one of ST's picks. I can understand the potential - lockdowns = struggling companies = outsourced litigation financing. My problem is that I find it difficult to value the companies so to invest is very much a leap of faith that the Mgt team can provide extra EPS in a favourable environment. They are certainly worth more research and may be very good momentum plays over the next 12-18 months.
Hi TBTT,
I'm not sure they have all gone but it's certainly getting closer - your 1% ish could be close.
As soon as the price opened almost 5% lower today I expected to see a big sell materialise at some point. Most likely a late reported trade. It's std THS at the moment - drop the price AM to encourage buyers to take up the Fidelity sells.
Once we have a few days of rises on the opening then I will be more convinced Fidelity have cleared.
Whilst it's nice to speculate on what Fidelity are doing it's all rather meaningless. They will clear at some point in the next few weeks and the SP will rise. Fidelity are merely delaying the inevitable.
I spend at least 3 hours a day trying to find very good quality undervalued shares that have at least a 50% upside with very little risk and I haven't found anything to match THS in months. Today I will see what is in Simon Thompson's shares picking webinar from yesterday - although at first glance i have already researched most of them.
This weekend I get to update the monthly basket price and see how that feeds through to my financial model and into the EPS - it's always a pleasant job !!
Thanks Mike - and well explained.
it's good to have somebody on the board that has experience of the industry.
H1 is as good as known since we have THS's declared volumes and prices.
Overheads we estimate but they are reasonably well known.
F/X is always the odd one but that is on our side over H1.
We are unclear on the total value of adjustments but again a good number and straight to the bottom line, greater than $20m looks a certainty.
And so we wait !!
Thanks Mike,
So from a financial perspective we have - correct me if I am wrong:
1) THS deliver conc to smelter. At this point the invoice is raised and this is the revenue we see in the accounts - let's call this "A". (I believe the contract price will be similar to the fair value price shown in Note 22 of the accounts but with a slight variance to reflect THS's market view - it would be commercially naive to publish the actual contract prices).
Question - I am assuming the contract price allows for the Net Smelter Margin of circa 15% and so this is removed at the front end i.e. at the time of invoice "A".
2) The smelter undertakes their assays, takes off any percentages for impurities etc and 3-4 months later comes up with an actual value of the conc based upon market prices - let's call this "B".
Question - I would assume that in the master contract there would be a "pain & gain" clause. I.e. if the value of "B" is above the value of "A" then the upside is shared by an agreed percentage (80% THS, 20% Smelter would be my opening guess). Equally if the price goes the other way then the pain is shared.
So the Fair Value Adjustment that we see is the difference between A & B less any "pain & gain" percentage.
We will get a very good idea next week when SLP release their Q3 results. They include financials so it will be very informative from their perspective and give an insight into THS's half year results.
It's very difficult to calculate a value. Notes 5 & 22 in the accounts explain how it is calculated but I have never managed to come up with an actual value myself. The PGM adjustment for the whole of the last financial year was $30m for PGM's.
I only started to record THS's basket price from June 2020 so don't have the data going back to look at the whole financial year. SLP's I do have and from July 19 to end of June 2020 their basket price hardly moved ($2,069 to $2,006) so as an assumption I would say that THS's hardly moved. If the adjustments came from the following 4 months SLP's basket price was $2,782 so let's say a $700 increase, again assuming THS's is similar then this accounted for the $30m over a year.
However, the fair value adjustment is not solely based upon the increase in the basket price it is also a reflection of what THS use as their estimation of fair values also shown in Note 22 of their accounts. In this way it is a very manipulated number and can be used to offset a poor period with a better one or vice versa, it can also be used to "chunk" out the balance sheet.
Confused? Me too - it makes my head hurt trying to work it out. All we can really say is that it should be a large number and JDevereaux's number could well be in the right order. My feeling though is that THS will hold some back to act as a cushion for future reporting - I know I would.
Operating profit margins are difficult to calculate. To get Rhodium you need to mine Chrome and begin the PGM process so how do you split the costs? THS do split the costs on a total PGM basis but it would be very difficult to split out the exact costs of Rh, Pd etc. In house THS will do this but I would never expect it to be published.
Once costs are covered about 55% of increased PGM revenue finds it's way to THS's bottom line. i.e. every $100 increase in the PGM basket equates to $55 in net profit. On 160,000 Oz's per year that $100 increase equates to an extra $8.8m in bottom line profit.
More good news stories:
https://www.mining.com/web/palladium-price-surges-toward-record-high-amid-supply-shortfall/
Hi TBTT,
Indeed so.
By the EBITDA number though PH are not forecasting a collapse or any major issues.
I think their cash flow forecast is just way out - simple as that.
Hi TBTT,
Iridium may just keep going.
From the Investors Chronicle about China and its latest 5 year plan:
BMO Capital Markets said 700,000 5G base stations were installed last year and this could hit 1.5m in 2021. On top of the increasing Silver demand, this is positive for Iridium which hit an all time high of $6,000 last month.
So if Iridium is used in 5G base stations - imagine the current and future global demand !
Lets look at it another way. Net free cash generation is Q2 was $26m giving a net cash position of $31m.
If Q2 & Q3 are the same (much higher basket price at the moment) that gives $31m + ($26m x2) =$83m.
I would suggest they have taken $33m off for Vulcan giving $50m (assumes Vulcan is 1/3 paid for).
Maybe add in an increased dividend and that's how a rough and inaccurate calculation can come out at an extra $10m of cash generation.
Brokers are either ultra conservative or crazy bullish - but rarely correct.
Having said I don't do cash flow predictions I couldn't help a very quick calculation at today's basket prices.
Q2 threw out about $725 / Oz of FCF after CAPEX spending.
Allowing for today's prices for the entirety of Q3, an increase to 40,000 Oz and similar CAPEX (Vulcan will most likely hit it's highs on payables in Q4) then we will generate $60m of FCF in Q3 alone.
The numbers really are astronomical if this level of commodity prices persist.
Even 2 quarters at these levels makes the EV/EBITDA ratio absurdly low - which in my view it is now.
TBTT to add a little more that I noted from the presentation:
Smelter - "Contracts with Impala & Sibanye end in Oct 2022, after that THS are free to smelt more of their own PGM's". It appears that the expansion of the 1MW smelter is not a technical issue its more due to commercial contracts.
"EV/EBITDA of 1.7 to 2.7 is based upon the forecast of 3 analysts and not on current figures." 2.7 is too low and also so are the forecasts that I have seen, so we will see a re-rate on this front.
Vulcan is Sept as mentioned but interestingly the PGM increase to 200,000 Oz will be incremental over the following 18 months which is good news, it will mean a steady increase in PGM's Oz's from 2021-2023.
Phoevos view on commodity pricing was that we should see some stabilising around these prices.
I also read the article posted by Nimrod which mentioned the Vulcan CAPEX . The author stated about 1/3 of the $54m Vulcan plant was paid for. if that's the case then $36m left. It won't all leaves the bank this FY but at least it's a guide.