The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
I'm by no means bullish on HUM, very much the opposite, but you do realize they don't pay $100m on Day 1 of obtaining license approval for Kouroussa???!
From getting the license to completion of commissioning, it's at best 18 months process of which the $100m is spread across, most back-ended through construction and invoices will be in trade payables even after completion. So if they get financing of $60-70m in the 1st phase as planned, there should be no trouble.
To suggest at this early point they need equity is quite absurb. HUM have $5m (incl gold inventory) and are muddling on with adding $3-4m free cash per Q (until there is clear grade improvement i'm not in the bullish camp expecting any better on this). The Mali Gov still probably owe HUM around $8m too (although need to see Accounts to confirm this). The VOX Q&A did nothing to clarify why Betts think grades will improve when HUM's own MRE states a quite terrible 2.07 g/t for Komana West, the pit now being mined. If Q2 doesn't show improved grades and only hits the MRE of 2.07 g/t at KW, then I might change my opinion on FCF versus equity raise for Kouroussa.
Dugbe will be a bigger issue as this already has a very meaty royalty on it and the capex is well in excess of $250m if Pasofino go with their bigger aspirations of 200-250k oz p.a. (with gold grades of Dugbe, < 2 g/t, large scale is only thing that makes sense). I can't see how HUM will possibly make a finance decision on this in early 2022 when Pasofino have completed a DFS. I can't see a lender providing credit once HUM are tapped out on Kouroussa and with all free cashflow going there.
The other elephant in the room is of course how they will fund going underground at Yanfolila... So at present I can't possibly see how they progress financially with Dugbe once Ian Stalker has his ducks in a row
Ore mined, processed (1.38m annualized) continue to be even better than anticipated in comparison to the DFS when normalizing for additional ball mill + recoveries are pretty much meeting expectations (93-94%) , the continual problem is grade (2.16g/t for Q1 2021)... and grade is king. In this Q1 2021, we knew the grade would be below expectations so that isn't too much of an issue and they even improved Net Cash position by $3.4m which was better than many of us expected (not as good as others expected mind you), albeit they don't specify how much was spent on Development Capex + Exploration in the Q, although would guess it was only round the $3m mark.
The big issue moving forward though comes from the MRE released on 30-Mar. Focusing on Komana West which is now the new pit to be mined:
a) In original DFS, KW had probable reserves of 239.2k oz @ 3.06 g/t. Probable reserves being economic part of Indicated, with lower level of confidence than a Proved Ore Reserve.
b) In Reserves update of 17 December 2019, KW grade was downgraded to 239.0k oz @ 2.53g/t probable.
c) In the latest MRE of 30 March, KW is now 390k oz @ 2.07g/t Indicated. No explanation...
Key question for any VOX interview is how will they improve grades in 2021 and thus production when their own new MRE for KW shows 2.07g/t?
1.4m ore processed x 93% x 2.07g/t / 31.1 (troy oz conversion) = 86,660 oz.
If we were to be generous and assume that the Probable reserves mined actually beat expectations compared to the new MRE for once:
1.05m ore processed (3Qs) x 93% x 2.53 g/t / 31.1 = 79,439 oz + Q1 22,781 = 102,220 oz
When ore processed + recoveries can't really be improved on and hit their limits, the only variable to play with is grade when trying to calculate potential 2021 production. I really hope VOX Q&A isn't another low-ball fluff piece with no difficult questions...
Mike - thanks for detailed insider knowledge on commercial side of contracts between likes of THS and their refiners (Impala and Sibanye). I had a chat with the old CEO of SLP before retirement and whilst he didn't give away anything confidential, on my query as to refiner's fees/ margins and why the margin appeared to fluctuate, he confirmed my suspicions it was a mixture of fixed costs and %, like you've confirmed here.
I have to admit for simplicity purposes, I'm one of the people that use the ballpark 15% for "back of the packet" calculations. In past THS Accounts when comparing reported PGM basket prices versus Revenues, I've noticed a difference of 13-15%, so for simplicity and to be conservative I just always round up to higher 15% when posting here.
When THS Interims are released on 27 May, i'll update my calcs for "Refiner fee/ margin" and PGM & Chrome AISCs etc. The THS Interims are normally incredibly detailed, far better than other AIM stocks or even FTSE companies I follow and still provide a lot of the detail you find in their audited annual accounts. They still helpfully break down their revenues by Chrome + PGMs for example in Interims.
THS moved from a Net Debt position of $21.1m FYE Sept 2020, to Net Cash $31.4m, a swing of $52.5m in 6 months, with a dividend of $9.4m paid out (US 3.5 cents x 268,665,480 shares at time), so free cashflow after all costs of $61.9m in FY 1H 2021. That was based on production of 75.1k oz PGMs and 730.7k Chrome Ore.
Any portion of the $50m Vulcan Capex expended in 1H 2021 will not be included in the D&A for a Net Profit After Tax (NPAT) calc. If the $50m is back-end loaded to 2H 2021, you could assume perhaps $15m of Vulcan Capex paid out in 1H, the rest still in Trade Payables and/or work to be completed + invoiced.
So I would guestimate NPAT could be anywhere from $72-80m. If they pay a div of 17.5% NPAT, could be circa $12 - 14m payout across 269,059,931 shares (US 4.5 - 5.2 cents per share). This is very much a "Guestimate" in Caps as who knows the D&A or other deductions used by the Accountants/ Finance boffins. I also do not know profit from THS' Arxo arm.
The big surprise in Interims to be released 27 May 2021 for some could be just how big THS' Trade Balance is in their favour. In Accounts for FYE Sept 2020, Trade Receivables (incl. Contract Assets) minus Trade Payables et al was $55m. I will guestimate with the explosion in PGM prices, this could now be circa $75-80m+, in addition to their Net Cash position. THS and SLP are unique in this respect. All other miners and producers people like to compare side by side, normally their Trade Payables far outweighs their Receivables (i.e. a liability overall). Not the case for THS and SLP where it is a huge asset and this can be massively overlooked.
SR123 - I don't think anyone can accurately answer that until we see the Pre-feasibility Study for the Karo Resources area, which as TBTT mentions is some 96m 4E PGM Oz at 3.2g/t based on detailed info from Zimplats - Zimplats was forced to relinquish the contract areas to allow more entrants into the Zim market. On top of the historical info acquired from Zimplats, THS have done their own drilling and will all be factored into any initial report, that I believe is due to be released this year.
Whilst the dates mentioned in this article are of course out of date due to COVID19 and other factors causing delay, this article from Apr 2020 gives a good overview of the THS Zim assets:
https://www.miningreview.com/platinum-group-metals/tharisa-developing-a-future-in-zimbabwe-through-two-project-acquisitions/
THS currently hold 26.8% of Karo Resources, but believe they have an increase to acquire majority stake.
In today's AJ Bell/ Sharesmag presentation be good to get a brief update on Salene Chrome as that 90% option appears to have lapsed. Whilst Salene Chrome is completely separate from Karo, it is a small operation allowing THS to get used to doing business in Zim.
You're not taking into account $9.4m was paid out in calendar Q1 2020 as a dividend, nor that its historically the weakest production Q for the year.
So the free cash flow was $36m over the Q, normalising for dividend.
Finally PE is not free cashflow and the Profit will be higher than free cash flow, with the Vulcan Capex of course reducing free cash flow.
The refiner's costs and margins which are circa 15% are not part of THS Revenue, so yes in essence if you're trying to work out THS Revenue etc. from PGM basket, you would deduct 15% from "Revenue" to work out THS' real Revenue.
Feynzz - looks like its cooled off a little bit to $172tn
https://www.metalbulletin.com/Article/3980063/Raw-materials/Sentiment-in-Chinas-UG2-chrome-ore-market-weakens-after-earlier-sales.html
I would have to recommend THS (SA - PGM + Chrome producer), POLY (Russia and FSUs, dividend circa 4% in May), ALTN (Kazakhstan Gold) and AAZ (Azerbaijan - mainly Gold, bit of Copper and huge expansion potential with known working mines in occupied territories returning + Nargorno Karrabakh returning to Az and part of AAZ's Contract Areas).
I'm not a fan of SRB - the recent placing was pretty disgraceful for PIs, constant missing production targets, 2nd project Coringa delayed and now accident at Palito. On top of that you have Brazil falling apart with COVID19.
Div will be paid on 15 April 2021 to shareholders on the register at the close of business on 26 March 2021. Separately at May AGM, final dividend will be discussed too
Strange muted response - perhaps separate to FXPO, some investors are just wary of a very significant FED meeting this afternoon, which could spike US bond yields and bring entire market down if they're not dovish enough. However this doesn't change the company specific dynamics at play that FXPO are generating huge amounts of cash.
Even taking into account the Swiss WHT, this special div has a circa 5.3% yield on its own
The exploration and capex of $17m is classified as Development, intended to extend the Life of Mine more than 10% (therefore classed as non-sustaining and not included in AISC - https://www.gold.org/about-gold/gold-supply/responsible-gold/all-in-costs). It was made partially clear in the RNS with wording "development" and subsequently HUM has reconfirmed this via clarification emails to investors like Tones.
If you double-check AISC definitions in section "5. How should a company determine whether project costs should be categorised as sustaining vs. non-sustaining?" in link above it will clarify.
When Yanfolila LoM is 4yrs, not sure how great a multiple of 4.6 is... they need to get the LoM update out asap and news on Kouroussa Project Government Approval will obviously help too.
In fact further you read down the news release, Nornickel themselves are estimating a 700k oz hit to their original PGM guidance:
"According to the Company’s current base case estimates, metal production volumes are expected to fall short of the 2021 production guidance as follows: nickel — by approximately 35kt, copper — by 65kt and platinum groups metals — by 22t (approximately 710koz)"
Update on Nornickel's Palladium/Nickel Mine closures here which may explain the 5% increase in spot Palladium today:
Norilsk division adopts plan to resume operations at Oktiabrsky and Taymir Mines and Norilsk Concentrator:
https://www.nornickel.com/news-and-media/press-releases-and-news/the-norilsk-division-adopts-plan-to-resume-operations-at-oktiabrsky-and-taymir-mines-and-norilsk-concentrator/type=releases
"Nornickel, the world’s largest producer of palladium and high-grade nickel and a major producer of platinum and copper, is planning to restore full capacity of its flooded Oktyabrsky and Taimyrsky mines within the next 3-4 months"
Considering the mines have been suspended since 24-Feb, in total you could be looking at 4-5 months from closure and they still haven't completed the works of stopping water inflow, so who knows if they can fully restart Ops in 3-4 months. Could knock off 500k Oz off palladium supply this year. In the THS presentation they showed a Palladium surplus of 492k oz for 2021 (followed by similar defecit for 2022) - think forecasts provided by BMO, whereas Nornickel showed a 200k Oz deficit for 2021 and 2022. Even in BMO's forecast, this mine closure could knock out the entire forecasted surplus, when there is seemingly no back-up Palladium supply - the Palladium stored in ETFs in dwindling.
Another interesting Rh article here too:
Analysts deliberate whether auto manufacturers can tolerate high rhodium prices
https://www.spglobal.com/platts/en/market-insights/latest-news/metals/031221-feature-analysts-deliberate-whether-auto-manufacturers-can-tolerate-high-rhodium-prices
Whilst the article discusses "substitution", ultimately the bottom line is "Rhodium only PGM that can reduce NOx emissions".
Somebody's take on the Nornickel mine closures I didn't spot last week that is pretty interesting reading:
Palladium Short Squeeze: 20% Of Global Production Is Halted:
https://seekingalpha.com/article/4412407-palladium-short-squeeze-20-percent-of-production-is-halted
Nornickel should be releasing further news 16th March onwards when they hope their initial iniatives work in stopping groundwater inflow as per their news release of 9th March: “By now, one of the mine workings has been filled with hardening backfill mixture. In the coming week, once the mixture will harden, water valves will be shut and the inflow of groundwater should stop”, said Senior Vice President, Head of Norilsk Division, Nikolay Utkin. The Company is planning to consider the recovery schedule of the two mines once the current initiatives are completed by March 16th"
Bit of an update on Norilsk Nickel:
- Annual supply of Palladium is roughly 6.2m oz from mining, 3.1m oz from recycling
- Norilsk produces 2.7m oz p.a. and is pretty much flat y-o-y
- Norilsk's Oktyabrsky and Taimyrsky mines were partly suspended on Feb. 24 due to water inflow. From the below Reuter's article, it will not be until next week (article from 09 March) that Norilsk have "an idea of when it can restart two waterlogged mines". So it will only be next week that it thinks it can stop the water inflow and then understand what remedial works are required, let alone start remedial works!
- The Reuters articles quotes an analyst who believes "Nornickel could loose 4-5% of its 2021 output if the two mines are suspended for one month" https://www.reuters.com/article/russia-norilsknickel/update-1-nornickel-to-take-another-week-to-halt-water-inflow-at-siberia-mines-idINL1N2L70ZO
- Clearly it will now be over a month, so that could knock off 135-150k oz off a tight market. Separately Norilsk's concentrator is still idle after tragic accident that killed 3 workers. They've also just been fined $2.5bn for the Arctic oil spill.
- Norilsk's Feb 2021 presentation for its 2020 Accounts is pretty interesting on a few slides - market update slides 18 - 37. On slide 32, it shows PGMs ETF holdings. From Jan-2019 to now, Palladium oz in ETFs has gone from 750k oz to circa 550k oz, now only enough to cover 2-3yrs of 200k oz defecits. Norilsk, before mine closures, was also predicting a 200k oz defecit in 2021, whereas BMO & BASF from THS slides expect a small surplus.
https://www.nornickel.com/upload/iblock/ac1/norilsk_nickel_2020_fy_presentation_feb_16.pdf
Kitco is terrible with Rhodium prices, always way off. By far the best sources are Johnson Matthey and BASF, who are the biggest producers of catalytic converters in world and therefore biggest end-user of Rhodium
https://apps.catalysts.basf.com/apps/eibprices/mp/
http://www.platinum.matthey.com/prices/price-tables
catsick - good point and something i forgot to ask on NPV, IRR metrics etc. For Karo Resources which will obviously go through usual steps of PFS, DFS etc., the NPV and IRR at certain PGM basket prices will no doubt be stated. It would also be good to get this for other projects like PGM Smelting + Refining and potential Salene Manganese + Iron Ore. Even though THS already have a 1MW PGM Smelting pilot plant in operation, I would have thought a full blown complex with end goal to process circa 200K PGMs would cost far more than $10m?
Ragnar - not sure why I said interim div depends on Mar-May 2021 prices ignore that! Obviously only depends on final days of March! I have to admit I'm completely clueless on manganese too and only recently done some research on iron due to my research of FXPO.
bhama - the refiner's margin of course includes their work, overheads, admin to refine the product itself, so a 15% margin will not equate to that profit to refiners. For SLP it's even worse (although perhaps because they predominantly report on 4E basis) and the margin to refiners is anywhere between 20-25%. SLP aren't as open and don't report this, but it's relatively easy to work out when comparing SLP basket price versus SLP Revenue (difference being the refiner's margin). The THS dividend policy has always been clear regarding as a minimum 15% of Net Profit After Tax, albeit they have history of paying bit over in the 17.5% region. For me whilst the dividend is nice, it's always been more of a growth stock and I like the growth prospects of Vulcan to 2MT Chrome, 200k PGMs, Karo Resources PGM mega project. I'm on the fence on SA PGM Smelting + Refining and Salene Manganese + Iron until we know more details, but the former appears a good strategy (dependent on capex) to claw the 15% margin back and should work at most PGM basket prices. If you have 14yrs open pit + 40yrs underground, a refinery + smelter makes sense, but depends on the "payback period" and calcs for its viability should be set at a much lower PGM basket for "stress testing" purposes. But sure this is what THS management will no doubt be doing.
Presentation is now up on THS website: https://www.tharisa.com/ovr-presentations.php
Hi Ragnar - good to hear from you. I was looking at a potential 3.5% div yield for the Interims, but of course depends on metals prices for Mar - May 2021. Your 4.83p ends up being around 3.6/3.7% div yield at current share price, so we're pretty much aligned again.
At current PGM + chrome prices and with significant free cashflow being generated, I was thinking an NPAT of 15% for dividend was too low, but after today's presentation they have some major growth opportunities to get after they can fund organically. I could envisage they fund the PGM smelting + refining organically over the next few years, Salene Manganese + Iron dependent on purchase price for 70% equity and then utilize financing options for Zimbabwe Karo Resources PGM asset.