The next focusIR Investor Webinar takes places on 14th May with guest speakers from Blue Whale Growth Fund, Taseko Mines, Kavango Resources and CQS Natural Resources fund. Please register here.
A breather very healthy to allow new investors an entry point and now i've revisited my own corrected EBITDA/ free cashflow calcs, perhaps reason I didn't spot my initial error yesterday is it brings up still such a significant undervaluation I can't quite believe it!
Rhodium is now at $18,500! Palladium has pushed up 4% to $2,460, Platinum to $1,100 and Iridium $3,000. We're looking at a THS 6E PGM basket of $2,950 per Oz - another record. On basis THS have a circa 13% refiner fee to Impala (my calc only from data from the Accounts, not official), sale price due to THS is $2,560 Oz. ZAR has also weakened back to 15.
My EBITDA calc of $260m yesterday is now at $280m. If you want to get to a very crude "free cashflow" from EBITDA, SIB Capex of $45-50m per annum has to be deducted and for FY2021 only, the $50m for Vulcan Fine Chrome Project also has to be deducted. May also have interest on loans of circa $5-6m and Tax, however THS have so many tax credits it should be fraction of SA 28% corp tax threshold.
So we're looking at free cashflow of at least $150-170m and that's in a high Capex year with Vulcan Project. With THS market cap of £350m, that's only 2.8x free cashflow, put in perspective of 12yr open pit mine life, 40yr+ underground mine life, 10% dividend yields based on such FCF, increase of chrome to 2MT for FY 2022 and 200k PGMs p.a. On top of Zimbabwe Karo huge PGM resource, open pit and can be developed incrementally making it far more viable.
With my wrong calculation that lopped off 26% of EBITDA to $180-200m yesterday, I had a 12 month target of 180 - 200p for THS. With it corrected and based on EBITDA of $260-280m, I really don't think it's out of question to have 12-18 month target of 300p+ if it stayed at that EBITDA. However I do think at some point PGMs will take a breather and move back - although i'm not really worried by this as we just remain so undervalued. This EBITDA even for 2 quarters is transformational for THS, organically funds Capex expansion, yet still will allow THS to have strong Net Cash position by FYE 2021.
I assume JTD over-arching point is that the TSG board is now clogged up with posts that have nothing to do with TSG or Gold.
It's not helpful at all to existing or potential new investors. Take it elsewhere.
Yep you're right I regressed back to my old incorrect calculation in my cost model, sorry about that! It's of course 26% BEE taken at net profit level after tax, so for this purpose I should not be applying 74% at gross stage! On 8-Dec I correctly applied the 100% which is why I got Chrome EBITDA of $40m and PGMs of $220m for $260m EBITDA overall. Based on 1.5MT chrome and 160K oz 6E PGMs.
Funnily enough even with the recent increases in PGMs, my EBITDA hasn't changed, still at $260m. Chrome EBITDA has decreased by $10m due to ZAR strengthening (increasing AISC) and PGM EBITDA moved up by $10m - the significant PGM increase again partly offset by ZAR increasing AISC in USD terms.
Have to admit didn't see Iridium is now at $3,000! Normally only check JM these days which is still showing $2,600. Considering Iridium can't be "traded" (or at least extremely difficult to) and really is for end-users only, this move must have a strong fundamental basis. Long may it continue!
Hi Rax - thanks for posting the article. I have a Telegraph subscription and actually wrote a detailed comment back to this Article stating it was flawed analysis. Questor didn't take kindly to my analysis and removed my comment without any explanation. It's actually made me consider whether I will bother renewing my subscription.
My issue with the article is it mentions "fundamental analysis", then when discussing THS makes no reference to Rhodium or Palladium?!! They then give it a "hold" on the back of some pretty shoddy research and "fundamental analysis", downplaying THS' huge upside.
Hi Ragnar - I have estimate of $180-200m EBITDA, but I think it may be because of our different interpretation of THS' share of the PGMs and Chrome. The Annual Accounts seem to confirm that THS do indeed receive 74% of both PGMs and Chrome: "The principal activity of the Group is the exploitation of metals and minerals, principally PGMs and chrome, and associated sales and logistics operations. The Group holds a 74% shareholding in Tharisa Minerals Proprietary Limited (‘Tharisa Minerals’). Tharisa Minerals owns and operates the Tharisa Mine, an open pit PGM and chrome mine located in the Bushveld Complex of South Africa". Unless I missed something else in the Accounts of course clarifying situation further. I think you mentioned previously THS may receive 100% for the PGMs?
At $180-200m EBITDA this is still significantly undervalued, even taking into account THS pushing through to £1.30 -1.40 region so quick. It's like when SLP pushed through fast to 60p region from 30p... still didn't stop it pushing to 90p. If i'm wrong and EBITDA is indeed in $280m region, then it's even more significantly undervalued than I thought!
Rhodium has now pushed through to $17,700, amazing. Due to THS "yellow fleet" and open pit operations we know they're better placed than others to weather any future COVID related lockdowns or the like.
Very belated merry christmas and happy new year one and all.
Rhodium appears to have hit $17,000 as of today, brand new record, with Iridium up to $2,600 and palladium up by 4% today to $2,440. Even platinum is playing ball at $1,065. THS 6E PGM basket is now circa $2,770 per Oz. At these levels EBITDA would be in the $180million region.
Based on the Accounts Revenues THS retains far more of the PGM basket than SLP and JLP. For THS it's around 13% discount/ fee to refiner (admittedly per metal not sure what the split is) and for SLP it's around 20-23% (could be because they report on 4E PGMs etc.) JLP not so sure but in the past when I had major issue with their Quarterly reporting, their earnings figures highlighted a significant discount way in excess of SLP.
In long-term THS from the investor presentation and Q&A also appear to have plans for refining themselves to retain more value...
Good call by many on here that expected Iridium to rise - now at $2,550. Great to see other metals doing so well, as it de-risks relying solely on Rhodium motoring along at $16,650.
Wonder if Ruthenium will ever join the party?!
Yep a really good Q&A session, good questions and transparent answers - they covered all mine. I didn't write notes unfortunately (think it will be released on the investormeet company platform anyway), but the one thing that stood out without any need of notes was the ambition of 200K Oz for FY 2022 as you refer to Ragnar!
(2 of 2): Chrome FYE Sept 2020
Chrome Revenue: $161,267,000
Chrome Cost of Sales: $120,880,000
Chrome Production: 1,340,000Mt
Chrome Price Reported: $140tn
Chrome Price Achieved (Revenue/ Production): $120tn
Chrome AISC (Cost of Sales/ Production): $90tn
Assuming no change in Chrome Ore (increase in chrome ore production will counter any negative impact in Forex ZAR strength for purpose of this back of pack exercise) $30tn margin x 1.5million tns = $45million.
So even though I attack it in different way, my EBITDA of $265million (perhaps more like $245million assuming 10% reduction in PGM basket from these heady heights) probably isn’t too dissimilar from those here. EBITDA of course is not “free cashflow” so would need to take into account CAPEX ($100.8million for FYE 2021 incl Vulcan Fine Chrome Project), Interest on Loans (perhaps $5-7million) and Taxation.
So even with Capex there should be a huge build up in their cash position. One item I’m not too clear on is Tax – from Accounts I see their “tax charge” is significantly reduced due to all their “unredeemed capex”:
“The tax charge amounted to US$20.8 million (2019: US$2.8 million), an effective charge of 27.4% (2019: 24.9% charge). Cash tax paid amounted to US$3.4 million […] At 30 September 2020, the Group’s unredeemed capital balance available for offset against future mining taxable income in South Africa amounted to US$106.2 million”
(1 of 2): Ragnar – thanks for your detailed forecast – your $230m EBITDA is similar to my $245million. Whilst THS don't do a full-blown P&L breakdown by segment, on pg.88 Operating Segments of the Annual Report there’s a wealth of data by segment.
Whenever the Accounts come through I always try and recalculate the PGM and Chrome AISCs just for future forecasting purposes. The THS accounts are very informative that they provide this breakdown by PGM and Chrome, as well as their Arxo Metals Trading Arm which makes circa $3.5m gross profit but for this exercise I ignore that segment. I also recalculate the 12-month average 6E PGM Basket "Market Price" from Johnson Matthey (http://www.platinum.matthey.com/prices/price-tables) so I can then calculate the "discount" THS receives for their 6E PGM concentrate from Impala. JM is easier to use than BASF for this exercise as its user-friendly to see all previous monthly averages.
For October 2019 - Sept 2020 THS FY 2020, JM 6E THS PGM Basket Price pumps out a figure of $1,787 per Oz using THS % PGM breakdown of 55.1% Pt, 16.1% Pd, 9.5% Rh, 4.3% IR, 14% Ru & 0.2% Au (various other sites track gold). This compares to THS reported basket of $1,704 in the Accounts, but if you dig into the numbers you can actually see from PGM revenue number the actual PGM basket price THS receives:
6E PGMs FYE Sept 2020:
PGM Revenue: $218,619,000
Cost of Sales: $132,434,000
Production: 142,100 6E Oz
AISC (Cost of Sales/ Production): $932 (Forex ZAR-USD 16.2)
PGM Basket Received (Revenue/ Production): $1,538 Oz
PGM discount (JM basket $1,787 - $1,538/ $1,787) = 13% discount to PGM market price. I never use THS reported basket $1,704 for this exercise, as when I try and forecast future THS prices, I'm taking the "market" basket price from sites like JM. From doing this exercise on a number of THS Interims and Accounts, 13% is also pretty uniform, notwithstanding any fluctuations/ discrepancies due to delay between “production” and “trade receivables” (Impala paying THS).
Applying this to present day $2,649 Oz 6E PGM basket, sale price achieved by THS is $2,300. ZAR Forex has strengthened to 15.2 increasing AISC in $ terms, but this will be offset by higher production, so margin of $1,368 * 160,000 = $219million
From Investor Chronicle:
• Miner’s operating profit for 2020 rises more than three-fold on last year
• Full-year dividend of 3.5c, compared to 0.75c in 2019
Platinum group metal (PGM) miner Tharisa’s (THS) operating profit more than tripled to $88m (£66m) for the 12 months to 30 September as sales went up and costs went down. Platinum Group of Metals (PGM), including palladium and rhodium, traded at record prices this year because of demand in the automotive industry. Tharisa’s profit growth was driven by its basket price – effectively an average selling price for its PGM products – which jumped 58 per cent on last year to $1,704 per ounce (oz).
On top of the palladium price strength, rhodium’s heady price rise took it to just over half of Tharisa’s PGM revenue from 29 per cent last year. Averaging around $8,300/oz in the company’s financial year, the metal is now over $16,000/oz, driven by new vehicle emissions standards in China.
The company’s other product, chrome, had been a drag on first-half earnings, but this was more than covered by PGM strength. Chief executive Phoevos Pouroulis said he expected stainless steel demand to push up chrome prices in the coming year. Investors will be hoping this is right – Tharisa has restarted work on the Vulcan plant, which will increase chrome concentrate production by a quarter from 2022.
The company has brought back its payout after not handing out an half-year dividend to investors because of Covid-19 uncertainty. This payout level – barring any magical new source of palladium and rhodium appearing – will likely not be short-lived. Buy.
Last IC view: Buy, 59p, 22 May 2020
On Monday in the audio presentation for the Annual Report it was mentioned THS 6E Basket was now $2,500. However with Plat going back to $1,000, Pall $2,400 and Rh $16,100 since, it's circa $2,600 now. That's in comparison to $1,704 for FYE Sept 2020 and EBITDA of $113.4m.
For FYE Sept 2021 with production guidance around 12.5% more than 2020 (e.g. PGMS of 142k in 2020 compared to 160k guidance in 2021) and circa 50% increase in 6E PGM basket with Chrome unchanged, clear to see why some have huge EBITDA forecasts north of $150m. Should be no problem funding Vulcan Fine Chrome Project of $50m Capex organically.
THS presentation that complements the Annual Report and Audio posted is here:
https://www.tharisa.com/pdf/investors/financial-results/2020/annual/2020-annual-results-presentation.pdf
Yep happy here too and Ragnar appeared spot on with his more optimistic dividend yield of circa 3%.
At first I was bit disappointed that the Net Debt only reduced by $4million to $21.3million from 6 months ago in Interims, however as Ragnar mentions THS' Trade Balance has ballooned in THS' favour. Trade Receivables and the like due to THS from Refiner Impala is now at $116.3million, whereas Trade Payables and the like THS owed to Contractors etc. is $61.1million. So Net Trade + Contract Assets Balance due to THS of $55.2million. It's probably for reasons mentioned by TBTT and should normalize over time.
If you normalise Net Cash/Debt for this metric, THS is sitting pretty at $34million.
Like you folks say it's all about "power" and SA (Eskom) simply can't at present guarantee affordable competitive power, so I doubt THS would look to purchase + refurbish existing ferrochrome smelter. Possibly they would sign up to a tolling type arrangement if it made sense, but many entities may now be scrambling to do that.
I wouldn't be surprised if Fine Chrome Vulcan Project (Capex $50m) got suspended again because of the risk of the chrome export tax, along with other chrome producers cutting back more than they already have, thus export tax achieving exact opposite of what it purports (destruction in jobs and value). This cut/ threat to growth and thus employment opportunities may be what's needed for the SA Government to see sense - madness to apply an export tax in a chrome market which is depressed already and doesn't have infrastructure to follow through on "benefication". Kazakhstan would gobble up chrome market share. Perhaps naive but for me at present the chrome ore side of things in terms of THS valuation is "noise".
Even if Vulcan Project is again delayed and if due to chrome export tax, THS make no free cash on chrome but break-even (I forecast EBITDA on 1.5m tonnes of chrome is circa $20m at current chrome price of $135-140tn, so they do have headroom), THS can produce 155 - 165k 6E PGMs this FYE Sept 2021. Rh today is $15,900, THS 6E PGM basket price is now a whopping $2,554. Based on previous Accounts, I worked out roughly there is normally a 13% discount on Sale price to THS. So a $2,554 Oz basket amounts to $2,213 Oz to THS.
ZAR has strengthened a lot over last few months, now at 15.4 to USD. Based on this Forex, approximate AISC for PGMs is in $1,000 region (they do sometimes tweak the cost split/allocation between PGMs + Chrome so be interesting to see next set of Accounts end of this month and I'll re-crunch the Chrome + PGMs AISCs), so at present 6E PGM basket they're making $1,200 per Oz, applied to 155-165k Oz, is $139 - 148million EBITDA (once you apply THS 74% share).
So even if you assume chrome breaks even if the chrome export tax is indeed fully enacted, THS is valued at £213m when we could be looking at EBITDA of $139-148m. It's pretty crazy situation. Hell if the PGM basket loses 40% of value from here, EBITDA of $100m would still make market cap of £213m look pretty ridiculous, when THS should now be Net Debt/Cash neutral and has 13yrs of open cast mining following by 40yrs underground mining.
In long-term, the chrome export tax would decimate many SA chrome producers. THS with their hugely profitable PGMs business, would be one of the few that remain by the end of it for those without smelters. Eventually this could cause a significant increase in chrome price and actually help THS significantly. I really hope this is not the case though even if good for THS in long-term, as it's an extremely ill-conceived policy that will only hurt jobs, not create jobs.
A final point to put the EBITDA in context based on current 6E PGM prices, in October THS provided in their presentation Broker analysis based on much lower EBITDA/ 6E PGM prices, with EBITDA forecasts ranging from $88-102million and share price forecasts based on this of 120-190p.
So if we're now up to $150m EBITDA and if these 6E PGM prices hold, wonder what Brokers would now forecast for share price?!
THS market cap/ share price of £201m/ 75p is absolutely crazy at present. For FYE Sept 2021 I calculate EBITDA of USD 150million based on:
- chrome price of $138tn and 6E PGM price of $2,400
- chrome production of 1.5million tonnes and 6E PGMs of 160,000 Oz
- ZAR of 15.6
Take into account the context:
- Open cast mining to 2033 and thereafter 40yr underground mining.
- As of March 2020 THS were near Net Cash position when you take into account Trade Receivable minus Payables (Cash $40.3m & Trade Receivables $62.7m versus Debt $66.4m & Trade Payables $40.2m).
- Unredeemed Capex for set-off against future profits of $98.9 million.
- Hopefully dividend of circa 2% when Accounts released end of Nov
- Vulcan Fine Chrome Project ($52.8m capex) re-commenced due to complete Q4 2021 allow increase to Chrome to 2million tonnes. 6E PGMs also forecast to rise to 200k Oz p.a.
- Zimbabwe assets of 26.8% of Karo Mining Holdings (96 Moz PGM 4E resource at 3.2g/t) and 90% of Salene Chrome (1st production Q2 2020, circa 60,000tpa lumpy chrome). Last news I saw on Karo was a while back and a prefeasibility study was supposed to be complete mid-2020. Other priorities, COVID etc. no doubt pushed this to back burner, but would be great to see update. Karo could be a monster if ever developed, 1.36 million PGMs p.a. by 2024/2025.
With such significant mine life and future expansion of core assets + other assets on the books it is significantly undervalued, purely based on current levels of production, let alone guidance for FYE Sept 2021 and thereafter 2022 onwards. Perhaps the results end of Nov will provide a shot in the arm needed for "market" to see the true value and potential here.
Thanks for link Troajan - presentation also up on the THS website: https://www.tharisa.com/ovr-presentations.php
Hope to be some exciting results on 30-Nov, confirmation of dividend in the proactive presentation (15% of Net Profit After Tax or thereabouts depending on Capex for Vulcan Project) and reconfirming guidance for FYE Sept 2021 155 - 165k oz of 6E PGMs & 1.45 - 1.55Mt of Chrome Concentrates, which should increase to 200k PGMs and 2Mt FYE Sept 2022.
Also good to see some updated clarity on the main shareholders in presentation:
Medway 40.8%
Rance (New World) 15.1%
Fidelity 9.9%
Currently on an EV?EBITDA of 1.6 - ridiculous...
With Rhodium now at $14,500+, THS 6E PGM basket is at whopping $2,369 per Oz. Crunching some numbers from previous Accounts and Interims, THS seems to secure a sales price of 12-13% less basket on sites such as JMAT (albeit few variables that change this and will relook at this again for next Accounts), so they'll be securing a sales price of circa $2,060. With an AISC of circa $1,000, you're looking at $155 - 165m EBITDA for FYE 2021 on 6E PGM alone, before even taking into account Chrome. Even if Chrome at $130-140tn is "break even" (although for THS don't believe it is and may be making small profit on it), THS is significantly under-priced just on PGMs at a £207m market cap.
Depending on the exchange, the ex-div date is one business day before the record date, so ex-div date is today on basis record date is tomorrow 09 October.