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Hi Barry - I tried to explain previously the TAIL tax losses could only be used against the corresponding TAIL assets they were incurred against, but the ADVFN and twitterati accountants said otherwise. To be fair to Mitch, he did confirm this on the last presentation too. Based on that and the terrible legacy TAIL oil hedges, I could not understand why Mitch believed on last presentation the £470m corp tax "credits" could be fully utilised in next 3yrs, it will take far longer than that.
I'll give Mitch his dues that I do find him very transparent and doesn't tend to intentionally duck any questions (imo). I still remain of the opinion it is a terrible deal, however at this share price, I also believe it's very undervalued now long-term. It's just a shame that had this deal not proceeded, my long-term fair value was circa £4.50, now it's more like £3.50 - £3.90.
Bizarrely Mitch stated on this presentation that SQZ provided the Q1 2023 Net Cash position. That is simply not true, unless I missed it in the 2022 Accounts preambles? They provided the joint production figures, but no joint unaudited Net Cash Q1 2023 figures, unless I missed it.
It's also a "tad" disingenuous to state they took on a "modest" hedging position when acquiring TAIL. 11k boepd hedged at $58bbl for 2023 against a TAIL guidance of 15-20k boepd is far more than modest! It is also again slightly disingenuous to claim this was in the public domain. The closest you can get to this is that the TAIL 2021 accounts stated "the Group had fixed price contracts for oil in excess of 33% of its 2022-2024 forecast production", when in actual fact it's more like 75% of lower-end guidance of 2023 production, not 33%! When I originally read that statement, I would have thought they hedged circa 5-7k boepd, not 11k.
Very strong results. For a £345m market cap, AEP have a Net Cash position of $277m and in addition to this they have a large Tax Receivables owed to them from past overpayment. When comparing Tax Receivables minus Tax Liabilities, there is some $30m Net due back to AEP.
"The tax receivables represent the corporate income tax ("CIT") and value added tax ("VAT") that have yet to be refunded by the Indonesia tax authority. The tax receivables relating to CIT arose due to over payment of tax. The tax receivables relating to VAT arose because the majority of the Groups' CPO was sold to bonded zones which do not attract output VAT and thus the input VAT incurred is claimable. Upon submission of a tax return (for CIT) or a request letter (for VAT refund), a tax audit will be conducted by the tax authority and whilst every effort is made to resolve this quickly, the process can sometimes take more than 12 months."
Affan does very good of summarizing the situation and AEP under-valuation by comparing to MPE (hope he doesn't mind me quoting him):
"Talking of the comparison between #AEP and #MPE again
#AEP -Mkt Cap £342m, Net Cash $277m, Planted area 68,000 hectare
#MPE Mkt Cap - £465m, Net Cash $35m, Planted area 41,000 hectare
Only difference was #MPE was paying a divi and buying shares back.
No difference now?"
https://twitter.com/feynzz
With everything back to normal and working eventually, I thought JSE could be in the 20k boepd range, so be good if someone could clarify where I've over-estimated/ gone wrong:
1) Montara 7,000 bbls/d
2) Montara H6 well increase this +3,000 bbbls/d (or is this double-dipping and already included above?)
3) Stag 3,000 bbls/d
4) PenMal Assets 5,000bbls/day
4) NWS CWLH non-op 2.1k bopd
5) Sinphuhorm 1,600 boe/d
TOTAL: 21,700 boepd
All of above excludes upside of Malaysia Akatara Gas 1H 2024 5,000k boepd in 2024.
Either my above estimates are wrong, or will take some time for Montara to return to 7-10k boepd?
I had already raised this issue of Tailwind hedging at least 33% of their production at $58bbl - the fact it appears more than 33% of TAIL production, at 11k boepd, is a larger negative than I initially thought. It's also another reason I stated there was no way they could utilise the £470m in TAIL tax credits in 3yrs against the TAIL assets. SQZ management will need to explain how they think this is remotely possible.
End of Dec-2022, Net Cash was £456.8. End of Mar-2023, it was £389.3 million (after payment of cash consideration for the Tailwind acquisition of £61.6 million, so normalised £450.9m). So on the SQZ Asset portion only, there has been absolutely no net cash generation at all over last 3 months - what has been going on the last 3 months?
We get an overall SQZ + TAIL production for Q1 2023 of 46,800 boe/d during Q1 2023, yet no overall Net Cash position for the new company, only for SQZ. Of this production, if Gannet GE04 is above expectations producing 10k boepd as we keep hearing, surely we should be in excess of the guidance of 47k boepd, particularly when we need to beat guidance in certain Qs to make up for maintenance on FPSO Triton at later date.
Was short article, but optimistic for 2023 and 2024 quoting Peel Hunt: "This year should see a substantial step up in profitability and cash generation for Atalaya's operation. Alongside our expectation of steady increases in copper prices, we expect steady rises in EBITDA of EUR158m for 2023 and EUR231m in 2024"
Those EBITDA's numbers are pretty good when taking in to account ATYM's current Net Cash of EUR53.1m and current market cap of £480m. Not too clear from article though how PH estimate those EBITDAs.
To also correct few items with Sotolo's post:
1) Karo production is now forecast 190k p.a. for 17yrs rather than the 150k over 20yrs+. My "all-in cost" included for Interest and other items, so wouldn't agree on "double counting" this, but we're all estimating anyway. But feel your estimate may be too conservative.
2) Tharisa SA AISC is more like $1,150 based on 2022 Accounts, not sure how you've come up with $1,500 from? With freight costs down, oil prices easing, not too much to estimate 2023 AISC will be close/ similar to 2022.
When you said Rh would fall, this was near 2yrs ago during the semi-conductor crisis and your bearish prediction was proven wrong at that point. You were incredibly bearish predicting less than $2,000, when in fact it bounced back to 15k area. Now we are at $8,400 under completely different circumstances (recession and potential banking crisis escalating), this time round I probably would of course agree short-term $5k is more likely than $20k. However I agree with Mike though that you're being overly bearish when putting Karo start 2H 2024 +17yrs open pit ops into perspective, albeit 2023 is of course going to be very choppy indeed. If like Peter Schiff you're constantly bearish, then of course eventually you'll be proven right! I'll reiterate what I said circa 2yrs ago as you appear to be at full Mr Mannering panic stations over on ADVFN - trim your position if you've over-extended yourself and are overly worried by short-term gyrations or "hurtling" prices.
On one hand you have the current banking crisis, signs of recession, which could dampen demand. On supply side you have SA power cuts that could be significantly impacting underground miners, Nornickel (largest palladium producer in world) lower supply output forecast for 2023, EV demand reducing with subsidies running out and still a complete lack of infrastructure to handle widespread adoption (most positive EV figures include hybrid models, which normally have more PGMs that ICE autos). Lower PGM prices will significantly impact the underground miners who will have to cut production of loss-making shafts or entire mines long before THS.
Hi Mike - thanks for your analysis. What AISC / all-in cost did you use to calculate your IRR?
At present THS SA is $1,931 oz and Karo is $1,605 oz.
With Karo cast costs est. at $1,096 and $391m Capex (I of course don't know how THS Accountants will amortise + depreciate assets, but that's roughly $121 per oz ($391m / 190k oz p.a. / 17yrs)). Outside of cash costs you have Corporate G&A (think THS label this in books as "Other Operating Expenses". For THS it's circa $60m, so with major synergies and smaller G&A needed for Karo, perhaps $30m p.a.?), "Sustaining Capex" (minimal in 1st few years when equipment and machinery brand new), Interest (minimal as loans specific to Karo is only the $31m Zim Bond? Amounts to cost of $15 per oz based on 9% and 190k PGMs p.a.) and Tax (Karo has 5yr tax holiday and thereafter SEZ Corp Tax 15%).
So an "all-in cost" you could be looking at $1,400 oz (to breakeven + recover capex costs), but that is truly all-in including for the Capex which will be D&A (non-cash item) in the books. From a true "cashflow" perspective, you would need to strip capex back out, so circa $1,275 oz. However there are many unknowns with all of this, so is very much finger in the air with lot of these items.
You also have to remember with a recession, equipment + contractor costs during Karo Capex phase will also go down (swings and roundabouts). So the $391m figure (which also includes for circa 10% contingency if I remember correctly?) would also go down in such a scenario. Oil is down significantly as an example, WTI back in the 60s. Opex / running costs would also be down significantly.
Hi Mike - apologies my phrase of wording wasn't too clear. I meant to say, specifically for Karo's IRR and ROIC, on one side you have the lower PGM prices depressing the previous forecasted 40%+ IRR and ROIC and on other side, you have significant increase in PGMs produced p.a. that should counter this. However you also have the increased Capex.
Notwithstanding all this, the revised forecasted IRR and ROIC of 26.1% and 30.1% based on Feb PGMs prices are still very good and to put them in perspective, even better than the existing Tharisa SA mine. And if as I expect, PGM prices to rebound by time of 1st ore to mill July 2024, I can see the IRR and ROIC back in the 40%+.
If anyone can clarify what acronym FOIM stands for that would be great: "Cost to FOIM: $391m".
I assume it's something like First Ore In Mine or something to that effect. So whilst the open pit mine has been optimized from 150k to 190k oz p.a. over the last year, the capex in this inflationary environment has also increased from $310m to $391m. So everything factored together, it looks like THS update late Feb 2023 on IRR and ROIC is pretty robust.
I remain of the view it's a great project even at these PGM prices, but come July 2024 for Karo first ore, I do believe PGMs + Gold will be higher. 2023 could be choppy, but I'll remain in shares like THS due to their already low valuations. Plus I will daydream of what THS dividends will look like post-Karo (which isn't actually that far off), when THS is a near 400k PGM + 2MT Chrome Ore p.a. producer! Particularly as for Karo the capex of $391m will need to be repaid to THS first, Karo also has a 5yr tax holiday and is in a Special Economic Zone with 15% Corp Tax Rate.
Mike - you are correct, back in the March 2022 presentation the IRR was quoted as 47%:
"Project post- tax NPV12.9 US$770.4 million*, IRR of 47.6% and ROIC of +47.0%". However as per the *, that was "Calculated by KMH at March 2022 spot prices".
This was based on 20yr LoM at 150k PGM oz p.a. Karo has now been optimized to 190k PGM oz p.a. over 17yrs.
I see Tharisa have recently uploaded a new presentation I missed until today, it has some very nice updated info:
https://www.tharisa.com/pdf/investors/presentation/2023/20230226-tharisa-bmo-conference-presentation-february-2023.pdf
For Karo (page.11), based on current PGM spot prices, the IRR and ROIC is now 26.1% and 30.1% respectively. This is still very good return at these depressed PGM prices and I like THS openness and keeping investors updated regularly unlike other companies. They're also on track for 1st ore at July 2024. However I'm bit surprised the optimization to increase output to 190k PGM oz p.a. didn't have more material effect at softening impact of PGM prices.
I don't think Dividend Max has correct data and don't even know what "final dividend declaration day" means. Q4 2021 / last year 2022 was a bit different, as it was their inaugural dividend payout - it ended up being announced in Oct-21 and paid in Dec-21, with a dividend policy announced too.
"Dividend Policy that will make an annual payout of between 30% and 50% of free cash flow generated during the applicable financial year (“Ordinary Dividend”). The Dividend Policy will take effect in financial year 2022. The annual Ordinary Dividend will be paid in two half-yearly instalments and announced in conjunction with future interim and full year results."
So the policy said in future dividends will be announced as part of Full Year Results and Interims. So I would ignore Dividend Max. We won't find out about dividends until Results are released. Last year that was 24-Mar-22.
Morning Mike - thanks for additional info and yep completely forgot about recycled PGMs! Nornickel's Platinum production guidance isn't much changed at around 600 - 650k mark, it just appears to be their palladium that is heavily impacted.
Notwithstanding furnace repairs, it will be interesting to see if Nornickel can maintain normal production levels under western sanctions. I keep close eye on POLY as I'm still a shareholder (luckily I averaged down at £1.20 and sold out of most my holding on 1st bounce, so not as exposed as once was) and they've had to completely change all their supply chains. There remains a big question mark on whether Chinese spares and equipment can operate as efficiently as their usual western equipment, albeit they have also maintained normal production guidance for 2023. May be same issues / concerns at Nornickel too.
Closer to home, good news on Chrome and potential dividend yield this pumps out for THS!
Why are HMI registered in Australia - is there a historic reason for this?
With operations in Brazil and being listed on LSE (AIM) (Cant see 2nd listing on their website for an Oz exchange), surely with operations on right track, it would be time to redomicile to UK, before any dividends are paid? Otherwise being subject to Oz WHT seems a bit ridiculous / inefficient...
In 2022, Nornickel produced 2,790k oz of palladium. That is immense amount when the stats we have for global palladium production in 2021 was circa 200 tonnes, or 6.34m oz p.a.
Nornickel's 2023 is guidance is significantly lower, at a ranger of 2,407 – 2,562k oz, some 228-383k oz lower, or 3.6% - 6% impact to global production of palladium. With SA underground PGM mining likely significantly impacted by ongoing Eskom power cuts, supply side of PGMs could be quite significant. I'd of course prefer if the corrupt Eskom is sorted and the people and industry of SA can go on with their lives unimpeded.
Demand side is harder to judge. On one side you have recession + continued inflation risks. On other side there doesn't seem to be an issue with semi-conductor supply anymore to impede autos production. You also have China re-opening.
Norma - I already confirmed yesterday that the locked box date is a red herring. There is no magical "leakage" monies from 1st Jan 2022 onwards coming back to Serica to make this deal any less palatable. The figure to work with remains the £277m Tailwind Net Debt and that will not change.
Since 1st Jan 2022, there was a carve for "leakage" whereby known "permitted leakages" were allowed. And of course the 12 Jan 2022 Tailwind dividend of $95m was one of those permitted leakages. The circular fails to mention this as it doesn't provide a definition for leakage, whereas the far more detailed SPA would cover this.
If you based part of your Yes decision on the lockbox date of 1st Jan 2022 changing anything regarding Serica paying £61m to TAIL, taking on their £277m Net Debt as of Nov 2022 and diluting our shares with 111m new ones, you're going to be bitterly disappointed.
Banburyboy - after receiving clarification, my initial suspicion regarding carve-outs and caveats from "leakages" and your post that TAIL 2021 div paid on 12 Jan 2022 is probably out of scope is indeed correct. So the whole lockbox date and leakages can broadly be disregarded, wont change the valuation and calcs we've all done here, why we came to our individuals decisions etc.
Banbury - cash generated since 1st Jan 2022 is not the important metric, as we already know net debt was £277m in Nov 2022. The only metric that changes any valuation of this acquisition is "leakage".
We already know a huge dividend of $95m was paid on 12 Jan 2022 straight after the lockbox date. Based on very limited knowledge of "leakage" in the circular (in legal terms, we are provided no real definition of leakage), most investors would assume this $95m would class as a "leakage" and will be paid back by Mercuria to Serica. Unless the SPA has a far more detailed definition of "leakage" with caveats and carve-outs? It seems bizarre that a leakage that happened over a year ago and known, is not taken account in the final agreement in Jan 2023. For example, why is SQZ paying TAIL £61m (£57m + interest), when there is already a known leakage of $95m as far back as 12 Jan 2022, a year before the final agreement is drawn up.
The other question is has there been any other leakages from Jan - Nov 2022 impacting TAIL's Net Debt metric of £277m? All other metrics are known so does not matter if there is any leakage post Nov 2022, as we have £277m Net Debt baseline to work with and TAIL's production numbers and cost per boe thereafter.
Other key issues against:
1) UK Political & Tax Regime: 2 words… “sh*t show”. The only sensible position under this current Tory Government and an even worse potential Labour Government in less than 2yrs is to take HBR’s conservative and sensible position. And if you are going to expand in UK, it’s certainly not to pay top dollar.
2) Mercuria + TAIL board 30% holding – covered eloquently by NewKOTB and others herein on the political corporate governance side, where Mercuria will effectively control the voting and direction of SQZ, whose interests will not always be aligned with interests of other shareholders.
Whatever way you vote, yes or no, take the 5mins and any chasing with your broker to vote. And that goes for every share.