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The THS presentation had a 1hr hard-stop as management had additional meetings, so they didn't get round to my questions in Q&A, but did say they will be responding to all Q's not answered. In summary mine were broadly:
1) $79m Capex for Tharisa Mine (Excl. Karo): does this cover sustaining & expansionary capex, or just the former?
2) Project Vulcan/ Chrome: with FY 2023 target of 1.8MT, does THS still forecast long-term production of 2MT? Has Vulcan managed to provide the efficiencies as intended to reach 2MT?
3) Explanation for the -$70m on the Foreign currency translation reserve hitting the Comprehensive Income
4) With Adjusted EPS of 41.1c (excl Karo acquisition), which is higher than FY 2021 EPS of 37.4c, why has the dividend decreased from 9c to 7c? Is it to provide liquidity/ buffer/ rainy day for Karo and other growth areas?
Infor - agree this update should have included a Net Cash update, the statement on UK legislation changes should have been much stronger (even just adding an "extremely" infront of challenging!).
The PR from SQZ, all other North Sea O&G operators and their representative trade/ PR bodies has been woeful. Before the Autumn Statement all groups should have been extremely vocal through media, RNS' etc., direct open letters to the Government of the huge impact the 65% EPL had already had, let alone now 75%! Including positive items of how many people employed, all indirect and direct taxes paid to HMRC etc. etc.
Instead when the Government were leaking 75% through the press before the Annoucements, it was deafening silence. Speaking up now is better than nothing, but too little too late, the damage is being done. The North Sea O&G sector has already had a long-term windfall tax with the supplementary tax pushing corp tax to 40%, then 65% and now 75%. It's absurd. North Sea is marginal hence why bigger operators were slowly divesting out of many fields leaving it to more efficient smaller operators like SQZ.
Specific to SQZ I think a lot of shareholders are incredibly frustrated with the Board post KIST M&A which can't be simply explained by our inept government. When a share price is this undervalued in terms of its Net Cash position, extremely low Forward PE even with 75% EPL, they should be instigating buybacks, increasing dividends and shouting to the Government that it is impossible now to invest further in new NS fields outside of its existing ones.
I think if SQZ got another lowball M&A at £4+, this time a lot of PIs and IIs may think much differently than last time... I know I would.
Luciano - most who are sticking with SQZ will be because of their Net Cash position is nearing the market cap!!! So downside very limited. To describe SQZ as an "oiler" when it's 85% Gas and Gas price has exploded with this current cold snap (currently £3.30/therm), is off the mark and another reason to hold.
As frustrated, annoyed and disappointed that I am with UK politicians on all fronts, their economic ignorance, North Sea O&G operators in general with terrible PR not fighting their own corner adequately and SQZ Board included in this, I'm a buyer on days like these where you have large drops. My wife's entire ISA allowance for the year has gone in to SQZ today at £2.88.
Your post completely misses the investment case of SQZ... IMO.
Mike - on page 27 & 28 of the THS Annual Report presentation, it's explained in detail and when stripping out Karo, the adjusted EPS is ultimately 41.1c, which is what the dividend is based on. They've just gone through it in investor call and it's in line with last week's "Release of FY2022 results" RNS so I'm happy with that explanation.
For me the Foreign Currency Adjustment of -$70m is separate accounting issue that needs a separate detailed explanation. They may have covered it but i've been multi-tasking on other things so may have missed it!
Spike - agree, massive news and as you say great terms on interest rates which vary 3-7%. For me it's a very clear RNS and with the Assaubayev family owning 65.5% their interests should align with all other shareholders in terms of both increasing shareholder value of company in both capital and dividends as CEO Aidar Assaubayev summarised at end of RNS:
“Securing the development funding at attractive terms, indicates our partners’ confidence in the prospects of AltynGold. We are now in a position to implement the expansion plan towards 1mtpa production within two years in line with our strategic growth plan. Achieving this milestone will significantly increase shareholders value and set the stage for a sustainable dividend policy.”
At 1mtpa run rate, 82% gold recovery and 2g/t, I calculate gold production increase to 53k oz p.a. However a 2.5g/t would provide 66k oz p.a. and 3g/t 79k oz p.a.
Sotolo - Net Profit for the year was $167m compared to 2021 being $132m, however there has been a very large Forex of $70m in 2022, bringing "Comprehensive Income" for year down to $97m, whereas in 2021 they had a $20m Forex gain, meaning income was $152m.
I'm sure this is explained somewhere in results, but be good for a detailed explanation of this huge Forex swing in today's investor call too, as I don't fully understand it:
"Foreign currency translation reserve
The foreign currency translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations with a functional currency other than US$ and foreign currency differences relating to translation of intergroup loans and funding arrangements which are considered to be part of the Company’s net investment in a foreign operation"
I know tomorrow is going to be busy with THS results + investor call (sign up with Investor Meet, I just registered for the call), but thought I would post NorNickel's Market Review which came out 30-Nov but only just saw it over the wkend. There's bit more I haven't copied and pasted if you follow the link.
"Palladium
Even though the automotive sector, the top consumer of palladium, is recovering faster than we had anticipated, the growing battery electric vehicles market and moderate but persistent substitution of palladium with platinum restrains the use of palladium. Moreover, demand from electronics and medical industries is also likely to shrink this year. We therefore expect the global palladium demand to fall by 4% year-on-year to 9.5 million ounces in 2022.
However, primary and secondary supply cuts offset the potential drop in demand. We expect the global supply to lose 10% this year leading to a deeper market deficit in 2022. We have revised the 2022 palladium market deficit from 0.1 million ounces in our previous estimate to 0.6 million ounces and expect the deficit to expand to 0.8 million ounces in 2023.
Platinum
We still expect the automotive sector’s demand for platinum to stagnate this year on the back of the weak demand for diesel-powered vehicles in Europe. On top of that, other industrial demand is also expected to fall with glass industry experiencing the most significant fall as last year’s buying for capacity expansion in China has now dried up. Hydrogen economy is yet to play a role as a platinum saviour, and the demand generated by this sector is expected to remain marginal in the mid-term.
We expect platinum surplus to shrink down to balance in 2022 in comparison with our previous estimate of a 0.9 million ounces surplus on the back of mining disruptions in South Africa and lower secondary supply. In 2023, we expect platinum market to return to a moderate surplus of 0.3 million ounces as South African operations are expected to stabilise."
https://www.nornickel.com/news-and-media/press-releases-and-news/nornickel-presents-metals-market-review-301122/
Hi feynzz, long time no speak, think last crossed paths on SLP or THS. Still in THS, but no longer in SLP.
On SEPL, thanks for that, that reconciles it! Bit lazy of me, relatively new to SEPL so didn't look through the entire 2021 Accounts or realize SEPL's "cash generation" is similar to EBITDA and have to take in to account all the items you listed.
So even taking that all into account, their organic normalised "free cashflow generation" is circa $133m for the 9 months, which is very impressive when you consider market cap of only £600m and one more quarter to go.
Can anyone clarify / reconcile the Net Debt evolution for last 9 months?
- 2021 ended with Net Debt of $426m
- Q3 2022 ended with Net Debt $452m
- In the last 9 months SEPL have stated cash generation of $368m, so can't resolve how Net Debt is relatively unchanged.
- Outgoings we've had Capex of $110m, dividends paid out of $44m and $128m deposit for Exxon Assets ($282m total). Incomings they've then received $13m of the Ubima Divestment Agreement, so that's $269m explained. With Net Debt increasing to $26m, that's some $125m I can't reconcile between the $368m cash generation versus all changes listed herein.
Production was a known quantity from the PetroPeru data. However cash has increased by $16m and Trade Receivables by a huge $35.7m (with trade payables the same from last Q2), so an increase in Net Cash position of $51.7m (annualised $207m p.a.). So overall Net Cash could now be circa $130m, but need to wait for full Q3 Finance update.
That's based on 12k bopd. We're significantly undervalued based on this free cashflow at 12k bopd, let alone the increase in production we should expect going forward.
All this for a £344m market cap?!
Amazing results and confirmation as of 23-Sep, more than 50% of SQZ's undervalued market cap is Net Cash!
Whilst it's good news interim dividend of 8p is above the original estimated 6p, this is still a derisory figure to shareholders in comparison to Net Profit and Net free cashflow and we need an actual dividend policy. This 8p dividend amounts to only 19% of Net Profit in 1H 2022. A dividend policy of 30-50% of Net Profit (or Net Free Cashflow) gives the Board scope within % boundaries, provides certainty to shareholders and is more than enough for growth and M&A, as we have a huge cash pile that will continue to grow.
Rhodium remains at $14k, Chrome pushed up to $210/tn, GBP at 1.07 and ZAR at 18. All great metrics for THS whose revenues and profits are in USD, majority of costs in ZAR and market cap valued in GBP and dividend converted from USD profits to GBP.
When the general noise, global market fear / sell-offs dies down, THS should be looking pretty, with its FY coming to an end Sept, FY Q4 results 11-Oct and Annual Report 05-Dec.
I really hope we get a detailed Karo update in the Q4 results. There's been no word on financing and be good to get an update on this. When THS is not the only entity, but Leto too, THS should not be funding Karo alone from its own cashflow, but both entities need to fund their own share. I assume this is the case.
jono44 - in summary of the JSE assets and others can correct me:
Original Guidance for 2022 was 15,500 - 18,500 boepd (95% oil) excl Maari NZ, which I think would roughly translate to:
Current:
1) Montara: 7-10k bopd (H6 well provides increase of 3k to 10k)
2) Stag: 3k bopd
3) Penmal: 5.1k boepd (90% oil), excl non-operated which originally hoping to recommence Q3 2022
Future (?)
4) Maari : 4,500 - 4,700k bopd (gross), believe JSE's portion would be 69%? Also believe JSE are accumulating proceeds if transaction goes through?
5) North West Shelf Oil acquired BP Oz non-op portion this July, from 2023 will add circa 2.1k bopd
6) Akatara 1st Gas Q2 2024 circa 7-9k boepd
End of May cash $180m.
So whilst I completely understand the knee-jerk reaction today and uncertainty of remedial works completion for Montara FPSO, I do think JSE is insulated with its large cash position, other assets producing + earning at very high oil prices and near-term known growth options.
I'm interested to understand what will happen in "worst case" if Maari wasn't to proceed. At some point we surely have to request NZ regulator to make a decision one way or another. What monies will be due back to us I wonder if it didn't proceed?
jollygood - yes an amazing set of results. Even after all the expansion during the period you mention and generous dividends, I3E have still managed to double their Net Cash position in 6 months to £30m ($35m).
With production increasing through 2H 2022 as stated in the report based on July and August actuals, pushing through to 21,000k boepd, expansion will continue, dividends could increase and / or cash pile will continue to build... or mixture of all 3! If Serenity is successful it will be no problem for I3E to fund it organically through its cashflow, cash position and cheap debt when it has such a strong balance sheet in a safe jurisdiction. With UK government pushing for new developments, this will also mean I3E having no issue raising debt, or if I3E wants to de-risk Serenity, a further farm-out - 75% is a fair chunk of 1 field!
The exciting times for I3E continues... Even if Serenity isn't commercially viable, we're incredibly undervalued based on this update.
Hi Mike - not too much to add until we get the actual numbers! Nit-picking, but THS mention in their Interims a normalised tax rate of 25% (As opposed to the 18.24% they paid due to tax exemptions).
On Karo, agree with your numbers. To add more meat, Zim Government have 15% current free carry and option to be executed by 29-Mar-2025 for further 11% based NPV of $770.4m payable in cash, so $85m if they wanted to increase their holding. Agree at present THS have 66.3% of 85% (56.4%). What I can't remember and can't find in the Karo Presentation from 31 March 2022 is the funding split. Is THS responsible for 66.3% of funding, with 33.7% funded by Leto? We do need an update on the financing as per last RNS:
"Karo Platinum is in advanced discussions with financiers specifically relating to export import finance including political and commercial guarantees to provide the senior debt funding for Karo Platinum. The necessary equity capital contribution for Karo Platinum will be mainly funded from internal cash flows and capital market facilities of the Company. The optimal funding solution is being finalised and further information will be released to the market in due course"
But a key question for next InvestorMeet or direct to Ilja is how are Leto funding their portion of costs?
Also a major positive for Karo and Salene Chrome is that they're in SEZ until 2029 with a Corp Tax of only 15% and ability to pay-out dividends with no WHT.
We already know 1H 2022 Net Profit was $101.6m (total income post forex translation actually $112.6m) incl. non-controlling interest, so I don't believe it will be as low as £110m. Albeit even £110m shows the ridiculous valuation of THS at £348m market cap, $48m Net Cash, a 20yr open pit miner (40yrs+ thereafter underground) with 160K+ oz PGMs and 1.6 - 2MT chrome ore, growth prospect Karo Zim another 20yr+ 160k oz p.a. PGM open pit mine due to start production 1H 2024.
Whilst £150m may be too optimistic (depending on avg . forex being used for entire FY), I don't think $150m is too much of a push. And correct me if I'm wrong, but this will be the 1st Annual Accounts with which should hopefully have a simplified more shareholder friendly breakdown with no "non-controlling" interest portion to deduct and try and understand that %, as all shareholders are now under same umbrella.
We have to remember Forex is currently USD - GBP 1.15 and USD ZAR 17.3. That ZAR Forex will go some way to controlling costs in USD terms.
Thanks for info on Amplats. This follows Sibanye reporting in August that it had a terrible 1H 2022 in terms of production, cut their US production guidance by 100k oz for 2022 and longer term are reviewing viability of their US Ops. In long-term too the very deep platinum mines in SA must be struggling and Nornickel in Russia (biggest palladium miner in world) may start to hurt in 2023 if sanctions are still in place and can't get the materials and parts they require.
Sibanye and Anglo American could do with some reliable low risk open pit mining operations... who has those? ; ) And what will THS and its share price look like in 1H 2024 when Karo is up and running? Exciting times.
Rhodium now back to $15k...
THS also presented at the 2022 Shanghai Platinum Week on 6th Sept which likely / hopefully drummed up new investors. Rh also proving resilient and popped it's head back over $14k.
It's great to see THS do these type of events. I really like the InvestorMeet presentations they do, however it's always best to widen the net. SLP used to do "roadshows" in London and I believe NYC as part of the release of both their Interims and Annual Accounts. Going to major investors, banks, analysts etc. face-to-face and rolling out the presentations directly to them. I have to admit I don't know if THS Management do this, but if not, something they should think about doing. I know with technology you could argue it's not strictly needed, but there is something to be said about the face-to-face personal touch still in this day and age.