Gordon Stein, CFO of CleanTech Lithium, explains why CTL acquired the 23 Laguna Verde licenses. Watch the video here.
Mike - thanks for highlighting that update and it would be very welcome to get an update not just on Karo, but other growth opportunities like vertical beneficiation plans in Q report. As it's a significant opportunity, potential area of profit + capex, from a presentation perspective THS should give it nearly the same attention as Karo, so existing and potential new investors can fully understand it. The July 2022 Tamesis Analysts Report (incredibly good detailed 40 page research report) dedicated whole page to THS beneficiation:
"At the Arxo Metals Beneficiation Site (AMBS) facility we visited we saw the 1MW DC furnace, up running for three years now, which will produce PGM-rich metal alloys. Initially, it is envisaged that a high grade (25-50%) PGM concentrate could be produced and sold to the smelters at higher payabilities (up to 97%) than what is currently being achieved (c.85%). The company is also pushing hard on the R&D on a hydrometallurgical process to extract the individual metals from the PGM concentrate thereby achieving near 97% payability. This has positive implications for cashflow from Tharisa and indeed any future PGM mines. For instance, if the company went from receiving 85% of the value of the metal content to 97% at Tharisa next year then our FY2023 EBITDA forecast would rise to over $335m (from $260m) equivalent to a 29% increase.
Below is the high-level flowsheet to beneficiate the PGM concentrate that comes out of its own mine. Importantly this PGM concentrate does not need to be roasted due to its low sulfur content.
1. PGE concentrate from the mine is dried and passed into DC Furnace where carbon is added.
2. A PGE-enriched pig iron matte is removed increasing 6E PGE grade by 10x to over 1000g/t.
3. The matte is passed into a Reduction Furnace where oxygen and hematite are added which reduces the mass by 4x. Note that hematite needs to be added to Tharisa mine concentrate due to its low base metal content. The higher base metal content of the Karo PGE concentrate will not need this hematite addition. The **** from (containing c. 5% PGE) is recycled back into the DC Furnace.
4. The matte from the Reduction Furnace is atomized in a third furnace where it is then treated via a hydrometallurgical route.
There are two hydrometallurgical routes that Tharisa is exploring:
1. Tharisa’s own novel process that is under R&D (60% of the way there and have IP which aims to produce separate metal streams.
2. The more standard process of leaching with sulfuric acid. This produces a PGE conc grading 25%. A further process is needed to bring this to 50% grade which can be sold to smelters at c. 97% payability (vs the 80-85% Tharisa receives)."
I should also add the introduction of Interim Dividends whilst welcome, is not an actual dividend policy nor is 6p / share commensurate with what should be returned to shareholders:
Extract from 30-June-2022 AGM Notes:
"In view of continuing strong profitability and cash generation during 1H 2022, it is planned to commence the payment of interim dividends. The level will be announced with the Interim results in September and is currently expected to be 6p per share to reflect the strength of Serica’s year to-date performance whilst leaving scope for a material final dividend"
With the Energy Profits Levy of 25% I may have over-emphasized my estimated £550m end of Aug 2022, but be interesting to see final figure and will still be an absurd amount highlighting the "undervaluation" of SQZ.
To look at the positive of upomega's post and their legitimate concern I'm sure the majority of us hold (shareholders cash sitting idle), end of May SQZ had cash + cash equivalents of just shy of £400m. As others have stated here, to extrapolate based on O&G prices, end of Q3 we could be at circa £550m, over 55% of market cap in cash and cash equivalents.
Even if we had growth prospects to fund organically or M&A, this is an absurd amount of cash to hold on the sidelines - shareholder money being eroded by 10% inflation, just sitting in the bank. It allows predatory lowball hostile acquisition attempts, with a huge chunk funded by SQZ's own cash! As we saw with KIST. There needs to be a Special Dividend and an actual Dividend Policy thereafter (e.g. 40-60% of Net Profit or the like), with the usual Div Policy caveats to provide wriggle room that it's subject to funding acquisitions and development capex requirements etc.
At such a low share price when you take into account our Net Cash position, current gas prices and production, it won't be long until bigger players than KIST come sniffing, if they aren't already. HBR's balance sheet has improved considerably and far better positioned than KIST to make a serious, but still lowball hostile takeover attempt. Sure there are many more players that would be interested too. If SQZ Directors (who do have skin in the game at 3% shareholding) are unable or unwilling to utilize shareholders cash effectively (dividends and /or acquisitions), many shareholders will start to think a "lowball" TO is better in unlocking long-term potential of the assets.
Some pretty amazing results, with 1H Net Profit After Tax at $162.8m, annualized would be $325.6m against Market Cap of £500m ($580m). That's a PE of circa 1.5. But really to normalise for the Net Cash position of $131m, it's more like a PE of 1.1.
Very impressive 1H 2022 Results, when you put it in perspective of current AEP market cap of £374m ($441m):
1) AEP has Net Cash of $247m with increase in Inventory of $41m = $288m
2) Profit after tax for 6 months 1H 2022 was $69m, so annualized $138m. That's a PE of only 1.1 when taking into account cash position.
3) Cash + Inventory Increase of $53.2m, annualized "free cashflow" of $106m. Or FCF ratio of only 1.4 when taking into account existing cash position.
The big unknown of course is what path new Chairman Jonathan Law Ngee Song and NED Marcus Chan Jau Chwen (Genton International Limited 51% majority shareholder) will take company now and how they will distribute and use the huge cashpile. The younger shareholders of Genton may want an income from their holdings to pursue other ventures etc.
Expansion continues with 7th mill in North Sumatera due to be complete year end ($22m capex so far) and an environmental study commenced with view of applying for permits on potential 8th mill in Kalimantan. So even with organically funding growth of the company, the huge cashpile must surely be used for significantly increased dividends in future? For the answer though we may have to wait for Final Results in May 2023, where cash pile could be near the actual market cap if we're still at same share price!
Where does everyone source the Iron Ore 65%, 67% Fe and Pellet Price premiums daily prices these days? The site I used to use doesn't appear to work anymore...
Crunching numbers it does look bit bleak going forward with such a significant increase in costs and avg. carat costs circa $1,700, taking mid-points of guidance and assuming units are in LSL in RNS (15 to 1 USD):
Operating Costs per tonne: $23 x 5.7mt = $129.2m
Waste Costs: $4.2 x 11mt = $46.6m
Royalties: $17.5m
Corporate Expenses: $10m
Finance Costs: $4m
Total: $207.3m
Compared to Revenue of $1,700/carat x 114,000 = $194m
If you're tracking Cashflow, you would also have to take into account Capex ($19-23m), for Profit/Loss D&A ($9m). It looks like the trend of continued decreases in Net Cash will continue and accelerate.
Although great start to quarter for large stones with $13.9m sales already, I don't see this plugging the gap unless they can maintain such a trend in finding large stones and with guidance maintained by GEMD, we can only go on this for now.
Dividend and buybacks can explain $5m of that reduction in Net Cash... The rest could be mixture of what you mention
"After" Nuclear Deal being the operative word and nothing is agreed yet...
https://www.zerohedge.com/markets/nuclear-deal-increasingly-unlikely-iran-strengthens-ties-russia
Hi Mike - thanks for update on Chrome. Out of interest, where do you get up-to-date info on chrome prices? I always struggle. The beauty of THS in last couple of years has been when one commodity is struggling, the others have taken up the heavy lifting.
When Chrome was down in the dumps, Rhodium and Palladium allowed THS to build Vulcan from cashflow (originally it was going to be built with financing) and then Chrome picked up some of the recent slack in PGMs at near $300/tn. Now with Chrome weakening somewhat (although Chrome at $200/tn should still provide a large free cashflow and profit if Chrome AISC is circa $110/tn) Palladium has bounced back over $2,000, Rhodium appears stubborn (for now) over $14k and even Platinum has showed some strength.
I've been keeping close eye on biggest palladium miner Nornickel and even though they're not sanctioned, they've been struggling with logistics and "voluntary sanctions" (i.e. western firms don't want to risk any association with Russia) limiting equipment and spare parts coming in. Nornickels sales dropped in H1, they're pushing Projects back and H1 is before such voluntary sanctions would really bite (as they no doubt had inventories and stockpiles). So even though like others I may be worried by global recessions and weakening demand (in my opinion a lot of such worries already baked in to PGM and stock prices already), supply could also be an issue in any event, keeping a bit of a barrier under prices. Unless there's a liquidity Lehman moment, but then no one can predict that...
Hi Mike et al - not to be too pedantic, but for Tharisa SA open pit mine, I believe Rhodium is circa 12%, Palladium 21% and Platinum 67% (as per last presentation unlock the stock, page 17 - on the THS website Investors - Presentation). I know there is gold in there too, but it's negligible. I know those ratios change Q to Q depending on part of reef being mined, but that appears to be the "average" THS are currently working on and now and again they update it.
For Karo, ratios are 4% Rhodium, 42% Palladium, 45% Platinum and 9% Gold (same page of same presentation).
Good Analyst Report out from Tamesis, very detailed at 40 pages or so. Even more bullish than I am, with a £3 initial target!
https://www.tharisa.com/analyst-reports.php
Some choice quotes:
- Tamesis risked-NAV $1.94bn
- Target price £3
- "The combined resource size for Tharisa Mine and Karo comes to 1Bt containing 52 Moz of 6E PGMs. Tharisa Mine has a 40yr life, of which the next 20 will be open pit"
- "Karo is due to come on stream in H1 2024 (we expect Q2)"
- "Our NPV10 for the Tharisa Mine alone is 439pps. Karo and Salene Chrome deliver additional attributable risked-NPV10 of US$289m (or 80pps) and US$24m (or 7pps) respectively, taking the overall risked-NAV of Tharisa PLC to US$1,940m or 539pps. This rises to US$2,952m or 819pps at spot prices. This captures none of the upside from R&D breakthroughs on
beneficiation, an expanded Karo project or the extra 20-year underground operation at the Tharisa Mine. We are forecasting EV/EBITDA multiples for FY22 and FY23 of 1.4x and 1.2x (1.3x and 0.8x using spot) respectively versus a PGM peer group average of 3.3x. Our PT of 300pps is based on this average and is conservative in our view given the competitive advantages available to Tharisa"
- "We estimate Tharisa will have a net cash position of $113m by end of FY2022 (YE Sept)"
On Net Cash, I think it's bit to "toppy" to predict $113m Net Cash at FYE Sept 2022, but I could see say $70-80m (depending on Karo Capex and the like), but if you add that to the $40m+ above the norm trade receivables owed to THS, I get to Tamesis' figures. Perhaps they expect payments to THS to go back to norm by then, however I still think supply chain will be stretched and payments back to THS still partially delayed.
What a disgraceful offer when SQZ had end of May Net Cash of circa £396 million! As others have said this is what happens when you rest on your laurels and rest on the shareholders money being eaten away by inflation. A proper dividend to shareholders would mean a far higher share price and then only proper M&A action on the table, not this opportunistic nonsense from Kistos.
Having said all that, the ridiculous KIST offer is a ploy to stop SQZ takeover of KIST and to push the SQZ offer price of KIST up no doubt. It's clear from the full RNS and KIST can't afford SQZ, whereas SQZ could afford KIST, at the right price for us SQZ shareholders.
Purely for crude comparison as CAML Q results out today too, THS net cash build is better than CAML's (and in 1H 2022 THS dividend payments of $14m + $8,8m higher than CAML's of £12m, so nomalised THS net cash build even better ), THS Net Cash position ever so slightly better than CAML's (CAML Net Cash $45.6m), mine life far better and growth options of Karo, Zim Chrome + PGM vertical refinement better too.
CAML's industrial metals of copper, zinc and lead also been hit far harder than THS PGM basket and chrome ore price, the latter actually strengthened since last quarter. Div yields of circa 7% probably both roughly same across companies too.
Yet CAML has market cap is £380m compared to THS at £310m. Serious disconnect in my eyes that can not be explained by region as CAML main cash cow copper operations in Kazakhstan.
Normalised for $8.8m dividend, free cashflow this Q was $31m, or annualized $124m (£103m), against THS low market cap of £310, it's on a very low FCF ratio of 3x, lower even still when normalising for growing Net Cash position of $48m (FCF ratio x2.6). I'm sure this is despite logistical issues delaying product getting to clients and therefore cash to THS.
This final Q4 to End Sept, the PGM basket reduction to $2,380oz (compared to $2,677) should be more than offset by Chrome price increase to $290tn (compared to $247tn). Karo also making good progress with LLI orders placed.
Where in the prospectus does it say the bondholders / loan note holders can veto any return to shareholders?
If PDL are within the restrictive / distribution covenants, then its within the companies means a dividend to shareholders can be made. Considering PDL are getting close to going from Net Debt to Net Cash, they could start thinking about paying a dividend in calendar year 2023. I think for 2022 they may want to build up a significant Net Cash 1st to be well within covenants and protection for their stress test scenarios, organically fund expansion projects etc.
If you look at page 61 of the Interims Investor Day Presentation back 22-Feb-2022, capital allocation strategy is all laid out. But buy backs are lowest priority. Before that would be Dividend, Special Dividends, however before both of these there are also other priorities first too (Approved expansion projects at Cullinan and Finsch, Further growth projects, Early debt redemption (1L then 2L)).
https://www.petradiamonds.com/wp-content/uploads/22-02-22-Petra-Investor-Day-Presentation-FINAL-22.02.2022-correction.pdf
Sotolo - I was responding to your erroneous statement "Also with Rh the main constituent of our PGM basket down 40% since start of March I expect our forward PE might be rather higher than you suggest".
You were implying that PE was rather higher than I suggested based on CURRENT PGM and Chrome prices, not forecast. The fact you thought PE was "rather higher" than 3-4 now and I showed it to be circa 2 is quite telling in terms of how you may view THS. It will also means your forward assumptions based on potential reduced PGM and Chrome prices will also be completely wrong.
Let's see if your pessimism on PGM and Chrome rings true this time - it didn't when you were predicting Rhodium back in the low 1000s about 1yr ago. However this time the global markets are looking more ominous and I do agree and think prices will reduce, however will not have the impact on PE of 8x + you have forecast as your initial assumptions are incorrect.
With markets so so bearish, already in a recession (imo) and S&P500 back at 3,700, when will the US Fed do a complete 180 and start reversing interest rate rises and QT (S&P < 3,000?)? Perhaps sooner than we all think and there's no way the markets and economy as a whole will handle another 75bps interest rate hike by FED. Laughable that Powell keeps stating the US Economy is in a strong position - a far bigger lie than his "inflation is transitory" statement! I still tend to think in USD terms we're heading for a stagflationary recession and when the Fed pivots, it can't stop a deep recession, but it will weaken the USD and support commodity prices in USD.
No doubt there is short-term profitable trading to be had and if FTSE and S&P500 collapse before a Fed pivot, you can sell out and buy in, for now though until I return to UK and have more time to keep an eye day-to-day on news and investments, I'll be lazy and hold. Not great strategy for today!
Hi Mike - thanks for updated calcs and yes I agree with them.
I should have clarified my numbers are "annualised" from today to work out a 12 month EBITDA + profit based on today's PGM basket and chrome price for illustrative purposes to counter some assumptions on impacts of a reduced PGM basket. So agree Profit will be less for actual FYE Sept 2022 on basis we of course already know 1H 2022 Interims of $102m Profit after tax.
On THS' actual PGM realised price compared to "spot" basket, I would also agree on your circa 20% discount rate, now I've also calculated and compared the JM PGM Prices averages for 1H 2022, rather than using basket price reported in THS Interims.
Sotolo - how the hell are you working out your PE calcs?! Could you please back them up rather than shooting from the hip. Everything is being pummeled at the moment except oil price (not oil stocks though, which have also declined irrespective of oil price). Unless someone sold their THS and put it in cash (doubt it), it's been a zero sum game at losing 10-20% in other similar stocks.
On THS specifically and using the last 1H 2022 March Interims:
Chrome AISC is circa $110/tn at ZAR 15.3
Chrome is currently at $295/tn, with discount of 12% applied to THS realised price = $260/tn
Chrome Margin of $260tn - $110tn x 1.8m tns = $270m EBITDA
PGM AISC is circa $1,200oz at ZAR 15.3
PGM Basket currently $2,380oz, with discount of circa 14% applied to THS realised price = $2,050oz
PGM Margin of $2,050 - $1,200 x 170,000oz = $145m EBITDA
So overall based on today's prices, that's $415m EBITDA, after D&A and tax etc. perhaps $300m. Considering 1H 2022 6 months Interims had Profit after tax of $102m with far lower Chrome ($175tn) and PGM basket only circa 10% more than now, $300m even though "back of packet" calculation shouldn't be too far off. Now since March there has been more inflation, but there has also been a depreciation in both the ZAR and GBP reducing THS costs. But conservatively let's lop another 15% off Profit for inflation, so $255m.
THS current market cap is £370m ($444m). Based on $255m Profit after tax, THS is on a Forward PE of less than 2, not taking into account the $20m+ cash in bank and the extensive open pit expansion in Zimbabwe that will double PGM production in 2yrs. Pretty ridiculous PE when open pit mine life is 20yrs+
I've been extraordinarily lucky to have most my assets in oil and gas stocks (BP, I3E, JSE, SQZ, GKP and SLE, although latter not so lucky as suspended for nearly 1yr awaiting RTO!) , but am very comfortable riding the THS ups and downs (I know everyone's timelines are different though). At some point eventually I will look to reduce my oil exposure into increasing my gold, precious metals and copper stocks and THS remains top of my list. However do want to see if there's any cash build this Q3 June 2022 and if not, explicit reasons why not (expansionary capex etc. etc.).