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Sotolo - are you only looking at THS?! The whole market is collapsing today! FTSE by 1.7%, FTSE 250 2% and S&P500 2.5%.
You also keep mentioning chrome prices going down, they haven't! They're at a very high 295/tn as posted by THS today on twitter. I don't mind negativity to be prudent and protect investments, but at least be accurate.
If one was to actually calculate a Forward PE of circa 3-4, THS is still incredibly undervalued not overvalued, even with current PGM prices. For me the one area holding me back from adding anymore is the cash build has not matched my expectations. However I expect this will correct over 2H or at least explained through expansionary capex spend.
It's definitely a time to be prudent though in all investments and if not on sidelines, chose shares with low forward PEs and strong cashbuild (even still when stress testing for lower commodity prices). I still mainly remain in oil and other commodity plays like THS, as to be on sidelines in cash with 10% inflation is a hard pill to swallow, but may pay off for those if there is a massive market collapse!
In terms of Chrome, I don't understand why some are under-estimating the impact of chrome prices so drastically. At $294/tn and 1.8mt p.a., rising to 2mt, chrome is far far more than 1/3 of profit, it will be over 1/2.
In these Interims Chrome was $175tn, they're now at $294tn. That's a difference in additional EBITDA of some $200m+.
Based on these results THS has PE of 3, however on a Forward PE, it will be far lower due to current chrome price. It's funny years ago how long it took the market to understand THS Rhodium exposure and even when Rhodium was exploding in price, THS stock price took a long time to catch up. THS PGM Basket Price is still extremely robust, yet Chrome price has absolutely exploded and feels like the market hasn't quite understood this yet.
It really shouldn't be hard getting a Tier 2 or 3 Auditor if the usual big boy suspects aren't interested. PWC stepped away from POG way back in 2020 and their new Auditor MHA MacIntyre Hudson must still be with them, as there has been no such RNS announcement from POG regarding loss of Auditor.
So POLY could easily just hire MHA MacIntyre Hudson if they're any good, or any other Auditor. No doubt though with POLY still having a FTSE100 mentality and being a huge company, they will be choosey at 1st.
Semantics perhaps Tharisa/ Ilja, but dilution is issuing new shares, I agree it's overall value accretive though and I'm not disputing the calculated value of $27m is a good deal. In summary there are 2 ways of funding organic growth as you know:
a) Cash, Debt or mixture of two (i.e. no dilution of shares in issue) - THS is in a great position this option is open to it.
b) Issuing new shares (whether it's value accretive or not, you still "dilute" the original shares in issue by adding more shares)
My question effectively boils down to why could we not have paid $27m in cash for the Karo Option to Leto, instead of the equivalent $27m in THS shares? As a direct example, THS bought Salene Chrome from Leto for a cash consideration of $3m, not by $3m by issue of shares. If Leto as part of the Option Agreement dating back to circa 2018 always wanted payment in THS shares as they wanted continued exposure to Karo, fair enough. If I was to put a "Leto" hat on, then I would want to continue having exposure to Karo and if they were paid in cash not shares, the "fair" price to pay in cash would be far greater than $27m and not at such a steep discount to NPV? Based on your explanation and having time to consider it further, I assume "Leto" wanting continued exposure is main reason why THS shares issued instead of cash consideration like Salene Chrome, a cash price would have been calculated higher and I'm comfortable with this now had time to digest.
It's great news and always been very excited by Karo, however being a substantial holder of THS I'm not overjoyed by the dilution of THS, particularly as we have cash + loan facilties to pay for the Karo Option and THS management/ majority THS shareholders + Leto is a related party with significant conflicts of interest in any such deal.
I'm on the move so maybe I'm being unfair as haven't read RNS in minute detail as to what independent safeguards were in place on this transaction to safeguard THS shareholders interests outside of the family. But this needs to be covered in detail on the investor call.
Biker that is not correct, that is merely how revenues are allocated internally by region, particularly as EVR have a Swiss Trading Arm and Pipe Mills in North America (not with great margins), the former will be able to do no trading whatsoever. If you look at Revenues by Business Segment (where revenue originated), that shows the true picture that 12.4bn of 14bn revenues originates from the Russia Steel and Coal segments (pg 37 of EVR 2021 Annual Report).
The Steel North America business segment is tiny, it's only $300m EBITDA. Vanadium facilities in Czech and other assets in EU are also defunct as they rely on metals from EVR's Russia mining operations.
The Russian Steel and Coal EVR segments represent $4.7bn EBITDA of the Group (94%!) (again refer to pg.37 of EVR 2021 Annual Report). Steel production of the Group > 87% is Russia (pg.16-17 of EVR's 2021 Annual Report). With sanctions, trade and logistics cut-off, all assets are dead in the water unless there is a change in current situation. With complex supply chains and sanctions in place, with bulky products such as steel it will be incredibly tough to pivot to new clients in China or India, perhaps impossible. Even if they did, they would demand an eye-watering discounts and EVR would be lucky to break-even.
We can only hope with the war going so badly for Putin, at some point there must surely be some rapprochement. However it could be a long nail-biting wait.
EVR themselves said "in a worst-case scenario it will have to reduce spending by US$500mln a year and go to the market to raise capital for 2023 and 2024". What is occurring now is far worse than any worse case scenario the Board might of thought possible on 25-Feb. It would be madness to pay dividend until the dust settles.
https://www.proactiveinvestors.co.uk/companies/news/975159/evraz-said-it-is-preparing-for-the-severe-downside-scenario-975159.html
In such a scenario, POLY can walk away from the debt and call Force Majeure. Both POLY and its banks who own the debt will join in a criminal and civil action against Russian state to reclaim monies due to them. It would be a long drawn out process lasting many years and they would no doubt be recompensed through Russian frozen assets abroad. This has happened before many times in International Court (Tanzania springs to mind), but could take decade or so!
Like most multi-national entities, a company structures subsidiaries and affiliates by country, region and project depending on national, regional laws, JVs, ring-fencing etc. From POLY's Accounts, it appears that Kazakhstan entity is "Polymetal Eurasia LLP / LLC" and in a worst case scenario, could easily be ring fenced.
Now re-looking at the Kazakhstan assets in more detail (even before today's update of replenishment of resources) they are more than a 1/3 of POLY in everything: annual production (500k p.a.), EBITDA, Reserves (10m+ ) and mine life for Kyzyl is 30yrs, Varvara up to 2036, but sure through RNS' like today's can be consistently rolled over and extended. POLY would be left with Polymetal Eurasia LLC / LLP as the entity managing its Kazakh assets at the "asset" level.
I tend to think Kazakhstan entities on their own are worth more than £2.50. So the risk-reward for those brave enough to buy, is looking pretty good. But don't invest if you need money anytime soon as you need to take into account in worst case scenario any break-up, de-merger etc. could take a long time.
As others have said though, whether Russia does seizes and then nationalizes mines without compensation is a different story. At present the West have seized and frozen assets, they haven't yet "expropriated" (nationalised/ stolen, however you want to phrase it) them for sale. There is still a small chance if our "Dear Leaders" see sense and peace talks prevail after this terrible war, assets will be "unfrozen". Russia obviously has to remove all troops and agree to a peace treaty with Ukraine where they will never invade again, but NATO, US and Ukraine have to agree Ukraine will not join NATO. The EU also has to agree Ukraine can trade freely with Russia irrespective of any rigid EU trade rules in event Ukraine becomes more closely aligned to EU. As disgusting as Putin's actions have been, US, UK and EU have led us to the brink too and have lacked any diplomacy whatsoever. Why NATO membership was allowed to be discussed so flippantly is beyond belief or why UN and EU leaders did nothing to try and resolve breaches of Minsk II Agreements or put more focus on this area to ensure peace. Now it is incredibly hard for either side to de-escalate and views will become more entrenched.
I think next step in financial tit for tat will be for Russia to apply capital controls and or asset freezes in retaliation so companies can still operate but not remove any monies from Russia, but not wholesale asset seizur
1) Putin can only confiscate Russian mines, not Kazakhstan portion of operations (1/3 production).
2) It's not a Russian company, it's a UK company registered office in Jersey and its office in Cyprus, listed in UK and Russia. But of course yes most of its production and operations are in Russia.
3) POLY's debt I believe is mainly denominated in USD and EUR (based on 2020 Accounts), not RUB, so will not be subject to 20% Interest Rates which is for RUB. POLY also has mix of fixed and floating interest rates . POLY's sales are of course in USD (Gold), so paying debt in USD and EUR is no issue, if the banks POLY uses are not subject to SWIFT restrictions. If they are, POLY can simply call Force Majeure. If any debts are in RUB, POLY are winning as this debt in USD terms has just significantly reduced, while its sales are still in USD.
4) Logistical issues: as long as POLY aren't included in any sanctions it should be minimal. Materials and Equipment should be easy to come by via China. They can even do inter-company logistical transfers with their Kazakhstan entities.
Agree though your 1) is the biggest risk - confiscation of russian mining assets.
Sorry ignore my previous post regarding 99% mining in Russia, wrong board. As Torny said and my earlier post 1/3 production in Kazakhstan
This is misleading and hides the fact 99% mining is out of Russia!
Slater - how can you end up with zero when 1/3 production and EBITDA is in Kazakhstan, out of Russian control?
If Russia take nuclear option to nationalise mines without compensation, POLY walk away from their debts to Russian banks, call FM on other debts too, kick out the 25% Russian ICT shareholder and carve out the Kazakh assets.
How much would a 500k oz p.a. with 12yr+ mine life and low AISC be worth? Centamin is worth £1.1bn with 400k oz p.a., much higher AiSC and really due to unfavourable PSC, 50% of CEY's production goes direct to state.
This is a London listed company and whilst we can't control what happens to mines in Russia, we can control what happens to the company as an entity, block 25% shareholder from any say if working against company interest. But we're not even at that stage... yet
For some it's worth the risk when you have a 25%+ div yield, what now must be 20-25% of market cap in Net Cash and $90 oil + increased production to 55k/bopd making these eye watering % even better over the months.
If you read all the article, the longterm downside is IOCs dealing with Iraq's Federal Ministry of Oil (FMO). Whether Ahmed Mousa Jiyad is simply a mouthpiece for Iraq Government in this complex scenario where he does nothing to dive in or counter KRG's position:
"The KRG has accused the court of drawing "precedents from the centralised laws of the former Ba'ath regime" of Saddam Hussain. "Article 112 of the Constitution also stipulates that oil and gas is not within the exclusive authority of the federal government. This same article also preserves the right of the Kurdistan Region to produce and develop the region's oil and gas," it said."
Short term downside of course need to be factored in, but GKP has already lost >10% of its market cap even after the normal decline ex-div.
https://www.zerohedge.com/markets/toyota-targets-record-11-million-vehicles-produced-its-fiscal-year-2022
Wonder how this will impact Rhodium and PGM demand if all autos follow suit and now with Omicron, feels like the worst of COVID is behind us and world will slowly get back to normal... Normal as in worry about everything else other than COVID! Of course they'll be Ukraine, US FED, inflation, Taiwan etc. etc.
Metalhead - it's partly explained in the update that there was delay in quarter in THS receiving monies from chrome concentrates which i assume will show up in the Jan-Mar 2022 quarter:
"Tharisa had a cash balance of US$79.1 million (30 September 2021 US$83.4 million) at the end of the quarter and debt of US$54.7 million (30 September 2021 US$35.5 million), the increased debt levels attributable to short term trade financing flows relating to the timing of chrome concentrate shipments resulting in a positive net cash position of US$24.4 million (30 September 2021 US$47.9 million)"
However I think it must partly also be explained by paying off the Vulcan Project Capex. In the THS Accounts FYE Sept 2021, the Trade Payables were $105m, more than the usual $53m odd. Some of this is attributable to the increase in production, which naturally increases both Receivables and Payables, but most of this must be Vulcan. Be good if THS can clarify in a follow-on interview/ analyst call if majority of Vulcan Capex now invoiced and paid off by THS to Contractors etc. Should also be noted Trade Receivables FYE Sept 2021 was a huge $137m far exceeding payables.
So with more than usual chrome concentrates monies coming through this Jan-Mar and hopefully if THS clarify bulk of Vulcan paid off, this quarter we're in now should see huge cash generation, particularly if PGM Basket holds up at $2,700 and Chrome at circa $175/tn.
Mike - I would be interested to understand how you calculated 16c per share for 2022 particularly with the increased guidance, which will increase revenues and through economies of scale decrease costs on per oz / per ton basis to partially offset other increased costs.
"FY2022 production guidance of between 165 koz to 175 koz PGMs (6E basis) and 1.75 Mt to 1.85 Mt of chrome concentrates. COVID-19 remains a risk to the Company and guidance is premised on the current level of economic activity being maintained"
Separately from a cashflow point of view, with $50m spent on Vulcan Project Capex in 2021, capex requirements will be far less this FY2022 and add to the cash build.
Really is exceptional news. A near 20yr low cost open pit mine life. Both operationally low cost and now no need for any capex to go underground. It makes the already ridiculously low PE ratio even more ridiculous, when we have such a great open pit mine life!
As others said, getting close to Financial Results 02 Dec and hopefully a separate RNS on Karo Resources soon too
Thanks for all the comments and additional info NewKOTB. Decided to buy some more today after re-reading last set of reports, presentations, completely separate to seeing UK Gas Futures for Dec have gone above £2/therm again. As I'm basing my decision on a much lower price and still think its incredibly undervalued.
Perhaps the one area i would like to see increase is more structured reporting by SQZ to blow their own trumpet. Is there a historical reason they don't provide unaudited quarterly reporting? Could be incredibly simple and short and sweet, just providing update on quarterly production, net cash position, short exploration/ new devs update. Otherwise there's a huge dearth of any shareholder info for months at a time. As an example, we may have to wait for Annual Report in April to know just what a bumper 2H 2021 we've had. And by then you already have a Q1 2022 completed too. Perhaps commencing in 2022 after release of the Annual Report, they should start simple 1-pager Quarterly Reporting? Not sure how others feel about it...
I know SQZ hedge to a certain extent, but putting this aside, could someone clarify what SQZ's BOE conversion price would be, using current market/ spot prices as an example, and if they normally receive "spot/marked price" for their products?
With SQZ's make-up being 20% oil / 80% gas:
- Brent at $80 * 20% = $16
- UK Nat Gas at £1.9/therm * 1.35 (Forex) / 58.6 (therm to barrel oil conversion) * 80% = $120
- Total SQZ BOE price = $136/boe
My therm conversion of 58.6 is ever so slightly different to online calculators of 58 therms = 1 boo, which I can explain in bit more detail from stats table I took from SQZ 2020 Accounts, but just wanted to check I'm on right path, as if $136/ boe is in right ballpark, SQZ appears obscenely undervalued.
Based on next 2022 guidance of 27,100 - 33,600 and taking midpoint of 30,000 boepd which would produce circa 10.2mmboe per annum, the revenue over a year would be $1.4bn (yes I know £1.9 per therm probably won't last, but indulge me for now).
In terms of cost of sales, for 1H 2021 it was £55m, for 2020 £129m, 2019 £165m. If we get back to 30,000 boepd area for 2022, we could go back to circa £160m ($216m) cost of sales equating to $21 per boe. With perhaps Capex of £100m ($135m), you would be looking at $1bn free cashflow in a year (before tax) on a market cap of £501m. Even if gas averaged £1/ therm (SQZ BOE would then by $79/boe), FCF would be circa $458m. With SQZ having well over £100m in bank by now, this would be PE of less than 1.
I assume I've missed some deductions, costs or other variables I haven't considered out, otherwise apart from AXA selling down providing an opportunity, it seems incredibly "cheap"?!
Beat me to the punch nimrod. Yes very good write up, should be in paper copy today too:
Tharisa’s dividend looks precious: https://www.investorschronicle.co.uk/ideas/2021/11/11/tharisa-s-dividend-looks-precious/
It finally gets the "SLP treatment" in the IC, much deserved as in my opinion THS is a far superior share in comparison to SLP, on all major metrics (Forward PE, growth prospects etc.). SLP's Net Cash position better than THS, but with Vulcan Project up and running, THS will soon surpass SLP on this metric too. Some snippets from IC:
"The consensus forecast for free cash flow (FCF) in the recently completed financial year to the end of September 2021 is $179m (£132m) [...] FCF for the last financial year is expected to be around two-fifths of the company’s entire enterprise value (market cap plus debt minus cash)"
"And 2021 is not expected to be a one-off. Broker Peel Hunt thinks that over the next three financial years, after paying dividends, the company can produce $250m of surplus cash"
Goes on further to talk about such FCF and profits should yield div of 7% according to Peel Hunt, whilst then discussing growth prospects coming to fruition in Zimbabwe which we've all discussed on here and know about anyway: " Tharisa is moving toward a green light on a Zimbabwe platinum project, and has started construction at a new chrome project in the same country".
Definitely worth a read and fills a gap between next news on 02 Dec for Annual Results and potentially a stand-alone RNS on the huge Zim Platinum Project.
If that was the case surely they would be considered part of the "free float" and therefore way above the 25% threshold.
The only reason this delisting can occur is the free float is below 25% FCA limit. Otherwise the IIs could torpedo this and vote against it. Push for higher sale price. Half of the market cap is in cash, even before this current blowout Q4. The IIs must all be on board at delisting at this price, knowing they'll get huge dividends soon as they go private. The excuse about financing is a joke now they have huge amounts of cash