The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
"The global semiconductor shortage we have been reporting on for the better part of the last year looks as though it could finally be turning a corner for the automotive industry. Smartphone production, however, may have to continue to suffer deficient supply until well into 2022, according to a new report by Reuters."
https://www.zerohedge.com/markets/semi-shortage-may-be-nearing-end-autos-overall-supply-will-remain-limited-until-second
The above article provides a good, relatively bullish update on autos supply concerns dissipating in the autos sector. Amid a complete collapse in autos production due to the semi conductor shortage in last few Qs, which in turn must have caused a collapse in catalytic converters and hence the raw materials, PGMs that went into them, Rhodium only went down to $18,000 area where it is today (a "higher low"). If autos production now returns to normal, what do you think that will do to Rhodium demand and hence pricing? There certainly hasn't been much increase in Rh supply that I can see, which remains inelastic. Rebound in autos production will no doubt take time and Rh could continue to creep lower, but I can see it recovering once more if this major supply disruption managed to only get Rhodium back to the $17-18k area. I don't think the "market" quite realises how tight both the palladium and Rhodium supply is, nor how overground supplies are near exhausted.
If the market was "right", no one would ever make any money. COVID has been awful for economies, lives and political decisions making the whole thing even worse, however it's created incredible opportunities in the markets.
Separate to the points you raise, I think the main issue currently outside THS control is the unrest in SA, which is very hard to predict in the medium to long-term.
In short-term it creates huge geo-political uncertainty for SA and therefore SA companies, while pushing up PGM and Chrome prices due to said uncertainty, so it's a bit of a double-edged sword. I do not know nearly enough about the situation to provide analysis. However with the significant ramp-up in SA military deployment to support/ replace the inept police, I would expect/ hope it to help the situation significantly. Separate to THS, it is terrible for the SA economy and its people and hope its resolved soon.
https://www.bloomberg.com/news/articles/2021-07-14/extra-army-troops-help-quell-deadly-riots-south-africa-says
4) Presentations: I for one am very happy with the stakeholder engagement. It was only circa 1yr ago most of us on this board were chastising THS for not engaging shareholders enough. They have taken on many comments of PIs (e.g. Q reports are now more detailed, provide Net Cash metrics etc.), their Interims accounts are incredibly detailed, far more than any other LSE company I follow bar some FTSE100 and they now regularly engage with PIs and answer vast majority of all questions in a transparent manner. Yes there is a lot of repetition, but unfortunately they have to do this for potential new investors.
5) Dividends: for last 5yrs, THS have paid out divs of 17%+ NPAT, over the 15% NPAT policy. We also have to remember once you take into account the non-controlling interest, this div already represents circa 25% and perhaps they should start to represent it in this manner. I have no doubt the final dividend post Sept 2021 Account will push the dividend policy past 17% again. The remaining Vulcan Capex of $40m + Karo Zim Capex were back-ended to 2H so they may have wanted some wiggle room, but whatever the reason, I personally was not too bothered with the Interim div being 14% rather than 15%. The key factor is that the FY div overall is 15%+ NPAT. I will accept though post FY 2021 with Vulcan complete, Net Cash position, THS should be increasing the dividend significantly, unless they very explicitly specify why (Karo Zim requires XXX expedited Capex etc.)
Hi Ragnar – good to hear from you again on THS board, I’ve been bit MIA too as been travelling length and breadth of USA so been bit snowed under. I thought you may also have been busy too and/ or sold, as you did allude to being disappointed on the 14% NPAT interim dividend previously and you have fleshed out other reasons today. To provide a counterpoint:
1) Salene Zim Assets: I’m personally very comfortable with the other assets of Salene Chrome and Karo Resources (PGMs). Salene Chrome has always been billed as an “entry asset” to understand Zimbabwe more, but could be a nice little earner on its own. Karo Resources asset is relatively well known technically through the work Zimplats have performed (96 Moz 4E resource (platinum, palladium, rhodium and gold) grading at 3.2g/t declared by Zimplats in 2017)), before they were forced to relinquish it. THS have also been clear on the way forward and we should be due studies end August 2021.
2) The selling still appears to be an II (FIL), which no doubt with recent SA troubles may cause PIs to be wary as well. There are many of the usual reasons why smaller companies like SLP and THS would initially get hit far harder than the big boys from geopolitical risks (more illiquid, less diverse geographically, smaller market cap meaning selling required to initiate drop easier etc. etc.). In terms of II notifications, it is my understanding it is not THS direct responsibility to issue updated RNS’ notifications, but the sellers/ buyers. However THS do provide regular updates through the presentations. For example in the recent Mello presentation, it is clear FIL continue to sell and have reduced from 9.9% as of Sept 2020 to now being only 2.7. However if you look at the other IIs, Medway (Pouroulis family) remains the same at 40%, Fujian on the other hand has increased from 7.2% to 10.2% (back to near their IPO holding %). As you also know well from our SLP days, IIs are not always “smart money”. We’ve discussed many times how II selling provides many opportunities – for example how SLP plunged to 7p on back of an II selling. Much later on Majedie selling out of SLP in 30p only to see it rebound almost immediately to 60p+ is 2 of many examples.
3) Growth projects: THS have been clear on the growth projects that are viable and coming to fruition (Vulcan Project increasing Chrome to 2MT p.a., Karo Resources study due, slow ramp up to Salene Chrome etc.). I’ll admit I’m wary regarding Salene Maganese and Greece Nickel projects, but if these were close to fruition, I would expect some additional transparency from THS. I would disagree that the world doesn’t need a Karo. Karo is a low-cost 10yrs+ open pitable project, it means the world will need less dangerous 1km deep underground PGM mines. Also with the Hydrogen economy, we might soon realise PGMs have a bright future and ICE vehicles are here for lot lot longer than most expect.
Cont...
For those who missed the Mello Monday Presentation, here is a link to the video on youtube, THS starts at 1:22:21. And after that link to the Powerpoint Presentation on THS website
https://www.youtube.com/watch?v=6zXAqpLs6Qc at 1:22:21
https://www.tharisa.com/ovr-presentations.php
Sotolo - I see that cup is still half empty.
- Why do you believe Rhodium could even fall back to "couple thousand"?! Which analysts or companies have projected such a large fall and fundamental shift back to the old norm, which appears behind us?
- For this to happen, you must believe the long-term chronic under supply vs demand balance will shift. All major economies over last few years have enacted stringent emission standards requiring increased PGM loadings in CC, some of these have not even been felt yet on demand side, yet we still have a lack of Rh supply compared to demand, which only shifted in short-term due to lack of semi-conductor chips impacting car production, which likely will continue through 2021. So where do you believe this new supply of Rh or lack of demand of Rh will come from, to change the balance in medium to long-term?
- Even with adoption of EVs, due to increase demand for autos across the globe, continued modernization of developing continents (Africa et al), even with EV % autos increasing, the total number of cars is projected to increase and thus total number of cc cars increasing in total. What about this tells you the dynamics of the PGM industry is "short term"?
- These projections are based on best case scenarios of EVs, which are already lagging projections. No one has still answered the question where all this lithium will be supplied from - there simply isn't enough of it for the fanciful projections, even if you project out that new technology + increased prices will unlock new lithium mining deposits. NHM did a good overview of the challenges, that no one has yet adequately answered, particularly on the lithium and cobalt front:
https://www.nhm.ac.uk/discover/news/2019/june/we-need-more-metals-and-elements-reach-uks-greenhouse-goals.html
https://www.nhm.ac.uk/press-office/press-releases/leading-scientists-set-out-resource-challenge-of-meeting-net-zer.html
https://www.miningweekly.com/article/demand-for-platinum-and-palladium-in-auto-sector-set-to-rise-as-regulations-tighten-2021-07-02/rep_id:3650
In summary, I think your long-term pessimism as this being a "short term share" is ill-founded and you do not back it up with any fundamental research on actual supply v demand dynamics. Albeit this partly explains why you appear to "clock watch" the share and appear so nervous - as you see it as short-term and no doubt trying to perfectly time an exit, which is always hard for us PIs.
Due to semi-conductor chip shortages severely impacting autos production, we must have had a complete collapse in Rh demand from the norm, yet Rh is still at $18k, a high price something none of us thought possible over a year ago - we were all just dreaming of $12-14k+. Could it go a lot lower in short-term due to semiconductor shortages, of course. But due to fundamental shift, it should find a new higher base, before pushing up with both end of semi-conductor shortages and re-opening of economies.
Devil - I got mine with HL today. If you go to cash tab, it should be sitting in the "income and loyalty bonus" section and there is an option to "transfer your income balance to your capital account now", which once there will allow you to re-invest in shares or withdraw as cash. Otherwise if you don't do this manually and haven't set up an automatic instruction, I think it just sits there until it's released to capital account after 5 days or so.
I still think Matthey and BASF websites are most up to date and accurate:
http://www.platinum.matthey.com/prices/price-tables
https://apps.catalysts.basf.com/apps/eibprices/mp/
Matthey website provides 4 prices per day for each PGM, BASF 2 prices, even for those not traded in open market/ spot, but on contract, like Rhodium. As "end-users", they appear far more accurate than Kitco. THS also put out regular-ish updates on PGM basket and sometimes Chrome price on twitter:
https://twitter.com/tharisa_sa
Good to note Chrome is partially strengthening again at $155-160tn.
Hi Raxfactor - ditto and thanks for posting link to the informative video. Agree 2 key interesting takeaways for me were strip ratio and THS' Arxo outfit performing services for Sibanye.
On the strip ratio, I'm surprised they did not include the H1 2021 data, which shows strip ratio of circa 11, lower than 2020. We also know the AISCs from strip ratios of 11-12 from FY 2020 and 1H 2021, so that type of strip ratio is baked into all our back of the packet forward PE calcs. It is very good question though and one we should raise at next investor meet: what is "steady state" strip ratio. I would hazard a guess it is the 11-12 area, however if we move on to new pit area section, you never know could go back down again. Hence be interesting question for THS to clarify.
Rax - it's an admirable effort and well worth a view, but:
1) They don't understand the non-controlling interest in the Accounts is the 26% BEE of Tharisa Minerals. This is also fundamental reason for company structure, so only the SA assets subject to BEE laws are ring-fenced.
2) They don't understand that Tharisa Minerals sells its PGM concentrate to a Refiner so they don't receive the entire PGM basket, hence why THS Revenues is slightly less than if you simply perform: "PGM Oz x PGM Spot".
We've of course discussed these points at length here and the latter is the same over at SLP with their accounts, albeit with a much higher % refiner fee. It makes a proper analysis of THS (or SLP on latter point) incredibly difficult if you don't understand these 2 fundamental points. These points have also been discussed at length by THS to investors in the investor presentations.
Their forward P/E is all over the place too. On front page they have "4.3" which I thought was clearly wrong, then when you get to the 32min mark they have around "2" based on current spot prices and future production growth, which is more in line with my own.
On Chrome Tax, whilst I think it's a terrible idea, it is not chrome miners like THS that pay the tax, it is the customer (China). Now you could have SA chrome miners fighting over market share and agreeing with their customers to swallow some of the costs, but 100%? They do highlight though that a chrome tax has very little effect overall on THS based on current PGM prices.
They also do not mention at all that Institutional Investors selling THS has depressed share price (FIL and partly Rance Holdings), just as II selling did with SLP many years back to push it down to 7p for great buying opportunity, or later Majedie at 30p. THS appears to be in the same place SLP was few years back.
Feynzz - correct and I calculated it based on $58m, however Ragnar is correct the dividend calculation of % NPAT is based on NPAT before non controlling interest deduction.
I just double checked 2020 FY which was a 17% dividend of NPAT, based on NPAT before you deduct non-controlling interest.
I'm not quite sure how the person writing the article came up with 14%.
Earnings per share in the Interims was 21.4c, with a 4c dividend being 18.7% of EPS.
If I use these new metrics for forwarding forecasting on an annualised basis to calculate a Forward “Free Cashflow to Market Cap”, normalising for current USD-ZAR Forex. For simplicity also assuming D&A and SIB Capex are largely the same, which they are, so “Earnings” and “Free Cashflow” are effectively one and the same, interchangeable, for purposes of back of packet calculation:
PGM Basket: $3,703 (as per JM prices) x 86.5% (THS discount to spot 13.5%) = $3,203 per Oz
PGM All-in-cost: $1,429 per Oz (takes into account Forex of 13.8)
PGM Earnings/ FCF: 160-200k PGMs x $1,774 (margin above) = $284m - $355m (conservative – have not applied economies of scale efficiency savings per oz through increased PGM production)
Chrome: $150tn x 95% = $143tn
Chrome All-in-cost: $109tn (takes into account Forex of 13.8)
Chrome Earnings/ FCF: 1.5 – 2Mt x $33 - $51 margin = $50m – $102m
The increase in PGM + Chrome production will of course lower all-in-cost per oz through economies of scale. We already know Vulcan only costs additional $10tn to eek out that extra 500k tonnes. Instead of $109tn All-in-cost I use above, you could actually be looking at $92tn, meaning Chrome Earnings of $102m at top end.
TOTAL EARNINGS/ FCF: $334m - $457m
TOTAL EARNINGS/ FCF LESS TAX (circa 25%): $251m - $343m
TOTAL EARNINGS/ FCF ATTRIBUTABLE TO THS (76%): (in Interims non-controlling interest was 24% of Income): $191m - $261m
Current Market Cap: £390m ($550m). So at present it’s on a Forward PE/ FCF Ratio (using current basket prices) of only 2.9, reducing to only 2.1 on 200K PGMs + 2MT Chrome (normalising for cash + trade balance position, it’s less than 2). Even on the former not taking into account increased production, crazy valuation as we all know, particularly when we have 14yrs Open Pit + 40yrs Underground.
As we all were expecting, it's a great set of results and I've rejigged all my PGMs & Chrome All-in-cost per oz calculations so they're up-to-date below. There has been an increase in cost of sales, but if you analyse it on page 30 of the report, this is due predominantly to royalties to SA Gov (factor of increased PGM prices) and inflationary factors (commodities, consumables costs increases) outside of THS control, which all producers will experience.
Before I dive in to that, on top of the $30m Net Cash position, analysing the Trade Receivables minus Trade Payables, you can also see a huge balance in THS favour of $77m! Adding this to cash position, it totals some 20% of THS market cap.
a) PGM Revenue: 193.3m
b) PGM Cost of Sales: 96.8m
c) PGM Production: 75.1k
d) PGM Basket Achieved by THS ( (a) / (c) ): $2,574 per Oz
e) PGM Basket Reported by JM: $2,976 (simply monthly averages from JM website)
f) PGM All-in-cost per Oz ( (b) / (c) ): $1,289 (Forex 15.3 used in Interims)
g) PGM Discount to Spot ( (e) – (d) / (e): 13.5%
a) Chrome Revenue: 102m
b) Chrome Cost of Sales: 71.9m
c) Chrome Production: 730.7k
d) Chrome Price Reported: $145tn
e) Chrome Price Achieved ( (a) / (c) ): $140tn (only 5% less than above)
f) Chrome All-in-Cost: $98tn (Forex 15.3)
Cost of sales includes D&A, impairments etc. so when using these costs to work out a “per oz cost”, it is far more all encompassing than “AISC”, but actually more “All-in-cost” (inclusive of SIB Capex, as D&A costs largely mirror the annual SIB Capex costs).
Edit: got cut off at end. Meant to end with "an owner operated up-to-date yellow fleet". Major hugely beneficial change from contractor model.
The softening of the price of Rhodium was bound to happen due to the issues the autos sector is experiencing with semi-conductor shortages, with the trigger likely being all commodities getting ahead of themselves and China's threat to curb commodity prices (not that they can do much on fundamental industrial demand side, but can curb speculation + state loans in their own country to cool economy). Most auto makers kept ploughing on for as long as they could, with now large inventories of completed cars just awaiting semi-conductors. But whether it was ZH or mainstream news outlets, there were multiple stories of auto makers slowing down factory output. As much as I hate this word, I do believe this is "transitory" though in medium term and don't buy some of the gloom here on using the past to predict the future (what goes up must come crashing down to its original price point).
Sometimes events occur that completely change the fundamentals of a market, that past performance becomes redundant: a) Dieselgate for Platinum; b) new stringent emission standards in US, Europe, China, India etc. increasing PGMs loadings in CCs, coupled with a continued industrializing Asia & Africa completely changing PGMs demand dynamics, compounded with supply issues in Russia and SA (underground mines getting deeper, more dangerous, more issues etc.) c) perhaps the next shift could be a hydrogen economy/ fuel cells car adoption and other new industries for Platinum, Iridium and Ruthenium. We already see this if the latter 2 price movements are anything to go by.
We have had a structural deficit in palladium for years now which has led to a new higher "norms" in the $2,000+ and can't see this changing anytime soon - over-ground palladium supply in ETFs and Russia stockpile has dwindled. I think from all reports we see this now in Rhodium with major long-term chronic structural deficit and a 20% increase in output this yr, which may or may not occur, will still not solve the long-term demand-supply deficit, leading to a new "norm" of higher Rhodium prices - there is also little "overground" supply to plug any shortfalls. It could of course get choppy in short-medium term though as demand falls due to semi-conductor shortage, but this should be “transitory” (sorry hate that central banker speak word, but unlike inflation, I do believe semi-conductor shortage will be resolved - it has to be, the modern world relies on these chips for everything now).
HG - it's incredibly hard to find current ownership of Samancor but believe you are right - IMR Group (the 3 Kazakh Oligarchs) appear to have sold their 60% odd stake in Samancor to a Consortium of 3 Chinese state backed companies you refer to: Sinosteel, Mins Metal and China National Investment Corp. IMR Group used to hold their 60% stake through a vehicle called "Terris Chrome" which had very convoluted ownership of other Terris entities. Hanwa also had a small ownership stake in Terris, as well as a direct ownership in Samancor outside of Terris adding up to 19-20%. Not sure if Hanwa still have this stake, but believe they may do. The BEE of various entities also of course own 24%.
The big issue related to SLP is who the hell now owns "Africa Asia Capital" (AAC) who own 20% of SLP, albeit have been reducing their stake. IMR Group used to own AAC (i.e. Samancor) and they may still do, which may be in conflict with new Samancor owners.
Going back to TBTT's point, the original owners of Samancor I think actually got a very good deal from the Samancor-SLP relationship, albeit it was at least symbiotic. They got chrome for free, a small % of the PGM profits (effectively a royalty) and 20% share of SLP itself. On the other side of agreement, SLP spent millions on Capex, IP etc. to develop the SDO sites. However if Samancor new owners do not own AAC and therefore have no share of SLP, long-term it could spell trouble and a re-negotiation of commercial agreement. It's also bit concerning AAC have been selling.
For many reasons stated on the this board, for me THS is by far better bet. On a 6E basis:
- SLP produce 90-100K 6Es versus THS 160k PGMs, moving to 200K PGMs over next couple years.
- THS produce 1.5MT chrome, moving to 2MT chrome annualized by Oct 2021.
- THS is more profitable and cash position should soon catch SLP's $102m versus THS' $31.4m on a "like for like", albeit THS have far more growth opportunities and will spend cash on this too.
- THS has 14yr open pit mine life (could be extended if they continue to optimize), followed by 40yrs underground. SLP have 8-10yrs operationally dependent on Samancor. Commercially who knows as the SLP-Samancor commercial agreement is opaque and who knows if Samancor have change of heart to renegotiate.
- THS dividend even on a 15-17.5% NPAT still provides better yield than SLP. However now THS is Net Cash, I do partially agree only now with some criticism NPAT % should probably be recalculated to at least 25% NPAT. Previously THS had debt pile and capex to contend with. Now Debt is very small and THS are Net Cash, we're in a whole new world and whilst this may not be changed in Interims, FYE Sept 2021 Accounts presentations etc. I would hope they relook at the dividend NPAT %. I do find some impatient criticism bizarre though - it's because of THS investment in growth we have a soon to be annualized 2MT chrome, 200k PGMs, other major growth prospects and an owner operated up-to-date yell
Karo Resources PGM is a monster asset, but the Capex is not $4bn, not anywhere close. THS have said a number of times the news media misconstrued / confused numbers. The $4.2bn figures comes from news reports stating the asset is "valued at $4.2bn", not that this is how much the Capex will be.
Like Salene Chrome and Tharisa SA, I also expect THS will develop phase by phase. Open pit, expand and then underground. Whatever their strategy will be, we're expecting a Feasibility Study soon this year.
When you're financing a secondary asset and the lender has collateral against your primary asset in event of default, yes of course it does not need to be fully funded on Day 1 - just needs proper stress tested plan that it can easily be funded over the course of development, with contingency. It may mean Coris or other potential lenders will demand the same high % (8-9%) as it did for Yanfolila in terms of risk profile though of course. I guess we'll find out soon enough... In any event the Guinea Government could still throw a spanner in the works - the significant delay on approval is becoming quite concerning. Face-to-face meetings with "officials" can always be quite fraught in some countries too, to "facilitate" completion. Let's hope it all goes smoothly...
I'm by no means bullish on HUM, very much the opposite, but you do realize they don't pay $100m on Day 1 of obtaining license approval for Kouroussa???!
From getting the license to completion of commissioning, it's at best 18 months process of which the $100m is spread across, most back-ended through construction and invoices will be in trade payables even after completion. So if they get financing of $60-70m in the 1st phase as planned, there should be no trouble.
To suggest at this early point they need equity is quite absurb. HUM have $5m (incl gold inventory) and are muddling on with adding $3-4m free cash per Q (until there is clear grade improvement i'm not in the bullish camp expecting any better on this). The Mali Gov still probably owe HUM around $8m too (although need to see Accounts to confirm this). The VOX Q&A did nothing to clarify why Betts think grades will improve when HUM's own MRE states a quite terrible 2.07 g/t for Komana West, the pit now being mined. If Q2 doesn't show improved grades and only hits the MRE of 2.07 g/t at KW, then I might change my opinion on FCF versus equity raise for Kouroussa.
Dugbe will be a bigger issue as this already has a very meaty royalty on it and the capex is well in excess of $250m if Pasofino go with their bigger aspirations of 200-250k oz p.a. (with gold grades of Dugbe, < 2 g/t, large scale is only thing that makes sense). I can't see how HUM will possibly make a finance decision on this in early 2022 when Pasofino have completed a DFS. I can't see a lender providing credit once HUM are tapped out on Kouroussa and with all free cashflow going there.
The other elephant in the room is of course how they will fund going underground at Yanfolila... So at present I can't possibly see how they progress financially with Dugbe once Ian Stalker has his ducks in a row