Bisichi Share Discussion Threads

[tim000] 27/4/2022 10:23

hxxps://mybroadband.co.za/news/energy/442190-coal-prices-soaring-with-south-africa-coining-it.html

[tim000] 27/4/2022 08:02

With such a small number of shares issued and mkt cap, that implies pre-tax eps of about £1.30 in H1. Whatever the figure is though, will the company continue to acquire financial assets (ie shareholdings in listed companies)? I guess there are rules governing the extent to which it can do this without becoming an investment company. I don’t see what else it can do but award an increased special dividend. The coal business itself doesn’t need additional capital.

[tim000] 27/4/2022 07:53

Exactly. The discount to the Benchmark for exports declined by ca 10pp between 2020 and 2021, and it is likely that the discount fell sharply in 2021 H2 when international coal demand took off. So the discount at the end of the year would have been much lower than the whole year average. And the discount must have fallen again in March and April, with Europe desperate for all non-Russian coal. So I think your $200/t price assumption is very cautious. But even that implies margins of at least £100/t for exports. I keep refining my model as I better understand the business. That entails higher coal sales due to bought-in coal for processing at Sisonke, for which there will be positive margins even on domestic sales. Taking everything into consideration, I’m forecasting adj EBITDA of around £14 mn in 2022 H1 for just the coal operations. I consider that to be based on cautious assumptions.

[e43] 26/4/2022 22:10

The v good news here that's not really factored into the price,is we're nearly a 1/3 into the year so hopefully nearly 100,000t exported at $200 per ton ish,and a very juicy profit building.

[tim000] 26/4/2022 21:24

At least they haven't hedged any future production, unlike most miners. I'll give them credit for that.

[e43] 26/4/2022 18:58

Thanks Tim,would also help if the company or it's brokers were interested in promoting the company's forward opportunities too the market at some point.
Has'nt gone unnoticed the bonuses paid to Andrew Heller and the CFO are nearly the same size as the value of the 6p dividend's

[tim000] 26/4/2022 13:36

The current 5-year scheme expires next year. Its successor could conceivably review upwards the 4 mn tonnage limit. The prosperity of junior miners with BEE minority ownership would undoubtedly benefit, and it might also incentivise the owners of RBCT to address its logistical problems.

[tim000] 26/4/2022 13:26

I’ve been looking into the Quattro programme for junior coal miners with BEE ownership of at least 26%. As I understand it, RBCT is owned by a consortium of large South African coal miners. The Quattro scheme was set up in 2011 (from memory) to prevent junior miners being squeezed out of the export market. 4 mn tonnes pa of RBCT capacity are allocated to junior miners who qualify under the scheme. I haven’t found anything on how the 4 mn tonnes are allocated between participants, except that miners with the highest percentage BEE ownership receive preferential treatment. So it is definitely in BISI’s interests to grow the relationship with Vunani Mining. Indeed the recent 50-50 sharing of the proceeds from the additional 6.1 mn tonnes of new reserves might result in the JV being allocated additional export rights.

[tim000] 24/4/2022 08:03

Interesting too that Germany should allie itself to such an evil regime. A leopard never changes its spots? Also that at least half the Russian people seem to be fully behind Putin. Russia hasn’t changed a bit in 100 years.

[tim000] 24/4/2022 07:59

There’s no shortage of cheap labour in SA. 20 mn tonnes @ £100/t profit long term is £2 bn pa lost pre-tax profit to the miners, and perhaps £1 bn lost revenue to the government (taxes on household and corporate income and spending). Putin is both evil and nuts too, his total disregard for human life will result in sanctions being in force long term. This is a return to the Soviet era, where the whole of Eastern Europe is at risk.

[e43] 23/4/2022 22:53

Yes SA loosing a staggering 20 million tonnes of export potential at present ,you would think all vested interests have a huge incentive to gets things moving better and put the necessary investment in plus afford to employ a private army to protect it.

[tim000] 23/4/2022 20:07

There are newspaper stories today about the deep relationship Germany has fostered with Russia in recent years, including supplying it with military equipment (while refusing to meet its commitments to NATO, or supply Ukraine). So Germany’s commitment, with the rest of the EU, to cease buying Russian coal by the end of August is probably not worth the paper it’s written on. Even so, no doubt the EU can see it’s in its own self-interest to reduce its dependency on Russian energy, including coal, over time. With a global shortage of thermal and metallurgical coal, that presents tremendous opportunities for countries with abundant coal resources, such as South Africa and Australia. If South Africa can solve its logistical problems connecting its coal mines to RBCT, I can easily see BISI being valued over £100 mn, or £10 per share. Imagine 500k tonnes exported at say £100 per tonne margins - perfectly possible over the next few years.

[tim000] 23/4/2022 08:04

Also, I think there may be a formal regulation governing the percentage of output or sales that can be exported? I've not been a shareholder long term, but I recall some chatter about a 25-30% limit on exports? If that's correct, the profit maximising strategy (as a small company with a tiny domestic mkt share, and hence with no impact on either domestic prices or mkt capacity to export) is to maximise output, in order to maximise exports. In H1 2022, I estimate margins on domestic sales and exports may be of the order of -300R/t and +2400R/t respectively. Given a ratio of at least 1t exports to 3t domestic sales, the vast discrepancy in respective pricing incentivises increasing output.

[tim000] 22/4/2022 09:16

I was thinking the same. But non-labour costs will be relatively fixed and there are ESG considerations against shrinking the workforce, especially given the importance of the collaboration with their BEE partner.

[e43] 22/4/2022 08:28

Yes Tim,would be interesting to ask some questions at AGM regarding domestic coal market,on the face of it,it would seem better to scale back production and preserve mine life for the export market sales.

[tim000] 22/4/2022 06:48

I’ve been analysing the figures in more detail. The company made losses on its domestic sales, broadly matched by profits from exports. It appears that all of the profits from South African operations were made by the processing side. Since BISI has low unit costs, I imagine most miners made losses on their domestic sales. This is probably not sustainable; Eskom (the South African electricity generator) increased prices by 9.6% in April. That might be because Eskom has had to pay higher prices for its coal this year. In any case, 320k tonnes of exports this year at internationally set prices should result in profits of at least the company’s current mkt cap in 2022.

[tim000] 21/4/2022 09:01

Found it:

hxxps://mqworld.com/2022/04/21/south-africa-coal-exports-to-eu-jump-10-fold-in-april/

[tim000] 21/4/2022 08:53

Do you have a source reference? The EU bidding for South African coal won’t affect RBCT capacity, but will drive up prices.

[8gggggggg] 21/4/2022 08:39

Very exciting....I read that Richard's Bay exports to EU increased 10 fold in April.Dakas

[tim000] 20/4/2022 18:14

fwiw I've now processed all the outturn data for 2021 and projected it forward to 2022, based on current spot & forward Benchmark coal prices and spot exchange rates. I've assumed 320k tonnes exports and 780k tonnes domestic sales (total 1100k tonnes, vs 1447k tonnes in 2021). Assumed production cost inflation is ca 10%. And the higher than expected discounts in 2021 on both domestic sales and exports are assumed to continue (but with a slight reduction in the export price discount, from 39% to 35%). Even on these most cautious assumptions, I still get adjusted EBITDA from mining increasing from £4.3 mn to £33 mn this year. That is, a forward p/e of about 0.7.

[e43] 20/4/2022 17:40

Yes Tim,with 8 years of mine life now locked in,the coal export side of BISI alone has to be worth a multiple of current map cap.

[tim000] 20/4/2022 15:41

Absolutely. I need to update my model to make predictions for 2022. The counter to weak domestic prices is the likelihood that strong export demand for South African coal is driving down its discount to very low levels. Even if domestic sales were at break even, 320k tonnes of exports at margins of say $130/t for 2022 (a conservative assumption) is £32 mn pre-tax profit. Margins are almost certainly higher than that currently.

[e43] 20/4/2022 15:05

Only negative I can see is the fairly static domestic SA coal price, probably held back due too the export bottle neck because of the transport issues getting coal to Richards Bay ,so keeping domestic market well supplied.

[tim000] 20/4/2022 08:51

BISI reported a Benchmark price of $238 in Q1. The current price is $305! Q2 is going to be higher than Q1.