Post by
15Stanmore on Nov 15, 2021 7:13am
Q3 Actual Results versus Expectations
Hello fellow Verde shareholders.
On Sunday I listed my Q3 2021 expectations against the prior year's results, as shown below in the red print. I have now added the actual numbers in blue:
Q3 2020 Tonnes sold: 105,769
We have already been told that the Company sold out everything it had in stock or could produce in the 3 months in Q3 (and were sold out through to mid November 2021). The Company has disclosed the fact that Plant 1 has a monthly processing capacity of 50,000 tonnes (600,000 tonnes per year) which suggests sales for Q3 at 150,000 tonnes. This would be a 41.8% increase over 2020. We also know that there was likely 8,000 to 15,000 tonnes of processed inventory as at June 30, 2021, accumulated in Q2 in anticipation of high demand in Q3. This could lift the realized tonnes sold to 158,000 to 165,000 tonnes, which would be a total growth of 49.4% to 56.0%.
My expectation is a 50% growth at 158,653 tonnes vs 153,674 tonnes. While this is very solid growth, it is well below what has been promised for several years. What is more important in my mind is the fact that it represents hitting the current production capacity constraints and bodes well for Plant 2 coming on stream in 2022, hopefully in time to increase (double?) Q3 capacity next year.
Q3 2020 Price per tonne: $37.40 (Total Q3 sales 105,769 x $37.40 = $3,956,000)
This is where the Company should have incurred a windfall given the fertilizer market in Q3 saw prices rapidly increase to or above prior records. We tracked weekly increases in Verde's posted retail prices, and these were on top of increases noted in Q1 and Q2 where reported sales were at $50.19 and $55.86 respectively.
At a minimum, Q2 sales per tonne pricing would have been in place. Assuming tonnes sold in Q3 2021 were 158,653 at $55.86 this would produce sales of $8,862,000, which would be a 124% increase over 2020.
Based on modelling announced retail prices and Verde's expected mix or direct versus wholesale distribution, prices from $80 to $100 per tonne would have been possible in Q3. To remain conservative, I have deeply discounted my expectations and have used a per tonne realized price of only $60 vs $69. At this low ball figure, my 158,653 Q3 tonnes sold generate a gross sales revenue of $9,520,000. vs $10,651,000
If you recall that the total sales in all 4 quarters of 2020 were 9,167,000, genearting sales in Q3 alone that exceed the whole of the previous year should be a performance figure that the market in general should notice, and the Verde stock price appropriately revalued.
I believe it a safe prediction to say that shareholders will be very pleased with the top line sales numbers, both tonnes sold and price per tonne realized - with the almost gale force market tailwinds blowing behind the good ship Verde, even with no Captain on board or helmsman at the wheel you would be hard pressed to report anything less.
Q3 2020 Production costs per tonne: $12.44
Given the increased volume, I would normaly be expecting to see this key figure drop as the fixed monthly production costs get spread over a higher unit output. That being said, we know that some of the variable production costs have been subject to inflationary pressures (for example transporting the ore from the mine to Plant 1 for processing). My quick call on this would be to expect to see the same per tonne cost as in 2020 - hopefully the on-site managers at the pit and at Plant 1 have been incentivised to accomplish this type of tight cost control. So my prediction: $12.44 per tonne vs $16 per tonne in Q3 2021.
Q3 2020 Gross Margin: $25 per tonne or 67%
Given the expected price jump and with production costs held steady, the gross margin would naturally have increased. Using production at 158,653, productions costs would be $1,973,643 and gross margin $7,546,357 or $47.56 vs per tonne.or a 90% increase over 2020.
Q3 2020 Bottom line Operating Profits: $1,275,000 or $12 per tonne
On the increased tonneage in 2021, if the Company matches the $12 per tonne figure we would expect to see a bottom line of $1,913,000. We also know that the price per tonne went from $37 to our estimated $60, so an increase of $23 per tonne which should, all other things being equal, have dropped directly to the bottom line adding another $3,649,000 before tax to the total of around $5,560,000 .
Frankly, if the Verde management team does not report a profit before taxes of $35 per tonne vs $20.71 per tonne or $5.5 million for Q3 I will be very disappointed. That would be an 11 cents per share quarterly earnings figure, that again I believe would be noticed by the market.
The elephant in the room for Monday morning is how well (or poorly) has the Verde management team handled the critical cost control and optimization responsibilities during Q3, and whether my bottom line expectations be confounded by excessive costs and overruns that were clearly in management's hands to control.
Answer: it was not handled well - another disappointment that now needs indepth analysis.
Happy to see other shareholders expectations and analysis, or to receive your comments and suggestions regarding the figures I have shared. All points of view welcomed and encouraged.
Cheers.
S.