Tharisa benefits from balance of PGM and chrome production
- Significant high margin PGM production
- Chrome production supplies steel demand
- Experienced mining operators
What does Tharisa do?
The company’s production is weighted more heavily towards palladium than others in the PGM space.
What’s the latest?
Coronavirus has upset the applecart right across the global economy, but prior to that, Tharisa was doing well.
Interim results in May showed profit before tax for the six months to March jumped 72% year-on-year to US$17.5mln on revenue that climbed 17% to US$194.6mln, helped by a sharp increase in PGM prices.
The average PGM basket price during the period was US$1,612 per ounce, compared to US$1,017 in the corresponding period of 2017/18.
Tharisa has ramped its mine back up to full capacity from 1 May after getting received approval from the South African authorities.
What the boss says
“Rhodium represents approximately 10% of our production and palladium 16%,” says chief executive Phoevos Pouroulis. “We’re classified more in the chrome space,” he adds.
That means the market doesn’t always appreciate the PGM production, and that in turn means there’s a chance to catch exposure to PGMs at a relatively advantageous price.
“We are a co-producer, so we can’t selectively mine either metal, but our low-cost model that we have still allows us to generate a margin on the chrome and a huge one on the platinum group metals.”
Allowing for a strong recovery after the coronavirus blip, stainless steel demand looks set to stay strong, and Pouroulis says he’s “optimistic” around the fundamentals for stainless steel.
What do analysts say?
Analysts at Berenberg said May’s half-year results were broadly in line with expectations, with revenues a touch below its forecast but so were the cost of sales, with cash flow from operations better than forecast.
Ramping up capacity “is encouraging and should result in lower costs”, aided also by weaker forex and oil prices, the analysts said, noting that the K3 chrome plant is expected to resume operations in the third quarter but that the Vulcan fine chrome project remains suspended.
“In terms of markets, while still unclear in the medium term, the strength and pace of the Chinese rebound post-COVID-19 has led chrome concentrate prices to rise to circa US$155 per tonne (cost, insurance, freight) from USD129/t in Q2,” they noted.
Berenberg has price target of 150p, versus a share price that last closed just below 60p.