Tharisa unveils first step in expansion strategy, but costs knock H1 numbers

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CHROME and platinum group metal (PGM) producer, Tharisa, paid an interim dividend of two US cents/share as promised, but the transition to an owner-operater model resulted in a lift in costs exacerbated by a 6% strengthening of the rand against the dollar.

The outcome was a 44.3% decline in interim taxed profit to $28.4m.

Commenting on prospects for the second half of the year, Tharisa said the benefits of operating its own mine would begin to filter through. For the period under review, however, gross profit margins on both chrome and PGM volumes declined to 30.1% (2017: 46.9%) and 28% (2017: 47.5%) respectively.

The group also cited the impact of lower contracted metallurgical grade chrome concentrate prices – described as a “normalisation” following an earlier price spike – which fell to $193 per tonne compared to $278/t for the six months of the previous financial year.

PGM prices were higher, however, at some $909 per ounce thanks to increases in palladium and rhodium to which the Tharisa mine is especially exposed. Year-on-year, the basket price for PGMs was nearly a fifth higher.

In terms of volumes produced, Tharisa performed well in the period and is on track for full-year guided production of some 1.4 million tonnes (Mt) of chrome concentrate and 140,000 oz of PGMs. By 2020, the company is hoping to achieve production of 2Mt of chrome concentrate and 200,000 oz of PGMs.

From a market perspective, Tharisa was upbeat on prospects saying that global growth in stainless steel, which is supplied by chrome, “… remains robust”. It expected a further rise in worldwide output of nearly 5% this calendar year citing independent market research.

Tharisa has tended to speak of its long term growth ambitions – which consist of diversifying into chrome and other metals whilst simultaneously diversifying its operational geographies – in reserved tones. Its interim results, however, make more of this strategic intention stating upfront that it wants to become “… a globally significant low-cost producer of strategic commodities”.

As a first step, the company announced an agreement with shareholder Leto Settlement Trust to buy its 90% stake in Salene Chrome Zimbabwe which owns an exploration property in the southern African country’s highly prospective Great Dyke region. The intention is for Tharisa to explore the property – consisting of some 95 square kilometres – at a cost of $3m in the first year, with a view to building a pilot plant ahead of full-scale commercial production of chrome. It foresees a relatively quick lead time but didn’t give details nor the cost of the buy-in.

The terms of the deal are that Leto will retain a 10% free carried shareholding in Salene and be entitled to a 3% royalty on the gross proceeds from the sale of the chrome concentrates produced. Leto Settlement Trust is the beneficial shareholder in Medway Developments Limited which owns 44% of Tharisa as of December 31 2017.

“The nature of the special grant areas allows for a project that is a scalable open pit operation that can be brought into production on a low risk and relatively low cost basis in a short time horizon,” said Tharisa.

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