THARISA, a chrome and platinum group metal mining firm, is to buy a portion of the fleet operated by its mining contractor, MCC Contracts Properitary, as it changes tack by converting to owner-operator mining.
It said the change in operating model would have cost and operational benefits as well as “… providing financial flexibility” which would establish its “low-cost, high margin position”.
This follows a strategic re-allocation of budget by MCC parent company, Extract, Tharisa said. It did not detail the cost of the acquisition or impact on operating costs. The firm is publishing its second quarter figures on April 10.
“Tharisa has spent the last two years building up its mining expertise and we are now happy that we have the necessary skills to make a smooth transition,” said Phoevos Pouroulis, CEO of Tharisa. “We are excited to have the opportunity to directly control our own mining.”
The purchase is no doubt related to the increased cash generation the company is enjoying following an improvement in the price of chrome from low of $79/t last year to a spot price of about $370/t for certain grades of lumpy chrome ore.
Tharisa said in November that it intended to maintain dividend payments after unveiling a maiden payout of 1 US cents per share. Free cash flow for its current 2017 financial year “should grow considerably” provided the mine performed to plan and markets kept up the positive momentum of the last year, it said.
It remains to be seen whether the cost of repurchasing part of MCC’s fleet will have an impact on the company’s short-term ability to continue with dividend payments.
BMO Capital Markets said converting to an owner-operator model was “a logical move” given the long life and relatively stable production profile for the company. Tharisa has put an 18-year life of mine on its operation.
“Whilst we don’t know transaction costs at this stage, we note that the company is expected to generate strong free cash flow this year which should support such an acquisition,” said BMO Capital Markets in a morning note.
Commenting on negotiations with MCC, Tharisa said it had “… engaged with MCC in an orderly manner to purchase a requisite portion of the existing fleet as a going concern”.
The company produced 1.24 million tonnes in chrome concentrate, an increase of 10.8% year-on-year while platinum group element (5E which includes gold) production was nearly 133,000 ounces.
