[miningmx.com] – THARISA, a R6.4bn chrome and platinum group metal (PGM) producer, said it would improve on its first half operating profit, which came in at $7.4m (R80m), in the current six month period owing to tight conditions in the chrome ore and concentrate market and the lag on PGM supplies.
“Chrome concentrate prices are up 15% from a fairly low level since end-March,’ said Phoevos Pouroulis, CEO of Tharisa. “We see that increasing through the year underpinned by supply constraints from South Africa,’ he said.
“PGMs have also been offline so ferrochrome producers have been sourcing chrome supplies from different sources. We see that trajectory continuing,’ he said of the price of chrome concentrate.
Tharisa lifted its interim revenue to $122m (R1.3bn), a 22% improvement year-on-year as it moved towards full production of some 1.85 million tonnes a year (mtpa) of chrome and 144,000 ounces of PGMs, expected by 2016.
Tharisa owns 74% of Tharisa Minerals which operates an open-cast mine on the south-west limb of the Bushveld. Chrome ore sales from the mine account for about 60% of Tharisa’s revenue.
A large portion of South Africa’s platinum industry has been idled by a 21-week strike launched by the Association of Mineworkers & Construction Union (AMCU) from which it would take between three to six months to recover once it was over, said Pouroulis. An estimated one million ounces of platinum production has been delayed as a result.
He forecast a nine to 12-month chrome supply shortage to China where it is used by stainless steel manufacturers already struggling with sourcing alternative nickel supplies following a ban in January on exports by the government of Indonesia. The net effect would be to crimp the competitiveness of Chinese stainless steel manfacturers.
Macquarie Research recently lifted its chrome ore price target 20% for the next five years as further growth in UG2 production, which is rich in chrome ore, was limited while current pricing limited the potential for new chrome ore supply from South Africa.
“We estimate that $180 to $220/t will be required to bring further capacity and have thus increased our chrome ore price forecasts,’ said the firm’s analyst, James Oberholzer in a report dated June 12.
However, Pouroulis had no feel for when demand would revive in the platinum sector.
“We anticipated prices would move forward [owing to the strike in the sector]. There are just greater above-ground stocks than most imagined. Certainly, there is enough supply for near-term contracts. Thereafter, we’re working in an unknown sphere,’ he said.
The rand, however, has helped Tharisa’s basket PGM price to record levels.
From an earnings perspective, the $30.6m (R329m) non-cash cost of converting preference shares into shares at a premium following Tharisa’s April listing on the Johannesburg Stock Exchange resulted in a $31.1m (R335m) pretax loss equivalent to a $3.70 headline per share loss.
However, Pouroulis said the second half of the financial year would be supported by Tharisa’s optimisation programme.
The first two of four high-energy flotation circuits had been installed for PGM production whilst the commissioning of two magnetic separators had been completed on time. “It’s on track and looking positive,’ said Pouroulis.
Shares in the company have trundled, however.
At R25.50/share, the value of the company is largely unchanged from its close following its April debut.
It’s also expected that up to 20% of the company’s shares could be sold from October 10 – the date when the lock-up of preference share holders expires. Pouroulis said the potential for an overhang had been flagged at listing. He expected an orderly sales process.
