THARISA produced good form in the third quarter: the chrome and platinum group metals (PGM) miner reported record run-of-mine numbers, and said it was generating strong cash flow owing to improved rand prices for PGMs and metallurgical chrome.
A major blot on the period, however, was the death of an employee owing to COVID-19 related complications. All in all, the company has had nine positive cases of the disease of which three are recoveries.
Full year production guidance has been adjusted to between 130,000 and 135,000 oz for PGMs compared to previous guidance of 155,000 to 165,000 oz, whilst the outlook for chrome concentrate production is for 1.25 to 1.30 million tons. The previous guidance for production of chrome before the South African government’s five-week hard lockdown in March was 1.45 to 1.55 million tons.
Mineral pricing has been supportive. Given South Africa’s global dominance in chrome supply, the lockdown applied upward pressure to the chrome price whilst PGM prices have generally remained high over historical averages following a wobble in March.
Assisted by rand depreciation – resulting in a rand basket PGM price of R29,266/oz for the quarter compared to R27,690/oz in the second quarter – cash flow generation was strong. This was despite operating on lower staff levels, a factor Tharisa was able to ameliorate with mechanised and low labour intensive mining.
Tharisa has sold its output for the quarter notwithstanding that rail and port logistics remain constrained.
“Together with good unit cost control, favourable PGM prices and higher pricing for chrome concentrate, the company remains strongly cash generative and financially solid,” said Phoevos Pouroulis, CEO of Tharisa in a third quarter statement. He was “confident of replicating this strong performance” in the fourth quarter.
Whether this will be enough to see the dividend reinstated is questionable. Tharisa still has its major capital programmes in mothballs.
“Despite what was undoubtedly a challenging period, Tharisa delivered a solid quarter of production that exceeded expectations,” said Alexander Pearce, an analyst for BMO Capital Markets in a report. He believed there was potential for Tharisa to exceed its restated guidance which was “conservative”.
Commenting on the metallurgical chrome market, Tharisa said there had been a 10.9% increase in the third quarter price to $143/t from $129/t previously. China stocks are being unwound and were at 3.5 million tons (Mt) from 4.3Mt in the first quarter of this year.
“In the near term strong stainless steel production rates and the drawdown of Chinese port stocks suggest this pricing strength will likely persist,” said Peel Hunt analysts, Peter Mallin-Jones and Tim Huff in a report.
Berenberg analyst Richard Hatch said there was potential for chrome prices to improve further for the remainder of Tharisa’s year. “We conservatively assume prices move to $140/t for FY 2021E but, should Chinese stainless steel production (and therefore chrome demand) remain strong, we think there is potential for prices to trend higher,” he said.
Shares in Tharisa gained 6% on the Johannesburg Stock Exchange to R13.25/share, but still R2 off its year-to-date high in January. The company is capitalised at R3.58bn.