THARISA, a company listed in London and Johannesburg, has gone under radar, according to a UK brokerage which thinks the South African firm’s exposure to the chrome market, as well as platinum group metals (PGMs), positions it for a value lift over the next two years.
Peter Malin-Jones and Tim Huff, analysts for Peel Hunt, say Tharisa has yet to benefit from a full year of PGM prices, assuming their current, elevated levels are maintained, especially in palladium and rhodium. The basket price for Tharisa’s PGM mix has increased from $900/oz in early 2018 to around $2,300/oz currently.
In fact, Tharisa’s future PGM contribution to revenue could match the entire revenue number of chrome and PGMs of recent years. That provides a sense of the scale up provided by the PGM price run, they said.
In the final quarter of Tharisa’s 2020 financial year, the spot price for rhodium hit in excess of $13,000/oz, a record level. It and the palladium price “… ensures Tharisa has an excellent financial and operating platform to progress the business through its next phase of growth,” said Phoevos Pouroulis, CEO of Tharisa, in the firm’s fourth quarter report published on October 8.
Tharisa said in its quarterly report, that PGM production totalled 40,500 ounces 6E, taking full-year output to 142,000 oz which is more than the 130,000 to 135,000 oz for PGM adjusted guidance.
However, Tharisa primarily produces chrome, at least by volume.
Chrome output of 1.3 million tons (Mt) could rise eventually to two million tons following completion of an expansion to its processing facilities – referred to as Vulcan – whilst there will be a short-term uplift in volume to about 1.5Mt, said Malin-Jones and Huff.
Chrome production was 371,000 tons for the fourth quarter taking full-year production to 1.35 million tons which is another beat of adjusted guidance of 1.25 to 1.30 million tons (Mt). Tharisa has guided to production in the current 2021 financial year of 1.45Mt to 1.55Mt chrome concentrates, and 155,000 to 165,000 oz of PGMs.
Chrome is supplied to the stainless steel industry, mostly in China, where demand growth is expected to be in the region of 2% to 3% a year.
“At this point, we see the Tharisa group in a very strong position,” the Peel Hunt analysts said. “It will have a highly efficient, low cost operation, generating strong free cash flows. We expect a strong balance sheet through the build, allowing returns to investors.”
If they are right, shares in Tharisa could rise to between 165 to 195 pence apiece which compares to a current price of 75.50p in London.