Chi­nese mo­men­tum for Tharisa

Thanks to a boom in chrome prices, the plat­inum and chrome miner put in a stel­lar per­for­mance last year. Now the com­pany wants to prove it can be prof­itable through­out the cy­cle.

Finweek English Edition - - THE WEEK - Edi­to­rial@fin­

tharisa,a com­pany that mines for chrome and plat­inum, was one of the best-per­form­ing min­ing shares on the JSE last year, largely ow­ing to an in­cred­i­ble im­prove­ment in the price of chrome.

At one point, shares in the firm reached R28/share which was not too far from its opening list­ing price in 2014 of R35/share. At the time, Tharisa pri­vately com­plained it wouldn’t have cho­sen that year to list, but its back­ers were keen on an exit strat­egy and called time on it.

Thus the list­ing hap­pened amid some shriven­ing times for plat­inum pro­duc­ers – which Tharisa was prin­ci­pally con­sid­ered to be at the time – with the re­sult that the share price closed the year at a mere R6 apiece.

Dur­ing the course of last year, how­ever, it be­came ap­par­ent that crit­i­cally low port in­ven­to­ries in China of about 700 000 tonnes of chrome – less than two weeks of to­tal pro­duc­tion – was un­sus­tain­able. In ad­di­tion, a re­lax­ation of credit in China un­locked fresh de­mand for stain­less steel, of which chrome is an in­gre­di­ent.

The out­come was an in­crease in the price of chrome con­cen­trate to a high of $380/tonne from $150/tonne. Since then, new pro­duc­tion has been in­cen­tivised, in­clud­ing a por­tion of il­le­gal min­ing, to plug the sup­ply deficit. By the first quar­ter, China im­ported 3.8m tonnes of chrome.

For Tharisa, the im­pact was some­thing of a bumper year. Head­line share earn­ings shot through the roof and CEO of Tharisa The lo­cated on the south­west­ern limb of the Bushveld Com­plex about 35km east of Rusten­burg in the North West prov­ince. the com­pany all but ex­tin­guished its net debt. It was also given con­fi­dence to buy the min­ing fleet of its con­trac­tor, which it hopes it can op­er­ate more ef­fi­ciently.

The ques­tion is whether the party is over for Tharisa, es­pe­cially since it also pro­duces plat­inum group me­tals (PGM) of which the prin­ci­pal metal – plat­inum – is lead­ing a soul­lessly de­press­ing ex­is­tence.

Pho­evos Pouroulis, CEO of Tharisa, told fin­week the chal­lenge now for his com­pany is to prove it can be prof­itable “through­out the cy­cle” and not just when the price of chrome goes crazy.

Buy­ing the min­ing fleet of MCC Con­tracts Pro­pri­etary – a trans­ac­tion which to­tals $26.8m – will en­able Tharisa to fo­cus on qual­ity min­ing com­pared to vol­ume, which is the met­ric on which con­trac­tors are in­cen­tivised, said Pouroulis. There’s also an ef­fort to di­ver­sify the prod­uct base. At the mo­ment, most of Tharisa’s con­cen­trate is supplied to the stain­less steel mar­ket but a quar­ter of run of mine pro­duc­tion is spe­cial­ity ore, which is sold to the chem­i­cals mar­kets for use in leather pig­men­ta­tion. The foundary mar­ket is also be­ing tar­geted.

In ad­di­tion, the com­pany is look­ing to grow or­gan­i­cally. “We have a UG2 hori­zon that yields chrome and we are look­ing at the vi­a­bil­ity of set­ting a pro­cess­ing plant on top of that,” he said.

More broadly, Tharisa also has its sights set on di­ver­si­fy­ing into other min­er­als. It’s not com­mit­ted to a spe­cific com­mod­ity, pro­vided there’s good value.

“We are am­bi­tious for be­com­ing a global com­mod­ity player and we are look­ing at growth in SA,” said Pouroulis. “There’s no re­stric­tion on com­mod­ity ex­cept that it is a quick to mar­ket prod­uct that is low cost. Nat­u­rally, there are not an abun­dance of those around,” he added.

In the mean­time, in­vestors will be keep­ing an eye on Tharisa’s pay­out plans es­pe­cially as the chrome mar­ket – al­though it has re­treated some­what and re­mains volatile – is so much im­proved.

Tharisa paid a maiden 1 US cent per share div­i­dend in its 2016 fi­nan­cial year equal to some 10% of earn­ings, but Pouroulis said the group isn’t wed­ded to this kind of ra­tio. “We de­cided to pay a div­i­dend to show we could be a com­pany of yield. We’ve had nu­mer­ous dis­cus­sions on the pol­icy go­ing for­ward and so we will re­con­sider it at year-end. It is an an­nual div­i­dend so I def­i­nitely think there’s room to im­prove.”

For Tharisa, the im­pact was some­thing of a bumper year. Head­line share earn­ings shot through the roof and the com­pany all but ex­tin­guished its net debt.

Tharisa Mine,

Pho­evos Pouroulis

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