Higher commodity prices come to Tharisa’s rescue

Chrome and platinum group metals (PGM) miner Tharisa reported lower-than-targeted full-year output across the two mineral classes as it reconfigures its mine and production plants near Brits.

By falling short in production, some analysts lowered their earning forecasts despite the higher prices for the commodities at Tharisa mines in Northwest province. Tharisa, which is listed in Johannesburg and London, will report higher revenue from its PGM production despite an 8% fall in output to 139,700oz for the year to end-September.

A higher average price for the basket of the six metals making up Tharisa’s PGM production should result in a 20% jump in revenue to about R2.17bn, based on the data the company released on Wednesday.

For its metallurgical chrome, however, a 9.5% drop in output to 977,900 tons more than offset a 4.6% increase in price. Revenue from metallurgical chrome will fall to about R2.5bn from R2.6bn a year earlier.

Tharisa increased fourthquarter production of PGM and chrome compared to the third quarter, but despite this improvement, it still fell short of its targets of 150,000oz of PGM and 1.4-million tons of chrome, said Noah Capital analyst René Hochreiter.

“Financial year 2019 appears to be the most challenging year for Tharisa as production volumes declined for the first time since operations commenced,” he said in a note, describing the operational performance as a “missed opportunity by Tharisa to capitalise on higher commodity prices”.

Alexander Pearce from BMO Capital Markets noted: “Given the difficult start to financial year 2019, Tharisa had a mammoth task to meet guidance in the fourth quarter and unfortunately fell short on lower-thanexpected recoveries and plant throughput.”

As a result of the lower-thanexpected output, BMO reduced its earnings before interest, tax, depreciation and amortisation (ebitda) forecast by 18% to $62m, and its expectations for the 2020 financial year by 12% to $126m.

Pearce said the earnings potential for Tharisa after these two years is strong and he expects 40% ebitda growth by financial year 2022 and so rated the stock as “outperform”.

Tharisa’s specialty-grade chrome also declined, falling to 312,100 tons in the year from 367,700 tons before. Tharisa did not give an average price for specialty-grade chrome, but it fetches a premium to metallurgical chrome, which is used to make stainless steel.

“In the year under review, Tharisa significantly re-set its mining operations, with a revised pit layout, an improvement in waste stripping, and the de-bottlenecking of the production plants,” CEO Phoevos Pouroulis said. “Though this translated into lower production than last year’s record performance, the significant work done provides Tharisa with a clear path to delivering on our vision 2020 strategy.”

Tharisa has set itself a target of generating 2-million tons of chrome concentrate and 200,000oz of PGM during 2020. It noted that these production levels will be achieved on an “annualised basis” by the end of that calendar year.

“The key remaining investment to achieve our production goal, the Vulcan plant, is under construction,” Pouroulis said, adding that the project will be commissioned in the fourth quarter of 2020.

Tharisa set 2020 financial year output targets of 155,000oz to 165,000oz of PGM and up to 1.55-million tons of chrome concentrates.