precious metals
From platinum to chrome, our tip could unearth profits that will make your portfolio shine
PHOEVOS Pouroulis has mining in his blood. His father is Cypriot-born miner Loucas Pouroulis, who has been in the industry for more than 50 years. Now aged 78, Pouroulis has been responsible for a string of mining ventures, including Eland Platinum – sold for $1billion (£750million) in 2007.
Pouroulis also founded Londonlisted Petra Diamonds, now chaired by his elder son Adonis, and in 2006 established Tharisa, a chrome and platinum group run by Phoevos.
Tharisa listed on the London market in 2016, the shares are 121p and should increase materially over the next few years. Pouroulis junior has decades of experience to draw on, he is highly focused and determined to turn Tharisa into a stock market success story.
Recent progress has been encouraging. The firm operates a huge open pit mine 60 miles north-west of Johannesburg, in a region of South Africa renowned as a centre of chrome and platinum deposits. Platinum producers have often viewed chrome as an irritating byproduct. Tharisa has taken a different view – establishing operations so it can make money from mining chrome as well as platinum, palladium and rhodium.
The approach has allowed the firm to raise turnover, drive down production costs and generate plenty of cash for dividends. Having a range of commodities makes Tharisa less dependent on any one product too. Last year, for example, chrome prices were volatile, platinum was flat until the very end of the year and palladium and rhodium performed extremely well.
The outlook for all four metals is good. Chrome is an essential component of stainless steel, used in everything from kitchen gadgets to medical equipment and heavy goods vehicles. China is the world’s largest consumer and demand is expected to rise steadily as the country develops. The need for chrome is likely to increase elsewhere as well and prices have begun 2018 on a positive note.
Platinum is most often associated with jewellery but, along with palladium and rhodium, the metal is mainly used in catalytic converters. These are increasingly important in the automotive industry, as governments clamp down on harmful emissions, and prices have been strong as the new year moves into gear. Tharisa cannot influence commodity prices but it can drive up production, increase efficiency and reduce costs, all of which are central planks of Pouroulis’s strategy.
In the year to September 2017, the company produced 1.3million tons of chrome concentrate and almost 144,000 ounces of platinum, palladium and rhodium, three of the platinum group metals (PGM). This year, chrome production is expected to rise to at least 1.4million tons, with PGM production rising to 150,000 ounces.
Last week, Pouroulis released production figures for the three months to December 31, showing the company is well on the way to achieving its targets, delivering 366,000 tons of chrome concentrate, 88,000 tons of speciality chrome concentrate and 39,000 ounces of PGM over the period.
The group prides itself on research and development too, investing in sophisticated technology and equipment to increase the amount and quality of metal recovered from its mine. Higher recoveries drive productivity and Tharisa is one of the best in the business with ambitions to become even better. Many of its daily operations are automated too and mining is all above ground so access to the ore is much easier and the work is significantly more appealing than traditional underground mining.
Last year, Tharisa added new skills and assets to the business. Before, it used contractors for drilling and transportation. Now these have been brought in-house, giving Pouroulis greater control and ultimately expected to boost productivity as well.
Today, the company is responsible for every step of the process from extracting ore from the pit, processing it, signing agreements with buyers and transporting the metal. Unusually among smaller mining groups, this approach gives Tharisa a competitive advantage and reduces risk along the way. Tharisa has a stated vision to produce two million tons of chrome and 200,000 ounces of PGM by 2020 and may well expand into other commodities, either buying businesses or greenfield sites.
There will, however, be a ruthless focus on financial discipline. The dividend rose from 1 cent (0.75p) in 2016 to 5 cents (3.75p) last year and the company said it now intends to pay out 15 per cent of post-tax profits in dividends. As the Pouroulis family owns 44 per cent of the business, they are incentivised to stick to that pledge and rising dividends are expected for 2018 and beyond. Midas verdict: Tharisa is a wellmanaged company run by a scion of the South African mining industry. At 121p, the shares should deliver long-term growth and decent dividends too. Buy.