Tharisa is usually overlooked by investors, but its platinum group metals may push it into the limelight.
Tharisa, a company listed in London and Johannesburg, has gone under the radar, according to a UK brokerage that thinks the South African firm’s exposure to the chrome market, and platinum group metals (PGMs), positions it for a value lift over the next two years.
Peter Mallin-Jones and Tim Huff, analysts for investment bank Peel Hunt, say Tharisa must still benefit from a full year of PGM prices, assuming their current, elevated levels are maintained, especially in palladium and rhodium. Bear in mind the basket price for Tharisa’s PGM mix has increased from $900 an ounce in early 2018 to $2 300/oz today.
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. But Tharisa primarily produces chrome, at least by volume. So, what of that?
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. The interesting point about chrome, though, is that SA production has been on the wane for the past two years. This is partly owing to price, but largely down to Eskom-administered tariffs.
The largest ferrochrome producer, the Glencore-Merafe joint venture, opened restructuring discussions with unions in January over its 430 000 tonnes a year ferrochrome smelter. It then confirmed in September it was in discussions to reduce its workforce by about 1 000 people.
Merafe Resources also registered a R1.3bn write-down of its 20% share of the assets. The joint venture has capacity of over 2.3m tonnes of ferrochrome annually.
“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,” they said.
If they are right, shares in Tharisa could rise to between 165 pence and 195 pence apiece, which compares with a current price of 74.95 pence in London.