Tharisa, a story of fat dividends and diversification
Upgrades to enhance Tharisa’s output of PGM and chrome concentrate will have payback periods of less than a year
The planned increase in the dividend payout and the possibility of diversification into other commodities offer enticing prospects for miner Tharisa.
Its major shareholders are the Pouroulis family, whose patriarch, Loucas, made a handsome profit when selling Eland Platinum to Xstrata for US$1bn in 2007. It helped to obliterate memories of his earlier, less successful platinum venture, Lefkochrysos.
Family-owned businesses generally favour good distributions. Tharisa has been ramping up its new mine since it listed on the JSE 3½ years ago, but now that it has reached a steady state it has upped the dividend significantly. It paid US$0.05/share for the year to September, compared with $0.01/share last year. Its policy is to distribute at least 10% of its net profit after tax, and it plans to increase the payout to at least 15% as well as to start paying interim dividends.
The latest distribution puts the shares on a dividend yield of 3.7%, which is above most mining companies, though not yet at the 4.7% level of another family-owned business, Assore, which mines chrome, manganese and iron ore. Tharisa’s shares, at R18.40 after the results announcement, are 15% down over one year after surging in reaction to last year’s run-up in chrome prices.
Tharisa CEO Phoevos Pouroulis, who is one of Loucas’s sons, says Tharisa has a Vision 2020 to grow platinum group metal (PGM)
output 39% to 200,000oz/year and chrome concentrate 54% to 2Mt/year by 2020 from 2017 levels.
The current environment of prolonged weak prices for platinum does not favour significant PGM output growth. Tharisa’s output includes 55.2% platinum, 16.1% palladium and 9.5% rhodium. The platinum price has been flat to slightly weaker over the past year, with palladium now trading at a premium to platinum. Rhodium prices have surged above $1,400/oz in the past quarter. The World Platinum Investment Council is forecasting a relatively small deficit of 250,000oz for platinum in 2018.
The outlook for chrome prices is sturdier. CEO Pouroulis says growth in stainless steel output, not only from China but globally, has been driving demand for chrome. SA provides 75% of the chrome that China needs for its furnaces and Tharisa accounts for 10.9% of that. In the past year metallurgical-grade chrome prices have been extremely volatile, swinging between $130/t and $290/t. They are at present at about $165/t-$170/t, with port stocks in China at two months’ worth of consumption.
Pouroulis says strong demand for chrome is expected to continue into 2018 with the commissioning of new ferrochrome plants in China and a new 2Mt/year facility in Indonesia. At an exchange rate of R13/$, a sustainable price for Tharisa would be about $200/t.
To achieve Vision 2020 Tharisa will upgrade its PGM flotation circuit and build a plant to treat more chromitite from the outcrop on the western side of the mine as well as a pilot plant to treat tailings from existing operations that will later be scaled up to a commercial-sized facility.
The PGM flotation upgrade is targeted for end-December next year, the plant for chromitite by end 2019 and the full-scale tailings-treatment plant by mid-2020. Capital costs are still being finalised, and more detail will be given at the interim presentation, Pouroulis says. Each of these initiatives has a payback period of less than a year.
Tharisa’s transition to being an owner-miner, after buying equipment and taking on 900 staff from its contractor, MCC Contracts, will allow it to track its mine plan more closely and improve safety and productivity.
The group had planned for an average stripping ratio (the proportion of waste rock to valuable ore) for the life of its mine of 9.7:1m³, but it achieved only 7.5:1m³ under contractor mining, partly because of underutilisation of equipment. For the next couple of years, to remove more overburden, the ratio will rise to 10:1, but with more selective mining grades it is expected to improve.
Another advantage of owner-mining will be better fleet utilisation through preventative maintenance, both in implementing predictive technologies and in maintaining the fleet on site using its own staff. Pouroulis says the target is 85% fleet availability and 75% fleet utilisation. Under MCC, fleet utilisation was only 50%-60%. Tharisa has spent another $7m on the mining fleet.
Tharisa is looking at opportunities to diversify its product mix, particularly into raw materials that are needed for the growing electric vehicle market and energy storage.