Although investment bank Berenberg only modestly increased its estimates for Tharisa PLC (LON:THS)(JSE:THA) following a decent set of third quarter production results, there may well be more upside to come.
“A mixture of strong stainless steel production in China, coupled with tightness in the ferrochrome market (causing price increases) and scope for supply disruption of chrome concentrate, offer the potential for chrome concentrate prices to move higher than the current US$160 per tonne level,” Berenberg said in a note on 9th July.
That potential price increase hasn’t at this stage been factored into the Berenberg model, which shows Tharisa delivering sales of US$658mln and net profit of US$127mln for the full financial year 2021, with a slight drop off to sales of US$630mln and profits of US$107mlnin 2022.
If the supply-demand balance in the chrome market continues to be constrained, it’s conceivable the Berenberg numbers will be revised upwards in due course.
And there’s also the factor of platinum group metals prices. In recent months these have been weak, although palladium and rhodium have done better than platinum itself. But if that market also turns, then Tharisa will be a major beneficiary.
During the third quarter, basket prices for PGMs were marginally ahead of Berenberg’s estimates, although at this stage it’s hard to get a read on where they’ll go from here.
Operationally, meanwhile, things look pretty solid.
“Tharisa has reported a decent third quarter at its Tharisa mine in South Africa, with chrome concentrate production of 380,000 tonnes, beating our 360,000 tonne estimate, and platinum group metal production of 39,000 ounces of 6E, in line with our 38,900 ounce estimate,” said Berenberg.
“Digging into the numbers, the mine ran very well, with record mining and processing rates; run of mine ore mined was 1.5mln tonnes, ahead of our 1.35mln tonne estimate, while ore processed of 1.41mln tonnes was marginally above our 1.38mln tonne estimate.”
The company generated US$12mln of free cash in the quarter, after payments of US$11mln for dividends.
“We continue to like the Tharisa story, and with mining rates running very well, fine tuning of the plant and bringing the Vulcan fine chrome recovery plant online (on track for year-end), we think production will move to two million tonnes per year of chrome concentrates and 200,000 ounces of PGMs,” added Berenberg.
“We remain Buy-rated. The stock is trading on 0.83x NAV, 1.9x EBITDA and a 13% FCF yield.”
Berenberg’s price target is a punchy 190p, giving significant upside on the current trading level of 130.5p.