Tharisa is highly cash generative, pays a decent dividend and enjoys low costs
Thursday 07 Dec 2017 Author: Daniel Coatsworth

We’re perplexed on why chrome and platinum group metals (PGMs)miner Tharisa (THS) is trading at such a cheap valuation. Snap up its shares now as we doubt it will stayed cheap permanently, given a rising stream of dividends, a new expansion plan and a potential acquisition broadening its product base.

Tharisa is a profitable South African mining business with low operating costs and a mere $4.5m net debt. It is trading on roughly 2.0 times EV (enterprise value) to forecast EBITDA (earnings before interest, tax, depreciation and amortisation) for 2018.

It generated $46.6m free cash flow in the past financial year, representing a very attractive 14% free cash flow yield.

Admittedly the market is right to price in some discount for Tharisa only being a single asset business plus the risks of operating in South Africa, but not to the level at which the shares currently trade.

Chrome price volatility is another risk to consider, although chief executive officer Phoevos Pouroulis believes the current $165-175 per tonne levels are unsustainable. He reckons $185-200 is a more realistic price to expect near-term.

Operating profit in the year to 30 September 2017 nearly tripled to $95.9m (2016: $32.1m). It has proposed 5c per share dividend (2016: 1c) which equates to 19.2% of its consolidated net profit after tax.

The company has boosted its dividend policy in the current financial year to a minimum of 15% of consolidated net profit after tax (previously 10%), and will start paying dividends twice a year. That sends a positive signal on its financial strength.

The company is guiding for 150,000 ounces of PGMs and 1.4m tonnes of chrome concentrate in the 2018 financial year, of which 350,000 with be specialty grade chrome concentrates. Its goal is to produce 200,000 ounces of PGMs and 2m tonnes of chrome concentrate in 2020.

There is some market concern about a potential long term decline in platinum and palladium demand as the automotive industry shifts towards electric vehicles which don’t need metal-rich catalytic converters to reduce harmful gasses.

Pouroulis says Tharisa could be one of the last ones standing in the South African platinum mining industry due to its low costs. Most PGM mines are located deep underground; Tharisa mines from above surface. ‘Industrial vehicles still need diesel as the preferred drivetrain,’ he adds, ‘we don’t see platinum disappearing.’

Tharisa is actually looking to capitalise on the rise of the electric vehicle industry by diversifying into new commodities. Acquisitions are being considered including a ‘multi-commodity, multi-jurisdiction’ target. ‘We like manganese, copper, lithium, graphite, cobalt,’ says Pouroulis, who adds that Tharisa is looking at exploration assets, former producing projects and ones already in production. (DC)

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