South Africa–based chrome and platinum miner Tharisa PLC (LON:THS) confirmed it will pay a maiden dividend, as it unveiled doubled pre-tax profits.
As flagged in its trading update earlier this month, the company is to make its first profits distribution to shareholders: one US cent per share. The group has a stated policy of paying 10% of consolidated net profit after tax as a dividend.
The distribution comes after a sparkling year for the company, which saw profit before tax more than double to US$22.0mln in the year to the end of September from US$9.6mln the year before.
Underlying earnings, or EBITDA, rose 48% to US$43.0mln from US$29.0mln the previous year, despite an 11% decline in revenue to US$219.7mln from US$246.8mln.
The decline in revenue can be explained by a fall in the commodity prices for both platinum group metals (PGMs) and chrome concentrates, with the basket price for PGMs reducing by 16.8% per ounce and the metallurgical grade chrome concentrate price on a on a cost, insurance and freight (CIF) main ports China basis reducing by 24.1% per tonne over the comparable period.
On the plus side, the group had a bumper year of production, as outlined in its trading update earlier this month.
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The group believe there is potential for a price recovery in platinum, in particular, with the price of palladium recording a strong recovery since the end of the reporting period to a level above US$700 an ounce.
The last couple of months have also seen a recovery in the metallurgical grade chrome prices delivered to China on the back of physical supply shortages with inventories running at critically low levels, coupled with a Chinese stimulus package initiating strong stainless steel growth and consumption in China. Prices are currently reported at above US$350 a tonne (on a cost, insurance and freight basis) in China.
“FY2016 [fiscal 2016] was always set to be a watershed year for Tharisa even though the achievement of steady state production was impacted by safety-related stoppages in Q1 [first quarter], which delayed this achievement; however, from Q2 onwards the Tharisa Mine recorded steady state production (on an annualised basis) and a number of record achievements during the remainder of the year,” Tharisa told investors.
Peel Hunt, one of Tharisa’s house brokers, said the dividend was in line with expectations.
“With the pay-out ratio running at 17% rather than the baseline policy of 10%, we think this bodes well for sustained pay-outs,” the broker said.
“Implying a pay-out of US$2.6mln and implying only a 0.6% yield, we believe the dividend is more a statement of intent than an ongoing pay-out level. We would expect pay-outs to increase as the project finance facility is paid down and the restrictions around the use of cash in the business fall away,” the broker added.
Peel Hunt thinks the pay-out ratio will increase to 20% - i.e. will be covered five times by earnings - from fiscal 2018, but the company could reach a net cash position before the end of the current financial year, which opens up the possibility of a better than 10% pay-out this year.
On the other hand, EBITDA was below the broker’s forecast of US$57mln, with lower chrome revenues largely responsible for this.
“This was partly lower volumes (only a 65kt inventory draw-down versus our 120kt estimate) but also lower speciality chrome realisations, far closer to metallurgical levels than we had expected,” Peel Hunt said.
”Chrome prices have well and truly recovered from their February lows of ~US$80/t and are presently sitting at US$370/t, well ahead of our FY2017E average realisations of US$182/t,” the broker noted, as it repeated its ‘buy’ recommendation.
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