Tharisa not likely to be a wallflower for much longer, as PGM basket price soars
Who will dance with Tharisa PLC (LON:THS)? The company has been a wallflower for some time, as other platinum group metals producers have grabbed the attention in the context of a soaring basket price and renewed interest in the sector.
But Tharisa’s absence from the dance floor won’t last long. Already it’s got one suitor, Fidelity, which recently took its stake to 10%. And where Fidelity leads it seems likely others will follow.
And that’s not just because having one of the world’s largest asset managers rapidly go to 10% is a sign of desirability.
No, there are hard numbers to support the contention too.
Last year’s revenue split between chrome and PGMs was, as far as investors were concerned, roughly even. This time round though, for 2020, the split will move to around 70% PGMs and 30% chrome. And, as things currently stand in commodities markets, the margins on Tharisa’s PGM production will be extremely attractive, while the company will make a smaller profit on the chrome.
The net effect is likely to be a doubling of earnings on increased PGM production, with a distinct possibility of a sharp re-rating, if the market hasn’t already caught up by then.
The key to the optimistic outlook is the breakdown in Tharisa’s PGM basket. Around 55% of production is platinum, which has enjoyed a modest uplift recently. More significantly though, around 17% of the basket is palladium, which has had a stellar run, while around 10% is rhodium, which has also done very well.
And we are not just talking a few ounces here or there. On the contrary, Tharisa is South Africa’s sixth largest producer of PGMs, and is expecting output to increase this year to between 155,000 and 165,000 ounces.
The current basket price for PGMs is fractionally under US$2,200 per ounce, more than double the US$1,000 that the company achieved last year. On a conservative 130,000 ounces of gold that puts and additional US$130mln onto the top line.
It’s not a number to be sniffed at, and once investors begin to get their heads around Tharisa’s current positioning the dance offers are likely to come flooding in.