Stockbroker Peel Hunt repeated a ‘buy’ recommendation for Tharisa PLC (LSE:THS, JSE:THA, OTC:TIHRF) highlighting that management is working through tweaks to the Valcan plant and expects the company will hit its design recoveries by year end.
Tharisa on Tuesday told investors that chrome production for 2022 would be 10% lower than previously guided amid a slower ramp-up of the plant in Q2. The company said it expects to produce between 1.55 million tonnes (Mt) and 1.65 Mt for the year to end-September 2022.
Nevertheless, chrome production was reported to be up 3.9% in the quarter at 389,000 tonnes, and chrome prices were up almost 40% at US$247 per tonne.
Platinum production guidance was, meanwhile, maintained at 165,000-175,000 ounces of platinum group metal (PGM). It noted that PGM volumes dipped 4.5% to 42,100 ounces in the quarter, meanwhile, the PGM basket price was also 4.6% lower at US$2,677 an ounce.
Tharisa retained a positive outlook for PGM pricing as it highlighted a slowdown in supply and a lack of major new projects coming online over the next 24 months.
Phoevos Pouroulis, Tharisa chief executive, in the statement, said: "The team at Tharisa has completed a commendable quarter, maintaining strong production output which, supported by the favourable commodity markets, ensures a healthy balance sheet that will allow us to continue implementing our strategy.
“The global macrotrends are challenging but Tharisa mine's life of more than sixty years gives us a strong foundation and the necessary financial resources to weather the headwinds of a tough economic climate, slowing growth, rising inflation, and weaker commodity markets.”
Peel Hunt analyst Peter Mallin-Jones, in the note, repeated a ‘buy’ rating and a 255p price target – suggesting significant upside to the current market price of 99.45p per share.
“The kit to tweak the plant units is on-site, so the present quarter should see a pick-up in recoveries as the tweaks are implemented. Our current chrome concentrate production estimate is 1.75Mt, so we were at the bottom of the prior guidance,” Mallin-Jones said.
“Realised chrome concentrate prices of US$247 per tonne were well over our US$234 per tonne estimate, meaning some of the revenue miss on lower output and sales will be recouped via higher prices.
“PGM production is tracking to hit or even slightly exceed the upper end of guidance (175koz). This has come as management has deliberately targeted PGM production (at the expense of chrome concentrate production) to capture the biggest cash flows possible during the recent period of strong PGM pricing.”
The analyst added: “Guidance implies an improved quarter from the Vulcan plant, but to hit the upper end would require a full quarter around design recovery rates.
“PGM recoveries are ticking up and management indicates that as the ratio of oxidised ore in the blend falls through FY23E, recoveries should steadily move to the target levels of 85%.”
Peel Hunt additionally noted Tharisa’s strong cash generation and pointed to its US$48mln of net cash in the bank.