Tharisa offers undervalued growth

For the uninitiated, Tharisa operates the eponymous large-scale open-pit mine in the south-western limb of South Africa's Bushveld complex. It has been operational since 2009 and boasts a mine life of at least 15 years, with the potential for a further 40 years if converted into an underground mine. The company also has more in common with an oil major such as Royal Dutch Shell (RDSB) than most miners of its size, in that it is vertically integrated. This means that it not only mines chrome and platinum, but owns the marketing, sales and logistics platforms, which allows it to cut out traders, speak to customers directly and capitalise on economies of scale.

Financial results for the year to September highlighted the benefits of this model. During the period, production hit a record of 152,500 ounces (koz) of platinum group metals (PGM) and 1.4m tonnes of chrome concentrate, contributing $29.2m (£22.8m) and $75.7m to the gross profit line, respectively. Within that chrome production has grown its weighting to specialty chrome grades, which thanks to plant investments (and in response to customer demand) rose 13.8 per cent to 367.7kt year on year. Increasing this share is important for group-wide margins, as specialty concentrates continue to command an average premium of $50 per tonne to standard metallurgical-grade chrome – which is largely used in stainless steel manufacturing.

That’s particularly helpful when chrome prices are muted, as they have been in the last year. But even when costs rise – as they also did in the past year – Tharisa’s overall chrome production is likely to maintain margins of at least 30 per cent. And its position as a low-cost miner means Tharisa should be insulated from any sudden drop in prices, should forecasts for steady growth in stainless steel demand prove unfounded.

With platinum prices at a decade low, investors shouldn’t get overly optimistic about Tharisa’s remaining commodities exposure, even if its overall PGM basket increased by $137 an ounce on the back of rallying rhodium, ruthenium and iridium prices. But one source of support could come from China’s continuing subsidies for hydrogen-powered fuel cell vehicles until at least 2025, which South African peer Anglo American (AAL) believes could provide a “material” boost to demand.