The 50% extension to the open-pit mine’s life gives it another 20 years at no additional capital cost, which ‘allows us to transition to underground mining in a phased approach’ – CEO Phoevos Pouroulis.
SIMON BROWN: I’m chatting with Phoevos Pouroulis, CEO of Tharisa. Results for the September year-end: revenue up 46.9%, Heps up 126.6%, dividend nine cents for the full year – that’s up 157% – and net cash R46.6 billion.
Phoevos, I appreciate the early morning time. A really, really strong set of results. Part of this obviously is the PGM basket price, but part of this also seems to be efficiencies and improvements in your mining. You did a redesign back in 2019 and you’re seeing better mining conditions and abilities through the group.
PHOEVOS POUROULIS: Morning, Simon. Yes, I couldn’t agree more. I think the efforts, energy and investment that we put into reconfiguring our open pit, investing in people, investing in capital, a yellow mining fleet, and just reverting back to first principles in terms of our mining plan and strategy to create that sustainable long-life open-pit at a competitive cost advantage is really bearing fruit now. We’ve seen on literally every metric us outperforming the prior year and setting ourselves up already for a very strong new financial year, with us improving those efficiencies in the fourth quarter of that financial year. So very pleasing on all fronts.
SIMON BROWN: I mentioned in my intro we are kind of learning to live with the pandemic. We’ve new variants, but that I imagine has become very much just a way of life. Safety and worker safety has always been a part of mining.
PHOEVOS POUROULIS: Absolutely, It’s one of our core values and we are very pleased to have celebrated six years fatality-free this year, as well as having one of the lowest injury frequency rates in the industry. You would have picked up in the headlines that safety hasn’t been at its best in South Africa at all, and numerous fatalities abound. So that’s something we’re very focused on and aware that it can change very quickly. We’re not complacent at all. Any injury is one too many, so it is a core value for us.
We maintain a vigilance around that coming to the new variant. Yes, it is part of life, unfortunately. We have recorded over 10 active cases at the moment, but we have all the systems and all the investment we put in through the various waves of the pandemic, and they put us in a position to manage it effectively. Being an open-pit mine, we naturally have social distancing inherent in our operations. So it’s easier for us than [for those] sending thousands of people underground in a confined space. So we benefit from that as well.
SIMON BROWN: The average prices you received over the period – your rhodium was over $19 000/oz. If I go back to the 2020 prices, rhodium was just over $8 000/oz; it’s now sitting around $14 000/oz. Platinum in 2020 was $876/oz, it’s now around $900/oz. Palladium back in 2020 was just over $2 000/oz; it’s now around $1 800/oz. If we’re looking at the previous year, prices are down, but your basket is more or less what it was in the previous [year].
PHOEVOS POUROULIS: Yeah. I think we saw extremely high prices in the first half of the year, with our average PGM basket price hitting $4 000/oz for that first half. It was an average of $3 000/oz for the full year, and is now trading at around $2 400/oz, albeit with a weaker exchange rate, which obviously benefits us as an exporter in dollars.
So we still see strength in the PGM basket and, if we look at it over the historic average, it’s considerably higher than we witnessed, as you mentioned, just looking at that rhodium price. The truth of the matter is these products are essential in the life that we live today.
We talk about future electrification and we buy into it, and we believe there’s huge potential and opportunity for the metals that we mine to play a vital role in that decarbonisation strategy. But over the medium term the internal combustion engine needs to be cleaner, and that means more PGM loadings.
We’ve had a bit of a setback due to chip shortages in the supply chain and general disruption to the supply chain. I think it is temporary and will be resolved, and that pent-up demand will see support for strong PGM prices.
SIMON BROWN: That pent-up demand, all those people who wanted vehicles – do you have any insight into that? Every time I chat with a vehicle retailer or one of the manufacturers, I always get told ‘it will resolve in six months’ – with respect, being told that now for a year-and-a-half. Is there any visibility, or is it a case of ‘it will resolve; we’re not quite sure when’?
PHOEVOS POUROULIS: You just have to look at the massive investment that’s going into chip manufacturing facilities globally. They are talking tens of billions of dollars. By all indications and the general view – and I don’t have a crystal ball on this – the second half of 2022 is when most people believe that there will be normality in the supply chain, maybe with backlogs still being fulfilled. But yeah, our expectations are that second half of 2022.
SIMON BROWN: Okay. Your chrome concentrate – obviously you commissioned the new plant, but that was after year end, so it’s not in these results at all. But the concentrate – is that exporting out to China? Then the question is how you are finding that supply chain.
PHOEVOS POUROULIS: Yeah, 75% of our production on the chrome front ends up in stainless steel, which is a China-centric story and ends up in Indonesia and China. The big challenge there has been on the logistics front, getting material to end users cost-effectively.
We’ve seen unbelievable increases in freight rates, which have impacted our margins and continues to look fairly strong going into this new financial year in terms of those high freight rates, coupled with our own domestic logistics challenges around rail and port.
Just anecdotally in 2020 we moved 70% of our cargo by rail to Richards Bay and in 2021 we moved 70% by road. So a complete flip. That tells you the story in one statistic really.
Our preferences are obviously to move bulk by rail. It’s just far superior and more efficient. There are numerous tasks teams working with Transnet to try and resolve the bottlenecks and the constraints, and we’re hopeful that between industry and government we will find some form of resolution.
Just in terms of that Vulcan plant, Simon, it’s a really exciting project for us. It’s a technology we developed in-house. We funded internally. It was almost a R1 billion project from those strong cash flows that we enjoyed this last year, and this quarter we’re busy commissioning the first production in December.
It will be the first time that ultra-fine chrome that typically is thrown onto a waste dump is recovered. So it really has an exciting benefit to us on multiple fronts: it brings us down the cost curves, it reduces our carbon footprint per unit of product that we produce. So all in all a really, really neat project.
SIMON BROWN: Yes. A really great project. We chatted in I think early October around that.
The last question is around life of mine. As you said, it’s an open pit mine, but you’ve extended it. You’ve managed to find another seven years or so, running you to 2041 – another two decades out.
PHOEVOS POUROULIS: Yeah. This is a massive value boost to our project. If you look at the scramble for resources and our peers bidding over the odds for acquiring assets, this really is a 50% extension of our life of open pit. It takes us to another 20 years of open-pit life at no additional capital cost. So we don’t need to invest billions of rands to continue mining at the current rate. We’ll just extend and continue progressing our open pit for a further seven years.
Importantly, it also it allows us to transition to the underground mining in a phased approach. In other words, we would have 50% of our production coming from underground and 50% from open pit, which reduces the transition risk and also the capital at that point in time. So it’s very value-accretive in terms of the value of the Tharisa Mine.
SIMON BROWN: We’ll leave that there. That’s CEO Phoevos Pouroulis talking those results.
By Simon Brown
https://www.moneyweb.co.za/moneyweb-podcasts/moneyweb-now/tharisa-benefits-from-pgm-prices-and-mining-improvements/
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