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[TOP STORY] Tharisa interims show cost pressure the order of the day

PGMs have come off a little in the last year, pricing still stable and solid, chrome concentrate prices have increased exponentially over the last six months: COO Michelle Taylor.

SIMON BROWN: I’m chatting with Michelle Taylor, COO of Tharisa. The half-year results were published yesterday. Michelle, I appreciate the early morning time. My sense of the story of the quarter, perhaps more than anything – and there’s a lot to dive into – this is a quarter [affected by] input-cost pressure.

MICHELLE TAYLOR: Absolutely Simon, and good morning to you and everybody on the line. Cost pressure – yes, it certainly is the discussion of the day. When I look at the questions I’ve been asked over the last week by analysts and investors, it’s all about costs, how we going to contain them, what we see into the next six to nine months, and what our thoughts are around inflation.

I think from our point of view certainly we’ve seen an increase in cost. It’s all about tax and discipline, managing those costs, making sure you turn a dollar over a couple of times. But similarly, it’s also about increasing commodity prices, and what we’ve sustained ourselves through is the fact that we still had rising commodity prices in terms of Tharisa introducing both PGMs and chrome concentrates. While the PGMs (platinum group metals) have come off a little in the last year, pricing is still stable and solid, and chrome concentrate prices have increased exponentially over the last six months in particular.

I heard your previous caller, and you were talking about the fact that mines have got healthy margins. Yeah, we absolutely do.

SIMON BROWN: You’ve got healthy margins. You’re also in a space to do some capex spend and you are. You’ve got your new asset, Karo [Karo Mining] as pronounced – the Zimbabwean asset. You’ve got the space and capacity to do that, and you’re doing it into a market of robust pricing.

MICHELLE TAYLOR: Absolutely. Simon. You couldn’t have hit it more spot-on. For us, yes, that’s exactly right. Look, we’ve approached the Karo project kind of calmly over the years, done the exploration, looked at some of the studies, made sure that we are making the right investment decisions. And, as you said, we are kind of in a perfect storm right now.

What really works in our favour is the fact that the Karo project is a large-scale open-pit mine, it is low-cost quartile – and all of those things make sense when you’re spending capital.

SIMON BROWN: And the PGM prices themselves – we’ve still got palladium around $2 000/oz, we’ve got rhodium at sort of $15 000/oz to $16 000/oz. As I understand, those markets are both still in deficit. Platinum is under $1 000/oz – the one market that’s not in deficit. But there’s still demand. Are we starting to see the vehicle manufacturers come back a bit? I know that we were all hoping that we would get the chip shortage out of the way, see that demand come. But from the pricing it seems to still be there.

MICHELLE TAYLOR: Look, the demand is there, there is no doubt. I think the biggest constraint probably for the automakers right now is the fact that everybody’s feeling the pinch in terms of their cost of living. So the average person is taking a little longer to turn around his car, and that causes a bit of a delay. The uptick that I think was expected in production this year is probably a little slower [coming] than one would expect, so that’s causing a little bit of a subdued price.

But, having said that, the outlook is still good. We still talk about ESG and carbon emissions every single day and the PGM market is a key commodity into that.

SIMON BROWN: We started this year thinking it was going to be a year of [slow improvement], and we’ve had left field all over the place – the Russian invasion of Ukraine being one of [the issues]. Of course Russia is a big PGM producer, mostly of palladium. Are we seeing any supply constraints coming out of Russia, or are they still managing to sell into the market?

MICHELLE TAYLOR: That’s a really interesting one. Obviously there’s a lot of discussion around sanctions on Russia and what that may mean, but certainly in one of the articles that I was reading yesterday the supply is still coming out of Russia. There’s still a channel. Albeit hesitation from some of the automakers out of Europe to take up that supply, they do have a market. It is suppressed. It is under pressure. The true extent of that we’ll see over the coming months, and I think it’s going to be more around sanctions and I suppose the emotional guide as to what one thinks is right as a consequence of this war.

SIMON BROWN: That’s my sense. I mean, it might be self-sanctioning more than anything else, potentially.

Turning to chrome. Your Vulcan [ultra-fine chrome recovery and beneficiation plant] was commissioned earlier in the year. That’s up and running. What sort of capacity are you getting out from it at this point?

MICHELLE TAYLOR: We finalised the construction of that plant at the end of 2021, and we started commissioning at the beginning of this year. We are probably at around 50% capacity, and the plant is doing well. We are busy with what’s normal in terms of commissioning, and that’s optimising it and tweaking it to get to the right kind of efficiency levels. So we are pleased with the results that we are seeing coming through. I’m happy with the yield and the grade that we are producing, particularly when we are producing into a market that from a pricing point of view is just increasing. So Vulcan is key for us. One, it’s going to reduce our cost per unit, and secondly it’s going to feed into our market where there is demand.

SIMON BROWN: There is demand. You make the note that for the period the price was $175/tonne. It has actually now jumped to $295/tonne. There is massive demand. Is chrome sold on spot or is it contract pricing?

MICHELLE TAYLOR: Chrome is typically sold on spot. Some of the big producers and we have a couple of long-term agreements. But the pricing is based on the spot and what the ferro alloy spot price is for that month. You might have a weighted average price. I think what we’ve seen is inventories reduced in China, below what they’ve been in the last six or seven years. With the logistics pressures, both in South Africa and China itself, I think that’s caused the pressure on those inventories, and in terms of their bio psychology, they’re trying to buy up more product because they’ve got to replenish those industries and they’re not sure when the shipments are going to arrive.

SIMON BROWN: Okay. I take your point around logistics, because of course PGMs – an ounce of rhodium fits in your pocket and it’s [worth] $16 000. Logistics – I imagine not much of an issue there. Chrome is by the tonne. This is a bulk commodity and therefore there are some logistic challenges.

MICHELLE TAYLOR: Yeah, absolutely. That is a bulk commodity and we move a lot of that. There is no doubt there have been logistic challenges over the last couple of years. We obviously started with the challenges around rail; those were exacerbated by issues in the different ports in terms of maintenance. And of course we’ve had floods, and the floods have been devastating for the people in Natal, as well as for business.

So from our point of view, we’ve had to make sure that we are flexible and that we flirt. So we look at multiple ports in terms of where we discharge our chrome because we have a large volume to dispatch, and we’ve got good relationships with the transporters. I’m thankful to say that certainly in the last quarter we’ve been able to move all of our inventory in getting to normalise inventory.

Going forward, I think it’s going to be a bit more constrained again for everybody, because all commodities are fighting for the space. Obviously there’s a consequence coming out of China, as you know – the result of their lockdown and what that means. The lockdown means that the transporter inland in China isn’t transporting.

SIMON BROWN: Absolutely. We’ll leave it there. Michelle Taylor, COO at Tharisa, I appreciate the early morning time.

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