It’s now one month since Tharisa PLC (LON:THS) listed on the main board of the London Stock Exchange. With a market capitalisation on debut of around £95 mln, this was the largest miner to list on any market in London in over five years. And its arrival has been instructive in many ways.
Although there was no new money raised the arrival of Tharisa has underlined that investment appetite for miners is back, even if there is still a lot of selectivity about.
The company’s shares debuted on 8th June at 39p and immediately rose by around 25%. By the second day of trading the price was 51.5p.
The shares have since drifted slightly in the wake of Brexit and associated currency effects, but are still sitting at 47.5p, a handsome gain for any investors who bought in on day one of trading.
And this isn’t simply a question of directors and brokers pricing a company cheaply in order to ensure it gets away. Tharisa was already listed in Johannesburg, so no monkeying about with price was possible.
Volumes in London could be higher, admittedly, and it’s true that with most of the shares still held in Johannesburg a certain scarcity value might be being ascribed to the company by dealers in the City.
But there’s more to it than that. More to it even that the solid after-market support provided by broker Peel Hunt.
What the London listing does for Tharisa is to complete the revolution of a highly virtuous circle.
First, it’s worth mentioning that Tharisa is 47%-owned by the Pouroulis family, a famous name in South African mining who sit behind London-listed success story Petra Diamonds (LON:PDL) amongst others. This is a group of people who know mining and who know markets.
So ask yourself if it’s accidental that Tharisa has listed at the beginning of what looks to be a new mining sector upswing, and then ask about the track records of the people behind the company. Hold that thought - and then look at the reception Tharisa has managed to get on its recent London roadshows.
This, according to Pheovus Pouroulis, the company’s chief executive, has been positive indeed.
“The institutions have been very well prepared for our meetings,” he says. “We’ve been getting right into the nitty gritty. The communication has been that there is very real interest.”
Such an endorsement from London institutional investors doesn’t always come on a plate. It’s helpful that the Pouroulis family is a well-known name in mining. It’s helpful too that the market is clearly on the turn.
But most helpful of all is the performance that Tharisa has been able to deliver at its key asset, the 74%-owned Tharisa chrome and platinum project on South Africa’s prolific Bushveld Complex.
Everyone knows that platinum prices have been under pressure, so a certain amount of wriggle room has generally been tolerated by investors in terms of overall mining revenues, which were down in the first half of the year.
Instead, it was operationally that Tharisa shone through. The company produced 60,000 ounces of platinum group metals in the first half of 2016, an increase of 4.5%. Additionally it produced 604,000 tonnes of chrome in concentrate, an increase of 7.3%. Combined, that production delivered an 18.2% boost to net cashflows, which at the half-year stood at US$18.2 mln.
And, in spite of the overall decline in revenue due to weaker metals prices, Tharisa still delivered a headline profit of US$0.01 per share, the same as last year.
How was this achieved? Simple - all-in costs for platinum production were cut by nearly 11%, while chrome production costs were cut by a whopping 33%.
“These results backed up our claims to be a low-cost producer,” says Phoevos Pouroulis.
Thus the virtuous circle was completed – experienced mining entrepreneurs exhibited an asset that was performing well to highly experienced investors in a rising mining equities market.
This is how confidence builds on confidence and equity rallies really get going.
The plan now is to consolidate production at the Tharisa mine - for 2016 as a whole the company expects to produce nearly 130,000 ounces of platinum group metals and thereafter for the first full year of steady state production for that to rise to an annual output of just over 147,000 ounces.
For chrome, the forecast this year is for production of 1.25 mln tonnes, rising to 1.3 mln tonnes in 2017.
If the platinum price starts to move in line with some of the other commodity movements we’ve witnessed over the past few months, then the outlook for Tharisa could become very rosy. The company has already committed to paying out 10% of net profits as dividends. It looks as though those who bought early will see the highest yields.