ON DECEMBER 7, worthies from the Zimbabwean government ceremonially turned the first sod on the $391m Karo Platinum, the country’s first platinum group metals (PGMs) in donkey’s years. In attendance was Phoevos Pouroulis, CEO of the JSE’s Tharisa, the project’s developer and backer with a 85% stake.
Once completed, in about 20 months’ time, the project will take Tharisa’s total PGM output to nearly 400,000 ounces a year. The balance of production is from the firm’s operating Tharisa mine in South Africa’s North West province. Karo is a tipping point for Tharisa. Established 12 years ago, Tharisa was regarded as much a chrome producer as PGMs, which were viewed as valuable by-products. Then, PGM prices took off. Palladium, for instance, has gained 50% in the last three years.
Tharisa’s future production is relatively small beer set against the millions of ounces produced by industry peers Anglo American Platinum (Amplats), Impala Platinum (Implats) and Sibanye-Stillwater, but it’s still a source of growing supply whereas total South African PGM output is in net decline. According to the World Platinum Investment Council, platinum will surge into a 804,000 oz surplus this year, partly owing to Eskom loadshedding which impedes output of refined, saleable metal.
For Tharisa, the successful development of Karo also supports its claim to be an emerging mid-tier player. Whether that transition is reflected in Tharisa’s share price is yet to be seen. The company’s share price was about 26% lower in 2022 compared to Implats which was 1.8% lower. Shares in Amplats fell 19% last year.
Unlike these PGM rivals, however, Tharisa has benefited from chrome the basket price of which was 46% higher in 2022 whereas the PGM basket was about 11% lower. It helped the company to its third successive record full-year Ebitda, announced in December. And yet it remains relatively poorly valued.
“We remain ‘buy-rated’ on Tharisa which we think can rerate on operational delivery at the Tharisa mine and derisking as the Karo project is progressed in Zimbabwe,” said Richard Hatch, an analyst at UK bank Berenberg. Tharisa could trade to £2.60/share compared to its UK price currently of 99 pence a share. BMO Capital Markets analyst Raj Ray has a target price of £1.75/share. “We maintain our out perform rating,” he said.
“We see Karo adding 15% to 2022’s record Ebitda, even as prices return to long range levels,” said Peter Malin-Jones at the UK’s Peel Hunt. “At two times EV/Ebitda (enterprise value to Ebitda which values the company’s cash earnings excluding non-cash items) such substantial earnings and cash flow growth is not priced in,” he added.
Pouroulis is frustrated about Tharisa’s rating. “We’ve been around the block and have been paying dividends for seven years. Yet there is a deep value proposition. Our share trades at much lower value against our peers,” he said.
How the share progresses from now will turn on Tharisa handling two things: the financing and successful ramp up of Karo Platinum, and results over the next year from ‘Vulcan’, a newly commissioned R800m processing facility at the Tharisa mine which is expected to drive an improvement in overall metal recoveries from 63% of ore to as much as 83%.
Pouroulis said Vulcan is currently doing 65%. “We are expecting there will be some incremental improvement in the second quarter and then a big improvement in second half. It is producing low cost units and that’s the most important thing here.”
As for Karo, the financing task is significant given the company’s R6.7bn market capitalisation is slightly less than the project cost in rands. Of this $31.8m was raised through a bond which is to be listed on the Victoria Falls exchange.
The project balance will be financed by a $130m equity contribution from Tharisa plc which is expected to close this year while $260m in export credit financing and syndicated loan finance is due in second half of 2023. “If there are any timing short falls we are quite cash generative and can bridge that,” said Pouroulis.