On December 7, worthies from the Zimbabwean government ceremonially turned the first sod on the $391m Karo Platinum project, the country’s first platinum group metals (PGMs) endeavour in years. In attendance was Phoevos Pouroulis, CEO of the JSE’s Tharisa, the project’s developer and backer with an 85% stake.
Once completed, in about 21 months’ time, the project will take Tharisa’s total PGM output to nearly 400,000oz a year. The balance of production is from the firm’s Tharisa mine in South Africa’s North West province.
Karo is a tipping point for Tharisa. Established 12 years ago, Tharisa was regarded as a chrome producer as much as a producer of PGMs, which were viewed as valuable by-products. Then PGM prices took off. Palladium, for instance, has gained 50% in the past 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 an 804,000oz surplus next year. This is partly owing to Eskom’s load-shedding, 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 of note. Whether that transition is reflected in Tharisa’s share price is yet to be seen. The company is worth about 18% less this year than Implats, which is 2% lower. Shares in Amplats are 7% weaker. Unlike these stocks, however, Tharisa has benefited from chrome, the basket price of which is 46% higher year on year, whereas the PGM basket is 11% lower. It helped the company to its third successive record full-year earnings before interest, tax, depreciation and amortisation (ebitda), announced earlier this month. 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 on derisking as the Karo project [progresses]
— Richard Hatch
“We remain ‘buy rated’ on Tharisa, which we think can rerate on operational delivery at the Tharisa mine and on derisking as the Karo project [progresses] in Zimbabwe,” says Richard Hatch, an analyst at UK bank Berenberg. He says Tharisa could trade to £2.60 a share compared with its present UK price of £1 a share. BMO Capital Markets analyst Raj Ray has a target price of £1.75 a share. “We maintain our outperform rating,” he says.
“We expect Karo to add 15% to 2022’s record ebitda, even as prices return to long-range levels,” says Peter Malin-Jones at the UK’s Peel Hunt. “At twice EV/ebitda [enterprise value to ebitda, which values the company’s cash earnings excluding noncash items] such substantial earnings and cash flow growth is not priced in,” he says.
Pouroulis admits to frustration regarding 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 says.
How the share progresses from now will turn on Tharisa’s handling of 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 that is expected to drive an improvement in overall metal recoveries from 63% of ore to as much as 83%.
Pouroulis says Vulcan is doing 65% at present. “We are expecting there will be some incremental improvement in the second quarter and then a big improvement in the 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 that the company’s R6.7bn market capitalisation is slightly lower than the project cost in rand. Of this, between $25m and $50m will be via a bond on the Victoria Falls Stock Exchange. There’s an estimated $1.8bn-$2bn in stranded assets in Zimbabwe the company intends to partly obtain. The project balance will be financed by a $130m equity contribution from Tharisa, which is expected to close in the new year, while $260m in export credit financing and syndicated loan finance is due in the second half of next year. “If there are any timing shortfalls, we are quite cash generative and can bridge that,” says Pouroulis.
Pouroulis is the youngest son of Loucas Pouroulis, the veteran mining engineer whose companies have enlivened the JSE for nearly 40 years in gold, coal, diamonds (albeit on the London Stock Exchange) and, notably, PGMs. Lefkochrysos, a company Loucas Pouroulis founded in the 1980s, famously crashed and burned following a slide in PGM prices. Pouroulis snr long ago exorcised this memory with Eland Platinum. Listed in 2016, the company was swept away a year later in a spectacular $1bn buyout by Xstrata.
Asked whether Tharisa is the best Pouroulis company yet off the conveyor, Phoevos Pouroulis smiles: “It’s certainly a flagship,” he says.
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