- Tharisa PLC will be the latest foreign platinum mining firm to enter and invest in the Great Dyke in Zimbabwe.
- The Great Dyke has the second-largest platinum reserves in the world after South Africa.
- Tharisa has entered the Zimbabwean platinum mining sector through Karo Mining Holdings which owns the Karo Platinum Project.
- Tharisa will get into an 85%-15% joint venture with the government of Zimbabwe.
- The Karo Platinum project is expected to come on stream in 2 years and produce at least 150,000 ounces of the precious metal a year.
https://theexchange.africa/investing/investment-in-africa-2022/
Tharisa PLC which is listed on the JSE took control of Karo Mining Holdings when it increased its interest in March from 28% to 85%. The company is building a mine which it has named the Karo Platinum Project and is envisaged to take at least 20 years to complete. The first phase of the mine’s development is expected to cost at least US$ 250 million. Tharisa projects that the Karo Project once complete will not only have a 20-year life but also lock in a US$ 770 million net present value at current PGM spot metal prices. Net present value is an investment appraisal method used by companies in their capital expenditure decisions to determine what projects are more desirable than others. It is found by estimating the cost of a project and the cash flows that the project will generate throughout its lifetime.
These cash flows are then discounted by a predetermined hurdle rate or the company’s cost of capital. Projects that generate cash flows greater than their cost are deemed to be desirable and the Karo Platinum Project in this instance is highly desirable because it will deliver at an NPV of almost US$1 billion. This makes the project a highly desirable one. According to Tharisa, the Karo Platinum Project has initial probable reserves estimated to be in the region of 35 million tons. Assuming a yield of 2.31 grams per ton this ore body is forecast to produce about 2.6 million ounces of PGMs. Once the project is on stream, its production will comprise 45% platinum, 42% palladium, 4% rhodium, and 9% in gold.
Funding for the Karo Platinum Project
The platinum mining game can only be played with long money. Given the length of time it takes to build a mine and to start generating cash flows, prospective investors and players would be well advised to have deep pockets sufficient to provide liquidity during the exploration and mine development phases of the project. There are numerous precedents for this assertion. Booysendaal, which is a platinum mine developed by Northam Platinum Holdings in South Africa, took over 10 years to build and finally bring on stream. Karo is expected to start producing in 2 years which is highly remarkable for a platinum mine.
To that end, there have been extensive discussions around how funding for the Karo Platinum Project will be raised. According to Mining MX, funding for the Karo Platinum Project is expected to peak at US$ 310 million. Several funding sources are being considered by the company. They include export/import finance, political and commercial guarantees, and senior debt. Senior debt is the kind of debt that if the project fails monies lent to it by the providers of senior debt would be made whole first before the holders of subordinated debt which ranks lower in preference to other creditors and senior debt. Tharisa’s equity contribution to the project in terms of funding will be supplied by internal cash flow and facilities, Mining MX said.
Part of Karo Mining Holdings’ project funding strategy will be the issuance of a corporate bond for US$ 50 million which will be floated on the United States dollar-denominated bourse, the Victoria Falls Stock Exchange (VFEX). It will be the first such issuance. The transaction if successful will also represent the most amount of capital that has been raised since the inception of the VFEX. Tharisa’s head of investor relations made this announcement that the company would tap into the Zimbabwean capital markets to finance what they describe to be an impactful development.
This stance in Tharisa’s corporate financial strategy in terms of the Karo Platinum Project presents certain complications. These complications come from the fact that Karo Platinum is still in the development stages. The mine is for now and will remain cash flow negative until production comes on stream in 2 years. This part of the strategy then also begs the question of how the financial obligations arising from the issuance of a debt instrument would be settled? This is something prospective and existing investors need to ask themselves. Tharisa, from the statement made by its head of investor relations as reported by Mining MX, is not investing any cash upfront in terms of equity. The equity portion it is said will come from internal sources. Corporate and project finance theory posits that where a proprietor has little in terms of equity in a project or venture there is an increased likelihood that they could walk away from the project if things go sideways. This stance in their strategy to fund this project indicates a heightened sense of caution regarding this project on the part of its sponsors.
The success or failure of the corporate bond issuance will be a true litmus test to determine whether the VFEX is fit for purpose as a mechanism for long term funding of big-ticket projects or it is merely a regulatory haven:
https://theexchange.africa/business/victoria-falls-stock-exchange/
The VFEX which opened in 2020 has 4 listings and offers tax exemptions on capital gains and promises investors the ability to repatriate from the country according to an article published by Bloomberg. Tharisa’s plans to float a bond on the VFEX coincide with similar plans and efforts by the government to trade debt on the foreign exchange denominated bourse.
Tharisa Karo Investment case
Zimbabwe is fast becoming a hotbed of platinum group metal mining activities. The country’s PGM sector was given a ringing endorsement by the chief executive of one of the largest platinum miners in the world, Impala Platinum Holdings, Nico Mueller. He made the remarks at a Johannesburg Mining Indaba event. He said that the country’s negative perception stood his company in good stead to develop its operation in the country. Zimbabwe Platinum Mines is now the best-performing subsidiary in the Impala Platinum Holdings stable as a result of the reluctance of other players to enter the market.
The Karo Platinum Project valued at between US$ 250 and 310 million is certain to send a strong signal to the rest of the world that Zimbabwe’s PGM sector is ripe for investment. This sector presently offers rich picking for those investors brave enough to take the plunge.
Tharisa as has been mentioned already is listed on the JSE in South Africa. It describes itself as an integrated resource group engaged in the exploration, mining, processing, and the beneficiation of, marketing, sales, and logistics of platinum group metals and concentrates. This is according to the company’s website. The company has set a target of producing 200 thousand ounces of PGMs in the near term. When the Zimbabwean operation comes on stream it will double the company’s PGM production. In addition to producing PGMs, the company also produces chrome.
The company holds shares in and operates 5 subsidiaries namely Tharisa Minerals which is incorporated in South Africa and produces PGM and chrome concentrates from a shallow open pit mine near Rustenburg. Arxo Metals produces specialized high-margin chemical and foundry grade chrome concentrates. Met Q manufactures mining equipment used especially in the beneficiation process. Salene Manganese is another subsidiary that is involved in the exploration and mining of manganese and iron ore. Arxo Logistics manages rail and road distribution of PGM concentrate and chrome concentrates produced by the Tharisa mine and chrome concentrates from the Sibanye Stillwater chrome plants.
The company’s operations are spread between 3 countries namely South Africa, Zimbabwe, and Cyprus. In Cyprus, the company owns and operates a subsidiary called Arxo Resources which markets and sells metallurgical and chemical grade concentrate to customers primarily in Asia. The company’s investment vehicle which holds an interest in the Karo Platinum Project, Karo Mining Holdings is domiciled in Cyprus. Lastly, the company has two investments in Zimbabwe namely the flagship Karo Platinum Project and Salene Chrome.
Tharisa is uniquely positioned as the world’s only co-producer of both PGMs and chrome concentrates. Tharisa Minerals’ core asset is the Tharisa mine which is on the western limb of the Bushveld Complex and is home to more than 70% of the world’s platinum and chrome resources. It is for this and the foregoing reasons, a company the investor community should pay attention to. The consensus view for the company according to SA Shares is a BUY.
