DOI: 10.25625/c8bszg
title: Tharisa Deepdive

description: Description All values are given in USD unless otherwise stated Long Tharisa Tharisa is a low cost producer of chrome and platinum group metals (PGM), dual-listed on the LSE and JSE. The Tharisa mine is quite rare given that it is an open pit PGM group metals mine. Around 70% of all the platinum mined in the world comes out of South Africa, roughly 10% from Russia (Norilsk mostly), some 6% from Zimbabwe and the token rest in different countries, and almost all of it mined in deep underground mines. There are a few other open pit PGM mines, like Mogalakwena, and these mines are also located on the lower half of the global cost curve. Most of the other mines are deep underground mines, making it quite expensive to mine. The Tharisa mine is different by being a high strip ratio open pit mine. While mining the open pit for PGM metals, they also remove a thick zone rich in chrome ore. This makes the mine both a significant chrome and PGM producer, since both ores are extracted and processed. This broadens the mine’s mined commodities and commodity exposure. Many of the underground mines in South Africa don’t have this advantage since they only mine the PGM or Chrome layer (and this is usually done by different companies and in different places). This makes the Tharisa mine a low quartile producer on the global cost curve. The Tharisa mine also has a decent life left of at least 10 years, and very likely many more since there is the option to go underground after this 10 year period. Is Netflix undervalued? Is Netflix a buy? Is Netflix a good investment Is Disney undervalued? Is Disney a buy? Is Disney a good investment While the past 10 years haven’t been great for platinum and other platinum group miners (many have share-prices lower than 10-years ago), this is also somewhat due to the nature of the commodity. PGM’s are used mostly in catalytic converters in ICE vehicles, and the amount of these vehicles on the roads is projected to gradually decline over time. But that decline will be slow since many catalytic converters are used in trucks and other heavy load transport, which has been somewhat more difficult to electrify (mostly due to the energy density of diesel vs batteries). PGM’s do however have an option on possible hydrogen fuel cell adaption, which hasn’t found a wide adoption yet. The other uses of PGM-metals are industrial, electronics and jewelry, with many different allocations depending on which of the 6 PGM metals you consider. Ruthenium and Iridium, 2 members of the PGM group metals, are completely industrial metals. Valuation With net cash of 120 million, a 230 million market capitalization (and thus 110 million EV), when buying Tharisa you are effectively buying a low cost mine at a fraction of its new price or replacement value. This is a company which did 720 million in revenue last year, an EBITDA of 177 million, 83 million in net profit and has been profitable every year for the last 10 years (where many platinum miners made big losses and some even had to restructure). While the share-price has done nothing over the last 10 years besides paying a decent dividend (5% at current share-price and profit levels), the company has grown production slightly every year, and grown equity from 180 million to 780 million. The average price to build a new PGM mine is above 2000 dollars per ounce of production. Using this valuation on Tharisa’s platinum segment alone values it at 320 million USD. The Chrome segment generates 4-500 million in revenues every year which you get for free. Is Google undervalued? Is Google a buy? Is Google a good investment Is Walmart undervalued? Is Walmart a buy? Is Walmart a good investment Karo project The last few years, Tharisa has planned on growing production with the Karo Mine project (through a 75% stake in Karo Mining Holdings), which they acquired in a few parts since 2018 for a total amount of 35 million, largely in Tharisa shares. There is one small red flag, that a big part of the acquisition of Karo was from a related party of the Pouroulis family (largest shareholder in Tharisa). But then again, the values were quite small and I don’t really think anything wrong has been done here. They bought a low cost mine for a fraction of the NPV, granted it was still a greenfield project. The Pouroulis family still has a 25% stake in the mine through the holding from which they sold their majority stake in the mine. Karo is a planned mine in Zimbabwe, again open pit, again lower on the cost curve and with a long mine life (at least 20 years). The overhang of this project is what is keeping the Tharisa share-price low. Expected capex for the project is estimated at around 310 million, of which 130 million has been invested to date. There is a fear in the market that this project is hard to finance for the company, given the recent weakness in PGM prices. Of the remaining 180 million project capex, around 60 million is working capital related. The company however has mentioned that construction of the project can be spread out over multiple years, which they have already done somewhat, and that the company has a decent amount of cash with 227 million in the bank. An additional option is to sell a gold stream royalty for the Karo mine. The mine has a decent percentage of gold in its ore, which is more typical of the Zimbabwean mines, and should deliver Tharisa around 10.000 ounces a year as a byproduct for 20 years. One can imagine that selling a part of the gold royalty stream should more than cover the remaining project capex. Together, these options and a year or two of retained cash should be more than sufficient to finance the project until completion, and according to me is an overly pessimistic view of the market. But that is precisely what is playing here. A recent broker note lowered the Tharisa price to target to 115p, which is more than double the current price, just based on this concern. Tharisa’s management estimates that the Karo mine can be built and operating within 18 months once financing is arranged if they are not reliant on retained cashflow. Shareholders Tharisa is 41% owned by the Pouroulis family. They have a mixed record, also being the reference shareholders at Petra Diamonds (not that great, but some excuse given the long term negative trend in diamond prices) and recently Chariot in the UK. But I have to say that the track record at Tharisa has been pretty good. In march 2024, the company launched and completed a share-buyback for 5 million in shares. This was announced at one of the lowest price point in recent years. While the buyback was small and understandable given the funding commitments of Karo, I believe that a buyback will be renewed if the shareprice would stay this low once Karo is up and running. Is Apple undervalued? Is Apple a buy? Is Apple a good investment Is Nvidia undervalued? Is Nvidia a buy? Is Nvidia a good investment Risks Very large deterioration in the PGM prices, or some parts of that basket. For example, Rhodium used to be a minor part of this basket, until its price shot up more than 10 times between 2019 en 2021. As of this moment, the price is still more than double the 2019 price. If the price would halve again or even more, this would be quite detrimental for margins. The same applies to Iridium, although one could assume that this is because the lower influence Platinum and Paladium have, but a higher Iridium of Rhodium price still makes it worthwhile to mine PGM’s. Capex blowing up or a few bad years in the market combined with a sizeable debt. There is a chance of this happening, but even al current lower PGM prices, the debt would probably never exceed 1,5 times EBITDA, which is quite conservative. I think the risk of a large capex overrun is low given that a major part of the capex has been done (130 million), and the budget hasn't been revised yet. Takeunder is always a risk in cheap family controlled companies.