A Little Journal of a Shameless Investor

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$THS.L – Betting on Cash Flows


After giving a buzz cut on my portfolio, I have decided to take a position in a mining and exploration company with operations primarily focused on platinum group metals and chrome concentrates.

The company is named Tharisa Plc, deriving its name from its primary operating asset. Tharisa is a mining location situated in the southwestern limb of the Bushveld Complex in South Africa.


When you simply glance at the map, it appears quite near Johannesburg, the largest city in South Africa with a population of 5.6 million. Initially, I harbored doubts about the presence of a significant mining operation in such a vicinity.

However, upon closer inspection using satellite view, it becomes evident that the company is not exaggerating about its operations.


Now, that is what I call one colossal undertaking!

In this article, I aim to explore the compelling reasons why Tharisa should be considered a lucrative investment, while playfully indulging in my confirmation bias.


Why am I Buying This Company? – Simplified


The company simply ticks all the boxes that I look for.

As of the date of this article, the market cap of the company is valued at $314 million (USD). The company holds $205.70 million dollars of cash in its balance sheet and the EV is $204.91 million.

The company has a durable history of being free cash flow positive for the last 7 years albeit of their profitability being subjected to the volatility of the mineral prices.

In 2022, the company generated ~$70 million in FCF, making it a healthy 22% FCF yield.

Yes, the company announced spending $391 million spending in CapEx for the next 2 years and the recent FCF generation has been supported by the rising price of platinum group metals and chrome concentrates. But I believe that Mr. Market is overreacting and it’s a matter of time before the voting machine will get converted into a weighing machine.

Why is it So Cheap?


Whenever you look at a company with near-ridiculous valuations, there is typically a reason behind such lofty figures. Contemplating the rationale behind these valuations is akin to pondering the collective thoughts of the masses at present.

Just look at these valuation metrics as of the writing of this article:

Price to Free Cash Flow Ratio (TTM) = 4.77

EV to Free Cash Flow Ratio (TTM) = 3.43

P/E Ratio (TTM) = 2.12

EV/EBITDA (TTM) = 1.09

EV/EBIT (TTM) = 1.31

P/B Ratio = 0.46

Just observing these valuations themselves really pumps up the heart rate of the value investors out there. But Why the hell is it so cheap?

In my opinion, there are two main reasons why the company is trading at its current valuation.


Price Correction in Platinum Group Metals

The price of the minerals is the lifeline and what dictates this company’s future.

Comparing the platinum commodity price (CFDs) and Tharisa makes the correlation very clear.


The image illustrates the correlation between the stock and the platinum price during the past decade.

The majority of the time, the correlation has been above 0.7. Such a strong correlation holds considerable significance, offering valuable insights into the company’s performance and prospects.

The enduring nature of this correlation over a decade suggests a sustained relationship between Tharisa’s fortunes and the platinum market. Therefore, a deep understanding of the interdependence between the company and the platinum market is indispensable.

However, despite the strong correlation with platinum prices, the share price has recently been moving in a negatively correlated fashion. This negative correlation is a significant departure from the trend observed since 2016 when the stock was listed on the London Stock Exchange.

This shift to a negative correlation raises intriguing questions about the factors influencing Tharisa’s share price and its divergence from the platinum market. It suggests that other variables, potentially internal to the company or external market dynamics, are exerting an increasingly influential impact.

We will need to look into the factors that may have an impact on Tharisa’s recent decline in share price.


Historical Metal Prices

As a PGM and chrome concentrate miner, Tharisa has tremendously benefited from the rise in metal prices due to pandemic-related supply disruptions.


Here’s the 10-year history of metal prices extracted from Tharisa’s 2022 annual report:


The contract price for metallurgical grade chrome concentrate remained relatively stable from 2013 to 2019, fluctuating within a narrow range.

However, in 2020, there was a significant drop in price to $140/ton, which can be attributed to the overall economic slowdown caused by the pandemic. In 2021 and 2022, the price showed a modest recovery, reaching $154/ton and $209/ton, respectively.

On the other hand, the PGM basket price shows a mixed trend over the analyzed period. From 2013 to 2015, there was a decline in prices, reaching a low of $885/oz in 2015.

However, from 2016 onwards, the prices started to recover and experienced significant fluctuations. Notably, there was a substantial increase in prices in 2020 and 2021, reaching $1,704/oz and $3,074/oz, respectively. The prices then declined slightly to $2,564/oz in 2022.

The War in Russia may be contributing to further supply chain disruption. Below is the summary of the world platinum supply and demand from 2011 to 2020 based on information prepared for the World Platinum Investment Council by Metals Focus Limited.

The main supply of platinum is in South Africa, where 67% of the total mine in 2020 is generated from. However, Russia’s share of platinum supply isn’t negligible, in fact, they have averaged around 12.3% of total mine supply over the past decade.

After the London market blocked the Russia-made precious metals, the prices for Palladium and Platinum prices are have been souring.

Any mining analyst examining these substantial price increases would likely suggest that the rise is temporary and that prices will normalize in the coming years. Eventually, the war will come to an end, allowing the supply chain to restore itself. Consequently, a decline in the price of PGM metals can be expected.

This anticipation of price normalization is currently being reflected in the share price of the company in question. We can refer to it as a sector-specific risk influencing the stock price rather than a firm-specific risk.


Comparative Analysis

Let’s look at the PGM metals-related peers to see if the sector-specific risks are reflected in all miners:


More than half of the PGM miners are trading at below or equal to a P/E ratio of 4. It indicates how the market is pricing in the decline in PGM metal prices.

The company also has an operational relationship with its peers.

Tharisa has an offtake agreement with Impala Platinum (IMP.JO) and Sibanye-Stillwater (SSW.JO), for which Tharisa sells the majority of their PGM concentrate at an agreed price.

Being the primary producer of PGM metals, Tharisa enjoys a significant competitive advantage. This is clearly demonstrated by comparing the company’s gross margins. Impala Platinum has a gross margin of 29%, while Sibanye-Stillwater’s stands at approximately 23.89%. Tharisa, on the other hand, boasts a healthy gross margin of 34.14% due to its early positioning in the mining exploration process.

Ok, long story short, the PGM metals are forecasted to be lower in price that expectation has been priced into the stock price.


Announcement of the $391 Million USD Capital Expenditure Spending


I’ve never seen an equity investor being excited when the shareholding company announces a large business project that requires gigantic capital expenditure.

No one likes businesses that require large capital expenditures to grow. As an investor, you hate to see the consistent cash flow that was coming into your pocket end.

Tharisa has announced that they will spend $391 million USD on the construction of the Karo Platinum Project. The company became the majority owner of the Karo Platinum Project (70%) by increasing the shareholding in Karo Mining Holdings, which owns the project.

The Karo Platinum Project has a 17-year open pit life of mine, which is anticipated to bring in over 190 koz of PGM metals annually. If this is true, Tharisa will double its PGM metal production.

The company will design and construct the project starting from 1 July 2022, aiming to produce the first ore in July 2024.

However good the investment sounds, $391 million US dollars is a gigantic amount of money for what the company is worth.

The million-dollar (or billion?) question is “Is this investment worth it?”

I will try to pass my best guess by creating two questions that may answer the question above.

But whenever you hear this huge CapEx announcement, we will need to ask these simple questions:

  1. Does the company have enough cash to fund the project in the first place?
  2. What will be the rate of return that the company will receive after the investment?

Let’s answer these questions one by one.


Does the have enough cash to fund the project in the first place?


Let’s see the actions that Tharisa took to fund its project.

Firstly on 30 March 2022, Tharisa raised $29.4 million USD by issuing 13,693,000 shares to increase its stake in Karo Mining Holding from 26.8% to 66.3% and to 70% subsequently. As Karo Mining Holdings own 85% of Karo Platinum, Tharisa essentially has 59.5% of the interest in the Karo Platinum project.

15% of the Karo Platinum project is owned by the Zimbabwean government on a free-funded carry basis, which means that the government will be able to enjoy 15% of the potential return without having to bear the financial burden.

As per the annual report, the Zimbabwean government also holds an option to increase its shareholding in Karo Platinum to 26%. If the government exercises the option, Tharisa’s ownership in the Karo Platinum project will decrease to 51.8%. Still having the majority interest in the project.


But before the $391 million CapEx spending, the company has already spent $70.3 million on the acquisition of interest, exploration studies, and early development funding.


The $130 million of the CapEx funding will be coming from Tharisa’s equity (cash on the bank) and the remaining will be financed through debt.

As per the interim report, Tharisa is planning to spend $160 million in CapEx spending for the rest of FY2023.


This will make the total investment of the Karo Platinum Project $461 million USD.

Now let’s look at their most recent balance sheet as of 31 March 2023 (H1 2023)


The company has a net cash position of $112.7 million. When you take into account the additional $47 million of free cash flow coming into the company’s cash position in just half a year, it becomes easier and more optimistic to look for the $130 million of equity funding.

How about the $260 million of debt financing?


As per the annual report, Tharisa will be funding this debt using the “Syndicated loan with a senior project finance facility with a political commercial insurance wrap (ESIC).

What type of debt is this in simple English?

In simple terms, the debt involves multiple lenders coming together to loan for the Karo Platinum project, and there is insurance to cover the political and commercial risk associated with the project.

Insurance coverage for the debt is crucial, particularly in addressing the political risk and instability as the project is based in Zimbabwe. Given the challenging nature of the operating environment, insurance serves to protect lenders and borrowers from potential disruptions.

On March 27, 2023, Tharisa concluded a funding arrangement to raise $130 million for the project. This funding comprises a term loan of $80 million and a revolving facility of $50 million.

However, there remains a significant risk as the remaining $130 million of required debt capital is yet to be secured. The lack of this capital may potentially stall the progress of the Karo project. It will be interesting to observe how Tharisa plans to address this issue in the coming years and secure the necessary funding for the project’s successful implementation.

Although there is ambiguity with the remaining debt financing, I think Tharisa’s robust balance sheet and the project’s cash flow generation potential will lead to successful financing for this project.


What will be the rate of return for this project?


First of all, what is the estimated NPV for this project?

In the most recent interim report, Tharisa has calculated the value of the option that The Republic of Zimbabwe holds, which is 11% of the Karo Platinum if it gets exercised.

The valuation of the option, in other words, the NPV of 11% of Karo Platinum was $59.9 million as of 31 March 2023. This equates to $544.54 million of NPV for the entire project.

The following stats were used when they valued the project:

Now let’s reverse-engineer these numbers.

In the reverse engineering model, the following assumptions are considered to calculate the operating margin of the project:

  • The first two years, 2023 and 2024, will not generate any cash inflows. This is due to the expectation that the project’s “First Ore in Mill” (FOIM) will likely be delayed until the 2025 fiscal year. The delay is anticipated due to the substantial size of the project, which may cause the estimated delivery date to be missed.
  • Cash inflows will be derived by multiplying the PGM Basket price by the annual PGM production.

Considering these assumptions, the operating margin of the project is calculated to be 36.64% per year after the completion of construction.



To provide a more conservative estimate while maintaining a constant operating margin, the following adjustments have been made:

  • Discount rate: Since 100% of Tharisa’s PGM revenue is generated from South Africa, geopolitical and inflation risks in the country need to be considered.
    The sovereign CDS spread of South Africa, currently at 5.19%, will be added as a country-specific risk premium on top of the implied risk premium of the S&P 500, which stands at 4.77% according to ERP data on Aswath’s website.For the risk-free rate, the current 10-year T-bill rate of 3.61% as of June 1, 2023, will be used.
    By adding the risk-free rate, implied mature market risk premium, and country-specific risk, the discount rate is adjusted to 13.57%.


  • PGM Basket Price: While the historical average price of the PGM basket in the last decade is $1,399 USD/oz, a more conservative approach will be taken. To lower expectations and account for potential fluctuations, the average price of the last decade ($1,399 USD/oz) will be used in the calculations.

After increasing the discount rate and decreasing the PGM Basket Price, the NPV of the Karo project is revised down to $172 million USD. Although this figure may seem low, the return on the CapEx remains relatively high.

Tharisa’s interest in the project will be worth $102.40 million. Given that Tharisa paid a total of $33.90 million to acquire the interest from Karo Mining Holdings, this resulted in an investment that generates a CAGR of 6.33% over the course of the project.

While the Karo Platinum Project may not be considered particularly exceptional, it is reassuring to see that it is not likely to be a value-destructing investment for the company.

It’s important to note that this is a very conservative estimate. Factors such as potential efficiency improvements over time and economic tailwinds related to PGM prices have not been considered. The project still maintains a degree of margin of safety.


What is Tharisa’s Return on its Existing Businesses?


Unique Diversification


What differentiates Tharisa from its peer is having two commodities in its revenue segment that are uncorrelated. In fact, while other PGM miners are experiencing significant revenue decline in the recent price correction, the increase in chrome price is protecting Tharisa’s cash flow.

The price fluctuation of Chrome and PGM prices shows the power of commodity diversification in play.

On 31 March 2022, the shared cost was 55% for the PGM segment and 45% for the chrome segment. Tharisa is truly diversified its business by investing its internally generated cash flow into the Chrome projects in the past two years. Vulcan plant (chrome processing plant) was fully funded with the cash flow ($55 million) which is now ramping up the chrome recoveries from 62% to 80% which provided an increase in topline revenue and competitive advantage in the market.

Having this dual commodity business should be valued at a premium compared to miners being loved with only one.


Free Cash Flow Generation


The main reason why I’m interested in the company in the first place was Tharisa’s durable core business that has been generating cash for a long period of time.


Tharisa’s free cash flow has never been negative in the past seven years. Although the CapEx for the Karo Platinum project will exceed the operating cash flow for the next two years, it is highly likely that Tharisa will once again become a cash cow, returning cash to the shareholders. The uncertainty surrounding the firm’s new CapEx spending presents us with an opportunity.

I am not attempting to time the market, but I believe that until the free cash flow turns positive again, the share price will likely continue to decline as market participants seek confirmation before bidding up the price. However, I am placing my conservative bet on seeing $50 – $150M in FCF back on the cash flow statement for the 2025 fiscal year.


Capital Allocation


During the annual and half-year review, the management team has consistently demonstrated their commitment and diligence in fulfilling their promises to investors, including their dividend policies. The company has a well-defined dividend policy, ensuring a minimum payout of 15% of consolidated net profit after tax.

However, while the management’s adherence to dividend payments is commendable, some investors, myself included, would appreciate the implementation of share buybacks if they truly believe the company’s shares are undervalued.

The notion of undervalued shares is frequently reiterated in various earnings calls that I have diligently followed.

In fact, during the FY 2021 Annual Results Presentation, when queried about share buybacks, CEO Phoevos Pouroulis provided the following rationale:

“We thoroughly examined historical instances of share buybacks and found no compelling evidence to categorically demonstrate their effectiveness. In most cases, they did not yield the desired outcomes. Therefore, our viewpoint is to adhere to our capital deployment strategy, returning cash to shareholders in the form of dividends and fueling growth through internally generated cash flow.”

While the specific examples he referred to remain unclear, it appears that as long as Tharisa continues to generate cash and deploy capital in projects that yield a net positive return over time, the company’s business will continue to flourish without the need for share buybacks.


Share Structure


According to Charlie Munger, there are only a few forces more powerful than incentives. When the interests of shareholders and management are aligned, it creates a powerful force that motivates management to act in the best interest of the company and its shareholders.

When you look into Tharisa’s inside holdings, 43 ~ 45% are owned by the Pouroulis family and Tharisa Plc.

Here are the major shareholders:

~43% of the shares are owned by the family, indicating a vested interest in the success of the company. I do like companies that have skin in the game, being run with a long-term view based on earnings growth and profit margin stability.





The company has demonstrated its capability to generate cash flow consistently, even during periods of commodity price support and decline. Despite concerns among investors regarding significant CapEx and potential corrections in the price of the PGM basket, I view this as an opportunity.

The Karo project presents a favorable risk-reward scenario, where the potential upside is substantial, while the downside risk appears limited. A classic “Heads I win, tails I don’t lose much” scenario.

Moreover, the company’s diversified core business, encompassing PGM metals and chrome, deserves a significantly higher valuation premium than its current assessed value.

In contemplating the future, I anticipate a moment of amusement upon reviewing the financial statements disclosed in the 2025 fiscal year. It is then that the completion of the CapEx spending and Tharisa’s reporting of free cash flow (FCF) will likely defy expectations and fail to align with the prevailing share price.

The resultant disparity between the company’s financial performance and its current market valuation will undoubtedly evoke a sense of satisfaction.

Even if Tharisa only executes the Karo project with minimal effort and the revenue does not grow in the next two years, the share price should still be twice its current value. However, I don’t expect to make anything from this investment for the next two years.

I began purchasing shares for 85.20p per share on May 25th, 2023, and intend to increase my holdings in the future. 

I do like the company.

For more portfolio updates, please refer to this link.

Kind Regards,


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