Related Parties (and transactions) is a huge red flag to me. Probably need to dig through all their family history if they ever shafted shareholders.
Then there is the Karo mine which is a dud at these PGM prices. NPV at 10% and 11y is $68mn where 68% goes to Tharisa. And if you consider they already sunk 137mn its actually negative... bad capital allocation.
Yeah I’m aware of it but I’m more bullish short term on PGMs than these guys. Other than that yeah as I said it’s damm cheap but this Karo thing is the biggest risk … I cannot be as direct as these guys as I may be sued, you may have noticed I used carefully chosen words! Thank you very much for adding to the conversation
Thank you very much for adding to the conversation!
That NPV really depends on PGM prices. If they stay low, then yeah, $68 million is the figure. But like the article points out, PGMs aren’t going away anytime soon. As for the last part of your comment, I wouldn’t call it bad capital allocation—the prices are just low right now. And honestly, their response makes sense. They’ve basically hit pause on Karo; the Zimbabwe Independent says there are only 11 people on site, which to me shows they’re being smart with their capital.
I agree with you on the related parties issue but the amounts involved do not suggest misconduct imo, at least for now. The family being not shareholder friendly is indeed the main risk.
I don't understand if they are intentionally pausing or if its because their solar farm buildout is not progressing.
Either way, I think $68mn * 0.68 (because Freecarry and Leto) = 46.24mn over 11y on a $200mn market cap company is not great. Safety margin is a bit too low for my taste.
If PGM pricing works out as predict then sure this might be accretive, but I never had real success predicting commodity prices so I just take an ever pessimistic stance for evaluation purposes.
I get where you're coming from, but I see it a bit differently. The market cap is $200 mio but the EV is $140 mio, that’s what I’d actually be paying. Plus, I’m also getting the Tharisa mine, which has 11 years of open-pit life left and is pulling in $117 million in pre-tax profit. For me, the real issue isn’t whether it’s cheap, it’s whether there’s any strange stuff going on with Karo. If there isn’t, then honestly, I like it very much
Great write up, thanks! I do have a question - I read the dividend has been cut by more than 50% last year. I am aware of the (cyclical) risk, but the 6% waiting reward…is not a sure thing it looks like. Did you check this cut / take it into account?
Thank you, much appreciated. To give you a bit of context, for the full year 2023, the payout was US5 cents/share, and for 2024, it’s US4.5 cents/share. Of course, in mining, nothing is ever certain and miners in general are quite risky. If PGM prices take a hit, they could certainly consider cutting the dividend. To put things in perspective, the current basket price hasn’t been this low since 2019, when the average basket price was US$1,081/oz. The payout is actually more generous than 15%, and both 2023 and 2024 HEPS were around US27 cents, this is where the current dividend comes from. For a significant dividend cut to happen, you'd need both PGM and Chrome prices to be depressed at the same time. Not financial advice, please do your own due diligence.
A great post, thanks. Resources seem like they should be an easy business to invest in, but for some reason I have always found the sector opaque. Your article helps pull back the curtain a bit. Tharisa is going onto my watch list, so thanks.
Thank you, appreciated! Mining is a tough business: the most promising assets are often located in unstable jurisdictions, and unexpected developments are usually negative.
Thanks for the piece. While the setup looks good, the company looks more like a Chrome producer with its Chrome revenue ~2.5x that of PGM. Not sure if I'm interpreting their unit costs correctly but it looks like their Chrome segment is "subsidizing" the PGM costs.
Given its greater exposure to Chrome, it would depend more on the stability/strength of Stainless steel market (Chrome) in order for its unit economics to be profitable for PGM segment. I wonder if a downturn in Chrome segment can lead to squeeze in PGM segment's margin as it would have to bear higher allocation of "shared costs".
Will be great to hear if you had any thoughts on this. Thanks.
The reason it seems like the company is mainly a chrome producer is because the prices of platinum group metals are currently low. As I mentioned in the article the prices of platinum group metals and chrome tend to act as a natural hedge against each other. For example, in 2021 the company generated around 420 million dollars in revenue from platinum group metals and about 140 million dollars from chrome. It depends where we are in the cycle. When PGMs prices fall, chrome becomes more significant in the revenue mix, which can create the impression that chrome is the main product.
Hi! I’ve seen the stock go up since your article, but it stayed on my watchlist - did your thesis change since then? And do you reckon even though it went up, it’s still a good moment to get in? Thanks in advance for your reply!
Hard that a long-term value thesis plays out in just a matter of weeks.
That said, my goal is always to share insights and reasoning that may assist investors in making informed decisions. However, I intentionally avoid making direct recommendations such as, “this is still the entry point” or “buy now” both because I believe it's not appropriate and, more importantly, because it can be misleading.
I did share a timely update on Tharisa, including commentary on the recent results, in the investor chat for paid members a few days ago. Please feel free to take a look there if you haven't already.
Hi BB, thanks for your quick answer. Yes, it looks like this one was a short-term thesis, as prices are close to the 12-month high 😅 I understand you can’t / won’t recommend those. I would love to read those, but I made a very selective pic earlier on - if those subscriptions end I’ll definetely consider yours!
Related Parties (and transactions) is a huge red flag to me. Probably need to dig through all their family history if they ever shafted shareholders.
Then there is the Karo mine which is a dud at these PGM prices. NPV at 10% and 11y is $68mn where 68% goes to Tharisa. And if you consider they already sunk 137mn its actually negative... bad capital allocation.
You might want to read this. THA purchasing stakes in Karo at egregious prices. https://www.lse.co.uk/ShareChat.html?ShareTicker=THS&share=tharisa&thread=9365F768-BA9C-4563-AABB-42EFE9599915
Yeah I’m aware of it but I’m more bullish short term on PGMs than these guys. Other than that yeah as I said it’s damm cheap but this Karo thing is the biggest risk … I cannot be as direct as these guys as I may be sued, you may have noticed I used carefully chosen words! Thank you very much for adding to the conversation
Thank you very much for adding to the conversation!
That NPV really depends on PGM prices. If they stay low, then yeah, $68 million is the figure. But like the article points out, PGMs aren’t going away anytime soon. As for the last part of your comment, I wouldn’t call it bad capital allocation—the prices are just low right now. And honestly, their response makes sense. They’ve basically hit pause on Karo; the Zimbabwe Independent says there are only 11 people on site, which to me shows they’re being smart with their capital.
I agree with you on the related parties issue but the amounts involved do not suggest misconduct imo, at least for now. The family being not shareholder friendly is indeed the main risk.
I don't understand if they are intentionally pausing or if its because their solar farm buildout is not progressing.
Either way, I think $68mn * 0.68 (because Freecarry and Leto) = 46.24mn over 11y on a $200mn market cap company is not great. Safety margin is a bit too low for my taste.
If PGM pricing works out as predict then sure this might be accretive, but I never had real success predicting commodity prices so I just take an ever pessimistic stance for evaluation purposes.
I get where you're coming from, but I see it a bit differently. The market cap is $200 mio but the EV is $140 mio, that’s what I’d actually be paying. Plus, I’m also getting the Tharisa mine, which has 11 years of open-pit life left and is pulling in $117 million in pre-tax profit. For me, the real issue isn’t whether it’s cheap, it’s whether there’s any strange stuff going on with Karo. If there isn’t, then honestly, I like it very much
Great write up, thanks! I do have a question - I read the dividend has been cut by more than 50% last year. I am aware of the (cyclical) risk, but the 6% waiting reward…is not a sure thing it looks like. Did you check this cut / take it into account?
Thank you, much appreciated. To give you a bit of context, for the full year 2023, the payout was US5 cents/share, and for 2024, it’s US4.5 cents/share. Of course, in mining, nothing is ever certain and miners in general are quite risky. If PGM prices take a hit, they could certainly consider cutting the dividend. To put things in perspective, the current basket price hasn’t been this low since 2019, when the average basket price was US$1,081/oz. The payout is actually more generous than 15%, and both 2023 and 2024 HEPS were around US27 cents, this is where the current dividend comes from. For a significant dividend cut to happen, you'd need both PGM and Chrome prices to be depressed at the same time. Not financial advice, please do your own due diligence.
Hope it helps!
Cheers!
Thank you so much, yes it does put things in perspective for sure. For some reason, I get different dividend yields at my broker.
Earning Yield or P/E are looking at the Price Perspective.
Warren has advice to look at the business perspectives:
Operational Perspective:
ROIC
Free Cash Flow Perspective:
CROIC or Owner Earnings ÷ Invested Capital
Relative Valuation based on Earning Yield or P/E without considering quality (profitability) will fail to capitalize onto any compounder train.
Thank you for the comment! This is a cyclical train and not a compounder train, as such the most relevant aspects have been addressed :)
Cyclical cigarette puff?
By the way - is there any difference in buying Tharisa on LON vs. Joberg?
No, other than different listing rules
A great post, thanks. Resources seem like they should be an easy business to invest in, but for some reason I have always found the sector opaque. Your article helps pull back the curtain a bit. Tharisa is going onto my watch list, so thanks.
Thank you, appreciated! Mining is a tough business: the most promising assets are often located in unstable jurisdictions, and unexpected developments are usually negative.
Just the kind of unexpected developments I don't like!
No one does, it's all about risk and reward and the asymmetry you have on it
On what broker do you buy such stocks? Thanks!
Any decent broker having access to LSE's stocks. Interactive brokers one of them :)
If I had to pick a micro-cap PGM exposure it is indeed Tharisa :)
I’m glad you like it but it doesn’t come without risks :)
Thanks for the piece. While the setup looks good, the company looks more like a Chrome producer with its Chrome revenue ~2.5x that of PGM. Not sure if I'm interpreting their unit costs correctly but it looks like their Chrome segment is "subsidizing" the PGM costs.
Given its greater exposure to Chrome, it would depend more on the stability/strength of Stainless steel market (Chrome) in order for its unit economics to be profitable for PGM segment. I wonder if a downturn in Chrome segment can lead to squeeze in PGM segment's margin as it would have to bear higher allocation of "shared costs".
Will be great to hear if you had any thoughts on this. Thanks.
The reason it seems like the company is mainly a chrome producer is because the prices of platinum group metals are currently low. As I mentioned in the article the prices of platinum group metals and chrome tend to act as a natural hedge against each other. For example, in 2021 the company generated around 420 million dollars in revenue from platinum group metals and about 140 million dollars from chrome. It depends where we are in the cycle. When PGMs prices fall, chrome becomes more significant in the revenue mix, which can create the impression that chrome is the main product.
Hi! I’ve seen the stock go up since your article, but it stayed on my watchlist - did your thesis change since then? And do you reckon even though it went up, it’s still a good moment to get in? Thanks in advance for your reply!
Dear Mr. Wouter,
Hard that a long-term value thesis plays out in just a matter of weeks.
That said, my goal is always to share insights and reasoning that may assist investors in making informed decisions. However, I intentionally avoid making direct recommendations such as, “this is still the entry point” or “buy now” both because I believe it's not appropriate and, more importantly, because it can be misleading.
I did share a timely update on Tharisa, including commentary on the recent results, in the investor chat for paid members a few days ago. Please feel free to take a look there if you haven't already.
Hope it helps!
BB
Hi BB, thanks for your quick answer. Yes, it looks like this one was a short-term thesis, as prices are close to the 12-month high 😅 I understand you can’t / won’t recommend those. I would love to read those, but I made a very selective pic earlier on - if those subscriptions end I’ll definetely consider yours!
I never write short term theses, and this is not an exception :)
Thanks, I read it the wrong way 😅
Looks like the PGM basket price went up significantly already since your write-up, so I feel I might be too late (risk/reward)