Long-Term PGM And Chrome Demand Will Support Underground And Karo Growth Story

Catalysts

About Tharisa

Tharisa is an integrated resources group involved in exploration, mining, processing, beneficiation, marketing and logistics of platinum group metals and chrome concentrates.

What are the underlying business or industry changes driving this perspective?

• The transition of the Tharisa mine from open pit to underground, supported by a US$547 million investment over a decade and a DFS all in sustaining mining cost of US$40.8 per tonne, is expected to shift production towards less diluted, more consistent fresh ore. Management targets this to support around 2 million tonnes of chrome concentrate and 200,000 PGM ounces per year from 2033, with potential benefits for revenue visibility and operating margins over several decades.
• The Karo Platinum project on Zimbabwe's Great Dyke, one of only two major PGM projects under construction globally, is planned to process 2.64 million tonnes of run of mine per year in Phase 1 for about 220,000 PGM ounces. Funding progress on senior debt, mezzanine debt and potential strategic or gold stream investment is designed to support future production volumes and earnings once first ore is milled, currently targeted around Q1 2027.
• Exposure to end uses in emissions control and hybrid vehicles, together with industrial uses in chemicals, electronics, fiberglass and glass, aligns Tharisa's PGM basket with tightening emissions standards and ongoing reliance on internal combustion and hybrid drivetrains. Management links this to sustained demand for platinum, palladium and rhodium and therefore potential support for basket revenue and cash generation.
• Chrome's role in stainless steel, infrastructure, white goods, special steels and renewable energy applications, combined with the 100% recyclability of stainless steel and chrome, positions Tharisa to benefit from long term demand for higher quality steels and corrosion resistant materials. Management associates this with decarbonization and desalination, which can underpin chrome sales and help stabilize overall group revenue against PGM price cycles.
• The commercialization pipeline within Arxo Metals and Redox One, including ultrafine chrome recovery via Vulcan, patented Chloroplat PGM refining to 99.95% purity and chrome and iron based electrolyte production for long duration Redox Flow batteries with a planned first megawatt scale unit in 2026, is aimed at capturing a greater share of the value chain and new energy storage markets. This could support higher margins and more diversified earnings over time.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Tharisa's revenue will grow by 15.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 13.1% today to 12.6% in 3 years time.
• Analysts expect earnings to reach $116.0 million (and earnings per share of $0.36) by about January 2029, up from $79.1 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 7.6x on those 2029 earnings, up from 6.2x today. This future PE is lower than the current PE for the GB Metals and Mining industry at 23.8x.
• Analysts expect the number of shares outstanding to decline by 1.03% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 16.6%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The long lead time and phased nature of the underground transition at Tharisa, with peak funding of US$173 million over a decade and steady state on Apollo only targeted in FY 2029, leaves a multi year period where any operational delays, cost overruns or weaker ore performance could weigh on cash generation and put pressure on revenue, EBITDA and net earnings.
• The Karo Platinum project still requires over US$300 million of additional spend to reach full Phase 1 production, and is reliant on senior debt, mezzanine debt and either a strategic investor or gold stream; any setback in sealing fully funded packages, or changes to Zimbabwe’s fiscal regime such as higher royalties, could slow the ramp up and reduce future PGM contribution to group revenue and margins.
• Tharisa’s exposure to PGMs and chrome ties its fortunes to long term commodity demand trends, so if hybrid and internal combustion vehicle sales, hydrogen related adoption or stainless steel demand undershoot management’s expectations over time, PGM basket prices and chrome prices could come under pressure, which would directly affect group revenue and operating margins.
• The company is committing a combined US$547 million to underground mining and continues to advance R&D heavy initiatives at Arxo Metals and Redox One, while also paying dividends and running buybacks. If cash flow from operations of US$94 million and undrawn facilities of US$76.6 million are not sufficient in a weaker pricing environment, Tharisa may need to adjust capital allocation in ways that would impact future growth, free cash flow and potentially earnings per share.
• Redox One and the broader beneficiation program rely on commercial uptake of chrome and iron based electrolytes, Chloroplat refining and chrome alloy routes. If long duration energy storage or downstream PGM and chrome products do not scale as anticipated by management, the expected diversification benefits may not materialize, which could limit margin expansion and leave earnings more exposed to raw commodity price cycles.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of ZAR31.95 for Tharisa based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be $921.3 million, earnings will come to $116.0 million, and it would be trading on a PE ratio of 7.6x, assuming you use a discount rate of 16.6%.
  
• Given the current share price of ZAR27.25, the analyst price target of ZAR31.95 is 14.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.