Tharisa expands its presence in Zim with acquisition of Karo stake

13th June 2018 By: Simone Liedtke - Writer

JOHANNESBURG (miningweekly.com) – JSE-listed Tharisa has acquired a 26.8% shareholding in Karo Mining Holdings for $4.5-million.

Karo Mining, in March, reached an agreement with the Zimbabwe government to establish a platinum group metals (PGM) mine, concentrators, smelters, a base metal and precious metals refinery and power generation capacity for the operations.

It is expected to invest $4.2-billion in the PGM mine and refinery that will produce about 1.4-million ounces a year of platinum by 2023.

This investment, Tharisa CEO Phoevos Pouroulis tells Mining Weekly Online, is a “low cost entry at more than an 80% discount to an independent fair and reasonable valuation” and provides the integrated resources group with access to a highly prospective area spanning some 23 903 ha on the Great Dyke region of Zimbabwe, which contains a potential PGM resource of about 96-million-ounces on a 4E basis.

He added that the acquisition “ticks all of the metrics” for the company to continue its strategy of becoming a leading global natural resources company, which is diversified across various jurisdictions and commodities.

Measuring the acquisition against the company’s metrics of being large scale, low cost and openpittable, Tharisa CFO Michael Jones highlights that the acquisition will have a life-of-mine of about nine years as an openpit operation, with the option to go underground thereafter.

He further explains that Great Dyke PGM projects are low cost, openpittable and have significant palladium and base metals content resulting in high-margin polymetallic revenues.

“We really do believe that this is a unique opportunity with a world-class asset that we believe we are investing in, and it meets all of our criteria,” Jones adds.

Karo Mining’s interest in the project is held through its 50% interest in Karo Platinum, with the Zimbabwe government owning the other 50%.

Tharisa has the right to increase its ownership in Karo Mining by way of further project level investments at discounted values through a farm-in option at various economic milestones, while also having the right, but not the obligation, to fund further development at the project level which allows the company a measured approach to developing the projects in line with its financial and strategic objectives.

In turn, this provides further low-cost diversified PGM and chrome opportunities for the company.

With a clear intention to continue investment into the underlying resource, Pouroulis explains that Tharisa, through its shareholding in Karo Mining, has an option to participate in the other downstream projects through discounted farm-in arrangements at a later stage.

He further added that it is intended that Karo Mining will apply for National Project Status and for the projects to be contained within a special economic zone, which will provide the projects with enhanced economics through concessions granted by the Zimbabwe government.

Tharisa highlighted on Wednesday that it continues to deliver on its diversification and growth strategy through the implementation of Vision 2020 and strategic acquisitions such as that of Salene Chrome, in Zimbabwe, in May and this acquisition of an interest in Karo Mining.

“Tharisa has established itself as a robust innovative group with a proven record of taking mines from prospecting to production and with strong cash generation and dividend payments,” Jones says.

He adds that the company believes that, coupled with its organic growth plans under Vision 2020 and the alluvial chrome prospects available through Salene Chrome, this acquisition has the potential to set Tharisa apart from its peers while delivering on its strategy to become a globally significant low-cost producer of strategic commodities.

As part of the transaction, Tharisa has also agreed to provide up to $8-million in funding to Karo Mining as a repayable debt facility which will be used to undertake initial geological exploration and sampling work in the licence area to determine a compliant mineral resource which, the company says, will enhance the value of the investment in Karo.

Tharisa will manage the exploration and oversee a subsequent bankable feasibility study.

COAL, RENEWABLES OPPORTUNITIES
In terms of the investment agreement, Karo Mining, through its 75% held subsidiaries, Karo Coal Mines and Karo Power Generation, respectively agreed to identify and establish a coal project with a focus on metallurgical coal and a power generation project.

The original agreement contemplated the construction of a coal-fired power station; however, in consultation with the Ministry of Energy and taking into consideration the power mix requirements of Zimbabwe, the agreement was amended to include the phased development of a renewable energy source of 300 MW of solar power, to be fed into the national grid.

Technical and financial partners have been identified for this project, using Karo as the conduit.

Subsequent to that initial agreement, Pouroulis tells Mining Weekly Online that things have moved on well in terms of energy stability in Zimbabwe, with a Chinese firm having recently started construction on a 600 MW coal-fired power station in the country.

“It seems as though the energy balance and mix is in a surplus position without any great expansion commitments anticipated”.

However, in terms of the existing coal opportunity, which is still part of the Karo Mining structure, Tharisa has both discussed and considered the prospects of looking at the metallurgical or prospecting grade coal for downstream beneficiation.

“We know that the intention in Zimbabwe is to beneficiate. We see an opportunity there and the potential to access those metallurgical grades of coal,” Pouroulis says, adding that, at this stage, nothing has been identified as yet.

Coal will, however, remain an economic enabler for the country and will continue to form about 50% of Zimbabwe’s energy mix.