Delay in Tax Agreement and Softening PGM Prices Slows Down the Karo Project
The ambitious Karo Platinum project, spearheaded by Victoria Falls Stock Exchange-listed Karo Mining Holdings (KMH), a subsidiary of Tharisa, has hit a slowdown due to a delay in securing a tax agreement with the Zimbabwean government and the ongoing decline in platinum group metals (PGMs) prices.
By Rudairo Mapuranga
Tharisa, which will hold an effective 68% stake in the Karo Platinum Project upon completion of capital commitments, has decided to adopt a more measured approach to the project’s development.
The decision comes as the company navigates through a challenging financial landscape marked by a substantial drop in PGM prices.
This cautious stance was articulated by Tharisa CEO Phoevos Pouroulis during the company’s six-month financial results announcement, covering the period ending in March 2024.
“A measured decision was taken to slow the project timeline, continuing with smaller work packages, aligned with funding availability,” said Pouroulis.
“The Karo Platinum Project has progressed well despite the slowdown, and smaller work packages have been completed on time and within budget.”
While the PGM market has shown some signs of recovery since the beginning of the year, prices remain significantly lower compared to the same period last year. Tharisa’s report highlights a 39% year-on-year decline in the average PGM price, a stark indicator of the challenges facing the industry.
On the brighter side, the chrome market has exhibited resilience. Tharisa recorded an average metallurgical grade chrome price of $288 per ton for the six months, representing a 16.9% increase. Global chrome production also saw a 4% rise, even as port inventories in China were being depleted.
In terms of output, Tharisa achieved a 10% year-on-year increase in chrome production, totalling 865,000 tons. However, this was offset by a 7.7% decline in PGM production, which fell to 71,100 ounces. The decline in PGM output was partly due to the company purchasing third-party ore to feed its mill, a move necessitated by efforts to clear a backlog in waste stripping, which adversely affected PGM recoveries.
Financially, Tharisa faced a tough period. Despite higher chrome output and pricing, the sharp decline in PGM prices could not be offset. Unit costs rose by 17.8%, driven in part by the increased reliance on third-party ore, which accounted for approximately 29% of overall costs. Consequently, Tharisa reported a 29% year-on-year decline in taxed profit, which stood at $38.8 million for the six months. Headline share earnings dropped by 25% to 13.2 cents per share.
The company also reported a negative free cash flow of $27.9 million. Nevertheless, Tharisa CFO Michael Jones assured stakeholders that the balance sheet remained robust, with net cash falling from $112.7 million at the end of December to $86.3 million. Despite the financial strain, Tharisa declared an interim dividend of 1.5 US cents per share, albeit half of last year’s comparable payout.
Pouroulis remained optimistic about the company’s long-term prospects, despite the current headwinds. He pointed out the firm’s ongoing $5 million share buy-back program, which is expected to gain momentum in the coming months. “The PGM price is ignoring the schism between supply and demand, which, in our view, is only a matter of time before it corrects and a more balanced picture for PGM uses emerges,” he said.
Looking ahead, Tharisa maintained its PGM production guidance at 145,000 to 155,000 ounces for the year, with expectations for a stronger performance in the second half. Chrome production is forecasted to reach 1.7 to 1.8 million tons, in line with previous guidance.
The challenges faced by the Karo Platinum project underscore the volatility of the commodities market and the complexities of operating in a regulatory environment that can impact project timelines. As Tharisa navigates these challenges, the industry will be watching closely to see how the company balances strategic caution with its commitment to growth and shareholder returns.