TIDMTHS
RNS Number : 1643R
Tharisa PLC
13 June 2018
Tharisa plc
(Incorporated in the Republic of Cyprus with limited
liability)
(Registration number HE223412)
JSE share code: THA
LSE share code: THS
ISIN: CY0103562118
('Tharisa')
Acquisition of a 26.8% interest in a tier one PGM and base metal
resource located on the Great Dyke in Zimbabwe
1. Introduction
Tharisa is pleased to announce that it has acquired a 26.8%
shareholding in Karo Mining Holdings Limited ('Karo Holdings') for
a total cash consideration of US$4.5 million (the 'Acquisition')
from the Leto Settlement ('Leto'), a related party being an
indirect material shareholder in Tharisa, in terms of a sale and
purchase agreement (the 'Acquisition Agreement') entered into
between Tharisa and Leto.
Karo Holdings entered into an Investment Project Framework
Agreement (the 'Investment Agreement') with the Republic of
Zimbabwe on 22 March 2018 in terms of which Karo Holdings has
undertaken to establish a platinum group metals ('PGMs') mine,
concentrators, smelters, a base metal and precious metals refinery,
as well as power generation capacity for the operations with
surplus energy capacity made available to the Zimbabwe power
grid.
The investment highlights include the following:
- The Acquisition provides Tharisa access to an area covering 23
903 hectares on the Great Dyke of Zimbabwe, containing an estimated
PGM resource of some 96 Moz * (on a 4E basis)
- Great Dyke PGM projects are low cost, open pittable and have
significant palladium and base metal content resulting in high
margin poly-metallic revenues
- Low cost entry for Tharisa of US$4.5 million with the right to
increase its project ownership by way of further project level
investments at discounted values through a farm-in option at
various economic milestones
- Tharisa has the right but not the obligation to fund further
development at the project level allowing Tharisa a measured
approach to developing the projects in line with its financial and
strategic objectives, thereby creating further low cost diversified
PGM and chrome operations
- Tharisa continues to deliver on its diversification and growth
strategy through the implementation of Vision 2020 and strategic
acquisitions such as the Salene Chrome Zimbabwe (Pvt) Limited
transaction announced on 16 May 2018 and this acquisition.
*Derived from the Mineral Resources and Ore Reserves Summary on
pages 70-73, Zimplats Holdings Limited Integrated Annual Report
2017
2. Acquisition rationale
The Tharisa Board and management are committed to pursuing
growth and diversification through selective acquisitions which
meet Tharisa's investment criteria. Key rationale for the
Acquisition and benefits for Tharisa shareholders include:
- Tharisa was not previously involved in Zimbabwe due to
political uncertainty in the country. Recent improvements in the
political landscape have precipitated a decision by Tharisa to
explore geographic diversification opportunities in Zimbabwe,
renowned for having the world's largest PGM deposits outside of
South Africa
- The resource is large scale with 96 Moz of 4E resource. There
is optionality to de-risk the investment by starting on a smaller
scale and increasing production over time
- The mine is open pittable and Great Dyke PGM projects are typically low-cost
- Tharisa's management team has a proven track record of
developing mines from the prospecting stage through to steady-state
production and this experience can be applied to the development of
Karo Platinum (as defined below)
- Tharisa is acquiring its stake in Karo Holdings at a significant discount to fair value.
- The farm-in approach reduces Tharisa's upfront exposure and
creates optionality for an increased stake in the future
"Tharisa has established itself as a robust innovative Group
with a proven track record of taking mines from prospecting to
production and with strong cash generation and dividend payments.
The Tharisa Group believes that coupled with its organic growth
plans under Vision 2020 and the illuvial chrome prospects available
through Salene Chrome, this acquisition has the potential to set
Tharisa apart from its peers while delivering on its strategy of
becoming a globally significant low cost producer of strategic
commodities," says Tharisa CFO Michael Jones.
3. Karo Platinum
Karo Platinum (Pvt) Limited ('Karo Platinum'), an indirect 50%
held subsidiary of Karo Holdings applied for and was awarded PGM
rights under a special grant (the 'License Area') under the
Zimbabwe Mines and Minerals Act, covering an area of 23 903
hectares. The License Area is situated on the Great Dyke in the
Mashonaland West District of Zimbabwe. This area of land had
recently been released by Zimbabwe Platinum Mines (Pvt) Ltd
('Zimplats') from its mining lease area in support of the
Government of Zimbabwe's efforts to enable participation by other
investors in the platinum mining industry in Zimbabwe. In terms of
the special grant, Karo Platinum will be entitled to mine PGMs
situated within the License Area. Karo Platinum will be responsible
for the mine development and mining operations which will deliver
run of mine ore to Karo Refining (Pvt) Limited, ('Karo Refining').
Karo Refining, 75% owned by Karo Holdings, will build, own and
operate the concentrators, smelters, as well as the base metal and
PGM refinery.
The remaining 50% shareholding in Karo Platinum will be held by
an investment company wholly owned by the Republic of Zimbabwe and
registered under the company laws of Zimbabwe and under the
auspices of the Ministry of Finance and Economic Development
('Zimbabwe Investment Company').
The special grant was issued in terms of Part XIX of the
Zimbabwe Mines and Minerals Act and authorises Karo Platinum to
carry out mining operations over the License Area for a period of
60 months, with the right of annual renewal on the expiry of such
period on 90 days prior application. Karo Platinum intends applying
within 12 months for a mining lease in terms of Part VIII of the
Zimbabwe Mines and Minerals Act over the Licence Area valid for the
life of mine.
Based on publicly available geological exploration results
previously undertaken over the License Area, and in particular the
Mineral Resources and Ore Reserves Summary contained in the
Zimplats Integrated Annual Report of 2017, Tharisa considers this
to be a highly prospective area which is estimated to contain some
96 Moz at a projected resource grade of 3.2 g/t on a 4E basis. This
presents an unparalleled opportunity to expand its PGM mining
interests into Zimbabwe. The Great Dyke of Zimbabwe contains the
world's largest known PGM deposits outside of South Africa.
Tharisa has agreed to provide up to US$8.0 million in funding to
Karo Holdings as a repayable debt facility. This will be utilised
to undertake initial geological exploration and sampling work in
the License Area to determine a compliant mineral resource which
will enhance the value of the investment in Karo Holdings. Tharisa
will manage the exploration and oversee a subsequent bankable
feasibility study.
Karo Holdings is a newly incorporated company and following the
conclusion of the Investment Agreement and award of the special
grant its primary investment is the investment in Karo Platinum. As
such, the value of the net assets and the profits attributable to
the net assets that are the subject of the Acquisition cannot be
determined at this time.
4. Coal and power generation
In terms of the Investment Agreement, Karo Holdings, through its
75% held subsidiaries, Karo Coal Mines (Pvt) Limited ('Karo Coal')
and Karo Power Generation (Pvt) Limited ('Karo Power') 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 300MW of solar power, to be fed into the
national grid. Technical and financial partners have been
identified for this project.
5. Indigenisation requirements
Karo Holdings, through its wholly owned subsidiary Karo Holdings
Zimbabwe (Pvt) Limited ('Karo Zimbabwe'), will initially hold a 50%
interest in Karo Platinum and a 75% interest in Karo Refining, Karo
Coal and Karo Power (collectively referred to as 'Project
Companies' or individually as a 'Project Company'). Zimbabwe
Investment Company will hold a 10% direct shareholding in each of
the Project Companies (other than for Karo Platinum in which it
retains a 50% shareholding). The remaining 15% shareholding in the
Project Companies (except for Karo Platinum) will be allocated to
the community and employees.
In the event that the current indigenisation requirements are
reduced within 18 months of the signing of the Investment
Agreement, Karo Holdings' equity interest in Karo Platinum may, at
its election, directly increase to either the level as the law will
then provide or to 75% in line with the Project Companies
shareholding structures, at no cost to Karo Holdings. A
presentation outlining the Karo Holdings group structure and
providing further information on Karo Holdings and the projects is
available on the Karo Holdings website, www.karomining.com.
It is intended that the Project Companies 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.
6. Farm-in approach
Tharisa has an option, at its election, to subscribe for shares
directly in the Project Companies by way of a farm-in agreement. In
terms of the option, Tharisa has the right but not the obligation,
to fund the Project Companies in return for a direct shareholding
in the applicable Project Companies. As a consequence of the
farm-in arrangement, Tharisa may at its election, in addition to
its indirect shareholding through the 26.8% shareholding in Karo
Holdings, acquire a direct shareholding in the Project
Companies.
The price payable for any new equity shares to be subscribed for
in a Project Company will be determined with reference to an
independent valuation of the applicable Project Company at that
time in accordance with the South African code for the reporting of
mineral asset valuation 'SAMVAL Code', taking into account factors
including country risk and the leverage of the Project Company.
Depending on the status of the project, the following valuation
methodologies as provided for in the SAMVAL Code together with the
agreed discount rates shall be applied:
-- Up to an inferred resource - historical cost multiple, less a 60% discount
-- Up to a measured resource and reserve - comparable company
market multiples less a 50% discount
-- On or after completion of a bankable feasibility study -
income approach (which is determined using a discounted cash flow
valuation) less a discount of 30%
Karo Holdings will retain a minimum 10% indirect shareholding in
the underlying Project Companies post Tharisa exercising its
farm-in option.
The disclosures and/or shareholder approval thresholds as set
out in the stock exchange listings requirements will apply at the
time of any farm-in option being exercised by Tharisa.
7. Funding
Both the cash purchase consideration of US$4.5 million and the
US$8.0 million debt facility to undertake exploration will be
funded by Tharisa from available cash resources.
8. Board approval
The Tharisa Board has established a New Business Committee
('Committee'), responsible for the investigation and assessment of
new projects and business opportunities, particularly from a
strategic, technical and operational point of view, and the
identification of project related risks, and safety, health and
environmental risks.
The Committee is not authorised to approve individual projects
or investments or commit Tharisa, but works with executive
management to review and evaluate new business opportunities and
initiatives and make recommendations to the Tharisa Board for
approval. The Committee recommended the Acquisition to the Tharisa
Board.
9. Regulatory compliance
In terms of paragraph 10.1(b)(ii) of the Johannesburg Stock
Exchange (JSE) Listings Requirements, Leto is a related party to
Tharisa. This Acquisition is classified as a small related party
transaction in terms of paragraph 10.7 of the JSE Listings
Requirements.
In terms of paragraph 10.7(b) of the JSE Listings Requirements,
a fairness opinion is required to be provided by an independent
expert with respect to a small related party transaction. Minxcon
Consulting (Pty) Ltd was appointed by the Tharisa Board as the
independent expert in relation to the Acquisition. The full text of
the independent expert's fairness opinion, which concludes that the
independent expert is of the opinion that the Acquisition is fair
insofar as the shareholders of Tharisa are concerned, is available
at the offices of Tharisa for inspection for a period of 28 days
from the date hereof.
10. Effective Date of the Acquisition
The Acquisition is unconditional and the effective date of the
Acquisition is 12 June 2018.
11. Further Information
Executive management will be presenting to analysts on 13 June
2018 and the presentation will be published on the Tharisa website,
www.tharisa.com at 11:00 (SA time)/10:00 (UK time).
12. Market Abuse Regulation
The information contained within this announcement is deemed to
constitute inside information as stipulated under the Market Abuse
Regulation. Upon the publication of this announcement via a
regulatory information service, this inside information is now
considered to be in the public domain.
Paphos, Cyprus
13 June 2018
JSE Sponsor
Investec Bank Limited
Investor Relations contact:
Tharisa plc
Sherilee Lakmidas
+27 11 996 3538
+27 79 276 2529
slakmidas@tharisa.com
Broker contacts:
Peel Hunt LLP (UK Joint Broker)
Ross Allister / James Bavister / David McKeown
+44 207 7418 8900
BMO Capital Markets Limited (UK Joint Broker)
Jeffrey Couch / Neil Haycock / Thomas Rider
+44 020 7236 1010
Nedbank Limited (acting through its Corporate and Investment
Banking division) (RSA Broker)
Shabbir Norath / Reginald Demana
+2711 295 6575
Financial PR contacts:
Bobby Morse / Anna Michniewicz
+44(0) 20 7466 5000
tharisa@buchanan.uk.com
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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