Tharisa plc (THA) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to the Tharisa plc Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question it received during the meeting itself. However, the company will review all of the questions that are submitted today and publish responses where it's appropriate to do so. Before we begin, I would like to submit the following poll. And if you could give out your kind attention, I'm sure the company would be most grateful. And I'd now like to hand you over to CEO, Phoevos Pouroulis. Good afternoon, sir.

Good afternoon, and welcome, everyone, to this Karo Platinum and Karo Update. It's a great pleasure for us to host this event this afternoon. Joining me today is the Managing Director of Karo Mining Holdings, Bernard Pryor, he will run through the project and update with you as we progress through the presentation. But before we get into Karo, I thought it's prudent just to give a feedback on our full year financial year 2022 production results. It really has been a standout year for us. We've exceeded guidance in most instances and very pleased with this record performance based on record to date. We mined just over 5.5 million tonnes, up 2.3% from the prior year, producing some 179,200 PGM ounces, up 13.6% from the prior year and mined just over 1.58 million tonnes of chrome concentrate, up 5.1% on the comparable period. You'll note that the PGM basket price was down 16.6%, and that was really peak pricing that we saw in the previous financial year of just over $3,000 per PGM basket ounce, but still, notwithstanding that, a very strong and robust PGM basket price, $2,564 per ounce. And if you look at the last 10-year history, still a record PGM basket price. So very robust pricing in that PGM basket of ours. Then if we look at the Chrome market, a significant shift in pricing up 35.7% to $209 per tonne, and that's really on the back of Chinese port inventories declining to almost critically low levels below the 3 million tonne mark and nearing close to 2.2 tonne at a certain point in time. So good demand, good liquidity going into the new financial year. I think the -- this last quarter and this year has been a very strong cash-generative year-end quarter. We ended up with $78.6 million net cash positive, and that's up 64.1%. It's really tough to us maintaining those margins in our business in spite of the inflationary cost environment that we've all experienced in this last financial year. Just to give you the context of where we are currently today in terms of our basket price, just short of $2,400 per ounce, while our PGMs and just over $215 per tonne for our chrome concentrates. But I think I just wanted to highlight 2 really transformative transactions. And the one, obviously, we're going to be talking about today in a lot more detail. But the first was us consolidating the minority shareholding or that be shareholding in Tharisa Minerals by flipping up that equity into Tharisa plc. We've been asked many times, are you looking at share buybacks considering the sort of disparity between the market value and intrinsic value of your business. And I think this transaction was probably the most successful and value-accretive share buyback in another form as it were. And really, you'll see that playing out in the financial numbers as we release them towards the end of the year. The second, obviously, is us accessing the option in Karo Platinum and increasing our shareholding to 70%. So before we get into Karo, I think one has to appreciate that making a decision to start with exploration and mine development, it takes time. And that requires strategic long-term investment philosophies and capital needs to be patient, and willing to explore new regions. And we think this Karo investment case really proves that very clearly. But more importantly, if you look at the average time line to bring a mine to market, it's at least 12 to 16 years. And if we meet our time lines, to complete this project, we would have from a first drill hole to first ore in mill, we would have taken 6 years. So significantly shorter than the traditional or conventional pit or exploration to first ore in mill. So just to refresh everyone's memory. Currently, Tharisa plc owns 70% of Karo Mining Holdings plc, Leto Settlement, 30%. That, in turn, owns Karo Zimbabwe Holdings in a joint venture with Generation Minerals, which is the Republic of Zimbabwe's carried interest in the project in Karo Platinum so an 85% shareholding and then 15% for Generation Minerals. But just to rewind the clock a little bit and refresh everyone's memory in terms of the investments we've made to date is Tharisa plc. In either cash or shares, we've invested up to or exactly $70.3 million. The first $4.5 million went in to acquire the first 26.8% shareholding in Karo Mining Holdings, then $8 million was for Phase 1 exploration, $3.4 million invested in technical studies. And then the $25 million, which is not fully drawn to date, has really kicked off the project in June, July this year, with early development funding and -- we will break down in detail what we're doing and what has been done. And then the exercise of the acquisition of the balance, 39.5% shareholding had an equivalent share value of $29.4 million. We often get the question, returned the strong cash that's being generated to the shareholders. And I think I just want to remind everyone that we do have a dividend policy, and we do have capital discipline. And we have these 3 pillars that are very important to us. The first is growth. We look at opportunities to grow our business, continuous investment in our existing business. And you've seen that at the Tharisa Mine with the investment in yellow fleet, expansion of our mining footprint and the Vulcan Plant. And then we are a dividend payer. We've been paying dividends for 6 years now, and we are going to continue to be a dividend payer in spite or in conjunction with this fairly large investment into Karo Platinum. So just to remind everybody of the locality and geology, Karo Platinum is situated in the Great Dyke of Zimbabwe in the central chamber and the concession area that we have covers to shy of 24,000 hectares. So a significant land package and mineral title. To the start with us, we have Zimplats to the north. We have the Zimplats Selous Metallurgical complex. And the Great Dyke is host to the Main Sulphide Zone, which is the PGM-rich and base metal rich, sulphide zone. Typically, the reef horizons are between 2 and 3 meters thick, and we would be targeting anywhere between 3 and 5 meters in terms of our mining proposition. This land historically was explored by Zimplats, and they declared a resource over the whole area of some 96.4 million ounces. Now you can see that our first phase, and we're proposing a phased development in terms of Karo, we've declared a resource of just under 10 million ounces with a 6E grade of 2.04 grams per tonne. And you can see that the updated output is scheduled at 194,000 ounces per annum. So it puts us in line with Unki, which is the Anglo platinum mine in Zimbabwe on the Great Dyke. So as mentioned, we received and signed the investment framework agreement in Q1 of 2018. We hosted a groundbreaking where we kicked off our exploration campaign and obviously, on the back of the special grants being awarded, which are really the tenements that allow you to explore the vast area. We completed that first phase in Q2 2019. We commenced with the second phase of exploration shortly thereafter in Q3. And at the end of 2019, the area was demarcated as a special economic zone and that has certain economic benefits and privileges for new businesses entering Zimbabwe and investing into the country. And then unfortunately, as we all vividly recall COVID-19 hit us, and it put a pause on a lot of the activity and installed Phase 2 exploration. We still recommenced with the implementation studies and technical studies in Q4 of 2020. We then subsequently received the mining lease in 2021, which is basically for the life of mine, we have the mining tenement secure, so all 96 million ounces accessible multiphase development as mentioned. And then the various study is being concluded towards the second half of 2021. In 2022, we've discussed the farm-in option that Tharisa exercised and the signing of the agreement with the Republic of Zimbabwe for their carried interest. I think importantly and Bernie will run through the various ESIA approvals that we received during the course of 2022. And importantly, we kicked off with the early works program and the clock ticking really in Q3 of 2022 with long lead items being audited. So if we look at Phase 1, and you may recall that we did present earlier on this year, key highlights of Phase 1. We like to call this enhanced Phase 1 economics really; this is a world-class Tier 1 resource. There's no doubt about that. We have now refined and optimized the mining plan. We had a 20-year open pit life previously. We've reduced that now to 17 years open pit with increased throughput. And what that's allowed us to do is increase our annual PGM production from 150,000 ounces to 194,000 ounces. So a significant increase in output and value break down the capital associated with the new plant. As mentioned, we are fully licensed and permitted. And we believe this is a low-risk approach to any mining opportunity and mirrors Tharisa in many respects, being large-scale open pit, low cost and adapting or adopting a multi-phased development approach. And I think importantly, being an open pit mine, we have a short time line to delivery of first ore in mill of 24 months. At this point, I'd like to hand over to Bernie to take you through the Karo project update.

Thank you, Phoevos, and good afternoon, everyone. I trust you can all hear me or if Phoevos can hear me, then I presume everybody else does. Clearly, as Phoevos said earlier, you look at the Great Dyke and the geology there. This is a unique geological setting. And if you want to be in Platinum, then clearly, obviously, the Bushveld complex and the Great Dyke are the 2 premier destinations to go to on the planet. And to take this project through to development in this geological setting is really a unique opportunity and doesn't come around very often. To the first slide, I'd like to take you through on the project side is our ESG. One of the most important planks that we will target and work on very closely and we will develop this project according to IFC Performance Standards. We've done an ESIA that's compliant to the IFC. That has been approved for both the mining and the concentrator processing plant. We still have the water supply and the power supply ESIA to be approved by the Zimbabwean government. Those are in process, and we see no real issues with them. In terms of tailings dam, clearly, a subject that is important to all miners. This is a structurally safe dam rock built, not earth or dam built and it's been independently designed and checked by our consultants. The community is a key area for us. We are well blessed that there are 2 very large towns within about 30 minutes' drive of the project site, Chegutu and Norton. They have about 50,000, 60,000 employees, and they would be a super base for us to recruit from, and we will prioritize local recruitment so that we can benefit the local communities as much as possible. We will have a dedicated social and environmental team numbering about 12 people to ensure that we do meet all our obligations under our ES of the ESG. In terms of RAP, a lot of prevention that we do have to move 12 households in Phase 1. We have the full government support for that. They have allocated new land for us to relocate these households. And we will build new houses according to the standards that are required by the performance standards. And they will all happen in the next 6 to 9 months for those families. The area that the government has given us is right next to Chegutu Town, where we can easily give them power and water supply, which they don't readily have right now. Green energy and green efficiency is another benefit of this project. We are in discussions with Total Eren on our MOU, where they will build a 300-megawatt solar plant. We've already allocated the land, just the other side of the main road from our processing plant, and they will generate that power and sell that into the national grid. And we will have a wheeling arrangement where we can buy back off the grid at the beneficial rates of solar power generation. Certainly significantly lower than the current power prices we would otherwise get from the grid. To give you an idea of the Karo project size, we will need about 30 MBA for our processing plant. Obviously, the solar plant is significantly bigger than it can sell all that access into the grid. In terms of what we do for the wider country and the wider economy, Mining is a key plank for GDP, some 10% to 14%. And we will be a significant component of that. Approximately 2% of the country's GDP will come from the Karo revenues. In terms of employment, we will average out during operations. This is 1,000 during construction and a similar number during operations. And if you use a 7x multiply, which is a typical industry average, we'd have 7,000 indirect jobs directly beneficial from the project. And then when those jobs will be very local in the local communities or the 2 towns that I've just mentioned to you. On to the next slide. On project execution, we've done a significant amount of work. We probably spent -- not probably -- we have spent $20 million already on detailed design and down payments on key equipment and most of the detailed engineering has been completed. So there's -- although, you may not see much activity yet on the ground, I don't know some of you visited earlier this year, there's clearly a lot of work that needs to be done before we start on site, and I'll come to the timing in the next block. We are also fortunate that we built a pilot concentrator. You'll see that on the picture on the bottom right. It treats about 1 tonne an hour of material. We are using that to produce PGM concentrates that we will look for Phase 2 and the beneficiation. And it also helps us look at optimizing our flotation circuits so that we can use this with much better knowledge during commissioning and also use it for a training ground for operators before they go on to the main plant. In terms of timing, Phoevos mentioned earlier, we have a 12-month design and construct period that started on the first of July this year and will take us through to July next year. This is a detailed estimate of the whole schedule, some comprising all the procurement and all the construction and site readiness activities. So in July 2022 -- 2024, we will put the first ore in mill. In between this December, we're going to start with our groundbreaking that will happen with our earthworks. To kick off with our earthworks concentrator -- earthworks contractor starts tomorrow, and he will mobilize therefore straight away with his kit to start clearing and grubbing the site before we move into earthwork terracing. So it's real. It's happening, and we're full steam ahead and the foot is -- the accelerator is flat to the floor. On procurement, we've already ordered our ball mills. These are pretty significant sized ball mills from HPC. HPC, a very large mill supplier, and also our flotation cells have been ordered. These are the 2 long lead items, and the ball mills is on the critical path that defines the 2-year construction period. I mentioned the earthworks tender is starting. The civils will be awarded also this month. And these are 2 of the 5 major contracts that we were award for site construction. Another key -- very important key component is we are growing contract mining. We have selected the contractor, a combination of a South African mining contractor with a local Zimbabwean mining contractor, and we're in the final negotiations with them over and we should execute that in the next few weeks. Now no project can be successful without people. And we -- I'm very pleased to say that we've got our Projects Director, Kevin McLean, who has recently started, our CFO, Rachel Rhodes; and our Senior Project Manager, Morne Davis, along with our HR Director, Jason Pierce, are all in place and with myself and we started to employ a number of senior Zimbabwe managers to help with the whole structure. That executive team, I was just doing an interesting earlier, clearly, well in excess of 100 years' experience in Africa in developing and building mining projects. So the right blender skills, the right length of experience in West Africa and Southern Africa that we need to make this project a success. Some of you may have been aware that we have actively recruited in Zimbabwe with a very large advertisement. That went out on Monday this week and with a country that is exceptionally -- got exceptional level of education, sadly a more challenging level of employment, but out of some 10 senior jobs that we advertised for, we've had almost 100 to 1 in terms of applications for those roles. So I think you can see that there are -- there are the people, there are the skill sets because of the unemployment that we will benefit from going forward. My experience here in Zimbabwe is the workforce is very capable, educated and a great work ethic, and that will certainly help us in good stead to bring this project in on time and on budget. We will target about 95% Zimbabwean employment during construction, and that will creep up to 98%, 99% during operations. Moving on to the next slide. Thank you very much, Charles. Project capital cost. This is the cost through to what we talked -- I talked about earlier, first ore in mill in July 2024. The key at that is that we -- the project capital cost is now based on 194,000 ounces per annum PGMs. That's an increase of some 23% from production levels people may have seen before. We made this decision, which did result in increased equipment sizing because a lot of the -- this project being a greenfield site, you have a lot of infrastructure that you need to build, camp, security, safety, health, all that stays the same, irrespective of the throughput, and the number of people that you need to build it, the number of people you need to operate stays the same. So we looked at increasing the key components of the processing plant, and that resulted in a very significant increase in output and of course, therefore, in revenues. And the return on the incremental capital was a very easy decision to make. The revised capital cost on that bar chart on the right does now include actual price estimates that we have in price today. And it does also include a 15% contingency, which you'll see of $45 million. That is a bottom-up developed contingency. It is not just a flat number that we've taken, but it's also supported by Monte Carlo simulation P90, so we believe that, that contingency is absolutely appropriate for this project. On top of that, we have a working capital through the first ore in mill with some another $45 million, coincidentally. That's made up of 2 components, $17 million for operational readiness that covers our operations team that we build up, medical, our safety and our security that we have all on site during construction and then staying on for operations. In addition, another further $28 million for the mobilization and the operations of the mining contractor to do the pre-strip and open up the ore body with a significant amount of overburden and waste to be moved so that we have a stockpile of ore on the ROM pad of sufficient size for when we start operating in July 2024. So you'll see there that the total cost to first ore in mill is $391 million. As I said, we spent $20 million to date. And on top of that, Tharisa is able to provide further additional escalation reserve of $26 million, should we need that in this sort of volatile world of escalation and inflation. I think there are areas that things have peaked in terms of escalation. We're seeing that in some of the components. So we're very hopeful that, that escalation reserve will not necessarily be required. Moving on to the project economics. We've increased the throughput from previous tonnages of our, you've seen 175,000 tonnes taking us to 205,000 tonnes per month, and that translates into the higher throughput and the 22.7% increase in PGM production. Phoevos mentioned earlier, that translates to a slightly shorter mine life from 20 down to 17 years. Using a ROM grade into the plant of 3.0 6E grams per tonne, and that's an average that we've used. The 4E obviously is a lower number. And this run grade also includes the dilution from the mining. Strip ratio is just under 22 over the life of mine, very similar to what you've seen before. And the recovery, we used 78% as our base. That's been technically tested and available, but we are using much more advanced flotation cells and we believe that over the next few years of operating that, that recovery will increase to 82% quite readily. We have under the Zimbabwean government, a 5-year tax holiday. And there, you can see the basket prices for both PGMs and we have a significant amount of base metal credits to our PGMs and they're the 2 prices we've used in this economic model. Our cash costs there are excluding royalties and taxes. They are what you might call a mine gate cash cost and the capital has just restated there. Over on the right, you will see that the total project value of $686 million. This comprises the net present value at 10% of $413 million plus the value of the inferred resource that we're not mining in the 17 years using an industry average in Situ value of those ounces, which gives us another significant increased value that will come. And as we drill it up, that will translate into the sort of life of mine net present value. The IRR, 26 -- just over 26% and the return-on-investment capital of 30% to very welcome numbers and shows that this project is Tier 1 world class with very robust economics. Thank you, Phoevos. I'll now hand back to you.

Thanks, Bernie. One of the quotes I really enjoy is Warren Buffett's famous quote, "Prices what you pay, and value is what you get." And when you look at the investment we'll be making and the long life that we have ahead of ourselves in Zimbabwe. And we've seen the story play out at the Tharisa Mine where you make that capital investment up front, and you continue to reap the rewards out of pit mine with negligible stay in business capital and those cash flows repeat themselves and improve over time as you build efficiencies into the project. So certainly a very value-accretive project. So coming to the funding now of Karo Platinum. We've been working on multiple streams with varying -- or differing timing requirements and drawdown dates. And you can see the typical project S curve, the bottom left-hand chart, which really ramps up as you get into the second half of the construction phase. So if we have that $391 million number to mind, you'll will unpack how we see the project being funded. So in terms of Tharisa's commitment, we've invested the initial funding cash component and then obviously, the share flip up. But beyond that, we are in the final stages of putting structured products into our business, where we will leverage our existing assets to the tune of $130 million. And then perhaps, I'll hand back to you, Bernie, because you and the team have been working on the next 2 options, and you can share those with the...

Thanks, Phoevos. So the other part of the funding, in addition to the leverage of existing assets through the Tharisa parent is more sort of 2 debt instruments. The first 1 is a conventional project finance debt or, as I said, of $260 million. Part of that will be through an ECIC insurance wrap in South Africa for South African banks, but we do have a another African bank in that mix that will provide the balance of the total of $260 million. The second string to our bow on the debt is a very interesting plan for us to do a bond listing on the Victoria Falls Stock Exchange, targeting $50 million. We have done a roadshow in Zimbabwe. There is quite a lot of -- for those who know, quite a lot of stranded U.S. dollars in Zim, which is various pension funds and banks wish to deploy. We estimate that, that's somewhere between USD 1.8 billion and USD 2 billion. We've targeted a number of those funds where we would issue a 3-year bond on a certain coupon that they would tender into, and we've drafted the prospectus, and we look to launch that in the next month or so. So if you combine those, and Tharisa will also be very much a key cornerstone in that bond listing. We've got a lot of very good interest from parties on that bond. And I think our $50 million is a good target for us to achieve. And if you add those 3 financing -- 3 stores of the financing, the Tharisa existing assets, the project financing component and the bond, that provides us to the funding that we need for our capital costs and our working capital. In terms of debt equity ratios on those numbers, we are well within ranges that we will need for the project finance. And we're well advanced on all of these fronts. We are in -- we're not in a documentation stage, but we're certainly in term sheet stage on all these funding options. The bottom left for the audience is our Project S curve. I think someone has already asked what the expenditure curve is between the 2 years that will show you. And we have also been applying to the government for a special economic zone that gives us benefits in terms of import duties and allows us to operate and take advantage that other platinum producers have in terms of income taxes for individuals as well as tax holidays. Thanks, Phoevos.

Thanks, Bernie. And moving on now to the combination of Karo Tharisa, we really believe that this combination of the 2 Tier 1 assets will be a key supplier of PGMs into the future. So when we look at the combined operations, both of them in excess of 17 years, open pit life remaining. On a combined basis, over 7.5 million tonnes of reef mined, nearing 40,000 ounces per annum. And that obviously assumes an annualized run rate in 2 years from now and chrome exceeding 2 million tonnes per annum. When we take consensus valuation of Tharisa and the attributable value of our shareholding in Karo, we had a group value in excess of $1.3 billion. But just breaking down the resource ounces, Karo at 96.4 million ounces, Tharisa 31.1 million ounces. These are significant ore bodies with long, long lives beyond the first phase that we're talking about here. And in terms of reserve tonnes, 35.5 million tonnes at Karo, 94.2 million tonnes at Tharisa. And then the reserve ounces, which obviously will prove up as we develop and grow the Karo project and extend Tharisa beyond the open pit, but that's 2.5 million ounces and 3.3 million ounces. And then we've discussed the PGM output at 194,000 ounces at Karo and 200,000 ounces, respectively, at Tharisa. So I really believe these fits squarely into our strategic commodity portfolio. And when we reflect back on what we set out in terms of our strategy, it really ticks all the boxes, and we've gone through all this detail, but it's just good reminder that we are expanding and rolling out our business on a sustainable basis. We're adding scale to existing operations and new operations. We keep challenging convention through innovation. We look at quick-to-market projects and look at opportunities that increase output and enhance value to all stakeholders. We look at diversification in terms of the basket of PGMs, the base metals as well as geographic diversification. And ultimately, looking at returns to shareholders and stakeholders in becoming the investment of choice and then key to our purpose statement is responsibly enriching lives. And really, we believe this is a true impact investment, which will transform at least 1,000 permanent sustainable jobs plus the multiplier effect and be a meaningful contributor to the Zimbabwean economy going forward as we are in South Africa, whereby we employ 3,000 people on a permanent basis directly and through our permanent contractors. So that concludes the formal part of the presentation. There's a collage of photographs here. The photo on the left-hand side is the analyst site visit we hosted earlier this year, and that's some of the core that was put out on display demarcating the Main Sulphide Zone, which can be up to 8 meters thick in certain instances, mineralization zone. And then you can see the pilot plant that Bernie mentioned, a fairly significant plant and that really gets us keenly understanding and knowledge of the flotation efficiencies of that Main Sulphide Zone and that test work goes to improvements and efficiencies. And then obviously, being in Africa, we need to have some wildlife. So there is giraffe, 1 of the lodges that is fairly tame and is very friendly. But over to the mediator now for the Q&A. Thank you all for your time.

Phoevos, thank you very much as well as Bernie. Thank you very much indeed for your presentation this afternoon. Ilja, if I may just ask you to bring back up your camera. [Operator Instructions] Just want a team take a few moments to review those questions that were submitted already. I would like to remind you that recording of this presentation along with a copy of the slides and the published Q&A can be accessed via our investor dashboard. Phoevos, Bernard, as you can see, we have received a number of questions throughout today's presentation. So thank you to all of those on the call for taking to submit their questions. And Ilja, perhaps I could just hand back to you to chair the Q&A session with the team and address any questions where it's appropriate to do so. And then I'll pick up from you at the end.

Certainly. Thank you very much. I'll address the questions to where, I think, to the relevant speakers. And the first 1, Phoevos, I guess, tied in with the company strategy that you spoke about. We have a question here why invest more when the share price is as cheap as it is? And this corridor really better than buying back your own shares or paying a dividend, as a set, so talk to the strategy of the company?

Yes. So thanks for the question, and it's a valid question. But we're a long-term investors in resources, and we believe that we do have capital discipline. And as mentioned earlier, we do have a dividend policy that we've honored over the last 6 years. And to date, we've returned circa $70 million to shareholders in the form of dividends. And we will maintain that dividend flow. We offer growth and expansion. And if you look at the supply side fundamentals of PGMs, primary supply is declining, both rhodium and palladium are currently in deficits. Platinum is forecast will be in deficit within 18 months. So we believe, we're long-term believers in the fundamentals of platinum group metals. We believe in the hydrogen economy taking off in the latter part of this decade and gain momentum into 2030. And when we look at the economics, behind the sustainability of the demand and the fundamentals, we're strong believers in very unique properties that these precious metals have. So yes, we back ourselves. We are experienced in taking projects through the value coming from greenfields right through to producing assets.

Thank you and staying with the corporate team and the strategy of the company. Are Tharisa looking at opportunities to expand the business other than Karo?

So we do have a new business development team that actively looks for opportunities, complementary synergistic opportunistic -- opportunities as they arise. And invariably, we have very strict investment criteria one of which is having a minimum of 25% IRR and a healthy return on invested capital. So most projects that are doing the rounds or opportunities are either too early stage, not in the right commodity or jurisdiction or don't meet those investment criteria, but we are actively looking. We do have a diversified global strategy in terms of our growth. Having said that, our key focus right now is Karo, on stream in time and within budget. But yes, we always keep our eyes open.

The 2 next questions go hand in hand. Again, for you, Phoevos. Bernard, your questions are still coming, don't worry. What is the impact of a very strong U.S. dollar on your business and at the same time, what is the impact of rising interest rates globally on your business?

Yes. So a weaker rand or stronger dollar supports our business. I mentioned earlier while the PGM basket price dropped 16%, the exchange rate weakened almost 7%, and that's a direct offset one from the other. So a weaker rand, stronger dollar supports our business right through to the bottom line. Now in terms of inflation, we've noticed, and we've locked in higher fuel prices at our half year results. We believe, as Bernie mentioned, that we've hit sort of peak inflation in certain commodities and raw materials. We think there are other areas that perhaps are unknown and quantify well at this stage. But we do have a robust business model. We are a low-cost producer. So our counter to volatility is making sure that we are always in the lowest cost quartile, and that's our protection. But we've also got to look at the demand for the commodities that we produce. And there's no sign even in an economic slowdown in hyperinflationary global environment, there's no sign that liquidity will dry up and we won't be able to sell or move our commodities. So yes, there is a defensive better robustness in our business model being a coproducer of platinum group metals, chrome concentrates, we believe the diversification of additional revenue streams coming out of a second large-scale project will support the business through volatility. And we certainly believe to invest through volatility so that once things stabilize, you're in a capital position.

A question for both of you. I guess it goes back to the origins of the project and the current environment. Can you add a little color to our relationship with local and national government departments, please? And I guess, Bernie, you being on the ground maybe you start and then Phoevos sort of words at the high level how we got on to the project?

Yes. Thanks, Ilja. I think the issue with government relationships is a key. Not only are they a shareholder in the company, not only are they a partner that we need to deal with, with all legislation and approvals. We are also investing $400 million in the country and it's going to generate a significant amount to the GDP. So there's a natural synergy there that we need to work closely with them, but they also need to be working closely with us as well to make the project a success. And how does that translate to being on the ground, and the question was quite right, you've got central government and you've got a local government and local communities. All of those are key to success. I think that the company before my time has built up a very good relationship with the executive in the government in Harare and I'm maintaining, and we need to build on that at the various ministries. These aren't just our partner of the Ministry of Mines. It's obviously the Ministry of Finance, Ministry of Budget, Ministry of Labor, Ministry of Immigration. All these ministries are relevant to the Karo project as we broaden that relation right across the whole government portfolio. And what the government wants to see? They want to see us deliver. And if we deliver and we look after doing the right things by the communities, they're going to be very supportive to us. And we're just starting that now because as we said earlier, groundbreaking is imminent. And when they see the yellow trucks and hybrids vests, being employed and working on the site, sentiment is going to get a lot more positive. On the local government side, there will be clearly a lot of requests for support, and we need to make sure that those are prioritized through the community appropriately. Would you like to add, Phoevos to that?

Yes. No, I think you've covered it well, Bernie. I think some history before the award of the special grant and the investment framework agreement. Leto, the partner at KMH had been active in Zimbabwe for many years, looking for opportunities on the Great Dyke and with the change in regime and the mantra being open for business, land being gazetted and released for new entrants, it became a reality on a possibility to access acreage on the Great Dyke. And so that's really the origin of it. There was intent for many, many years to source property on the Great Dyke.

Staying with government in Zimbabwe, we received a similar question on. As a result, couple of days ago, but there's been a change in the royalty regime in Zimbabwe looking at receiving royalties also in commodities. I know we've spoken about this, maybe Bernie, you want to take that and describe how we see the situation?

Yes. Obviously, the royalties that we have to pay have all been built into our financial model. The issue that the government came out last week and wanting to take half of that in physical and the balance in cash. That is not a novel approach by governments. What of governments would like to take physical because they think that they can do something better with it than perhaps the mining companies can. I don't see that ever play out successfully in any other country. It's very early stages in our engagement with the government and with all the others that platinum producers and also through the Chamber mine. So when there are more questions and answers, that's actually why are you doing it? What do you want it for? What's -- what are you trying to drive at? And those discussions have not started yet. And I think we'll see probably quite a lot of change to that request over a period of time.