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There is a truly massive amount of information in the WHI note, and I am only just beginning to digest it. Hope to post some thoughts when I've done that. Interesting that they raise the prospect of trucking DCM PGM concentrate, presumably to Inyoni. Economics will depend on PGM basket price, but may be feasible.
Think the time scales are probably realistic sumo. But the valuation they put on Kabwe was surprising. Worth just $27m to the Mcap, compared to $96m Shard valued it at last year. The big differences seem to be that WHI aren't including Vanadium for now, and the direction has shifted to use Sable for copper production which is going to impact on zinc. But they value the Sable copper project at $142m, so overall it looks like a better use of the plant, and not a bad return on our investment there.
Disappointed on the Kabwe development timeline, hopefully this is pessimistic. Like the cash generation. Maybe they can give up placings and actually buy shares back!
Thanks Groucho, good spot and very informative.
A lot to take in there, but gives some answers to a few of our questions. Q3 2021 given as the time scale for Zinc, Q1 20222 for lead. Vanadium is marked as price dependant. So I guess if the V price hasn't risen much by then, we'll just be storing that material for later processing to capitalise on any future price increases.
In the meantime, copper very much sounds like the priority at Sable, and likely that the refinery capacity will be kept for copper production once we start processing Kabwe zinc tailings. So I take from that the plan will be to produce zinc concentrate only in the short-medium term.
WHI note now available on #JLP website :
https://jubileemetalsgroup.com/wp-content/uploads/2020/07/FN-JLP-080720.pdf
Opportunities and Upside:
? Potential for additional resources in South Africa. Our models do not include
any additional value from the potential deals in South African chrome / PGMs that we see after the current crisis. Jubilee is in a great position to take on more tailings dams and third party offtake agreements on a case-by-case basis – the operations are set up to accept a mixture of materials and we see this flexibility as a real strength.
? Scale. A big driver in Zambia is scale. Increased production allows Jubilee to reduce operating costs. We use a fixed $2/lb production cost in our models going forward, but with scale and a contribution from the new “Roan” and “Elephant” project material we could see our operating costs fall by $0.5/lb to $1.5/lb. An additional profit margin of $0.5/lb on 25kt/yr copper production is additional cash flow of $27m/yr which we do not yet include in our models.
? Wild Card Opportunity. There are plenty of opportunities in Southern Africa. Old mining districts, remnant resources – some of scale which could warrant Jubilee entering a new country for further diversification.
? Wild Card Price Spikes. The chrome price spikes every few years. At full production the chrome revenues from production in South Africa will be significant.
We value Jubilee purely on a DCF basis at this time. As the company increases production, especially through Zambia, and reduces risk further, we shall look to move our value methodology to a mixed SOTP model using ratios of PE and EV/EBITDA. Peer producers are currently seeing a forward EV/EBITDA of 4-5x and PE of 9-10x, so for Jubilee on a two year horizon, purely on that basis, we would see a fair value of roughly 15-20p/sh – as a derisked, established producer.
Jubilee Metals
Robust, cash-generative production from mining waste
Jubilee operates several chrome-Platinum Group Metal (PGM) operations in South Africa and is constructing a zinc-lead (vanadium) plant at Kabwe in Zambia after already commissioning the copper and cobalt circuits (the ‘Sable’ refinery). The company has a growth pipeline identified and significant opportunities to find new projects in Africa (or globally); more specifically, Jubilee announced that it is looking to increase its copper (cobalt) production in Zambia aggressively to make full use of the Sable Refinery. Jubilee also owns the Tjate PGM project in South Africa, which is currently on hold. The company model is to treat its own waste materials and to supplement these with third party ores and wastes where possible. This year has been nothing if not eventful for Jubilee, but further progress and material catalysts are expected over the course of 2020. Jubilee has a high-margin business with cash on hand, and we see plenty of opportunities for Jubilee to capitalise on its robust business model through the global Covid-19 crisis and beyond. We initiate with a fair value of 11.2p/sh