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(Alliance News) - Jubilee Metals Group PLC will likely benefit from its new green copper project in Zambia, according Berenberg.
The German bank rates Jubilee at "buy" and its price target is 9 pence.
Jubilee shares closed flat on Thursday at 6.40 pence in London, handing it a market capitalisation of GBP174.2 million. In Johannesburg, shares were unchanged at ZAR1.53 on Friday morning.
Berenberg's positive view on the London-based metal processing company, with projects in South Africa and Zambia, comes after Jubilee shareholders on Wednesday approved the equity raise for its proposed green copper project in Zambia. It intends to raise GBP13 million through a conditional placing of 236.4 million new shares with new and existing investors at a price of 5.5 pence each.
Last month, Jubilee announced it had secured one of the largest copper waste rock assets in Zambia and had formed a strategic partnership that will invest in this "significant" dump. It estimated the waste rock material on surface at more than 350 million tonnes.
Overall project costs, including mining equipment and project infrastructure, are likely to be around USD50 million, Jubilee has said.
The metal processing firm also said last month that it had signed a binding funding term sheet with Abu Dhabi-based International Resources Holding RSC to form a dedicated special purpose vehicle through which both the acquisition of the copper waste rock asset and implementation of the processing solution will be funded.
The price for the acquisition of the waste rock dump was GBP30 million, which is to be paid in instalments over a period of 18 months, and project costs are anticipated to be USD50 million.
Berenberg said on Friday it had modelled Jubilee's joint venture with International Resources, which has the potential to deliver more than 20,000 tonnes per year of copper from waste dumps, at a blended cost of USD3,800 a tonne.
Given a copper price of USD8,500 per tonne, this offers attractive margins, the lender said.
"The total cost, including acquisition from the vendor, is guided to USD50 million, which we have assumed is funded by IRH via shareholder loan," Berenberg said.
This, it said, puts little pressure on Jubilee's balance sheet, but does mean that the company has a 30% equity interest in the project for attributable volumes of 7,000 tonnes per annum.
"Our modelling assumptions are conservative and we think that Jubilee is likely to benefit from more near-term cash flows from the project, which we calculate has an attributable NPV of USD84 million," Berenberg said. NPV stands for net present value.
Due to a mixture of weaker commodity prices and some operational headwinds, mainly in Zambia, Jubilee has struggled to meet more optimistic market estimates, the German lender said.
"We think that our rebased numbers now provide a conservative estimate for what we think Jubilee can deliver in the coming years, with upside to this, particularly in the form of chrome (expanding from c1.6mtpa currently to c2mtpa, subject to board approval) and, with this, additional PGM volumes," it said.
Also, Berenberg sees more organic and inorganic upside in Jubilee's copper business, though its estimates are conservative.
By Artwell Dlamini, Alliance News reporter
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