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Fellowship I think you are totally deluded about what BMRs position was two years ago. They clearly had no effective relationship with the Zambian authorities, nor did they have a processing method that could be commercial. As I understand it, it had been solely developed and tested in a laboratory and excluded the vanadium. Bmr also had no method of upgrading the tailings prior to processing, another necessary requirement for a commercial process. The real test for Jubilee and their own relationship with the authorities will come over the next few months with their request for the small scale licence transfer from BMR and its renewal. We can only wait and see.
Done nothing at Kabwe! Really. They committed to the joint venture with BMR about 2.33 years ago. It was quickly found there was no small scale mining licence for the tailings, and the much vaunted process of extracting the metals from the tailings was an absolute non runner. After being the junior partner they now own virtually the whole project, have a viable process method and a refinery in which to do the processing, and without COVID border controls would have probably started up the zinc processing. I would say that is pretty good in such a short period.As an aside
they have upgraded a copper circuit at the refinery, developed a cobalt circuit and shown they can produce high grade copper from tailings to land a massive copper project. A public commitment has been made by Leon to get on with the zinc circuit as soon as the Border closure is lifted. The Zambian mining authorities now need to play their part by approving the transfer of the small scale mining licence from BMR, renewing it in September on sensible commercial terms. Ideally they also need to grant a small scale mining licence to Galileo so the high grade zinc from the Star Zinc project can be used to upgrade the Kabwe tailings so they can be processed more economically.
At the year end there were $ 93.5m of current liabilities of which $29.8m related to the bank debt. The current assets were $38.2m, so there was a shortfall of assets of around $55m to meet the expected liabilities known to be due in the following 12 months.This meant the suppliers were owed around $24m at the year end. The deficit should be comfortably met by the free cash currently being generated from the operations, but as to what the cash position of the company is at any point of time depends on the dates of payments for the gold against the dates of payment to suppliers. The net debt position shown in presentations only relates to the cash and gold held position compared with the outstanding bank debt. If the gold price is maintained it is quite possible that current assets at the end of 2020 will exceed current liabilities so then the company will genuinely be net cash positive when supplier debts are taken into account as well.
TBTT I think the latest Crux investor interview with Leon Coetzer was released after your post. In that interview Leon confirmed the zinc processing unit would be developed once the COVID border restrictions were lifted. Hopefully the small mining licence renewal and transfer to Jubilee due in September will be authorised. This should coincide hopefully with zinc circuit being completed with commissioning at end of year, although that has all to be confirmed by RNS .
A forlorn hope but it would be good if Jubilee could qualify for some of that AID for the additional developments needed to mine, move and then subsequently store the lead polluted mine tailings safely without further impacting the environment. Clearing up the Kabwe tailings site over the next 10 years and restoring the remaining tailings in a modern safe way will go a long way to helping this dreadfully polluted town.
Yes the large copper project announced by Jubilee will not be producing copper plate for about 2.5 years from the new large concentrator that will need to be built. Some small scale copper concentrate will be produced before then, possibly from the test plant they built whilst negotiating the contract.
But high quality copper plate is already being produced at Sable refinery from Jubilee's own tailings which were bought from Glencore as part of the refinery transaction. They are also sourcing copper tailings/ROM ore from regional mines. The precise details of these other sources have not been released, probably for commercial reasons. So the copper production is already beginning to be ramped up.
As Datacheck has already said, Jubilee and Galileo seem to be joined at the hip as far as the future zinc production goes. Depending on border restrictions it looks as though the zinc circuit will not be ready to commission until late Q4 2020 and then hopefully commercial production can start in early Q1 2021 including Star Zinc.
Very good news for Galileo indeed as Leon publicly committed to developing the zinc circuit at the Sable refinery. It comes with a fair old price tag of $11m for Jubilee, although I suspect that includes some hefty costs for ensuring Jubilee can safely deal with the lead toxicity in the Kabwe tailings. Now both Jubilee and Galileo have got to sort out their respective licences with the Zambian authorities, Jubilee for the one to mine the Kabwe tailings ( transfer of small scale mining licence from BMR and renewal due in Autumn) and Galileo for their Star Zinc project. I suspect Jubilee will have little option to get on with the zinc circuit development as they have made a commitment to the Zambian authorities about cleaning up the Kabwe tailings and they are the last people they want to fall out with if their huge copper plans are to become reality in Zambia.
There are at least two regulatory hurdles to overcome before the Kabwe tailings can be processed for the zinc content. The first is the transfer of the small scale mining licence from BMR to a nominated subsidiary of Jubilee, and its renewal due this Autumn. The terms of the renewal will be interesting as I am sure Jubilee will be given the hurry up. There may be a special permit required as well that approves the method of dealing with the lead toxicity when the tailings start to be mined and processed. Second , Jubilee seems to be primarily pinning hopes of high grade zinc ore to come from Star Zinc. Galileo has not yet got the small scale mining licence for that project. Without high grade zinc ore to improve the tailings grade it is doubtful the zinc can be extracted profitably from the tailings, certainly at current zinc prices, which fortunately have ticked up a bit recently. The COVID border delay of the zinc processing equipment may have come at the right time.
Very little cash will be invested in the new copper deal for the first 9 to 12 months. It will be only after the copper concentrator starts to be ordered and built over 12 months from now that the cash commitment will start to kick in.
In the first 5 months of the year the operations probably generated $7m to 8m cash, when allowing for other costs in the business other than the two significant payments Jubilee reported. Other than Inyoni chrome the other chrome operations were probably negative cash due to the very low chrome concentrate prices prior to lockdown, operation restrictions from COVID regulations in late April and May, and don’t forget the customers for the concentrate would have probably had to slow down their own payments to Jubilee due to the COVID impact on their own business. The COVID implications would have of course impacted the PGM side as well. Furthermore cash does not materialise for about 4.5 months on average after the PGM concentrate is delivered to the refiner.So the cash received would have been for production during the last 4 months or so of 2019 which was not at peak Windsor PGM production. Personally to be so cash positive through the first 5 months which covered the worst of the COVID period in late March to end of April was very reassuring to me.
Moneyhawk, As I understand matters there are separate circuits for copper and zinc processing.
Based on the RNS of 23 Aug 2019, there are two electrowinning circuits, which I believe extracts the metal out of the concentrate. Initially only a saleable zinc concentrate is being produced so neither electrowinning circuit will be used, leaving both available for the copper production. It seems the two electrowinning circuits can be interchanged between zinc and copper metal production depending on market conditions. Back in August 2019, the plan seemed to be to use one of the electrowinning circuits for zinc metal production at the time the lead concentrate circuit came on stream in 2022. But that may well have changed so that more copper metal can be produced by using both electrowinning circuits for that metal only.
Sorry got my £ and $ sign mixed up. I meant $20m and around £16m for H! 2020 earnings. This assumes very limited restrictions on chrome and PGM production since restarting due to social distancing measures. It could be more, but I have no idea how to estimate the copper and cobalt earnings properly.
Since restarting after lockdown there has been some significant price increases for copper and chrome. The PGM basket price has also held up to at least the same favourable level as at the half year end, with a huge windfall in January, February and early March. Despite losing 4 weeks production in South Africa for the lockdòwn it is quite possible earnîngs in the first six months of 2020 will be around £20m.
It would appear that all the work for the new mine during the first 9 months is expected to be funded through free cash flow out of Yanfolila. The bank funding will only be for the new mine build and infrastructure. It would help if the budget for the pre development phase was released. This should then take away any concerns about a rights issue being needed to fund any part of this phase. Personally I am amazed at the lack of positivity so far about the prospect of doubling production on presumed margins similar to those at present within two years. Yes there are a number of hurdles to jump, particularly over the next 9 months but I am still surprised at the early lacklustre reception to this announcement.
Otho, thank you for your well thought out and balanced post. My immediate reaction is the proposed arrangement is an excellent start to monetising the $72m of intangible assets on the balance sheet at little if any risk to Hummingbird. Keeping the majority stake in the venture as well is better still. Of course this is just the start of a long journey with no certainties of eventually a large operating gold mine at Dugbe. Your final point about the current lack of public plans for the capital allocation of the current operating free cash flow is well made.