TBTT, good point about the rhodium market not likely to have hot money speculators. So far the rhodium price has held up. Very important for Jubilee as the value of the rhodium part of the PGM basket is not far off 50% at today’s prices. Because of the rhodium the Jubilee PGM basket price is still significantly greater than it was at the 2019 year end, and most thought that price was good!
TBTT, The only area of Jubilee's current operations that I am really concerned about is the Kabwe Tailings Project. I have always said that to a large extent the chrome operations are a means to an end in supplying the PGM enriched ore. So I am relatively relaxed about the chrome operations, and to say they are in a complete mess because of an extended and very harsh pricing environment, which no one could foresee as a result of a world wide virus, is a bit over the top.
The Kabwe tailings project is a different matter, and the lack of detail in any operational update is of concern. You will be aware from the BMR board what I think are the significant regulatory hurdles still to be overcome, but we of course have no idea if the tailings can be profitably processed in the current low price lead, zinc vanadium environment. The cost of the Zambian venture has actually only ramped up significantly since the purchase of the Sable refinery. If for some reason the Kabwe tailings project did not proceed, and by the way I think it will, would the refinery be profitable just dealing with 3rd party copper and zinc feed?
Jubilee committed to their Zambian Kabwe venture in the early part of 2018. Copper revenues from our own tailings, which management decided not to tell us about for some reason, have started just 2 years later. Despite all of the huge hurdles to be overcome, not of Jubilee's making, the zinc revenues are on course to start in another 3 to 4 months time. After just being initially the minority partner, Jubilee now completely controls the tailings project for about 90% of the profits. Personally I think the operational progress to date has been amazing. I might be very critical though should the tailings project not proceed or if it does and is not profitable.
The chrome price recovery expected has been derailed probably for at least 6 months by an event that no one could have predicted. Now that China is getting back into production it will be interesting to see if the chrome price hardens.. However, despite the virus not all is currently doom and gloom on the chrome side, when the complete picture is taken into account..
Inyoni,
1. I am willing to bet that we would not have got the PGM rights without the chrome rights option being included in the deal. The two must be looked at as a whole. Having both metals rights means Jubilee has complete control on the rate of feed to suit market conditions. We have massively underpaid for the PGM side and arguably overpaid a bit on the chrome side. As a previous contributor has highlighted, Jubilee was already processing the chrome extraction so as to be able to efficiently extract the PGMs. All the coarse chrome revenue bar some minor additional costs is positive cash flow. It does not all go to the bottom line though as a significant part of the purchase price for the chrome rights has to be gradually deducted from the coarse chrome revenues over about a 3 year period. Even at today's ridiculously chrome prices the Inyoni coarse chrome should be profitable. The fine chrome is still available should we build a plant to extract it. Hopefully we are not committed to this plant currently. Don't forget the 1m tonnes of other material that came with purchase to go through Windsor. Does that have any coarse chrome in it to be extracted? Or is it only fine chrome?
DCM Fine Chrome
Maybe with hindsight the plant was built at the wrong time. However, Jubilee is building a valuable high grade PGM ore stockpile by taking out the fine chrome, as well as presumably proving to potential future 3rd party partners that in a sensible chrome price environment the fine chrome extraction will be profitable, and enhance overall chrome returns.
Windsor Chrome.
On reflection the coarse chrome plant may have been bought at the wrong time. But it cemented the strategic deal with Northam and enabled Jubilee to have full control over the rate of feed through to Northam, which is now paying big dividends with a massive ramp up in the PGM ore feed rate. At current PGM prices this ramp up is currently producing earnings way in excess of the chrome losses at Windsor. Fine chrome is still available at some future date, but Jubilee may have already committed to building the fine chrome plant before the virus became evident.
Spot on Isphahan. At the time of writing the PGM basket price is very strong and around $450 to $500 more than at the 2019 year end, when it was deemed to be strong then. The correction in the PGM prices today has just basically reversed those that occurred after the Amplats smelter explosion news on Friday. But that news will help to underpin PGM prices for the next 3 months at least, along with the existing deficit in palladium and rhodium.Despite the chrome price problems, Jubilee should have already had larger earnings in 2020 than in the whole of H2 2019.
TBTT. In my opinion this is what is going on. The small scale licence which enables the recovery of metals from the Kabwe tailings is held by Enviro Processing Ltd, a Zambian registered company (EPL). Jubilee holds an option, at its sole election, to acquire 100% of the issued shares of Enviro Mining Limited (“EML”), a subsidiary of BMR and the company that owns BMR’s Enviro Processing Limited (“EPL”). I believe the large scale licence is also held by EPL. Jubilee do not want anything to do with the large scale licence as it carries requirements to meet the environment regulations, particularly when it comes to the decommissioning of the site at the end of the licence, which I believe is 2033. In BMRs accounts at end of 2018 there was a provision for decommissioning of over £300,000. Whether that was adequate enough is a complete unknown, but the environmental regulations are likely to become tougher so it would be no surprise if it was an underestimate. Jubilee will not want such a growing provision liability in their own accounts. The only way Jubilee can definitely avoid this to ensure Galileo have taken it on before they exercise their option.
Jubilee will not want to overcommit to the tailings project before the conditions of the small scale licence renewal from October have been determined and it can be put under their control (through the exercise their option). Jubilee will not want to be effectively having to keep BMR afloat any longer, which they have in effect done through the liquidity of their 30% investment to maintain the small scale licence in existence. Once again the environmental requirements for decommissioning and returning the tailings land to alternate use of a renewed small scale licence are probably still under negotiation. It appears Jubilee has minimised risk should they need to pull out of the tailings project. So far they appear to have only 100% committed to the zinc processing facility which will be within the Sable refinery and available for 3rd party ore processing. They appear to be leaving the development of the facility to enhance the metal grade in the tailings before transporting the material to Sable as late as possible. This facility will be a turn key building which probably can easily be taken down and reassembled on another site should the worst happen. They have probably already started work on the tailings to improve safety and reduce environment hazard when they start to move the tailings. Costs associated with this could be lost. So my expectation is that by June Jubilee will be in a position to start commissioning the zinc circuit with the tailings and able to say to the Zambian authorities they have met their side of the deal, but now over to them regarding the renewal of the small scale licence on acceptable commercial terms if they really want the toxic Kabwe tailings dump sorted.
I understand the hurt and anger of BMR shareholders. But the fact is if JLP had not invested in BMR the company would probably already gone bust.by now. JLP hold all the cards and without them BMR shareholders would have no hope of getting anything. Being angry and insulting to JLPs directors is not too clever.
JLP,s majority stake in the Kabwe JV company, and their right to exercise a purchase of the subsidiary company that holds the small scale licence, ensures they have in effect full control of the Kabwe tailings project. In effect BMR now has no real say in it. And this project is the only source of potential revenue for BMR. Not a good position to be in.
On top of that JLP also owns 30% of BMR, which although a minority shareholding , in practice it provides JLP with the power to influence what ultimately happens to BMR.
I have a small BMR shareholding, which I speculatively picked up after JLP invested in BMR and obtained adjust under a 30% stake. I post mainly on the JLP board and have previously set out the number of regulatory hurdles that JLP need to go through before they can eventually get the small scale licence fully under their own control. JLPs aim is
1. To secure the small scale licence without the large scale licence, which Galileo want to secure and
2. Ensure the small scale licence can be renewed for at least 10 years from this Autumn when the current small scale licence runs out.
The above is complicated by Galileo’s involvement. And I suspect this may be where the stumbling block is., and where regulatory delays are arising. Galileo needs a small scale mining licence for the Star Zinc project, and until that is secured along with the zinc ore deal with JLP, Galileo has no obvious means of near term funds for the exploration of Kis Hitu within the long term licence,. I would imagine such funding certainty would be a condition of the long term licence being transferred to Galileo. I hope from JLPs and BMRs perspective this is the case, and nothing more sinister is going on.
Isphahan, your points are well made and they are the reasons I am invested here. My big complaint about the company is the production figures provided, sometimes within an RNS but more often by Leon in interviews, often come without proper explanation or context. For example a 5000 PGM ozs figure for September was mentioned in an RNS in October last year I believe. A number of board contributors who follow the company could not work out what it was relating to. And I personally still have no certainty. It sounded far better than had been expected and the cynical might have thought it was a bit of a ramp. And to compound the problem if you email the company you get no reply. I just cannot understand why Leon in particular keeps shooting himself in the foot. He doesn't need to do it. Just have a look at the professional communications from companies like Jadestone Energy and Sylvania Platinum, two other companies I am invested in. A bit like chalk and cheese.
I couldn't agree more with TBTT about the lack of reported detail regarding Jubilee's operations. The soft marketing interviews do not impress me either. The only interview Leon has provided at which some hard questions have been asked were the Crux ones towards the end of last year. But at least Northam have provided some detail of the PGM prices and what the likely Windsor PGM basket split by volume is in their results at the end of last week. Asa result I believe I now have a far more accurate model to try and predict earnings for the PGM side of the business. Unless there is a large drop in palladium and rhodium price this month, and no significant operation difficulties, Jubilee's PGM earnings in Q1 2020 should be at least US$15m (£11m). However there is a big cautionary note. This figure will only convert into cash if the same level of PGM prices exist in about 3/4months time! Even so the number is impressive. Leon mentioned that PGM prices were strong on 31 December. Well even after some relatively small PGM prices falls last week, the PGM basket is still over $500 per ozs higher than on 31 December.
We all know that probably even with the positive earnings coming through from Inyoni on the chrome side, the chrome business as a whole will be producing negative earnings. And this might continue for a year or so. The unpredictable black swan event of the coronavirus has wiped out all hope of a relatively quick rebound in the chrome prices. But if the PGM prices remain at the current level, these will be insignificant in comparison to the PGM earnings. A big IF though.
At the moment we have no idea what the margins on the copper will be at Sable. No doubt we will have to wait until the 2nd half of 2020. The fact we have copper tailings at Sable (how much?) included in the Sable deal was a nice surprise. Maybe the half year results later this month will provide more information.
Jonah and Moneyhawk, from what I recall there are two electrowinning circuits already at the refinery to convert the concentrates into the final metals. These could be if required used interchangeably between the copper and zinc. It looks as though one is already being used for the copper production. At present it looks as though there are no current plans to use the other for the zinc, as only zinc concentrate production is being referred to. Don't know if they will need both of the electro winning circuits for copper once the target of 400 tonnes a month is reached, or are they planning to exceed this figure from Q3 onwards depending on 3rd party ore supply?
Northam's half year results came out on Friday, and as expected they were exceptionally good. The webcast presenting them is worth listening to. There is comment about the deficit in the palladium and rhodium markets and an expectation of prices remaining strong, as the prices seem to have been mainly driven by demand and supply issues, and not investor speculation. Paul Dunne commented that despite the virus in China, and reduction in car production, both metals' prices so far anyway had remained strong. He also commented that he couldn't see any significant switching from palladium to platinum within the next two years. Very reassuring and hopefully he is right and the very strong margins Jubilee is currently achieving in the PGM basket are retained, so as to more than offset the chrome and base metals, which are in the doldrums.
On Northam's website is a very useful results booklet, with a section on Elam. It shows the complete breakdown of the individual metals produced and sold in the 6 month period up to 31 December 2019. The PGM basket breakdown for Windsor PGMs can be calculated from these figures. In terms of volume on a 6E basis platinum, palladium and rhodium broadly account for 65%,16% and 8% of the PGM basket.
After my post below I just couldn't resist a further investment with the price just below 60p. Never thought I would see this price again. Quite possible price will go lower. If it does by any significant amount I will be investing more due to the substantial oil price protection hedge until the end of September when we all hope we will have seen the back of this virus.
Fantastic Capital Markets Day Presentation. All of the management team speakers came over as highly competent as expected. And the thought and attention to detail that came clearly through makes you realise why the majority of this team were so good in their Talisman and North Sea days executing the same mid life oil and gas field strategy. I am overweight in this share, but I was so impressed I am looking to invest further, and the current market conditions should enable me to get in at what I am sure will turn out to be a bargain price, if I am prepared to hold until 2022.
I would highly recommend any potential investor to read through the capital markets day presentation pack, and if you are really serious listen to it being presented over a 3 hour period. For me the time flew by.
The current protection Jadestone has in its oil price up to the end of September 2020 should be very reassuring to any investors during the current virus turbulence. The uplift in free cash as soon as Nam Du comes on stream at the end of 2021 on slide 25 is incredible even at an average $50 per barrel oil price over the next 2 years when there will be significant capital expenditure. The current cash level hardly reduces even with a low average of $50 a barrel, and the loan leverage in relation to the net cash position is also very low. But an average of $50 a barrel over the next two to three years is in my mind very conservative, especially as the current hedge position at Montara up to the end of September 2020 and the IM2020 regulations create a significant premium for each oil barrel in excess of the Brent Crude price during the first 9 months of this period. Of course there will be operational risks, but the competency of this team will ensure that they are minimised. So we have to my mind a relatively low risk investment over a 2 to 3 year period, which should be enhanced even more by accretive acquisitions and a small dividend of 2% to 3% a year as well. What is not to like?
As usual Director’s Talk is just a positive marketing tool. A tough question is never asked. I hope you are not correct in the rather pessimistic view of indefinite delay on the Kabwe tailings project TBTT. Anyway it would really help if an honest update on the tailings project could be released, but we might have to wait until the end of next month/early April to get further information, and by then the rumour mill will be in overdrive.
Another issue I would like some clarity on, and one I expect I will not get, is how long does the Windsor PGM project with Northan last? My best guess is to the middle of 2021. Any other views.
The current PGM earnings of $5million or more a month is very comforting. We certainly need the PGM price to remain strong for a few more months yet. If it does H1 will be highly profitable despite the difficulties in the chrome market, the probable delay of the tailings part of the Kabwe project, and the low base metals prices. But the premium price we are now receiving for the high quality copper being produced at the Sable refinery, and that the cobalt circuit is now in cold commissioning, is good news.
I have previously posted on the number of regulatory hurdles Jubilee still had to go through to ensure they ended up in possession of the small scale mining licence after exercising their option with BMR to remove any remaining historical issues associated with that company. There is also the small issue of the small scale licence which will need to be renewed this Autumn.
The other significant issue, which some board members have alluded to, is the complex and difficult issue of moving and processing highly toxic waste in an environmentally friendly way. Looking at the last RNS, my best guess is that this particular issue is turning out to be more time consuming and probably more expensive than expected, and the regulatory authorisation to proceed with the tailings mining has not yet been granted. Once it is, the other regulatory hurdles to secure the new long term small scale licence fully under Jubilee’s control can then be dealt with. I would imagine Jubilee would like all of the regulatory permitting issues to be dealt with altogether to remove the regulatory permitting risk from the project.Rather than getting into any conspiracy theories, this seems to be the most logical reason for the new focus on 3rd party material initially, as I am expecting some timetable delay for the tailings part of the project.
TBTT has indicated the SP disconnect with the financials of this company. I hope the company has given the house broker the forecasted special dividends assuming PGM basket prices remain strong for the next 18 months. If so the sooner they can indicate formally they are thinking along special dividend lines of the magnitude in the broker note, the sooner the share price will align more with the company’s financials.
At 31 December 2019 the company reported net current assets of $81m. That is close on 40% of its entire market cap. And money is flooding in. Off the top of my head, by the end of FY 2020 in just over 4 months time, maintenance of the current PGM basket could mean net current assets will be two thirds or more of the current market cap. Insane.
As others have said the SLP basket price is gross i.e. before any processing costs of the PGM concentrate and penalties for impurities in the concentrate. Based on a 6E PGM basis, and assuming revenue is defined in the same way for both companies, I have calculated the net average basket price received for SLP and Jubilee during the last 6 months of 2019 to be $1024 and $991 per oz respectively. I have assumed a £ to dollar rate of 1 to 1.3. This result looks reasonable as the rhodium content in the Sylvania basket is believed to be around 40% more. The difference in prices since the beginning of the year will have provided a far greater value advantage in the basket price for Sylvania due to the huge increase in rhodium prices in particular. Sylvania's 3rd quarter figs will be amazing if the current PGM prices, and particularly the rhodium price, hold up.
I couldn't agree more with TBTT's valuation of Sylvania's SP.
And the following entry into your browser will get through to an eve more interesting part of what I presume was the same Indabi Mining Conference address. " drc-to-benefit-from-rise-in-global-copper-demand-2020-02-05"
Paste and search the following in your browser "video-zero-emissions-transport-future-will-require-more-copper-platinum-2020-02-06" and find a fascinating Indabi Mining Conference 2020 address about the future demand for copper and platinum. Probably nothing new, but the speed at which change is happening regarding electric and hydrogen fuel cell vehicles interested me. Looks like Jubilee is moving in exactly the right direction.