- First-half revenue rises 18 per cent to £74.7mn
- Pre-tax profit edges up to £4.4mn
- Investments in plant expansion
- Exciting new partnership in Zambia
Jubilee Metals (JLP: 5.3p), an Aim-traded mining company that makes money by extracting platinum group metals (PGMs), copper and chrome from mine tailings in South Africa and Zambia, delivered modestly higher first-half pre-tax profits despite the weak PGM price environment.
Although PGM ounces (oz) sold increased by 11 per cent to 20,244 ounces, Jubilee's average PGM basket price dropped almost 30 per cent to $1,021 an oz while cost inflation (mainly logistic costs) increased 16 per cent to $895 an oz. As a result, gross profit from PGM activities fell 80 per cent to £2mn on 26 per cent lower revenue of £16.5mn.
The shortfall was made good by the ramp up of Jubilee’s chrome operations, which process third-party chrome run-of-mine (ROM) production, some on a fixed-profit margin basis, and an increasing amount on a profit-sharing basis with the ROM producers. The average chrome concentrate price increased by more than a third to $90 per tonne, which on 14 per cent higher sales of 721,947 tonnes, sent segmental revenue surging from £35.5mn to £52mn. Moreover, with gross profit margin rising from 7 per cent to 19 per cent, gross profit from chrome operations quadrupled to £9.9mn.
Bearing this in mind, Jubilee is looking to expand production to more than 2mn tonnes of chrome concentrate through the addition of two new 50,000 per tonne per month processing modules at its Thutse plant in South Africa. At full production, Jubilee expects 60 per cent of its revenue will be protected by fixed-margin tolling agreements and 40 per cent of production exposed to the chrome price. The $12mn capital cost of the new modules is being funded by cash generated from the chrome operations, which also contribute to the group’s downstream PGM capability by supplying feedstock.
Exciting new partnership in Zambia
In Zambia, Jubilee is in the process of upgrading its Sable copper refinery and Roan concentrator to expand Sable’s capacity. It makes sense to do so as the group’s growing copper activities in the country increased revenue by 23 per cent to £6.3mn and reported 66 per cent higher gross profit of £2mn in the first half.
Furthermore, Jubilee is finalising due diligence on a new partnership with Abu Dhabi's International Resources Holdings (IRH) to develop the 'Waste Rock Project' in Zambia to process 260mn tonnes of copper-containing waste rock. It will provide the group with a 30 per cent position in one of Zambia's largest waste rock dumps, as well as a management contract to design, implement and operate the project.
The plan is to target annual production of 24,000 tonnes of copper units at a cost below $4,000 per tonne, or less than half the current spot copper price. Although IRH will provide the $50mn capital required by the partnership, Jubilee raised £13mn (at 5.5p per share) in an oversubscribed placing in December 2023. This was mainly to fund the initial payment of $1.75mn, due under the agreement for the acquisition of the copper waste rock dump, progress resource and process design ($4.5m) and expand the sulphide recovery circuits at its Sable refinery to accommodate increased sulphide concentrate production from newly acquired projects ($5.7m).
Low rating points to a profitable outcome
Factoring in the additional revenue contributions from multiple project initiatives, analyst Paul Smith at brokerage WH Ireland expects full-year pre-tax profit to rise a fifth to £15mn on 27 per cent higher revenue of £182mn, ramping up to £32.5mn and £222mn, respectively, in the 12 months to 30 June 2025. On this basis, the shares are rated on price/earnings (PE) ratios of 13 (2024) and 7.5 (2025).
Clearly, there is execution risk, and it’s only fair to say that investors have been disappointed in the past. However, with the shares offering more than 100 per cent to WH Ireland’s fair value estimate of 11p a share, the potential for Jubilee to double earnings in the 2024-25 financial year is simply not in the price. So, having last rated the shares a hold, at 5.8p, at the annual results (‘Lower metal prices hit this miner – but shares are lowly rated’, 25 October 2023), I am upgrading my rating to buy.
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