Jubilee Metals expansion outweighs profit hit

Platinum and palladium might have questionable supply dynamics moving into the second half of the decade, but they are still priced high enough for Jubilee Metals (JLP) to prosper. The group reprocesses tailings (waste products) to extract platinum, palladium and chrome, and spent heavily on expanding capacity in the 12 months to 30 June. This knocked earnings – cash profits fell by a quarter, to £36.7mn – but this is not a bad result after capital spending climbed over 50 per cent, to £31mn. 

These projects included a plant refurbishment in South Africa and the construction of a new processing operation in Zambia to produce a concentrate from tailings, which is then turned into copper cathode. Given the 2022 financial year covered a time when copper was trading at almost $10,000 (£8,646) a tonne, this was a good time to be ramping up production. 

In September, the Roan plant hit nameplate capacity and Jubilee had said it would produce 10,000 tonnes of copper in the current financial year, compared with 2,604 tonnes in 2022. However, “persistent interruptions in the supply of water and electricity” mean it has cut the first-half guidance to 3,000 tonnes. 

The advantage of reprocessing waste ore is costs are significantly lower than digging up the rock yourself. Jubilee managed to cut net costs further in the financial year as well, to $408 per platinum group metal (PGM) ounce, a 10 per cent drop, and to $5,076 a tonne for copper, a 6 per cent drop. The copper cost will likely fall significantly from this point, after the ramp up is done – Central Asia Metals (CAML), which extracts copper from ore mined but not processed, has a cash cost of under $1,500 a tonne. These are slightly different measures but Jubilee clearly has some ground to make up. 

On the PGM market, the short-term prospects are good. The automotive industry’s recovery means demand is coming back for palladium, while supply issues for both platinum and palladium mean prices have stayed fairly strong. Further out, PGMs will be driven by the hydrogen market. Macquarie Bank sees light and heavy vehicle hydrogen take up as a 2030s story, leaving a demand gap as passenger vehicles shift to electric this decade. 

Jubilee trades at a discount to CAML, at a price/earnings ratio of 5.9 times against 6.5 times as per FactSet, which is fair as the more established company pays a dividend. Following Simon Thompson’s lead, we are positive on this company’s investment case. Buy.

Last IC View: Buy, 16p, 8 Feb 2022