Jubilee Metals Group PLC (LON: JLP)

Jubilee Metals Group PLC is an FTSE AIM All-Share Index listed diversified metals Development Company founded in 2002 and headquartered in London, the United Kingdom. It was previously known as Jubilee Platinum Plc and took its current name in December 2017. The Company focuses on nickel, copper and platinum group metals (PGM). JLP explores platinum, iridium, palladium, ruthenium, rhodium and gold, which are considered platinum group metals. It also explores chrome, vanadium, copper, lead, zinc, and cobalt ores. The Company has mineral properties in South Africa, Zambia, Australia, Madagascar, Mauritius and the United Kingdom.

Dynamics for platinum, nickel and copper

Automotive and jewellery demand covers around 80% of platinum demand. As per industry experts, platinum fabrication demand would decline 13% from FY2019 levels due to weak auto and jewellery demand but would grow from the muted FY2020 levels. In the case of nickel, automotive electrification would represent the single-largest growth driver over the next twenty years. Hence, the continued surge in the electric vehicle demand globally would shoot up the nickel demand. Due to the path to zero emissions globally, there would be rising demand for electrification and renewable energy. Copper is the most cost-effective conductive material and the best way of transporting new sources of energy. Hence, the demand for copper is expected to soar in the coming years.

Growth Prospects

• Acquisition of PGM material: Recently, JLP acquired strategic PGM tailings in its South African operations. Furthermore, it is planning to acquire the rights to 944,000 tonnes of PGM.
• Substantial investment in infrastructure: The Company has made a substantial investment in its infrastructure in FY2021. It is expected to provide a solid platform for future growth.
• New project initiation: The Company has commissioned two new Chrome Beneficiation facilities. It has also started the construction of the expanded PGM Inyoni operations. Meanwhile, JLP has received its first earnings from Zambia copper production in H2 FY2021.
• Future demand for nickel and copper: There is going to be strong demand for both nickel and copper in future due to automotive electrification and zero-emission initiatives, respectively. As a producer of both nickel and copper, JLP would benefit from this solid demand growth.

Key Risks 

• Adverse weather conditions: Adverse weather conditions could lead to disruption in projects and consequently time and cost overruns.
• Accidents in mines: There could be major accidents in mining operations. It could incur large expenses and dent the Company’s reputation.
• Volatility in metal prices: Precious metals have a volatile price environment. Any material decrease in the price of metals produced by the Company would affect its margins.
• High logistics cost: There could be high logistics costs around additional sources. These could impact the overall operating costs of the Company and consequently its margins.
  

Now we will analyse some key fundamental and shareholders statistics of Jubilee Metals Group PLC.

Financial and Operational Highlights (for the six months ended and the year ended 30 June 2021 as of 6 August 2021)

(Source: LSE Website)

• JLP received its first earnings from Zambia copper production in H2 FY2021. It led to copper production of 2,026 tonnes.
• Due to increased operational capacities, chrome concentrate production rose 99% YoY in FY2021. Driven by the commissioning of the new Chrome Beneficiation circuit, chrome production is expected to rise further.
• Despite planned operational downtime, JLP in FY2021 reached its target of 50,162 ounces for platinum group metals, up 23% YoY.
• The strong performance across divisions led to a 133% YoY surge in combined revenue in FY2021.
• This solid top-line growth resulted in a 178% YoY rise in combined attributable operational earnings in FY2021.
• JLP made substantial infrastructure investment during the period, providing a great platform for future growth.

Financial Ratios (H1 FY2021)

 Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 18 August 2021, at 7:35 AM GMT, JLP’s shares were trading at GBX 15.00, up by 0.27% against the previous day closing price. Stock 52-week High and Low were GBX 22.00 and GBX 5.10, respectively.

On a daily chart, the momentum indicator RSI (14-period) is trading at ~38.20 level and moving towards the oversold zone. The stock price is sustaining between the middle and lower Bollinger bands. Hence, there could be an uptick in the stock price in the near term.

In the last year, JLP’s stock has delivered an excellent positive return of ~177.04%. Also, it has outperformed the FTSE All-Share Precious Metals and Mining index with a return of about 24.65% and the FTSE AIM All-Share index with a return of about 31.18%. 

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook Scenario

JLP delivered an excellent performance in FY2021, with revenue rising 133% YoY and operational earnings surging 178% YoY. The management made a substantial investment during FY2021. JLP has very low leverage, with a debt/equity ratio of 0.10x, indicating financial flexibility to raise further debt, if required, at a cheaper cost. It will help JLP to fund further investments in infrastructure and new project initiations. The Company could benefit from the acquisition of PGM material, its substantial investment in infrastructure, its new project initiations, high demand for nickel and copper in future and low leverage going into FY2022. The management has great confidence for FY2022 and anticipating further progress driven by the implementation of its strategy.

Considering the future demand for nickel and copper, the Company’s new project initiations, its continued investments, the better profitability, liquidity and leverage position of the business than the industry, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Jubilee Metals Group Plc at the current price of GBX 15.00 (as on 18 August 2021 at 7:35 AM GMT), with lower-double digit upside potential based on 5.13x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

*All forecasted figures and Peer information have been taken from Refinitiv.

*The dividend yield is subject to change as per the stock price movement.

*The reference data in this report has been partly sourced from Refinitiv.

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