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Mining junior Jubilee Platinum steams ahead

Company’s plans of becoming a big industry player take shape.

Jubilee Platinum almost doubled its quarter-on-quarter net profit from its Middelburg operations for the fourth quarter ended December 31 2014, increasing 94% to R2.53 million.

“We’ve marginally increased the metals production. We’ve reduced overheads and dramatically reduced our variable costs,” says CEO Leon Coetzer, referring to the company’s quarter-on-quarter net profit increase.

The miner made good progress on its plans to enter the big leagues, announcing that it is on the verge of receiving mining rights for its Tjate project, and securing funding for two platinum group metals (PGMs) processing projects.

The quarterly results update also reflects that the smelter and power plant operation posted a 10.12% increase in revenue to R23.8 million and metal production posted a 12.4% increase to 2 282 tonnes.

With the share price only at 29 cents per share (as of Monday’s close), the stock’s 7.69% price run over the past six months is insignificant. The company has, however, embarked on growth-accelerating projects that should see its market capitalisation improve over the coming years.

Projects

Talks are underway to sell more electricity to Eskom, while Jubilee is also negotiating the extension of its current short-term power purchase agreement with the country’s electricity utility to five years.

“An interesting component within our company is that we generate our own power, so any improvement in efficiency has a compound effect as we are then able to sell more of that additional power back to Eskom. And that is a model we will try to improve upon going forward,” says Coetzer.

Jubilee has also signed new contracts with Hernic Ferro Chrome Proprietary (Hernic), the world’s fourth-largest integrated ferrochrome producer, and ASA Metals (ASA), for the beneficiation of chrome and PGMs contained in its surface tailings. The company will fund the construction of both projects and announced on Monday that it would raise R13.17 million from a share rights issue to get the ball rolling. 

Coetzer was unable to disclose forecasted financial targets, but said it would roughly translate to an earnings multiple six times higher than the current level within the next 18 months, adding that these projects will allow Jubilee to produce low-cost platinum concentrates for further processing at the smelters in the near term.

“The two projects will target a combined throughput of approximately 80 000 tonnes per month of platinum containing surface material. (They) have the potential to significantly transform Jubilee into a low-cost platinum producer from surface operations underpinned by the Tjate platinum exploration project,” says Coetzer, reffering to the company’s targeted 70 ounce PGM project.

Based on the Department of Mineral Resources’ (DMR’s) request for Tjate to support its mining right application with an operational rehabilitation guarantee, the mining rights are close to being issued – one of  the final steps to climb in the process.

Tjate is a large platinum exploration on the border of Anglo American Platinum’s Twickenham mine, and Impala Platinum’s Morula mine. According to Coetzer, the DMR’s request triggered the R75 million sale of its non-core Quartzhill property to Amplats, as the deal anchored on mining rights approval. The Tjate project could be a game changer for Jubilee as the company will transform from a PGMs processing company to mining platinum on a commercial basis.

On why the company’s stock is so cheap, Coetzer says the negative sentiment towards platinum mining in South Africa, which started during the 2008 financial crisis, is amplified by the company’s junior status, which intensifies its perceived risk profile.

“It’s a sad state of affairs,” he explains. “Our share price, like every other junior, has been decimated. By simply looking at the asset value of the company, and the value that Anglo has placed on such a small corner of the (Tjate) project, you can see just how badly discounted junior mining companies are in South Africa.”

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