SMALL CAP SHARE IDEAS: Jubilee Metals’ cashflow opportunities multiply 

One way to look past the market collapse on the coronavirus outbreak, is to limit investment horizons to those companies with simple and straightforward business models.

Jubilee Metals is one such company. In recent years it has made a speciality of recovering metal from old mine waste, initially platinum and chrome, but increasingly now, other metals too.

It may not be sexy as a business model, but it comes with its own particular set of attractions.

Firstly, there is no exploration risk, as it is clear enough where the resource is. Second, there’s no mining risk, since the material in question has already been mined. That in turn has a distinct cost advantage. The real risk lies in the processing, a technical undertaking to be sure, and one which most companies prefer to avoid.

But Jubilee is a company that was, in part, born out of scientific laboratories in Johannesburg. It has mine waste processing running through its DNA, and its ability to move revenues up significantly over the past couple of years is testament to its success.

Now, it has expanded outward, adding a Zambian project to its portfolio of South African operations. So why Zambia?

According to Jubilee’s chairman and founder Colin Bird, it’s simple: the acquisition of the Kabwe lead, zinc, copper and vanadium project provides the company with a country hedge, a currency hedge and a project hedge.

As it stands, Jubilee is already making a success of its South African platinum and chrome recycling operations, with second half revenue up by 74 per cent to £25million.

That’s been helped by a significant jump in the platinum price over the past 12 months, albeit that it was recovering off a low base. Nevertheless, before the coronavirus came along and took the shine off every metal apart from gold, platinum rose by 25 per cent in the 12 months to January. 

Most of those gains are still intact and, given the low cost of Jubilee’s production, margins ought to be holding up pretty well too. It’s a solid base from which to build.

Zambia comes with its own attendant risks, but it also has several advantages. Like South Africa it’s a well-established mining jurisdictions, being one of the most important copper producing countries in the world.

But what is, perhaps, more to the point is that Jubilee boss Colin Bird himself is comfortable in Zambia, he knows his way around, and he has had considerable success there in the past.

True, Kabwe is a different animal to Kiwara, the copper exploration company Bird sold to First Quantum for $260million some years ago. That was a pure play exploration, whereas Kabwe is a former producer, and comes with all sorts of useful kit already in place.

But times are different too. Back then, exploration was a booming business, deals were being done all the time as majors and mid-tiers scrambled for new prospects to develop to meet the new demand from the Chinese-stimulated ‘Supercycle.’

Now, exploration is no longer quite so fashionable. Instead, what’s demanded by an ever-sceptical market is cashflow, and plenty of it.

Jubilee turned that corner some time ago, with its acquisition of the South African chrome and platinum tailings retreatment businesses at Dilokong, Hernic and Windsor.

Now, at Kabwe, it’s going after more early cashflow, this time from lead, zinc and vanadium.

It’s too early to be talking about precise forecasts from Kabwe, but Bird reckons the project could bring in revenues of £25million over a couple of years. One thing’s for sure: it is not going to be long before we get a taste of what’s possible, because work is continuing apace.

Already the company has produced 110 tonnes of copper from tailings, and the plan now is to bring a new cobalt circuit online sometime in the first half of this year. There’s 6.4million tonnes of mineralised surface material to get through, which should provide plenty to be getting on with.

‘The Kabwe acquisition is going along at pace,’ says Bird. ‘Probably faster than we’d hoped. It’s a real bonanza, the copper-cobalt circuit, which will probably turn into a profit centre in its own right.’

That’s an added bonus for Jubilee, because Kabwe was originally acquired not for its copper potential, but rather for the 356,843 tonnes of zinc and the 351,386 tonnes of lead and 1.26 per cent vanadium pentoxide that the surface stockpile contains.

The creation of the circuits for processing those materials is ‘well underway’, says Bird, and the expectation is that concentrate products will be available fairly soon, and that the company will be able to sell vanadium pentoxide and zinc metal next year. At that point the value add for Jubilee will be significant.

First off, there’ll be the salient fact that Jubilee will at that stage be generating cash from a full suite of metals including copper, zinc, lead, vanadium, copper, cobalt, chrome and the platinum group metals.

But more than that, Jubilee will have shown that it’s more than just a one-trick pony, and that it has the capability to replicate an already successful business model in other jurisdictions.

So what’s next? Jubilee is financed for phase one of the expansion at Kabwe, and should be able to finance phase 2 out of the proceeds of phase one.

‘After that,’ says Bird, ‘we become self-funding.’

But unlike the mining executives of yesteryear he has no intention of ploughing the company’s hard-won cash into exploration blue-sky or elephant hunts. On the contrary.

‘You can’t be around forever and not pay a dividend,’ he says.

‘But the top of our card is growth. We’ve got a niche. We’ve got a brand. We’ve got credibility. And you can’t keep doing small deals. It’s better to do big ones.’

So watch this space.