First things first, I tip my hat to Seisnav on LSE. What a legend when it comes to JLP. I’m not the first to say it on the Bulletin Boards and won’t be the last.
Below is Seisnav’s detailed dashboard view of Jubilee. Makes my Comrade 5 year plan analysis approach seem very “high level” by comparison! But it’s great different investors can learn from one another. Perhaps I should construct a панель приборов too (that’s Russian for dashboard), although I worry I don’t have the time to build something of such apparent complexity. What do you think reader? Is tracking each of your shares in this manner and to this level of detail achievable? Will the numbers be accurate?
So the purpose of today’s posting is to try to forecast what FY2024 could look like and to examine some possible upsides as well as to speak to what could-a-been, should-a-been for FY2023 if only, if only.
Sometimes you need to strip out “one off” factors to work out what the future should look like
Some months ago I publicly gave some forecasts for JLP for FY2023 and was out by about 10%. £15m Forecast Net Profit was actually £13m Actual Net Profit for FY2023.
Not bad, but no cigar. So what did I miss? Analysing my numbers, I didn’t foresee the PGM basket price dropping by over 10%. I assumed the “basket price” would be static. There’s a lesson to be learned. At that time I also provided a FY2024 forecast (which I show in its raw state). Today I get to consider whether my forecast still stands:
(This is my original) Forecast FY2024 (from July 2023):
Assuming static commodity prices.
Profit on the basis PGM target volume is static (42,000oz), Chrome is +30% to H2 FY2023, Copper is +100% to H2 FY2023. I arrive at a GP of $52m or £41m and taking Op Costs of £12m (+33%), interest/tax/minority of £9m (+20%) to arrive at ~£20m net profit or a PE of 8.4
In my numbers I exclude a number of potential upsides:
1. Zero contribution from cobalt - but the circuit is built.
2. I merely follow the guidance given 20th July. Are these too conservative?
3. Given the expansion and upgrade of the Roan Concentrator copper capacity could be higher than 5,800 tonnes
4. The "advanced discussions to grow chrome to 2m tonnes"
5. The Zambia Northern Strategy
6. Other Zambian ROM (waste) opportunities
7. PGM price recovery or price spikes (JLP have 60% insulated their power supplies in SA) - EURO7 and similar are just a few years away. PGMs are used in Electrolysers and other Electrification so falling numbers of catalytic convertors doesn't mean PGM prices will remain low.
8. Copper price recovery - the electrification tailwind has to blow some time?
9. Cobalt price recovery - the electrification/battery metal tailwind has to blow some time? This is the 10 year view.
10. Forward targets of 25k copper per annum from FY2025 starts to get very exciting.
80% of chrome comes from South Africa. Primary chrome miners are exhausting open pit and shallow reserves and are having to go deeper, at greater expense. This is putting upwards pressure on the chrome price.
Certainly the gloomy 7p market price seems to be hanging over JLP. Once the full year results are out and especially if there are clear signs of cash generation (for JLP to fund the $8m cost in the RNS 6th June common sense suggests that cash generation is nicely occuring), then on a forward 2025 PE of just 10 you'd be looking at 14p-16p share. Longer term 2026 and beyond, the growth runway could be exciting for JLP with its expertise in mining miners' waste.
12th October 2023 - Revising the Forecast
I’m going to start with the above 10 “potential upsides” with some commentary:
1. Cobalt - the 20/07/23 update stated “Cobalt refining capacity at Sable refinery remains allocated to copper production” so is “offline”. This is due to the Cobalt price and also the availability of cobalt versus market demand.
2. The 20th July guidance proved to be pretty spot on.
3. The Roan Concentrator copper forecast of 5,800 tonnes. Today’s annual report speaks to a 14,000 tonne Southern strategy. Given the Roan commissioning is imminent so has 7 months of use, and that’s the final segment to this, I’m going to conservatively estimate a 7,000 tonne out turn for FY2024.
4. The "advanced discussions to grow chrome to 2m tonnes" - this is a 2 year plan (comrade) so based on the announced increases (via RNS) +15% not +30% looks more appropriate for FY2024. This is somewhat weighted to FY2024 H2.
5. The Zambia Northern Strategy - I’m forecasting zero for this for FY2024.
6. Other Zambian ROM (waste) opportunities - zero for FY2024
7. PGM price recovery or price spikes - I’m forecasting a demure $2,050/oz PGM basket which post period is approximately correct. Gold is surging due to the Middle East so PGMs could follow as a safe haven.
8. Copper price recovery - the electrification tailwind has to blow some time - just not in FY2024 and I forecast a demure $8k/tonne copper.
9. Cobalt price recovery - the electrification/battery metal tailwind has to blow some time. Forecast Zero.
10. Forward targets of 25k copper per annum from FY2025 starts to get very exciting. Well that’s a year away.
Ability to scale PGM/Chrome further without any capex through 3rd party agremeents
FY2023 Could-a-been Factors
If the disruption due to both power and water shortages hadn’t happened JLP would have easily hit my forecast profit levels
Interesting to note that once you strip away chrome byproduct the PGMs business is essentially loss making right now. If Chrome fell to zero tomorrow then JLP would be in big trouble. JLP consistently lost $14 per oz in both H1 and H2.
The fact chrome prices rose in H2 largely explains the “industry leading net cost”. Although in H2 JLP did genuinely reduce the cost per Oz by about 10% too. It’s more accurate to say the power disruption caused the H1 costs to rise than any progress was made in H2.
Interesting too the level of cash generation. Even after factoring in depreciation.
FY2024 - Show me the money!
It’s quite annoying that JLP have changed the provided information in H2 so rather than giving the revenue of chrome per Oz of PGM instead the gave a cost a margin and so I had to deduce the numbers which are listed below.
It reveals the profitless PGMs, but the (highly) profitable Chrome.
Copper will be as profitable as the Chrome/PGM even running at 50% of capacity. Once at 14,000 things get exciting.
I cross checked my numbers against Seisnav’s very impactful chart. Unfortunately you have to carefully understand what the chart is telling you. For example the Chrome price is $100s/tonne different to JLP’s selling price. Seisnav quotes the “retail” price for Chrome whereas JLP sell Chrome as a “wholesale” price. My $62.18 is based on £51/t in the RNS and multiply by the FX rate (1.22). Seisnavt includes it for reference.
“Chrome earnings margin of 12% (FY2022:13%) despite a rise in operating costs of 10% to £56/t (FY2022: £51/t). Operating costs in US$ terms remained consistent year-on-year.”
My forecast profit therefore drops by about 75%
This explains the recent share price drop.
Conclusion:
I remain a holder in JLP. When I plug in a +$1k a tonne to Copper or +$100/Oz to PGM basket then the net profit doubles from my £5.1m forecast.
Yet a forecast 75% drop explains the price drop yesterday and over past months.
Meanwhile, JLP is cash generative and stable - and the business continues to invest and expand. The northern strategy has the potential to generate $100m EBITDA in time - and $200m++ EBITDA once copper and cobalt recover.
Will copper remain at $8k and PGMs at $2050? I can’t say short term. Long term no way. Any producer - THS and SLP - Tharisa and Sylvania for example - are hurting at these prices.
JLP is pursuing an aggressive, engineering-led strategy to build, build, build, and “they will come”. This isn’t necessarily aligned with shareholders. Dilution over the past year is a good example of that. More reason for the depressed price. However the energy and perseverance of Leon Coetzer is impressive. One day, and perhaps that one day is closer than any of us think, JLP’s powerful operation combined with commodity price recovery will make this a future hot stock.
It’s a case of whether you want to buy it today, whilst its cold and clearly unloved.
What do you think?