Zambia Waste And South Africa Chrome Projects Will Boost Mining

Key Takeaways

• Expanding waste projects and strategic investments in Zambia signal potential future revenue growth and increased copper production capacity.
  
• Chrome operations in South Africa and PGM processing initiatives suggest further margin improvement and enhanced profitability opportunities.
  
• Jubilee faces risks from chrome price volatility and copper market dynamics, along with operational challenges in Zambia disrupting production and affecting profitability.

Catalysts

Jubilee Metals Group plc operates as a diversified metals processing and recovery company.

• Jubilee Metals Group has entered into an agreement with a multinational company to purchase and process 10 million tonnes of waste material in Zambia, with no cost incurred by Jubilee, indicating a potential for future revenue growth from waste projects in the region.
  
• The company has been expanding its chrome operations in South Africa, which led to a significant increase in revenue. The potential for further margin improvement exists as chrome prices have recently recovered, suggesting potential future growth in earnings and net margins.
  
• Jubilee's Munkoyo mining project in Zambia is producing high-grade copper ore, and the company is investing in road infrastructure to support transport to its Sable Refinery. This indicates future potential to increase copper production and revenue.
  
• The company is transitioning its Roan plant to process high-grade run-of-mine copper ore to make up for lost production due to previous power outages, signaling an improvement in future output and potentially increasing future earnings from copper.
  
• Jubilee is focused on leveraging its investment in processing facilities and exploring joint venture opportunities to expand PGM processing, which could enhance future profitability by tapping into spare PGM processing capacity in the market.

Jubilee Metals Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Jubilee Metals Group's revenue will grow by 19.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.0% today to 18.7% in 3 years time.
• Analysts expect earnings to reach $80.9 million (and earnings per share of $0.03) by about August 2028, up from $2.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 6.0x on those 2028 earnings, down from 44.6x today. This future PE is lower than the current PE for the GB Metals and Mining industry at 9.5x.
• Analysts expect the number of shares outstanding to grow by 0.27% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.15%, as per the Simply Wall St company report.

Jubilee Metals Group Future Earnings Per Share Growth

Risks

• The volatility in chrome prices, which are not hedged due to the absence of a forward market, poses a risk to Jubilee's revenue and net margins, as seen with past price declines affecting profitability despite increased volumes.
  
• The power crisis in Zambia significantly disrupted operations, especially for the Roan Concentrator, impacting Jubilee's copper production and leading to increased costs and lower earnings during the affected period.
  
• The delay in realizing full economic benefits from investments in Zambia due to challenges such as infrastructure development and fluctuating power supply affects the timing of profitability improvements.
  
• The risk inherent in copper market dynamics where Jubilee relies on high-grade ROM shipments to Sable, could be affected by fluctuations in copper demand and prices, influencing overall earnings and margins.
  
• Jubilee's strategy in South Africa relies on expanding chrome processing without a corresponding increase in PGM refining capacity, potentially leading to missed revenue opportunities from PGMs and affecting net margins.

Valuation

• The analysts have a consensus price target of £0.09 for Jubilee Metals Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £0.11, and the most bearish reporting a price target of just £0.07.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $433.4 million, earnings will come to $80.9 million, and it would be trading on a PE ratio of 6.0x, assuming you use a discount rate of 8.1%.
• Given the current share price of £0.03, the analyst price target of £0.09 is 68.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.