Company Overview: Jupiter Mines Limited (ASX: JMS) is an independent mining company with two iron ore development projects in the Yilgarn region of Western Australia. The company holds 49.9% beneficial interest in Tshipi é Ntle, an independently operated manganese mining company, currently operating the Tshipi Borwa Manganese Mine. The Tshipi Borwa mine is an open-pit manganese mine located in South Africa.  The company’s Central Yilgarn Iron Project is located in Australia covering approximately 490 square kilometres and it consists of two project areas: Mount Ida and Mount Mason.

JMS Details 

Improving Bottom Line: Jupiter Mines Limited (ASX: JMS) is a Perth-based mining company mainly involved in the exploration and production of manganese via its 49.9% beneficial interest in Tshipi é Ntle, an independently operated manganese mining company. Through its Central Yilgarn Iron Ore Project, located in Australia, the company is also involved in the exploration of iron ore. As on 14 October 2020, the market capitalisation of the company stood at $538.72 million. Tshipi operates an open-pit manganese mine in South Africa - Tshipi Borwa mine and is considered as one of the largest and lowest cost manganese exporters globally. Over the last five years (2016- 2020), the company has witnessed significant improvement in its bottom line, rising from a net loss of $172.4 million in 2016 to net profit of $95.1 million in 2020. Over the same period, the company’s share of profit from Tshipi investment has also improved, as demonstrated in below table.

5-Year Financial Summary (Source: Company Reports)

Despite the COVID-19 lockdown period in South Africa, which resulted in decreased production, Tshipi remained profitable and maintained a healthy positive cashflow during the period. In addition, it declared a dividend to its shareholders of ZAR330 million for H1FY21, demonstrating the strength of Tshipi’s low-cost operations throughout the cycle. For H1FY20, JMS is expected to receive ZAR156 million (~A$12.7 million) from Tshipi. With Tshipi’s large mining reserves, its low operating costs, lean overhead structure, and ungeared capital structure, Tshipi, and JMS, both seem well-positioned to traverse through the current pandemic situation.

Tshipi’s FY20 Results Highlights: During the year ended 29 February 2020, Tshipi reported total production of 3.4 million tonnes of manganese at an average cost of production of USD2.14/dmtu. For the full year, Tshipi’s total revenue and net profit stood at ZAR8.02 billion and ZAR1.97 billion. During the year, Tshipi’s results were impacted by the steep decline in the manganese prices. Over the year, Tshipi’s total cash and cash equivalent grew to ZAR1.1 billion, compared to ZAR$543 million in FY19. During FY20, Tshipi completed a concept study into a potential mine expansion of up to a production profile of 4.5 million tonnes per annum. Supported by decent cash generation, Tshipi paid dividends of ~ZAR2 billion for FY20.

Tshipi Production Results (Source: Company Reports)

During FY20, JMS continued its operations in South Africa as an agent marketing its 49.9% share of Tshipi manganese ore. JMS reported a marketing fee income of $10.36 million in FY20. The company’s profit from operations improved from $2.294 million in FY19 to $4.14 million in FY20. However, the company reported net profit of $95.12 million in FY20, lower than the $138 million reported in FY19. For FY20, JMS declared annual dividend worth $93 million, representing a pay-out ratio of 92%.

JMS FY20 Results (Source: Company Reports)

Tshipi’s H1FY21 Performance: During the quarter ended 31 May 2020, Tshipi’s production was impacted due to the COVID-19 lockdown restrictions. However, the mine later returned to 100% operations while maintaining a strict COVID-19 control regime. For the quarter, the company reported total production of 694,769 tonnes of managanese and sales revenue of $52.3 million.  In Q2FY21, Tshipi’s production stood at 840,469 tonnes with Average CIF price of US%4.67/dmtu. Notably, the production exceeded the adjusted plan for both high- and low-grade ore. During the quarter, the overall mining volumes were below plan due to delays in mobilising additional equipment caused by the COVID-19 pandemic.

JMS’s H1FY20 performance: JMS reported marketing fee income of $3.3 million and net profit after tax of $1 million. At the end of H1FY20, the company had a cash balance of $2.4 million.

JMS H1FY20 Results (Source: Company Reports)

Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together form around 54.09% of the total shareholding. APG Asset Management N.V. and AMCI Euro Holdings B.V. hold maximum interests in the company at 12.90% and 7.44%, respectively.

Top 10 Shareholders (Source: Refinitiv, Thomson Reuters)

Key Metrics: For FY20, the company’s EBITDA margin stood at 40%, higher than the industry median of 25.0%. The company’s current ratio stood at 1.84x in FY20, higher than 1.19x in FY19, demonstrating that the company has improved its ability to pay short-term obligations. The company is debt free resulting (zero debt to equity multiple in FY20), compared to the industry median of 0.21x.

Key Metrics (Source: Refinitiv, Thomson Reuters)

Executing IPO of CYIP Assets: On 4^th September 2020, the company announced that it going to execute an initial public offering (IPO) of its Central Yilgarn Iron Ore assets. To lead the IPO, the company has appointed Greg Durack as the Chief Executive Officer.

Update on Initial Substantial Holder: JMS Limited recently announced that Safika Resources (Pty) Ltd has become a substantial holder of the company with a voting power of 5.46%. Safika Resources (Pty) Ltd now holds 106,996,323 fully paid ordinary shares of the company.

Outlook: Looking ahead, the company’s focus is on crystallising the value from its CYIP asset via a 3-pronged strategy. This strategy involves developing the Mount Mason DSO Hematite Project on a fast track basis, growing the existing DSO resource base via a consolidation platform, and exploring creative options to advance the Mount Ida Magnetite Project in the mid-term.

Conversely, Tshipi is continuing to operate its Tshipi Borwa Manganese Mine with production and exports remaining on track. In addition, Tshipi’s low operating costs, lean overhead structure, scale of operations, and ungeared capital structure, is making it well positioned to withstand the upcoming uncertainties. Looking ahead, JMS is expected to benefit from the strength of Tshipi’s low-cost operations.

Key Valuation Metrics (Source: Refinitiv, Thomson Reuters)

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (illustrative)

P/E Multiple Based Approach (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months 

Stock Recommendation: The stock of JMS is currently trading lower that the average 52 weeks price level band, offering a decent opportunity for accumulation. On the technical analysis front, the stock has a support level of ~$0.254 and resistance of ~$0.311. We have valued the stock using price to earnings multiple based illustrative relative valuation method and arrived at a target price with low double-digit upside (in % terms). For the purpose, we have taken peers like South32 Ltd (ASX: S32), Pilbara Minerals Ltd (ASX: PLS), and Lynas Corporation Ltd (ASX: LYC). Considering the Tshipi’s low operating costs, its lean overhead structure, resilient performance in H1FY20, dividend payments, JMS’s current trading level, we suggest a “Buy” recommendation for the stock at the market price of $0.275 with no change versus previous day as on 14^th October 2020. 

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