Company Overview: Jupiter Mines Limited (ASX: JMS) is a Perth-based mining company, mainly involved in the exploration and production of manganese. The company’s flagship project is the Tshipi manganese mine in South Africa. The company has a 49.9% beneficial interest in Tshipi é Ntle Manganese Mining Proprietary Limited (Tshipi), which operates the Tshipi Borwa Manganese Mine in the southern portion of the Kalahari manganese field. 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

Growth Achieved through Tshipi’s Low-Cost Operations: Jupiter Mines Limited (ASX: JMS) is an independent 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. The company also owns two iron ore development projects in the Yilgarn region of Western Australia. As on 16 December 2020, the company’s market capitalisation stood at ~$558.31 million. From 2016 to 2020, the company has witnessed significant improvement in its bottom-line, rising from a net loss of $172.4 million in FY16 to a net profit of $95.1 million in FY20. Over the same time period, the company’s share of profit from Tshipi investment has also improved, as demonstrated in the below table.

5-Year Financial Summary (Source: Company Reports)

Although there is uncertainty regarding the impact of COVID-19 pandemic and associated impacts on the manganese market, with Tshipi’s large mining reserves, its low operating costs, lean overhead structure, and ungeared capital structure, JMS seems well placed to navigate through troubled times. Looking ahead, Tshipi intends to maintain its focus on continuing to be one of the lowest cost manganese producers globally and concentrating on its base 3mtpa sales. Further, it is focused on maximising productivity and profit, and delivering dividends that are close to a 100% payout ratio.

FY20 Result Highlights: During the year ended 29 February 2020, JMS reported a marketing fee income of $10.36 million and profit from operations of $4.14 million. Further, JMS reported a net profit of $95.12 million and declared dividends of $93 million, representing a payout ratio of 92%. Over the year, Tshipi reported total production of 3.4 million tonnes of manganese at an average cost of production of USD2.14/dmtu. Tshipi’s total revenue and net profit stood at ZAR8.02 billion and ZAR1.97 billion. Supported by decent cash generation, Tshipi paid dividends of ~ZAR2 billion for FY20.

Tshipi Production Results (Source: Company Reports)

H1FY21 Result Highlights: Despite the restrictions and lockdown during the half-year ended 31 August 2020, Tshipi sold 1.22 million tonnes of manganese ore. Moreover, Tshipi remained both profitable and cash positive during the period. For H1FY21, Tshipi reported a net profit after tax of ZAR841 million and paid a total dividend of ZAR330 million to its shareholders. Notably, the cost of production remained steady throughout the period, averaging ZAR36.02 per dmtu.

For H1FY20, JMS reported revenue of $3.3 million and net profit after tax of $29.8 million, including a share of net profit from its investment in Tshipi of $36.06 million. For the period, the company has paid an interim unfranked dividend of $0.01 per ordinary share, bringing the cumulative payout made by Jupiter to $260 million since its ASX listing.

Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together form around 53.95% 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 H1FY21, the company’s net margin stood at 900.1%, higher than 634.3% in H2FY20. ROE for H1FY21 stood at 6.9%, higher than the industry median of 4.6%. The current ratio for H1FY21 stood at 1.96x, higher than the industry median of 1.82x, demonstrating that the company is well equipped to pay its short-term obligations. The company’s debt to equity multiple has remained nil in H1FY21.

Key Metrics (Source: Refinitiv, Thomson Reuters)

Q3FY21 Result Highlights: During the quarter ended 30 November 2020 (Q3FY21), the company’s overall mining performance was affected by inclement weather, breakdowns and the DMR stoppage requirements, with an average of 77% of Tshipi’s target achieved. However, the production for the quarter exceeded the adjusted plan for both high and low-grade ore. Notably, during the month of October, Tshipi achieved its highest mining volume in its history. During the quarter, the logistics were ahead of plan, with Tshipi’s rail allocation returning to almost pre-COVID-19 levels.

For Q3FY21, the company’s marketing fee income stood at $2.7 million, higher than $2.1 million in the previous quarter. Further, NPAT for the quarter stood at $1.7 million, up from $1.4 million in the previous quarter. As at 30 November 2020, the company’s attributable cash (including its share of Tshipi cash) stood at $9.5 million, up from $2.2 million in the previous quarter.

Demerger of Iron Ore Assets: The company recently announced its intention to demerge its Central Yilgarn Iron Ore assets and subsequently create an ASX listed company, which will work to progress the development of the Mount Mason DSO hematite project as its primary focus in the near-term. To lead the IPO of its Central Yilgarn Iron Ore assets, the company has appointed Greg Durack as the Chief Executive Officer. The company plans to distribute the shares of the new company in-specie to JMS shareholders, in proportion to their existing shareholding in JMS. The shareholders of JMS will be allowed to acquire further shares in the new company above their in-specie allocation. The demerger and listing are expected to be completed in the first quarter of CY 2021.

Key Risks: As the company’s primary business is the production and export of manganese, JMS is exposed to the risks related to fluctuations in the price of manganese ore, fluctuations in third-party contractor costs, and any reduction in the global demand for steel. Moreover, the economic, political or social instability in South Africa may also impact the company’s operations.

Outlook: Following the demerger of its iron ore assets, JMS will become a pure-play manganese company, with a focus on maintaining its strong balance sheet and high payout ratio. Further, the IPO of CYIP assets will crystallise value from the assets by developing the Mount Mason DSO Hematite Project on a fast-track basis and by growing the existing DSO resource base via a consolidation platform. Tshipi’s scale of operations, low operating costs, lean overhead structure, and ungeared capital structure, continue to provide resilience against troubled times. In the long-run, the company is expected to benefit from the strength of Tshipi’s world-class and low-cost operations.

Key Valuation Metrics (Source: Refinitiv, Thomson Reuters)

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

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

Stock Recommendation: Over the last three months, JMS has provided a return of 9.6%. On the technical analysis front, the stock has a support level of ~$0.244 and resistance of ~$0.32. We have valued the stock using the 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 Alumina Ltd (ASX: AWC), Champion Iron Ltd (ASX: CIA) and Mount Gibson Iron Ltd (ASX: MGX). Considering the company’s resilient performance in H1FY21, Tshipi’s low operating costs, its lean overhead structure, recent demerger of iron ore assets and valuation, we give a “Buy” recommendation on the stock at the market price of $0.275, down by 3.509% on 16 December 2020.

JMS Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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