Company Overview: Jupiter Mines Limited (ASX: JMS) is a Perth-based mining company mainly involved in the exploration and production of manganese. Through its wholly-owned subsidiary, Jupiter Kalahari Pty Ltd, JMS owns a 49.9% beneficial interest in Tshipi é Ntle Manganese Mining Proprietary Limited, which operates the Tshipi Borwa Manganese Mine in the southern portion of the Kalahari manganese field. Notably, Tshipi Borwa is a world-class manganese mine with an open-pit mine designed to produce 2.4mtpa of manganese ore grading 37%.

JMS Details

Expansion of Tshipi Mine to Support Future Growth: Jupiter Mines Limited (ASX: JMS) is an Australian mining company with 49.9% beneficial interest in Tshipi é Ntle Manganese Mining Proprietary Limited, an independently operated manganese mining company that operates the Tshipi Borwa Manganese Mine. As on 23 June 2021, the company’s market capitalisation stood at ~$568.10 million. In line with its goal of becoming a pure play manganese company, JMS recently completed the demerger of its Central Yilgarn Iron Ore assets (CYIP) into a new company, Juno Minerals Limited, which has started trading on ASX. Despite experiencing mining challenges due to difficulty in cuts, delayed fleet mobilisation, excessive rainfall, and the South African COVID-19 lockdown, Tshipi remained profitable and cash positive throughout FY21 (year ended 28 February 2021) and declared and paid dividends of ZAR1.43 billion.

JMS Revenue Trend (Data Source: Company Reports, Analysis by Kalkine Group)

Following the demerger of its iron ore assets, JMS is now focused on the expansion of the Tshipi mine and consolidation within the Kalahari manganese region. 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 low-cost operations.

FY21 Results Highlights: For FY21, Tshipi’s total production stood at 3,352,146 tonnes and its sales stood at 3,417,585 tonnes. Total revenue and net profit of Tshipi stood at ZAR7.499 million and ZAR1.462 million, respectively. The results were impacted by the depressed Manganese prices, owing mainly to the consequences of the COVID-19 pandemic. Marketing fee income of JMS stood at $8.2 million in FY21. The company’s share of profit from joint venture entities using the equity method stood at $62.93 million, taking the total net profit attributable to members of parent entity to $67.52 million. For the full year, JMS paid a total dividend of $0.03 per share, equating to around $59 million.

NPAT Trend (Data Source: Company Reports, Analysis by kalkine Group)

Q1FY22 Results Highlights: For the quarter ended 31 May 2021 (Q1FY22), Tshipi reported total mined volume of 3,954,451 BMC, up from 2,361,031 BMC reported in Q1FY20. Total sales for the quarter stood at 846,214 tonnes, up from 321,733 tonnes in Q1FY20. During May, Tshipi improved mining efficiencies. Marketing fee income of JMS for Q1FY22 stood at $1.8 million, up from $1.2 million in pcp. At the end of the quarter, the attributable cash balance of JMS stood at $51 million.

Key Metrics: For FY21, the company reported an EBITDA margin of 52%, up from 40% in FY20. Current ratio for FY21 stood at 2.91x, up from 1.84x in FY20, demonstrating that the company has improved its ability to pay short-term obligations. ROE for FY21 stood at 15.3%, down from 22.8% in FY20.

Liquidity Profile & Profitability Metrics (Source: Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form around 60.19% of the total shareholding, while the top four constitutes the maximum holding. Ntsimbintle Holdings (Pty) Ltd. and Mende (Hans J.) are holding a maximum stake in the company at 19.90% and 13.07%, respectively, as also highlighted in the chart below:  

Source: Analysis by Kalkine Group                           

Demerger of its Iron Ore Assets: In October 2020, JMS had announced its intention of demerging its Central Yilgarn Iron Ore assets (CYIP) and subsequent initial public offering to create an ASX listed company, Juno Minerals Limited (‘Juno’). The Mining Assets Sale and Purchase Agreement was completed in January 2021. In May 2021, JMS completed the demerger and Juno Minerals Limited was admitted to the official list of the ASX. The company is of the view that this will allow JMS to become a pure-play manganese company, with a focus on maintaining its strong balance sheet and high payout ratio.

Change of Directors’ Interest: Recently, one of the company’s Directors, Brian Gilbertson acquired 3,333,000 shares of the company for a total consideration of $999,000 via on-market trade. Brian Gilbertson now holds around 24,816,226 shares of the company.

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: Looking ahead, the company is focused on expanding Tshipi to a 4.5 Mtpa operation to leverage upon growth in the steel and EV battery markets and resource depletion at existing mines. For FY22, the company expects the demand for manganese ore to be strong, underpinned by the large infrastructure investment of many countries such as the United States. Following the recent demerger of its iron ore assets, JMS is now well placed to progress the development of the Mount Mason DSO hematite project as its primary focus in the near term. JMS will hold its FY21 AGM on 30 July 2021.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Stock Recommendation: The stock of JMS is currently trading lower than the average 52-weeks price level band of $0.255 -$0.375, offering a decent opportunity for accumulation. We have valued the stock using P/E multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). We believe that the company can trade at a slight discount considering the continued impact of COVID-19 pandemic, reduced top and bottom line in FY21, and taking into account the that the company has been trading at a discount in the past 3-years over its peer average. We have taken peers like Lynas Rare Earths Ltd (ASX: LYC), Nickel Mines Ltd (ASX: NIC), Alumina Ltd (ASX: AWC), etc. Considering the Tshipi’s resilient performance in FY21, recent demerger of JMS iron ore assets, expected rise in demand for manganese ore, modest outlook, current trading level and valuation, we give a “Buy” rating on the stock at the current market price of $0.285 down 1.725% as on 23 June 2021.

JMS Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: 

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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