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I tipped Jubilee Platinum (JLP) at 17.75p back in 2003. It zoomed ahead to 60p plus. It is now 8.75p valuing it at c£28 million. Is it worth hanging on? One can build a credible bull case but also a bear case as I consider below. I interrupted the holiday of chairman Colin Bird to discuss this and my conclusion follows at the end.
The bear case is thus:
1. Management has consistently changed its objectives and missed its targets.
I am afraid that this charge is hard to deny. Jubilee was an explorer. Now it is trying to be a cash generator from mines to metals as well as a developer of a vast PGM mine – Tjate. But we are where we are.
2. The company has an unenviable record of issuing fresh equity time and time again. On each occasion we seem to be told this is the last time. Until the next time.
Again the jury will not take long on this one. But Bird says that Jubilee is now generating cash and so bar acquisitions there should be no need to issue shares again. He adds “never say never” I can hope for no more issues.
I put it to Bird that while tapping investors for cash the non executive chairman (i.e. him) trousered £177,000 in 2011 ( the 2012 annual report is not available) while the CEO trousered £739,000. That seems a tad on the full side to me. About half of this is accounting treatment for the expensing of share options. None the less I’d hope for a bit more boardroom restraint to be shown when 2012 accounts are published.
3. This is effectively a South African play.
I recently wrote up a piece by the younger brother of ex President Mbeki saying that come 2020 SA would become Zim South. You can read it HERE. For a company that will not be generating free cashflow and be debt free until er...close to 2020 that is an issue. Again this is a reason not to hold Jubilee.
Bird thinks that elections in November will be a turning point. I hope so but I am not convinced. I am an unashamed bear of Zim South ( I mean SA)
4. Most of the value in Jubilee (its house broker values the group at 80p a share) lies in the Tjate PGM mine which Jubilee plans to develop in 2013 and 2014. This will, according to the house broker, require capex in those two years of £260 million. I am sure that Jubilee plans to largely debt fund that but a) there will still have to be a lot of equity issued which may be hard for a £28 million capitalised company and b) there is no guarantee that debt can be raised, especially for a project in SA.
Again this is a concern. I sense that Bird accepts that Tjate cannot be stand alone financed by Jubilee although he will clearly not admit that. But he is a pragmatic old fellow and there is a third way.
5. Is 2012 the “year of delivery” as house broker Shore Cap says? It is the year when Jubilee starts to generate some revenues from its various tailing schemes and mines to metals smelters. That is true. But I still note that Shore Cap does not actually forecast a profit at an EBITDA level until 2013 (and then just over £1 million) or at a pre-tax level until 2014 (then only £650,000). Net income will be negative until 2015. The year end is June 30th.
Hmm, not sure on this one.
The bull case
According to ShoreCap they could be generating almost £4 million of free cashflow by the 2014 financial year and that will climb sharply. The 2014 financial year is now just nine months away.
Bird is a deal-doer. I am sure he will bolt on other assets to the cash-cow operation and so, arguably, the current market cap (if one ignores Tjate) reflects only the cashflows these operations will generate.
Clearly I wish I had advised selling at 60-p a few years ago. That was an error for which I apologise.
If value could be unlocked in Tjate then Jubilee is clearly very cheap indeed. I would argue that the non Tjate assets are worth ( on a 2015 cashflow multiple basis) perhaps 15p per share. The great unknown is Tjate. Unlock value there and the shares could well treble or quadruple from here ( I am not sure about Shore Cap’s 80p target but then they are paid advisers I am not).
On the basis that the non Tjate assets justify a buy case on their own with Tjate as a (potentially) spectacular bonus I would average down and consider a small speculative recovery buy.
Never miss a story.
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