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Jubilee Platinum deal with Riverfort - death spirals so bad right? NO!

By Tom Winnifrith | Sunday 13 August 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Jubilee Platinum (JLP) last week announced a $50 million funding package to grow its metals recovery business. Oh no Riverfort! Said the snipers. Death spirals, yak, yak, yak. They have it wrong. This deal is, if you read the detail, good news.

The project financing agreement will enable Jubilee to scale up its metals recovery business based on the success of the Mitsubishi Hernic chrome-platinum plant, constructed and operated by Jubilee since March 2016 and, as it happens, based on funding provided by RiverFort’s fund Cuart Investments Fund 1. This funding agreement will enable Jubilee's metal recovery subsidiary, Jubilee Processing, to deploy further plants to recover additional metal commodities including gold, cobalt and copper across multiple geographies.

The implementation of the financing at the subsidiary operating level and not at the public parent company. Metal recovery is a large global market and the goal of the partnership is to enable Jubilee to combine its engineering skills (stress tested on the Mitsubishi Hernic project since 2016) with capital from RiverFort to focus on acquiring additional metal discards and waste assets.

Hernic is owned by Mitsubishi and it is one of the largest ferro-chrome plants in the world. To optimise profitability, Hernic selected Jubilee to re-process its waste materials which had been accumulating over many years have a revenue from the sales of the recovered PGMs. Hernic recovery plant construction commenced in early 2016 and came into production earlier this year. Key features of the Hernic recovery project are: (i) project from breaking ground to breaking into positive earnings = 14 month. Mining projects typically 5-7 years (ii) project capital $20 million to produce 36 000 oz of PGMNs a yearand 120 000 tons of Cr concentrate.

Mining projects of this size would normally cost in excess of USD 100 million (iii) hernic surface (waste) stocks in excess of 3.2 million tonnes and growing (iv) this excludes the surface waste from the ferro chrome refining process which is exceeding a further 1,5 million tonnes at Hernic alone.

The goal of the Jubilee strategy is three-fold:

- Secure low risk, low capital intensive, long-term commodity production at an attractive point on the global cost curve from mine waste by using advanced environmentally sustainable metal recovery techniques.

- Diversify across multiple commodities including platinum, cobalt, copper and gold to hedge income risk and to align with global trends.

- Rehabilitate the adverse footprint left by legacy mining in accordance to acceptable International Environmental Standards.

The field of Extractive Metallurgy has made substantial technological progress in the last 10 years increasing the ability to profitably re-process mine waste. Jubilee Processing has for several years developed successful proprietary processing techniques which optimise metal recovery from waste in an environmentally and sustainable manner for many companies including large blue-chip mining houses.

Such discards have building up around the world for many decades and can be re-processed profitably with higher margin of safety on commodity prices so long as the company doing the recovery has the right skills and experience to assess the discards correctly and design and implement the correct recovery process. Dicards have been accumulating from a number of sources including (i) byproducts generated from bulking mining but not being recovered and ending up in waste e.g. cobalt by-product from mining of platinum and chrome and(ii) where first pass recovery of the main elements has targeted the more easily recoverable minerals, leaving the more complex ones in the waste and thus necessitating sophisticated recovery processes.

This resulted in large surface stockpiles of several million tonnes created over many years. Several million tonnes of surface waste now exists across the mining sector all requiring a metallurgical solution to extract the contained metals and minerals in an economically and environmentally responsible manner. For example the platinum industry on average only recover approximately 80% of the platinum through the processing and refining circuits. At 6million ounces delivered to market annually, this equates to 1,5 million ounces being locked in surface processing discards. These recovery levels are similar for the copper industry suggesting millions of tonnes of metal at surface and requiring metallurgical solution.

Jubilee has demonstrated its ability to efficiently recover many of these minerals and metals from these mining wastes. Jubilee is first out of the blocks on the back of years of process development and it believes it will be very difficult for a new entrants to catch up. Jubilee already has built up high skills from a series of previous projects it has executed.

(i) Ferrosilicon from wastes produced by ferro-silicon main stream product lines (Middelburg Operations)
(ii) High Chrome Ferronickel from stainless steel waste (Middelburg Operation)
(iii) FerroChrome from partially reduced FerroChrome smelter waste (ConRoast and Middelburg operation)
(iv) Copper and Nickle Alloy from FerroNickel refinery waste (Conroast and Middelburg operation)
(v) Platinum, copper and nickel alloy from PGM smelter waste
(vi) Platinum and Nickel from PGM refinery waste (Conroast Process)
(vii) Platinum and Chrome from chrome mining waste.

Riverfort is serving up not some complex debt deal that becomes equity via death spital but a pure debt package which also gives it the right to get a 2.5% stake in the subsidiary not the PLC. The debt will be repaid quickly and is at subsidiary level and moves Jubilee rapidly along the line of becoming a real cash cow.

At a financial and operating level Jubilee is becoming ever more attractive. Were it not to be operating in South Africa, aka Zim South, its shares would be materially higher than the current 4.05p offer. Indeed it strikes me that the current share price almost certainly more than discounts the RSA political risk.

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