Small-cap miner Jubilee Platinum (LSE: JLP) is one of the resource sector’s best-performing companies so far this year.
Over the past three months, Jubilee’s shares have jumped by 86%. What’s more, these gains have come at a time when the wider resource sector is in turmoil. Indeed, the Bloomberg Commodity Index, which tracks a basket of 20 of the world’s most important commodities, hit a low not seen since 2002 this week.
However, Jubilee’s gains have been driven by a number of positive news releases from the company. Small-cap miners have a reputation for rallying following good news, only to fall in the weeks following as the company fails to live up to expectations.
The question is, can Jubilee head higher from present levels, or should investors jump ship while the going is good?
Making progress
Jubilee has been busy over the past year. Development of the company’s platinum surface processing projects has been gaining momentum, and management recently announced the sale of the company’s South African Middleburg operations — the Middleburg Smelter Complex and 70% of the issued shares in Power Alt (Pty) Ltd.
In total, Jubilee received £5.8m for the Middleburg operations. But on top of the proceeds received from the sale, Jubilee will retain the right to a 5MW platinum furnace at Middelburg. This furnace, along with all intellectual property relating to the development of the Platinum in Waste processing strategy, is valued at around £5.2m.
In total, Jubilee’s platinum furnace, along with the proceeds from the Middleburg sale, are worth £11m — 54% of the company’s current market cap.
Mine development
Funds received from the sale of Jubilee’s Middleburg operations will help the company fund the construction and commissioning of its Dilokong mine and surface processing project.
According to Jubilee’s February investor presentation, the capital funding requirement for Dilokong is approximately $21m. The good news is that a number of financial institutions have already offered to lend Jubilee the additional funds required to start the construction of its platinum surface processing projects.
These projects are targeting an estimated 4.4m tons of platinum-containing surface material. Jubilee wants to build two chrome and platinum group metals processing plants to process the material at a combined rate of 80,000 tons per month.
And figures presented at the beginning of this year show that Jubilee’s production target of 80,000 tons per month could yield $14m per annum in operational cash flow. Unfortunately, this forecast was put together assuming a platinum price of $1250 per ounce. Over the past eight weeks, the price of platinum has fallen nearly 20% to $980/0z. It’s unclear how this dramatic fall in the price of platinum will affect Jubilee’s forecasts.
With this being the case until Jubilee starts to produce platinum and generate cash flow, it’s difficult to value the company.
The bottom line
Overall, Jubilee has bright prospects and is progressing well towards its medium-term goal but at present the company is difficult to value.