Jubilee Platinum plc has four-bagged in 2 years: is it a buy?

Over the past two-and-a-half years, shares in Jubilee Platinum (LSE: JLP) have charged ahead of the wider market as the company has pushed ahead with its growth plans. Since the end of December, the shares are up nearly 400%, and there could be further gains to come. 

Making progress 

During the past year, Jubilee has transformed from a struggling speculative miner into a cash cow with bright prospects. Even though the company reported a loss for its financial year when it announced the figures at the end of last year, according to chairman Colin Bird, the firm earned a total of £2.3m during the third calendar quarter of last year, which fell just outside the end of the fiscal year. 

Income from a full year of tailings processing at Jubilee’s flagship Dilokong mine is likely to come in at between $8m and $10m. The nearby Hernic mine is set to come on-stream as well in the near term, which will add a similar-sized contribution to the group’s bottom line. 

On top of the two South African chrome and platinum projects, Jubilee announced today that it had inked a deal to process copper tailings from Resilience Mining Australia’s Leigh copper mine. RMA will receive A$8m payable in stages and dependent on certain milestones being hit. 

According to today’s press release on the matter, the project has potential production of 12,000 tonnes of copper at a production cost of US$2,569/t compared to a current price of $6,000/t. With such impressive economics, it’s no surprise Jubilee expects the project to be cash flow positive within six months. 

Finding a value 

City analysts are not yet covering the company, so it’s difficult to try and place a value on the shares. However, considering the income projections above, and Jubilee’s current market capitalisation of £60m, it looks as if the company could be undervalued considering its potential. 

As an estimate, if income for the Dilokong mine comes in at $9m for the full-year, that’s earnings of around £7m, excluding income from any other sources. Put simply; it looks as if the company is trading at less than 10 times earnings. 

Tricky business 

Jubilee’s move into the tailings business comes after the company’s unsuccessful venture into deep-level platinum, a business Lonmin (LSE: LO) knows is fraught with risks. 

Lonmin and Jubilee’s fortunes could not be more different. As shares in Jubilee have rocketed over the past two years, Lonmin has lurched from one disaster to another, and over the previous five years, the shares are down by 99.9%. 

It looks as if there could be further declines to come as well. For the three months to the end of December, the company reported lower production volumes and higher costs, exactly the opposite of what management wanted to achieve.  

Management had promised shareholders lower costs and higher production volumes to promote the last equity fund raising. The question is, for how much longer will major shareholders be willing to support the company?