JLP - does the market have a bad case of Mufulira?
JLP - does the market have a bad case of Mufulira?
Examining the joint venture with Abu Dhabi based IRH
In an RNS on 12/12/23 - Jubilee announced a further JV, this time with IRH (a large Abu Dhabi wealth management with assets of £111bn). This will be to create a SPV to secure a 350MT waste rock dump and process this at a rate of 24,000 Tonnes/Year.
This is part of a broader strategy by IRH in Zambia. Just before Christmas they also bought 51% of Mopani from ZCCM (Zambia’s national copper company) who will retain 49%. They outbid several competitor bids.
Mopani Copper Mines (MCM) has a monster smelter capacity of 220Kt Per Annum. This 2nd IRH deal doesn’t directly involve JLP however it benefits from Mopani being successful as it can “piggy back” on infrastructure plus use Mopani for refining copper beyond its own 14,000 tonne capacity, plus to produce 220Kt of copper you have to be processing several million tonnes of rock per year. As we saw in JLP where’s the BS building further refining capacity can be an expensive and time-consuming proposition….. and then you have to consider the water, the electricity don’t you? (as JLP found to its cost).
Great to have the option to partner with the likes of Mopani Copper Mines.
However the story (and connections) gets more complicated. Eagle-eyed readers will know that MCM and JLP are already JV partners in a Waste Slag Project also at Mufulira. JLP don’t explicitly say this 1st JV, announced in October 2023, will get rolled in to the 2nd JV with IRH, and from a JLP point of view there would be a funding benefit (but at a 20% ownership cost i.e. 30% JV owner not 50/50). ZCCM meanwhile will presumably will want to keep the JV with MCM…. but they hold 49% of the votes in MCM, don’t they, so would the 51% owner decide?
So in addition to the 350Mt above, the waste slag is a further 13Mt of historical slag estimated to contain 89kt of copper and 44kt of cobalt. Possibly 2Mt a year of new waste too, with 2X concentrations of copper (0.7% is normal so 1.4% maybe?).
The revenue value of these materials is $750m copper and $1.32bn cobalt at current prices. Assuming a $4,500 copper margin (which may be conservative when Mufulira Waste Dump has an estimated $3800 AISC) and $10,000 cobalt margin (this being a best guess as we don’t have any metrics to assess the AISC of cobalt yet). This resource has a theoretical $840m EBITDA value too. So when Leon calls it a “significant resource” he’s not exaggerating.
Now to the SPV (Special Purpose Vehicle) for the Mufulira Waste Rock JV.
JLP will own 30% of an annual 24Kt operation. 350Mt means this 24Kt will grow. It must. Assuming a 1.5% copper concentration, it would take 218 years to clear the waste rock (3,500,000/24,000 * 1.5%). We also know the likely AISC is $3,800/tonne. So at $8,500/tonne for 60% cathode and $6,000 for the 40% toll refined works to a $67.7m+$21.1m = $88.8m EBITDA.
Assuming a $50m build (as indicated by the RNS) funded by $35m equity and $15m inter-entity debt (for JLP’s equity) then $88.8m EBITDA less $1.2 I, $21m T $5m D, $1m A is a net profit of around $60m or net £14m to JLP. So year 1 pays for JLP’s 30% equity stake and thereafter this enhances profits and generates cash for JLP by £14m/year - and more once the 24Kt capacity grows.
Even on a conservative PE of 8 this share price should have jumped by 4p a share on the news. Not 1p. (£14m x 8 = £112m. £112m/£178m marcap)x 6.5p = 4p.)
What’s more JLP will charge for any and all engineering, including any R&D. “for a fee”. Even assuming this is only re-imbursing at cost (and no reason to think why it should be) that same R&D will likely be useful elsewhere - so we are talking fully expensed R&D - potentially worth £1m-£2m a year to JLP comparing to amortisation in 2023’s accounts.
But the biggest and most exciting aspect to this deal is IRH’s partnership. Why? Its parent, IHC, is an extraordinarily successful company. See the highlights below. It’s 26 years old. Its Vision 2030 Strategy and “Next 50” puts the electrification theme firmly in its sights.
But how old is IRH? It appears this is a brand new venture. Its first deal is with JLP if Google News is accurate. Its second was to buy Mopani 10 days later. How do I know? IRH isn’t even mentioned in IHC’s latest annual report. and www.IRH.ae social media links don’t even work! It’s a brand new web site, see? So you have a cash rich and commercially smart new big game in town partnering with a local expert. Ground floor opportunity anyone????!!!!
Reader, apart from further and futre JV opportunities - doesn’t JLP seem a (highly) likely take over target by IHC? Absolute no brainer.
So a very exciting development, in my opinion. The market did midly react to the news, but 6.5p is still a case of muffle ear, eh, and at 6.5p JLP should sound a tempting target indeed - whether examining it from a Balance Sheet or forward earnings perspective. Or if you’re someone from Abu Dhabi with the funds and aspiration to become the next Glencore.
This is not advice.
Oak