Shares in AIM and JSE Limited (JSE) listed Jubilee Platinum have fallen from an all time high of 127p achieved less than a year ago to just 88.75p despite the company making clear operational progress in both South Africa and Madagascar and the completion of a fund raising last November, which leaves it with one of the strongest balance sheets among the mining juniors.

The sell-off is largely attributable to the well publicized operational problems affecting mining in South Africa and also to the poor sentiment dogging AIM listed mining juniors. As the company heads rapidly towards completing a Bankable Feasibility Study on its lead project and then towards starting production we regard the de-rating as excessive and view it as an opportunity for investors to add to their holdings. Our stance remains buy with a price target of 319p.

The past year has seen Jubilee make progress on a number of fronts. At a financial level, it raised £11 million in November 2007 through the issue of 13.2 million shares to institutional investors at ZAR12.5 on the JSE and 89p on the AIM.

The additional capital has allowed Jubilee to accelerate work on its Tjate Platinum project to the Bankable Feasibility stage, following its successful scoping study earlier last year and to increase its stake from 48.72% to 58.53%.  The Tjate project is located in the Eastern Bushveld Complex of South Africa and Jubilee has been able to double the number of rigs on site to 6 and has reached an agreement with Mineral Corporation Consultancy to assist the company with implementing best-practice guidelines on its BFS study. Jubilee has been able to increase its stake in Tjate and with a further option to acquire a further 15% interest, we would not be surprised to see that stake increase towards 74% over the coming months.

Recent drilling returned grades above regional average in both the Merensky and UG2 reefs and step-out drill borehole DT11 confirmed continuity of platinum group elements (PGE) mineralization at depth on the Tjate Project. In addition, in-fill drill borehole DT10 intersected a 2.41 metre-wide Merensky reef layer at 997 metres. With Anglo Platinum’s Twickenham platinum mine and Impala’s Marula platinum mine up-dip on the neighbouring farms, the prospect of some form of joint venture or Production Sharing Agreement (PSA) between either or all the companies involved is a very real one indeed.  

In Madagascar the company has continued to deliver promising drilling results on a number of properties which are either wholly owned or on which Jubilee has negotiated attractive farm-in deals in order to minimize its own costs while still adding value.

Tjate Platinum Project – South Africa

The Tjate Project represents a major underdeveloped block of PGE resource and comprises three contiguous farms covering in total 5,143 hectares, namely Dsjate, Fernkloof and Quartz Hill. Snowden Mining Industry Consultants’ independent scoping study published in June 2007 concluded that the Tjate Project is economically viable as a stand-along project, indicating an NPV of US$289 million at a 5% discount rate. The scoping study used conservative values, took into consideration minimum optimization and was based on a proposed underground mine designed to extract ore from approximately 15% of the licence area. Hence there is significant upside value potential from the project’s unexplored or undeveloped areas in the licence. One of the company’s priorities is to define a SAMREC compliant mineral resource estimate and to this end the current drilling phase will deliver such an estimate.

In conjunction with the Tjate Project scoping study, Jubilee Platinum has conducted a joint optimisation review with Tjate Platinum Corporation (Pty) Ltd in order to optimise the economic return on the Tjate Project. The results of the joint optimisation review suggested a base case production (ore feed to mill) of 200,000 tonnes per month as the most practical and manageable scenario, with an indicated NPV of US$800 million at a 5% discount rate.

The BFS study on the Tjate Platinum Project is estimated to cost between £9-11 million (ZAR140-170 million), of which to date an estimated £0.83 million (ZAR 13 million) has been spent since the raising of new funds in November last year. Including the 10% earn-in interest, the amount of money spent on the BFS study so far comes to £1.73 million (ZAR27 million), while the remainder is expected to be spent in the next 8 to 10 months.
The earn-in interest comes from Jubilee Platinum’s acquisition of a 25% interest in Black Economic Empowered (BEE) Tjate Platinum Corporation for ZAR35 million towards a right to subscribe to a further 10% interest on expenditure of ZAR14 million towards exploration and a feasibility study.

The recent step-out drilling marked a step-out of some 1.5 kilometres to the west and down dip of the strike line of drilled boreholes to date, intersecting the Merensky reef at 1280 metres. Results showed 5.57 g/t 4E (platinum, palladium, rhodium and gold) over 0.8 metres apparent thickness with associated 0.39% nickel and 0.22% copper. Significant PGE mineralization in the footwall increases the mineralized reef thickness to 1.0 metre, grading 4.88 g/t 4E with associated 0.37% nickel and 0.21% copper. This step-out hole increases significantly the area of PGE mineralization to be included in the next geological resource estimate, which could prove the company’s belief of continuity of mineralization within  the 5,000 hectare Tjate property and could potentially contain up to 65 million oz PGE plus gold in situ net of geological losses.  

In addition, infill drilling intersected a 2.41 metre wide zone at 997 metres, indicating two mineralized layers; the lower assaying 4.71 g/t 4E over 3.4 metres and the upper 7.94 g/t 4E over 0.41 metres with associated nickel and copper values of 0.33% and 0.16%.

 

Madagascar

Jubilee Platinum’s objective in Madagascar is to progress all of its projects into open-pittable mining projects and to this end an aggressive 2008 drilling programme intends to identify areas for spaced drilling in order to advance their value. It has de-risked its operations by signing a series of farm-in deals with majors. Implats has acquired a 51% stake in the Ambodilafa prospect in return for agreeing to spend up to $5 million on its exploration while TransAsia Minerals will spend up to $7 million exploring Londokomanana to acquire a 51% interest in the property.

In the second half of 2007, the Ambodilafa project reported a PGM intersection of 3.99 g/t 4E (platinum, palladium, rhodium and gold) over 0.89 metres on its eastern PGM anomaly target and base metal grades of 0.45% Ni, 0.16% Cu on the western base metal target. Several locations in the Londokomanana concession returned positive drilling results and the Mavoandro area returned grades of 0.48% Ni and 0.56 g/t 3E (Platinum, palladium and gold).

More recently, the company released drilling results which confirmed the extension of additional nickel, copper and PGE mineralization on the Ranomena formation at its Lavatrafo project in Madagascar. This comes from a 500 metre-stepped-out borehole (RAN003), the second borehole on the Ranomena formation to show significant Ni-Cu mineralization, providing further evidence of the strike extension potential. The borehole intersected 13 metres of oxidized Ni, Cu and PGE mineralization from surface collar, with weighted average assay values of 0.49% Ni, 0.16% Cu and 0.31 g/t combined platinum, palladium  and gold using a cut off of 0.2% Ni.  The company now intends to test the Ranomena prospect for both depth and strike extension.

The Ranomena prospect is one of several ultramafic formations within the Lavatrafo project, currently held by Jubilee Platinum’s Madagascar wholly owned subsidiary (Mineral Resources of Madagascar Sarl) on a ten-year exploration licence. The Lavatrafo prospect is located in the Londokomanana region within Jubilee’s Londokomanana licence area which includes the prospects of Mavoandro, Antsahabe and Borokely. The Londokomanana concession is one of three potentially significant Ni/Cu/PGE assets Jubilee Platinum is developing in Madagascar, along with the Lanjanina and Ambodilafa concessions.

 

Conclusion and Valuation

Jubilee Platinum is in a strong position to accelerate the development of its operations in both South Africa and Madagascar. Following the publication of the company’s results for the six months ended 31st December 2007, which showed a loss for the period of £6 million, we have revised our current year pre-tax loss forecasted figure from £4.5 million to £8 million to reflect the company’s acceleration of its exploration programme at the Tjate project and to a lesser degree in the Madagascan projects – since most work on the island is funded by Jubilee’s partners. We expect that the company will spend 75% of its exploration budget on drilling and metallurgical testwork, and this will result in heavier operational expenditure than in previous years.

In our last detailed GE&CR note in October 2007 we valued Jubilee Platinum on a sum of the parts basis at 305p. The in-situ base case valuation for the Tjate project, based on 65 million ounce inferred resource and a 48% interest to Jubilee was £159.285 million or 175p per Jubilee share. The issue of new shares in November further dilutes the per share valuation of Tjate from 175p to 157p, but equally the company has most of the fundraising in the bank, estimated now to be around £10 million. The company has a further option to acquire15% interest subject to Government approval, which will see the value of the project rise to £209.06 million or 183p attributable to Jubilee (63%) on a fully diluted basis. And we expect that stake and the attributable value to increase over the coming months. The recent fundraising further de-risks the Tjate project as the company remains fully funded to undertake and complete a BFS study. The other significant company value derives from the potentially open-pittable Madagascan projects of Ambodilafa, Londokomanana and Lanjanina ,which we valued at £244 million or 127p per share on a fully diluted basis. With estimated net cash of £10 million, our sum of the parts valuation based on a 63% interest on Tjate is now 319p per Jubilee Share.

The company is currently waiting approval from the South African authorities, which will see its direct and indirect interest in Tjate rise reach 63%. The company’s portfolio in PGEs and base metals remains attractive in a period of high demand and low supply for both sets of metal groups. Power shortages in South Africa are still a major concern for all mining operators and hence this aspect remains a major threat to projects coming into production. However, Jubilee will consider its own power generation option as an alternative to ESKOM power supply, but given the importance of the mining industry to South Africa’s emerging economy, it is in the interest of the Government to provide both a coherent action plan along with financial and technical resources to resolve the power supply problem. The company’s strategy is to develop Tjate into a significant platinum mine project in conjunction with advancing its early stage projects in Madagascar into wide open-pittable, low cost deposits – that could become of interest to major producers. Hence at 88.75p, we reiterate our buy recommendation with increased target price of 319p.

Forecast Table Year to 30th June Sales (million S$) Pre-Tax Profits (£million) Earnings Per Share  (p) 2005A 0 (0.33) (0.45) 2006A 0 (0.74) (0.83) 2007A 0 (1.80) (2.13) 2008E 0 (8.00) (7.9)

*Jubilee Platinum is a corporate client of Bishopsgate Communications which is owned by RSH, the ultimate owner of this website.