Is Jubilee Platinum a Potential Mining Giant?

Jubilee Platinum has come a long way since its AIM debut in June 2002 A quick look at a price chart confirms that institutional investors who stuck with the company from those early days would have multiplied their cash by a factor of almost eight, admittedly aided by tipster recommendation and a small army of private investors. Even the most cynical must concede today?s outlook seems optimistic and a far cry from Jubilee?s unassuming beginnings. The original Canadian acreage is now ancient history, the Bushveld prospect is being relentlessly marched towards sale and Jubilee boasts a very promising foothold in Madagascar.

South Africa.
Jubilee?s flagship property is Tjate which covers roughly 51 square kilometres on the eastern limb of the Bushveld. In Platinum Group Metal terms, it certainly has a Mayfair address since it lies down dip of both Impala?s Marula and Angloplats? Twickenham mines.

To date, Tjate has an inferred PGM resource of 65 million ounces at what should be comfortably economic grades. Certainly weighted average Merensky reef grades of 7g/t are more than respectable and the average reef width of 80cm is standard. Given the size and doorstep location, it would be no real surprise if Impala or Angloplats tabled a bid.

If so, what might Tjate be currently worth?

First, some basic metrics to get us started. CEO and industry veteran Colin Bird has been upping Jubilee?s stake and 58.5% is now attributable to Jubilee. The target is 63% with the rest owned by Jubilee?s Black Economic partners. The PGM basket price is roughly $940/oz, excluding nickel and copper credits. Let?s attribute an in-situ value of $10/oz to this resource, which is a rough average of the Implats and Lonmin takeover prices of AfriOre, Afplats and Southern Platinum.

One needs to adjust value for nearness to production, depth and various other criteria. All of the mentioned deposits were more extensively drilled than Tjate, whose resource is entirely in the weakest ?inferred? category. Tjate is also deep ? 1100m down with all the associated ventilation and cooling problems issue ? although Afplats? deposit was at similar depth. Xstrata?s takeover of Eland was at over $20 per ounce, but Elandsfontein had commenced production.

Since PGM prices are buoyant, let?s keep our $10/oz in ground value. That gives a sale value of $380m or circa £190m ? significantly larger than the company?s entire market cap, which presently stands at £68m. Incidentally, 52% is held by Directors and institutions.

That is not the only way of valuing Tjate. Undeterred by the need for part of the deposit to be upgraded to ?indicated? status as a precondition for formal feasibility studies, Colin Bird commissioned a scoping study earlier this year. Snowden came back with a post-tax IRR of 22% based on just 15% of the resource. A slender 5% discount was applied to the PGM basket price, but while PGM prices are buoyant there is little doubt that the economics will stack up. Snowden calculated a NAV of $292m ? call it £150m ? on this section of the resource alone.

There are two other ways of valuing Tjate. One is via a DCF calculation, which involves a stab at how long it might take to get a mine into production and relies heavily on the Snowden scoping study, which as mentioned is based on an inferred resource. Not very sound at this stage, one feels. The other way is via the recent 9.81% indirect interest Jubilee acquired last month for 5.5m shares. Investors are not told the effective share price, but assuming it was at the peak of £1.20, attributes a value for Tjate of £67m or less. This represents a minimum not a maximum value and is a fantastic deal for Colin Bird.

The March interims accounts were explicit that Colin Bird and team have little intention of developing Tjate unless forced into it, and every hope of selling, which was the clear point of the scoping study. When and whether a bid might turn up is another matter. The local majors may choose to wait for a positive Bankable Feasibility Study before moving. This is the next stage, but in the meantime, Jubilee has listed on the JSX which should improve local visibility.

If a bid does materialise, it will provide Jubilee with hatfuls of cash to spend elsewhere. It has a number of other Bushveld properties but these are small fry when placed against either Tjate or Jubilee?s second big project in Madagascar, to which we now turn.

Madagascar.
If you had visions of Jubilee churning up swathes of ancient Madagascan rainforest and destroying the habitats of its unique fauna and flora, relax. Most of Madagascar?s afforested area lies within a few miles of the coast, which is a drop in the bucket of an island measuring 350 by 950 miles at its tips. In fact, the central highlands vegetation is mainly scrub or savannah, partly as a result of the slash and burn ?tavy? policy of certain indigenous people groups who have torched huge areas of forest. Jubilee?s key projects lie in exactly such topography. Mining in terrain like this is no real threat and is well supported by good mining law and a competent government.

To quote the World Bank, Madagascar is vastly under-explored, to Jubilee?s great benefit. Early movers get first pick of the prospective land, and Jubilee seems to have eased into a good position. Bird & Co are exploring three of six properties, but Madagascar is plainly not the company priority and progress has been staccato. If Tjate is sold or joint ventured this will change overnight.

Lavatrafo and Antashabe, which together comprise the license areas of Londokomanana, are large contiguous tenements in the north central highlands. Lavatrafo sits immediate south of Antashabe. Drilling reports feature more polysyllabic names, but the key fact to register is the width and spacing of the mineralisation. At Antashabe, Jubilee struck no less than 48m of insignificant PGMs and copper, but 0.62% nickel. Some 12km away at the opposite end of the license area (but very much on-trend with the geophysics anomaly), the first borehole assayed 0.43g/t Platinum, palladium and gold, 0.28% nickel and 0.08% copper over 49 metres, from 119m. Several hundred metres away, but in between, other holes assayed up to 92m combined PGMs, copper and nickel equivalent to over 2% copper.

There is every chance these are part of the same huge structure and the potential looks impressive. No resource is yet defined and of course continuity is totally unproved. However, TransAsia is earning a 51% interest in the Londokomanana and nearby Itsindro by funding exploration to the tune of US$10m over three years.

A similar JV deal has been struck with at its second main Madagascan property, Ambodilafa. No less than Implats has signed a 51% earn-in option in return for $5m of drilling up to the completion of a bankable feasibility study. They recently approved phase 2 drilling. Here a single drill hole intersected several mineralised intervals totalling 18.6mand averaging 0.67% nickel plus 0.19% copper down to 200m. The metalliferous structure is reckoned to measure 17km by 6km.

Risks.
Given that South Africa is stable and that Jubilee Platinum is unlikely to ultimately develop Tjate itself, risks here are mainly geological. Faulting does occur on the Bushveld and more drilling is needed to prove deposit continuity. Metals prices are an inevitable risk factor, but the outlook for Platinum is almost universally reckoned to hold above $950/oz for the foreseeable future. Metallurgy will be predictable and local infrastructure already exists close by.

Madagascar is an altogether different beast. Jubilee?s joint ventures de-risk the projects from a financial angle but political and ecological risks are real. Although red laterites cover the island, the deposits are sulphides and so with luck metallurgy shouldn?t prove a problem.

Londokomanana is quite remote and would need new roads, power and water, but if it?s a s big as it seems, the size might well justify it. Although Ambodilafa is on the edge of a deciduous forest it should not be ecologically sensitive.

Political risks are real. Politics in the Madagascan capital Antananarivo have settled down since the turbulence of 2002 but stability is far from guaranteed.

Value.
Despite the metals bull run, in the current market almost every junior explorer feels undervalued and hard done by. Based on the potential bid value of Tjate alone, Jubilee probably had as much case as most, even before the market carnage which has wiped a third off its market cap in the last month. Ultimately a bid or joint venture offer is fairly likely, but might not turn up for a couple of years or longer, while more money needs to be spent to improve the resource definition.

Across the Mozambique channel, Madagascan promise needs to be converted into internationally approved resource figures before the market assigns it proper value. On the bull side, Madagascar has the potential to house a world-class mine at Londokamanana, although these are early days. The sweetener is that is entirely funded by joint venture for the foreseeable future.

New investors in Jubilee Platinum stand to do well but should be alive to a possible cash call. Bird wants to raise Jubilee?s stake in Tjate, and a further drilling campaign to upgrade the resource is very possible.

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