JMS Q2 FY22 quarterly activities report released and attached.  Notes below on variances to my FY22 forecast assumptions, but overall no reason to review valuation of $0.34 at this stage:

·        Tshipi mine production higher at 945k Tonnes Vs 855k, but sales of 808k below forecast 855k tonnes.

·        Price of $4.62 USD/dmtu better than forecast of $4.19, but FOB cost above forecast at 32.59 ZAR/dmtu Vs 31.22.

·        Weaker USD during the period reduced income by 16% on forecast assumptions and NPAT of A$16.2m we below last month A$26.3m and forecast of A$31m (A$15.5m attributable).

·        Marketing income of A$2.0m just below forecast of A$2.05m due to lower sales volume.

·        NPAT of A$15.3 for Tshipi (100%) is below Q2 (A$16.2m) but Net Operating Cash of A$38.7 is much better than last quarter of A$7.7 and the cash at bank has increased to A$91.8m providing assurance of dividend payouts.

·        Equipment breakdowns reduced mining days but production remains ahead of plan.

I hold both JMS.  I had expected higher sales in Q2 due to higher production from Q1 washing through, but NPAT remains on track for the forecast.

JMS Q1 FY22 quarterly activities report released and attached.  Notes below on variances to my FY22 forecast assumptions, but overall no reason to review valuation of $0.34 at this stage:

·         Tshipi mine production higher at 1,050k Tonnes Vs 855k, but sales of 846k in line with forecast 855k tonnes.

·         Price of $4.56 USD/dmtu better than forecast of $4.19, but FOB cost above forecast at 32.66 ZAR/dmtu Vs 31.22.

·         Weaker USD during the period reduced income by 16% on forecast assumptions and NPAT of A$16.2m we below last month A$26.3m and forecast of A$31m (A$15.5m attributable).

·         Marketing income of A$1.8m lower than forecast of A$2.05m due to lower sales volume.

·         Excessive rain in March blamed for lowing efficiencies and production but production still reached a new all time high.

·         Demerger of Juno Minerals completed 7 May – shareholders should have their allocation.

I hold both JMS and JNO.  I expect higher sales in Q2 as the higher production washes through which should bring expected earnings back up to forecast run rates for the year.

Attached is the valuation detail for the IV of $0.34 but also included is a matrix of values at different Manganese prices and FX rates to provide context.  The base case valuation assumes Tshipi repeats the 2021 results as an average through to 2031 then a 8x P/E exit at that time. 

Here is why:

·         Ore price: Currently Manganese is at US$3.17/dmtu but the 2021 average of 4.19 better reflects historical averages.  It has been as high as $8.00 and as low as $1.50 in the last 6 years, so is very volatile.  Operations break even at around $3 and at an average price of $6.41 as was the case in 2019, an EPS of 7cps was achieved. See the matrix to see how Ore price impacts value.

·         Production volume: forecast for 3.42m tonnes of production but work is being done to increase production to 4.5m tonnes per year, so 3.42 is conservative with upside possible.

·         Cost of operation: Hasn’t moved a lot so left it at the average for 2021.  It’s the movement in the sale price that does the damage or provides the benefit so tweaking cost does little.

·         Mine Life: currently out to 2047, may be extended with additional exploration.  I have assumed a 8 times P/E exit in 2031 at which time it still have 15+ years of life.3

·         Management: Solid management, but the business doesn’t rely on any management brilliance or initiative to do well, just to not do anything stupid, but skin in the game provides some confidence they wont.  They had a negative shareholder response to remuneration in 2019 (best year to date) for dipping their hands a little deeply into the honey pot, but not to any degree that undermines the current valuation.

Other Points of Value:

·         JMS is currently divesting an Iron Ore project in WA, forming a new company called JUNO.  Existing shareholders will get a slice, so to take account of the value of this and any exploration upside at Tshipi I have allowed a +15% adjustment for future options.

·         Risks: have discounted by -5% to take account of sovereign risk due to being in South Africa.  Operations are well established and highly cash generative so I see no additional risk beyond normal market risk from operations.

·         Tax: This is very hard to calculate due to equity based adjustments for dividends from Tshipi.  It is significant and will impact the valuation if the assumptions are way off.  At its worst, my tax assumptions could over value the company by around 20%.

I bought JMS at $0.25 mid 2020 due to the value offered by it’s dividend yield, not for long term growth which I normally focus on.  The current price looks reasonable as a long-term hold, assuming the Manganese price recovers, it’s expensive if it doesn’t and very cheap if it goes over $5 on a sustained basis.  At $0.50+ I would most likely exit unless there is a change in fundamentals