By Holly Black
The demand for platinum is rising while production falls year-on-year – that spells opportunity for companies such as Jangada Mines.
Jangada listed on the Alternative Investment Market (AIM) a year ago, floating at 5p as it released a quarter of its shares into free float. Since then, price performance has been underwhelming, today they are trading at 4.275p, after moving as low at 3.6p.
But behind the scenes much has been happening. A new report confirming the potential of Jangada’s prime project means patient investors may now be set to reap their rewards.
Jangada owns the Pedra Branca project in north-east Brazil, which will produce so-called PGM+Au metals – that’s platinum group metals including rhodium, ruthenium and platinum itself as well as gold.
The business was picked up by executive chairman Brian McMaster in 2014 when the major which had been nursing it for almost two decades decided to clear the decks. But that doesn’t mean Pedra Branca had been an unloved outlier – Anglo Platinum had spent time and money on the project and had positioned a dedicated team at the site. The sale came during a clear out of a number of assets as the group changed direction and McMaster saw an opportunity.
He certainly has good form in the region – with 20 years’ experience in the mining industry he has recently proved his clout with Brazilian fertiliser producer Harvest Minerals, which has seen its share price more than double from 7.5p to 19.9p over the past year alone. It recently secured a buy rating from stockbroker Arden with a target price of 39p.
Pedra Branca Covers 55,000 hectares, with three mining licences and 44 exploration licences, this is set to be the largest and most advanced PGM project in South America.
This month the firm gave a crucial update on the project, announcing the results of a Preliminary Economic Assessment.
The PEA confirmed the findings of a scoping study carried out last year, reiterating that the project has the potential to become a low-cost, robust operation with a very short payback period.
Mr McMaster said the expected Internal Rate of Return (IRR) forecast by the report was ‘outstanding’ at 67 per cent, with a payback period of just 1.6 years. The mine is expected to have a life of around 13 years.
Some 64,000 ounces of PGM and gold are expected to be produced out of the site each year as well as 2.2Mlb of nickel, 1.2Mlb of copper, 44,000lb of cobalt and 30,000 tonnes of chrome.
The PEA found that using magnetic separation would significantly increase the recoveries of PGM as well as gold and chrome.
Adding to the investment case for the project is its relatively low capital expenditure requirement, estimated at $64.4 million. Meanwhile, operating expenses are likely to be around $17 per tonne, compared with a sell price of $60 per tonne, leaving a very healthy profit margin and a handy buffer if commodity prices should fall.
Not that that’s on the cards – analysts are widely expecting the price of precious metals to start creeping up. The platinum price has suffered recently, down 7 per cent over the past year to a spot price of $865 after touching a 12-year low in 2017.
That’s been bad news for mining companies. It’s estimated around half the platinum mines in South Africa are unprofitable at current levels. Reduced spending and a lack of new projects means supply from the country is set to fall to a 10-year low.
But experts say the price of the precious metal is likely to start rising. A contraction in supply as well as surge in demand could push it back over $1,000 an ounce in the second half of this year.
Global platinum demand is on course to reach 9 million ounces a year by 2025. But, despite that, production of this rare and valuable metal is falling.
South Africa is currently the largest producer of platinum group metals (PGMs) and its output is expected to drop by 6 per cent. It produced 5.5 million ounces in 2006 and less than 4 million ounces last year.
Meanwhile, the country’s investment in production has plunged from $4bn to $1bn over the past seven years. That leaves a significant gap in the market for the right candidate.
Jewellery is the main use for platinum that many people are aware of. The strong metal is resistant to tarnish, making it an appealing material for wedding bands and other jewellery. It’s believed the metal has been used for decorative purposes for more than 2,000 years.
That demand is only increasing as populations in developing countries grow wealthier. Demand for platinum jewellery in India, for example, is rising 20 per cent year-on-year.
Elsewhere, the metal is used in industrial applications as an autocatalyst, which helps clear harmful gases out of diesel engines. A move to cleaner energy and stricter pollution rules should continue to drive the need for platinum as companies need to make ever-more efficient autocatalysts.
The metal is also used in electronics, dental work, manufacturing equipment and medical devices.
Demand, then, is there for the investors who are willing to wait. With a 23.4 per cent stake in the business, McMaster is clearly confident about its prospects. Non-executive director Luis Azevedo also has a 22.8 per cent interest in the project. It is hoped that the large proportion of private ownership will keep volatility in the stock relatively low.
The PEA report supports the case for the mine and, while McMaster has shared his valuable opinion on the asset’s potential, we’re hoping the two will bode well for investors.
Holly Black: is an adept interviewer, news and features writer, having written for various trade and consumer titles, with plenty of broadcast experience too. she was named Investment Journalist of the Year, Newcomer of the Year and Rising Star of the Year at the Santander Media Awards and Headline Money Awards.