Eureka Report contributor Charlie Aitken 8 June,2007.
Jabiru Metals (JML)
It's also worth remembering CSM own 27% of Jabiru Metals (JML), and you would have to assume "new CSM" would like to control all the potential cashflow from JML. JML has a market cap of $500m, and looks cheap to us.
What drives Jabiru is the very high grade Jaguar deposit. Jaguar is in the top 5% of VMS deposits globally. That translates directly to project economics. In the BFS the company estimated annual cashflow would be $40m with a capital payback of 1.5yrs and cash costs of 10c/lb of zinc unit produced. However that was using zinc price of US$0.61/lb and a copper price of US$1.06/lb. If you ran the model using today's metal prices then annual cashflow would be in excess of $180m and it would pay for itself in 6mths. Due to by product credits, cash costs per unit of zinc produced will be negative to the tune of about 30c/lb. That is a sensational project in anyone's language. Interestingly the critics of Jabiru point to the relatively short mine life, (approx 5yrs), remember though that this is a new discovery, and just as with Jubilee's Cosmos deposit in the early stages, there is significant exploration upside yet to be tested. Jaguar comes into production this month and with that out of the way we would expect that they will focus back on exploration.
Jabiru have also recently purchased the Benambra deposit in Victoria from the state government, this project has the potential to double the size and scope of the company. They have 12.3mt there at around 11.5% Zn equivalent so it is likely that it too will also be a low cost producer, driven by grade. The critical path item for Benambra is government approvals; however the government did sell it to be developed. We would see 2-3years as a realistic time frame to bring this project into production.
Our view is that you should be building a position in JML now, prior to the commencement of official production from Jaguar later this month. With a market cap of $500m, we do not think it is expensive, basically being priced for Jaguar alone. There is also a corporate angle with CSM owning 27.4% and Oxiana holding the off take agreement for Jaguar. Jabiru is an excellent unhedged story with good management, exploration, & growth potential. It is at the bottom of the cost curve with corporate appeal. Buy JML up to $1.50 ahead of the cashflow arriving, and analysts modelling that cashflow.
JML Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
