Macquarie: JBM - A Strong Long-Term Growth Story30/07/2007A...

Macquarie: JBM - A Strong Long-Term Growth Story
30/07/2007

A broad-based sell off in global share markets has seen Jubilee Mines (JBM) shares come under intense pressure in the past week. Macquarie Research Equities (MRE) believe that this represents a buying opportunity in a company which they believe is a strong long term growth story. MRE currenlty have a 12 month JBM share price target of $17.50 – this represents a 16.3% premium to the current share price of $15.05.

Macquarie Research Equities (MRE) hold an Outperform recommendation on JBM and a 12-month share price target of $17.50.

JBM is MRE’s preferred nickel exposure due to its forecast strong margins, healthy reinvestment prospects and dividend yield, and first class exploration track record leveraged into an aggressive drilling program.

While short-term multiples appear generous versus the sector, MRE believe this premium rating is more than justified given the strong production and earnings growth expected over the next few years, and the anticipated discovery of further 50kt+ high-grade nickel deposits on JBM's highly prospective tenements. JBM remains a strong long-term nickel growth story.

Quarterly Production report – Released 27 July 2007.

Production report as expected. Reduced nickel-in-concentrate production of 1.53kt (3Q07: 1.71kt) was in line with forecast and reflective of the current transitioning phase between the depleted Cosmos Deeps deposit and Alec Mairs 1&2/Tapinos ore bodies. Unit cash costs of A$6.94/lb payable nickel were also in line with expectations and reflective of the reduced volumes.

New off-take agreement. JBM is currently negotiating a new off-take agreement for the Cosmos nickel project to follow the completion of the existing CVRDInco agreement in September 2007 (itself only a one-year deal). The Cosmos nickel concentrate is among the very best in the world and, even with the competitive tender process, we would not be surprised to see CVRDInco again choose to secure the Cosmos stream for another year.

Little fresh exploration news. Previously announced highlights for the quarter include the Alec Mairs 5 (AM5) discovery, down-plunge extension of the Sinclair deposit and further down-plunge extension of the AM2 deposit. Subject to confirmatory drilling, it is likely the AM2 extensions can be included in the short- to medium-term mine plan.

Alec Mairs 5. The AM5 deposit is located ~100m east of AM2 and adds further credence to JBM's belief that the complex is host to multiple 'substantial sized' deposits. The identified AM5 mineralisation consists of high grade massive sulphides ranging from 8-20% nickel on the basal contact, with high grade disseminated sulphides (1.5-4.0% nickel) immediately above in the ultramafic. We do not believe the market is currently across the sheer potential of solely the AM5 system (+200kt nickel?), let alone the broader Alec Mairs complex.

Traders looking for maximum exposure to short-term movements in the above mentioned share price should consider the following equity warrants for a high-risk, high-return strategy.

Investors and traders looking for short to medium-term leveraged exposure to the share price should consider Macquarie Instalments for a higher risk, higher return alternative to direct share investment.