@Kalenn Sorry for not getting back to you earlier. I was still in the queue to get more today. Finally got filled.
In regards to JMS, i wanted to highlight the upcoming 80m after tax distribution (as mentioned in the latest CEO quarterly call). This would work out to be 4.1cents per share. At current share price, that is almost 10.4% fully franked just on a half yearly distribution. On a full year basis this is going to yield over 15% at the minimum!
That being said it is always important to see if this dividend is sustainable given that such a high payout is due to a spike in manganese prices. Before i go on to how sustainable it is, it is important to look at the company first.
The company has no debt and is in a mature stage. Tshipi is shallow, open-cast mine with a massive reserve sufficient for at least 25 years and a resource close to 60-100 years! It is currently the largest single manganese mine in south africa and top 5 largest exporter in the world. Shallow open-cast mine with a homogenous ore body allows for simple drill-and-blast and load-and-haul mining. This is not a complicate mine and the risks in mining are low. The simple nature of the mine is also reflected in the on-going capex required. From FY2018 until FY2030, the total capex required is estimated to be R429m (comprising of R250m sustaining and R179m expansionary). One Rand is about 0.10 AUD so the total on-going capex is AUD 42.9m until FY2030. Compare this to say some of the billion market cap miners who only have ~10 years left in reserve or require many millions more to extend mine life or to go underground.
The operations at Tshipi é Ntle are conducted on a contractor-operated model, which allows the level of production and mining activities to be adjusted within certain production limits in the event of sustained price decreases. For example, in response to challenging market conditions during the 2016 financial year (Price of Mn actually went to below 1.50$/dmtu), Tshipi é Ntle implemented a mine optimisation plan that succeeded in maintaining positive operating cashflows and was then able to utilise its flexible operating model and infrastructure capacity during 2017 to rapidly increase production when manganese prices increased.
The management have said that their aim is to pay 70% of profit each year back to shareholders. You can see in the annual report that management are rewarded by 1% of the annual distribution to shareholders. Basically, the more they earn, the more they payout, the more the executive get. Very strong incentive.
Okay, so how sustainable is the dividend? Lets look at cost first then Mn prices.
The FY17 cost came in at 2.20$dmtu which would place it as one of the lowest cost producers. Bear in mind, that the CEO has said that due to higher manganese prices, they had been taking the opportunity to sell the low grade stuff. This means that if they wanted to, their costs could actually go down by a lot.
In terms of Mn prices, they have been very volatile ever since China transitioned into a less steel-intensive phase of its economic development. Their efforts to trim excess steel production and to combat pollution (closing inefficient and polluting steel mills) has wrecked havoc on the price of Mn. As such, prices crashed and the cure for low prices is low prices. Mines around the world cut production and exploration. When demand started to firm up again, Mn prices started soaring as supply had dropped. This time around, the effort to combat pollution in China has also meant domestic Mn production has dropped by a whopping 27% in 2017 and China now imports close to 44% of their Mn from South africa. The domestic Mn ore in China is also low grade and if i am not wrong they only have 15 years left of reserves left. America domestic supply is almost non-existant. China is currently building at least 39 new electric arc furnaces (EAFs), with total capacity over 31 million mtpy so this will further support demand.
In short, with China's domestic supply of Mn shrinking and the increased demand for Mn from batteries, we should see Mn average 4$/dmtu at the very least. https://www.jupitermines.com/cproot/818/3/20180621 JMS Research (Fosters).pdf
From the above research report, at 4.11$/dmtu, they forecast JMS can pay out a dividend of 0.030-0.034$ a share which gives an yield of 8-9%.
Pretty darn good in my opinion. Even short term 3 month hold will net you 10%+ dividend. Once they announce it officially, i think the share price will take off. Get it cheap while you can.
JMS Price at posting:
39.5¢ Sentiment: Buy Disclosure: Held
(20min delay)