Is Jupiter Mines the one flower yet to bloom in this mining boom?After two years of boardroom squabbles and a lacklustre commodity price, the new leadership of Jupiter Mines is determined to make up for lost time.
One small corner of the commodities’ galaxy has remained strangely unaided by the
extraordinary set of circumstances that have lifted most mining companies to record profits over the past year.
Government stimulus, supply chain disruptions and censorship of Russian products have delivered
boom prices for most commodities, yet prices for ore with 37 per cent manganese have underwhelmed by comparison amid the sort of steady supply that few other industries have been able to achieve.
Shares in the most investible pure-play manganese producer on the ASX, Jupiter Mines, were last week wallowing at barely half the level set by the company’s
2018 initial public offering.
The benign commodity price environment has coincided with two years of boardroom
squabbles over whether Jupiter should be a conservative yield stock focused on paying dividends, or pivot toward an aggressive growth agenda.
The argument was finally won by the pro-growth faction when Jupiter chairman and former BHP chief executive Brian Gilbertson was
dumped by shareholders last year in a regime change that also triggered the exit of chief executive Priyank Thapliyal.
The new regime led by former
Tinkler Group employee and
Mach Energy chief Scott Winter has not wasted any time, appointing financial, legal and technical advisers to study “consolidation” opportunities in the manganese industry.
Winter declined to name the consolidation opportunities when he spoke to
The Australian Financial Review, but said there were plenty of them in South Africa’s Kalahari region, where Jupiter owns 49.9 per cent of the Tshipi manganese mine.
“Being in the Kalahari there are a lot of efficiencies that we can see that would come through the consolidation of [mine] production as well as other assets and that ranges from operational, logistics, through to back-of-house corporate overheads, even shipping,” he says.
Two opportunities for consolidation loom large.
The black empowerment consortium that owns 19.9 per cent of Jupiter, Ntsimbintle, also owns 50.1 per cent of Jupiter’s Tshipi mine and rumours swirled last year that Ntsimbintle had encouraged the Gilbertson regime to buy its stake in the mine to give Jupiter 100 per cent of Tshipi.
If the price were right, consolidation of Tshipi looks like a low-risk acquisition; Jupiter would be buying more of an asset it already knows intimately, at a time when the company has described prices for Tshipi’s product as “depressed” in the accounts it filed to the ASX two weeks ago.
The second obvious consolidation opportunity lies about 300 metres away from Tshipi at the Mamatwan manganese mine owned by a consortium led by South32.
Tshipi and Mamatwan are separated by a slim bank of rock – called a barrier pillar – that the two mines effectively share as they extract ore with about 37 per cent manganese.
“It is an area where two pits butt up to each other and has material, it is sort of in no-man’s land, but we agreed a process of how that could be jointly mined and how you can actually share the product,” says
South32 chief Graham Kerr when asked about the relationship with Jupiter.
In an industry where the combination of adjacent assets tends to create value through scale and efficiencies, consolidation of Tshipi and Mamatwan looks like a no-brainer.
But Mamatwan is the tip of a bigger South32 iceberg in South Africa.
About 40 kilometres north of Tshipi lies South32’s Wessels mine, which extracts a higher margin product containing 43.3 per cent manganese.
That type of high-grade manganese is scarce and prices for it have risen by almost 40 per cent in the three months to March 31.
High-grade manganese has recently been fetching prices that are about 50 per cent higher than prices for the product Jupiter extracts from Tshipi; well above the 10 per cent premium that has traditionally existed.
Smelter left idleHigh-grade manganese will only become more scarce if production at South32’s Groote Eylandt mine in Australia ceases in six years. That appears likely unless South32 can navigate some complex environmental and Indigenous heritage approvals affecting the remainder of the orebody.
South32 and one member of its South African manganese consortium, Anglo-American, also own a manganese alloys smelter in South Africa, which has been idle for nearly two years amid unsuccessful efforts to sell it.
South32 chief executive Graham Kerr told
The Australian Financial Review that if consolidation were to happen in the South African manganese industry, he was unlikely to instigate it.
“There potentially is an opportunity in the Kalahari, whether it is through strategic alliances around rail, there is a lot of infrastructure that could be shared and managed. I am not sure we would see ourselves as the consolidator,” he says.
“Everything is for sale in our portfolio for the right price, but we are not actively pushing that at the moment.”
Wood Mackenzie analyst Teboho Sebetlela also nominated railways as a crucial factor in separating the winners from the losers in South African manganese.
“There is a finite amount of rail capacity available, which is already fully allocated. Any significant growth in exports would therefore need to be accommodated by trucking, which comes at a significantly higher cost,” he says.
“To accommodate the higher cost of trucking at a larger scale, we would need to see incentive prices that are above the current industry cost structure. This is unlikely given the relatively flat outlook for manganese ore demand growth and also taking into consideration the ongoing ramp of low-cost ores in **on.”
Wessels has more than 40 years of mine life ahead of it, and South32 is studying options to invest in more efficient rail loading facilities at the mine.
South32’s assets are not the only South African manganese mines that an acquisitive Jupiter could target, but few others offer such obvious synergies.
Those who have advised on mergers and acquisitions in South Africa say that what looks simple from the outside is often much more complicated.
Minimum ownership levelsIn a jurisdiction where “black empowerment” policies require minimum ownership levels in mining companies for people legally defined as “black”, it remains to be seen whether an ASX-listed company like Jupiter could execute a consolidation play and take full ownership of mineral assets.
But South African courts have recently upheld a legal precedent dubbed “once empowered, always empowered”, which suggests it should be possible for a company like Jupiter to fully acquire South African assets.
The concept effectively means that if black ownership of a mining company falls below the 26 per cent minimum threshold because a black group decides to sell its stake, then the mining company is no longer bound by the threshold.
In other words, if Ntsimbintle sold its stake in the Tshipi mine, the buyer does not need to be another black empowerment group.
Ntsimbintle wears many hats in the South African manganese industry; aside from equity in Jupiter and a stake in Tshipi mine, the group is invested in other mines and owns 9 per cent of South32’s South African manganese mines.
Those stakes give it a big say over the future of the sector and in Jupiter’s destiny.
One of the few other manganese producers on the ASX,
OM Holdings, is also an interested onlooker; OM is a minority investor in the Ntsimbintle company that owns 50.1 per cent of the Tshipi mine.
If all of Jupiter’s planets were to align, the consolidation strategy could allow it to be selling higher volumes of manganese by the time the next rally in the commodity price occurs.
Sebetlela doesn’t see a rally in the price of Jupiter’s 37 per cent manganese ore any time soon, with Chinese customers holding healthy stockpiles of the material at the moment.
High electricity prices are encouraging Chinese consumers to prefer the higher grade manganese ore from Groote and Wessels and supply growth from rival miners in **on is solid.
While the Chinese steel sector still dominates manganese demand, there are signs that manganese could yet be drawn into the battery boom, with the United States government naming it as one of 50 minerals that are “critical” to national security and economic growth.
A processed form of the commodity – manganese sulphate – can be a cheaper substitute for cobalt in the modern lithium-ion batteries that power all sorts of devices, including electric vehicles.
”With the growing prominence of nickel-cobalt-manganese cathodes, the consumption of manganese in modern lithium-ion battery cathode chemistries will shift increasingly towards manganese sulphate, as opposed to electrolytic manganese dioxide,” says Sebetlela.
“Most ore chemistries can be used in the production of battery-grade manganese sulphate, including South African semi-carbonate ore [like that produced at Tshipi].”
Just as BHP built a nickel sulphate plant to pivot its Australian nickel division away from steelmakers and toward the battery-powered future, Winter’s overhaul of Jupiter’s strategy will also consider opportunities to participate in manganese sulphate production.
“At the moment there is a shortage of manganese sulphate producing plants around the world,” he says.
“We have got a really supportive shareholder base for a redirected strategy towards growth and diversification into battery minerals.
“We want to do something that is not just delivering dividends to shareholders. We are energised, we are confident and we are charged with shareholder support to do so.”
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