Each week I’ll be picking a random ASX stock that I’ve (personally, yes I’m aware it may have been covered at some point in history) rarely seen discussed online – and that I do NOT hold – that you voted for, for us to dive into for some Due Diligence (“DD”).
This is for us to have a look at what it does, comb over their financials, and conduct some polling on general sentiment. Not all of these stocks may be sexy or appealing; the whole point is to shine a light on what companies are doing out there on the ASX which never get much coverage – for good or bad.
The main purpose being to add some more variety in coverage to the standard blue chips or meme stocks we see pumped day in and day out, and hopefully discover some hidden gems or innovative companies on the Aussie market.
Here’s this week’s Random Stock of the Week.
Company name: Jupiter Mines Limited
Ticker: JMS
Industry: Mining
Headquarters: Perth, WA
Market cap: $450m
Current share price: $0.23
P/E ratio: ~7
1-year Performance: -21.20%
What they do, smoothbrain version: force poor South Africans to mine iron ore’s ugly cousin out of the ground in order to pay the fatcat board and shareholders phat dividends
What they say they do, wanky version: “Jupiter is an Australian registered public company listed on the Australian Securities Exchange (“ASX”) which has as its main asset a 49.9% beneficial interest in Tshipi é Ntle, an independently operated and managed, black empowered manganese mining company.” 🍆👋
What they do, actual version: Jupiter Mines Limited (JMS) are a Perth-based Australian mining company whose main asset is their ownership stake in the South African Tshipi manganese mine.
Located in the Kalahari in the Northern Cape region of South Africa, the mine is the 3rd-largest of its kind in the world. It’s an open-pit mine with a shallow resource, making for a relatively low-cost mining operation with an easily accessible mineral product as its focus: manganese.
Manganese ore is primarily used in the production of carbon steel in order to increase its strength and flexibility; the ore is reduced in a blast furnace to create ferromanganese, which is then used for making steel itself.
The Tshipi mine is a pretty consistent and predictable operation in terms of production volumes; with some minor fluctuations year-to-year, an average of around 3.3 million tons of manganese ore are extracted on a yearly basis.
It’s an extensive resource, with an estimated up-to-100 years of mine life left and is connected via an efficient transport network with its own rail loop, making it one of the industry’s fastest and most efficient loading stations.
Being a single-commodity producer – the company recently divested itself of previously-held iron ore assets, and is now the only pure-play manganese producer on the ASX – the spot price of manganese ore is obviously the driving factor of the company’s profitability.
While the company’s mine’s volumes are high, South African manganese (including JMS’) tends to be lower grade (37%), and so can be one of the first to suffer when tighter regulations around the control/use of high-purity manganese are prioritized.
Other factors, such as the costs of logistics/freight, weather issues, and the occasional spot of civil unrest (hello, South Africa!) can all eat into margins to varying degrees from one year to the next.
The majority of JMS’ clients are in Asia (primarily China), with a diverse range of customers and not overly reliant on any single one for revenue. However, the commodity is still highly subject to macro Chinese demand, which has had a direct impact on the last years’ worth of consumption.
As a result, the price of manganese has been fairly flat / on a middling trend since tailing off after a price spike in mid-2020:
JMS was founded as a company back in 2003, but listed on the ASX in 2018. It has generated a total return of -1.19% p.a (including dividends) since it listed.
What looks good:
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Its low cost of production, resource accessibility, and scalability make JMS able to respond pretty well to macro-economic conditions and demand spikes/lulls for its commodity while still maintaining profitability.
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This flexibility results from their ability to quickly either scale up or back their production volumes as needed, as well as adjust their ratios of ore transported by rail vs. road to keep a control on costs.
- Since its inception on the ASX, the company has been a massive dividend payer. One of the initial key directives/selling points of the company was returning value directly to shareholders, and the company certainly has done that:
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Even in a relative ‘down year’ for their commodity, the company was still highly profitable, paying out a 10%+ dividend yield and allowing it to keep a robust balance sheet with millions of dollars in the bank.
- The Tshipi mine is located in a region far away from where most of the social turmoil/civil unrest that has occurred in South Africa in recent years, meaning minimal disruptions to the company’s operations outside of some minor port-unloading disruptions that were fairly immaterial to its overall earnings in 2020-2021.
- Its (previous; we’ll cover this more below) CEO was a large holder and frequent buyer of company shares, and influenced the company to retain its large dividend payouts.
- Consistency is a key theme in terms of its production volumes. While they do fluctuate some, the company can be counted on to pump out relatively stable volumes of ore, with the macro price of the product its main influencer rather than the company’s operations themselves.
- Global consumption/demand for Manganese has fairly been consistent in trending up over the last 10 years, albeit not rapidly so. This is by no means a “boom” metal/element along the lines of lithium with sudden consumption/demand spikes; however as a ‘construction’ metal, it trends up with global growth over the long term, and is also a component in certain types of battery chemical formulae which may be a future tailwind.
- The company management have dropped hints they are considering spending some of their war chest to acquire assets that will allow them to diversify into the EV supply chain in the near future.
- They have zero debt on the balance sheet, and a pretty significant/valuable asset to go with it.
- Price to book value of its assets looks cheap, especially compared to some of its other smaller market cap peers in the ASX mining sector.
- Similar to iron ore, manganese may be set for a rebound in 2022 as China looks to pick back up its levels of steel production post-Olympics and once its real estate industry potentially re-stablises.
What doesn’t look good:
- Declining revenue and profit figures since its original listing, with a share price which has largely followed the same downward trend.
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JMS are a single commodity producer so your faith in its growth prospects, outside of management decisions, will largely depend on any catalysts for the ore itself. As a result, it is both at the whim of the general commodity cycle and not fully in control of its own destiny.
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Covid-19 has had a fairly substantial impact on the company’s operations, with its effects resulting in reduced production and revenues due to a lack of driver & machinery operator availability.
- Global freight and shipping costs globally having blown out over the previous financial year have eaten into profits, as the price of shipping ore to China coupled with delays have impacted the bottom line.
- The lower grade of their ores makes potentially “the first domino” to fall when demand declines/standards tighten.
- The dividends the company pays are not franked… hello, tax.
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2021 was a bad year for inclement weather occurrences, with an above-average rate of days of extraction and operations lost due to rainfall and other climate issues. Was this a fluke, or will climate change continue to play a role in the coming years?
- The company has been “spinning its wheels”, content to maintain operations and production levels without any concrete roadmap for expansion or growth.
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Their website looks amateur-hour for a nearly $500m market cap company (a pet peeve of mine, sue me… actually, don’t sue me #NFA #GLTAH).
- The company’s logo looks like twin eggs that have been impregnated which are being hunted by the Predator.
However, in addition to all of the above points, by far the largest issue/source of controversy – and determining factor in its success moving forward – for JMS has been issues with management.
After several years’ worth of long-term criticism of previous board members’ behaviour, a recent shareholder vote in late 2021 led to a board spill in which shareholders overwhelmingly voted in members of a new executive team.
This criticism of previous board members included over-compensating themselves monetarily, under-promoting the company, and a general lack of direction or clear growth plans expressed to shareholders.
This included the CEO, with the search for a replacement CEO commencing immediately thereafter (and the position still not yet filled at time of writing).
Pending this new hire, this is currently a company that is fairly in “limbo”, and one without ether a solidified growth plan nor clarity on whether its expected high yield of dividends will continue to be paid moving forward.
Summary:
This is a company that could go either way share price-wise in the near future, almost entirely depending on who the CEO their management team hires turns out to be, and how the company decides to re-deploy its profits after the fact.
The potential fear may be that once the new executive team are in place, the company then uses its cash to rush in to an ill-thought-out acquisition that destroys its consistent profitability (and big dividend, one of its main appeals) moving forward.
However, should they choose wisely – such as pushing to take a higher pecentage ownership of Tshipi – JMS will then have a growth story to push to potential shareholders, and may finally regain some positive sentiment.
On a fundamental level, this is a company that still looks undervalued share price-wise based on its cash, profitability and assets.
On a fundamental level, this is a company that still looks undervalued share price-wise based on its combination of cash, profitability and assets, but investors typically want to see growth – and actual outlined steps to reach that growth – rather than just maintaining the status quo.
Despite this, the stock still seems slightly under-covered given what it’s producing.
There’s something of a parallel here that could be made with ASX iron ore miner Grange Resources (ASX:GRR), in that it’s printing quite a lot of money, has management who are fairly disengaged/content to just keep business as usual, and is a pure-play miner with dividends as one of its main selling points for investors.
As an investment, even if JMS weren’t to do anything radically new and just proceed business-as-usual, you could theoretically still buy in, collect a chunky (although un-franked) dividend, and hope for the price of manganese to have a good ‘rebound’ year or two/China to ramp things up.
There’s no real reason to see the share price sinking much further from what is a relatively low floor at the moment, and demand for its ore will still persist on some level. Research houses have given predictions for a CAGR of over 4.0% between 2021 and 2026 for manganese ore as a commodity, and that’s without any additional developments in battery tech of which manganese may be a core component.
Conclusion: Based on the above, I personally see this as having solid fundamentals but being pretty stagnant otherwise.
It’s consistently profitable, has plenty of life left, and is coming off a down period that is no real fault of the company’s own product or its operations to blame.
This could also quickly become a ‘strong buy’ should they get their CEO hire right, and the current executive team embrace a more transparent communication policy with its shareholders.
It largely comes down to opportunity cost, and how bullish you are on manganese as a commodity vs. all the other available commodity+management combinations out there on the ASX.
Is it worth parking your money in JMS instead of a different, solid company who focus on a commodity such as nickel, copper, etc. which have a more favourable near-term trend, and global macro tailwinds? That remains to be seen.
Company website: https://www.jupitermines.com/
MarketIndex page: https://www.marketindex.com.au/asx/jms
Feel free to add your own opinions on JMS in the comments below.
Would you buy this stock? Why or why not? Feel free to vote in the poll.
