“This is the single biggest mine in South Africa,” says Priyank Thapliyal of Jupiter Mines LTD (ASX:JMS). “Whichever way you slice and dice it it’s been a great success.”
Certainly, there’s no arguing with the production figures at the Tshipi manganese mine in Northern Cape Province, which is part-owned by Jupiter.
This year, says Thapliyal, production is likely to hit 3.5mln tonnes, around 40-50% higher than was envisaged in the feasibility study. Costs are lower than predicted too, resulting in some chunky cashflow and, what’s more notable, a very sizeable dividend.
Indeed, with the current yield running at around 20%, it’s hard not to do a double take.
Something’s up here, surely? Perhaps the shares are discounted because of some bad news the yield has not yet caught up with?
But no. It is the market that hasn’t caught up, wrong-footed by the outlandish size of the yield, and cautious about the short track record as a listed entity that Jupiter has behind it.
There’s also the question of liquidity. Not many shares actually change hands on the public markets, as some of the original cornerstone investors remain locked in after the A$240mln IPO in Australia last year.
At the time, Thapliyal notes, raising the money to list was pretty easy.
The quality of the project, he says, spoke for itself. After all, although the listing is new, the operation isn’t. The Tshipi mine shipped its first ore in 2012, and has gone on to break production record after production record, such that in the last three years Jupiter has been able to hand back a whopping A$300mln to shareholders.
All this meant that when Thapliyal was seeking institutional investment, the fund managers were only too keen to get on board. At the time of listing, around A$215mln of the market capitalisation was accounted for by institutional investors, with just A$25mln available as free float.
That strong institutional endorsement is backed up by the support of some mining heavy hitters on the board too. Brian Gilbertson, famously the ex-chief executive of BHP Billiton, as it then was, is chairman. Another director is Yeongjin Heo, the head of POSCO Australia, which holds a significant stake in Jupiter. And Andrew Bell, of Red Rock Resources PLC (LON:RRR) and African Battery Metals PLC (LON:ABM), also holds a seat on the board.
It’s an experienced team, running a company on a lean basis, with the focus on generating returns for shareholders.
Still, with all that institutional interest, it is hard for retail to get a look in, and the paradox may well be that because the yield is so good, no one is hitting the offer button, which means the shares aren’t really trading that much.
“The liquidity is very low,” concedes Thapliyal. “There are 2bn shares, but only a few million get traded. The stock is very sticky. Once investors buy in they tend to put it in their bottom drawer.”
So, for interested parties it’s a question of getting in where and when you can.
There’s little doubt of the opportunity that’s on offer. South Africa is one of the world’s great mining destinations, and the Tshipi mine is fully compliant with all the relevant empowerment legislations.
What’s the operation itself is very simple.
“We drill and blast, shovel the ore into a truck and take it to Port Elizabeth,” says Thapliyal.
“There’s no blending, there’s no beneficiation.”
All of which means that the margin on offer is substantial and the returns for shareholders significant. For the full year to 28 February 2019 Jupiter shareholders are in line for an A$147mln payout, following an A$82mln payout for full year 2018.
The cash should keep on coming too. For one thing, Tshipi has a 100 year mine life, so there’ll be no stopping it on that score.
But for another, the outlook for manganese is good.
“Manganese is a play on steel,” says Thapliyal.
“Every tonne of steel requires manganese, it can’t be substituted. And the amount of manganese that’s legally required in Chinese rebar has just been raised.”
Meanwhile, major sources of manganese production from South32 are likely to cease operating within the next ten years, giving a strong underpinning to the mid-to-long-term price.