Ann: Jaguar Project Heavy Media Plant , page-12

Latest Euroz research on JML

Analyst: Andrew Clayton Published 29 September 2010
Jabiru Metals Ltd (JML $0.45) Buy
�� Price Target: $0.65/sh
�� Reason For Update: Plant expansion
�� What we know:
JML has began a scoping study into expanding the plant throughput by 50% to 560kt
pa. The expansion would occur in two stages; in 2011 from 365kt pa to 450kt pa and in
2012 from 450kt pa to 560kt pa.
The expansion in 2011 only requires the construction of the HMS plant which allows
the removal of the barren and high grinding cost waste material from the feed (which
is committed too) whilst the expansion in 2012 will required additional milling capacity,
upgraded power supply and additional fl otation capacity.
The initial upgrade is designed to coincide with the early Bentley massive sulphide and
stringer ore production and the integration of the HMS plant in late 2011.
JML is confi dent that reserves will be maintained at the 7-8yrs life despite the increased
throughput with additions likely at Bentley Phase 3 (deeper Bentley mineralisation that
is yet to be classifi ed as a resource) and potential new discoveries over the now 50km of
prospective strike.
The scoping study should be completed in early CY?11 with a BFS by mid CY?11.
�� What we think:
The potential to expand the plant is now possible with a current mine life of at least 8 yrs
and would be a signifi cant value adding initiative by reducing unit costs and improving
the production profi le.
We estimate the expansion will cost in the range of $12-15m for Stage 2, Stage 1 is already
captured in the $10m capital to build the HMS plant.
The expansion would see zinc production double over the next two years from ~ 20kt
to 41kt in FY?13 and allow copper production to remain steady at ~ 10-11kt pa. This is
despite the lower copper grades at Bentley versus Jaguar.
Operating costs would be sub zero after copper credits on the expanded production
scenario.
�� Investment Case:
We have assumed the expansion will go ahead and estimate capex of $13m. The net
effect is our valuation has increased from $0.55/sh to $0.63/sh despite reducing the
mine life from 8 to 7 yrs.
We forecast zinc production doubling over the next two years and NPAT increasing
from $35m to $48m over the same period which at current prices puts it on a FY?13 PER
multiple of ~5.3x.
JML is in the best shape of its operating life with at least 8 yrs reserves, EBITDA of $55m
increasing to $80m over the next two years, cash of $49m and no debt. It is a well managed
company that offers both exploration and organic growth and trades on an FY?13 EV/
EBITDA of <2x which is too cheap for a company with a minimum of 6-7 yrs mine life.