Jubilee Metals Group Plc (LON:JLP) CEO Leon Coetzer caught up with DirectorsTalk to discuss the company’s conditional binding offer to divest its South African Chrome and PGM operations for up to US$90 million, and how this aligns with their copper growth strategy in Zambia.
Q1: Leon, could you elaborate on the strategic rationale behind divesting the chrome and PGM operations at this point in time, and how this aligns with Jubilee’s long-term copper growth strategy in Zambia?
A1: Jubilee Metals has always been two companies.
On the one side we have the South African operations that we brought into operation back in 2015 and it’s become quite a mature business. It proved the success of the group being able to target materials and reefs that others had overlooked to establish a significant chrome and PGM operation. The company has grown and become quite stable over the past years.
On the other side we have the copper. Copper has come to a position over the past couple of months now offering great growth opportunities, we’ve been able to address the various challenges in country, and we set to start accelerating our growth within Zambia.
The two businesses are in very different positions. The chrome and PGM business, as large as it is, also would require significant capital to grow that company further. The company, as it is, is built as a processing entity and therefore the growth opportunities for that now is towards investing into its own mines, which will come with quite a large capital ticket. While on the other side we have our Zambian operations where the capital investment is quite light and the return on the capital it offers for this investment is significantly higher. Unless we felt it’s an opportune timing on the one hand to be able, with this offer, to receive a significant cash injection and investment that we could direct towards a far higher return offering in our copper business.
The offer itself as well, it comes in at a time when it offers quite a significant multiple on our earnings for South Africa so it’s something that we’ve really considered quite carefully.
Q2: Could you share more detail on the structure and the timeline of the proposed US $90 million consideration, including what proportion is expected upfront and how the deferred payments are structured?
A2: Much of this detail will be, of course, given to our shareholders quite shortly through a detailed circular note. Not only going into the detail of the structure of US$90 million, as well as what remains in the company because it’s important to note that we retain still some of our South African assets, we retain still an exposure to PGMs.
PGMs is one of those industries that, for the past year, has been quite flat. A lot of speculation on what the future for PGMs might hold but we’re retaining an exposure in PGMs. So, the circular we’ll be bringing out to shareholders in the coming weeks will set that out in great, great detail for them to understand what is it that is being sold and equally, what is being retained and how does the company therefore look going forward, mainly focusing on its copper business to accelerate those implementations of that strategy.
Q3: Now, you mentioned a review of the dividend policy. Should shareholders interpret this as a signal that capital returns are likely in the near term?
A3: Well, it’s something we’ve definitely have brought forward on our timelines, because if this transaction is to be completed, it does mean that there’s a significant release of cash into the group with a relatively light capital burden to deliver our copper strategy over the coming months.
So, it definitely does offer a potential that it brings forward the likelihood of dividends or being in the position to release dividends back to our shareholders.
Q4: What safeguards or performance guarantees are in place during the conditional period of the binding offer to ensure Jubilee Metals’ interests are protected if the deal doesn’t proceed to finalisation?
A4: Very good question, very much so. This deal comes with the traditional breaking clauses, it’s reciprocal. So, with that offer that’s been received, if we take that offer forward, now shareholders take that offer forward, it comes with a very strong binding reciprocal break fees and clauses to ensure the seriousness of this offer. We have appointed our corporate financing advisory teams who will now be driving this forward, and the agreements will contain a typical protection for Jubilee to ensure performance under such agreements.
