Jangada – An overlooked opportunity #JAN

Jangada – An overlooked opportunity #JAN

Jangada Mines (JAN) is focused on developing the Pedra Branca project in North-Eastern Brazil. This project is primarily palladium and gold with additional credits from nickel, copper and cobalt, and is nearing completion of a bankable feasibility study. Due to the Chairman’s loss of reputation and a botched placing, I believe positive developments have been overlooked (latest share price 2.2p ask, market cap £5.2 million).

(source: Google)

Preliminary Economic Assessment (18th June 2018)

The PEA showed an NPV of $192 million with IRR 67% and $64.4 million capex requirement.

Primarily a palladium project, the palladium price has risen by over 25% since the assessment:

(source: gold.co.uk)

How not to build a reputation or do a placing

Executive Chairman Brian McMaster stated that the company would not raise below the IPO price (5p) around eight minutes into this interview. He also stated that he’s told people in the past that he would fund the project personally, rather than let that happen.

He then lost a lot of credibility when Jangada placed at a 40% discount to the IPO price at 3p.

To make matters worse, Mr. McMaster attempted to explain his lack of funding by claiming that because he was a large holder in Jangade he would’ve gone over a 30% shareholding (around 2 minutes 30 seconds). This would’ve meant he’d be forced to make an offer for the entire company at the highest paid in the past 12 months as per the takeover rules.

Despite Mr. McMaster’s concern about going over a 30% shareholding, he elected not to maintain his near 30% shareholding and instead has been diluted down to about 20%. If he really wanted to fund the company he would’ve maintained his shareholding and could even have offered the company a 0% directors loan. He is an accountant and I find it difficult to believe that he knew of no way to fund the company.

At least the minerals processing firm accepted shares in lieu of payment for its work and Jangada managed to issue a 12 month unsecured loan note – not bad for a pre-revenue company!

Investment thesis

Many investors have blackballed Brian and Jangada due to the placing debacle. But the following positive events have occurred subsequently:

32% reduction in CAPEX (12th November 2018)

Overall CAPEX estimate reduced to $43.9 million.

117% increase in JORC Resource (28th January 2019)

This should significantly increase the NPV and allow the company to explore larger production scenarios.

BFS nearing completion (8th April 2019)

(source: London Stock Exchange)

Pedra Branca already had compelling economics before the palladium price went up (NPV/IRR improved), the resource was increased (NPV improved) and CAPEX was reduced (NPV/IRR improved).

Given all of these factors, I believe that Jangada’s BFS figures are going to be enviable. The amount of financing required at sub $50 million in CAPEX with a fast payback is one of the more attractive projects I’ve seen. As with most resource stocks the strength of the balance sheet is always a concern but for a price tag of £5 million in terms of market cap I think you can do a lot worse in the resource sector.

 

At the time of publication the author holds a long position in JAN.

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