Australia | Aug 24 2006
By Greg Peel
What can you say about the price of nickel? Up 45% this year alone. And with prices like that, it’s little surprise a prominent nickel miner can pull off a good result. But Jubilee Mines (JBM) did still manage to surprise brokers.
Jubilee is only covered by only three brokers in the FN Arena database. Macquarie and GSJB Were already had Buy ratings, and SB Citigroup does now.
Jubliee reported a profit (before exceptions) of $125.6m compared to Citi’s forecast of $85m. The analysts must have fallen off their chairs. Consensus was a little more optimistic at $100m.
Adjusting for an exploration cost write-off, the figure was $103.3m. This figure was 3% above Macquarie’s estimate and 12% above Weres’. The bulk of the additional profit came from $35m in provisional pricing, as well as lower costs, which is a remarkable achievement in the current climate.
Jubilee provided further cause for surprise when it unveiled an ambitious production program that sees 9kt of nickel produced in FY07, 12kt in FY08, 16kt in FY09-10 and 20kt in FY011-14. Most of this nickel will come from the Prospero mine. The FY07 forecast is, however, a downgrade from what was originally expected.
As a result of the initial downgrade, Macquarie has reduced earnings forecasts by 11% in FY07 and 9% in FY08. The analysts suggest this does nothing to change their view – Jubilee is their preferred nickel exposure and earnings need to be considered into the distance rather than just next year. Valuation is stretched, they say, but this is easily offset by expected exploration success.
Macquarie retains Outperform and a target price of $10.00.
Weres retains on Outperform in the short term, but warns there is little room for disappointment. The analysts suggest the price of nickel will offset the FY07 downgrades. In the long term Weres is sticking to Hold, but this could easily change with exploration success and the analysts are being more conservative than management on current production forecasts. Weres doesn’t set targets.
Citi has straight up raised earnings forecasts by 2% in FY07 (they were obviously on the low side to begin with), 27% in FY08 and 23% in FY09. The target price rises from $8.79 to $10.75 and the rating from Hold to Buy.
Jubilee closed yesterday at $9.03.