J#27 - FLASH UPDATE: Latest stock exchange announcements on Jupiter Mines signal HOLD and even BUY MORE

I was getting ready to publish and conclude our tobacco analysis series when news from Jupiter Mines came in which got me writing this quick and important update for my Double Digit Dividend readers.

J27 Jupiter Mines - BUY

Announcement 1. JMS Chairman Brian Gilbertson’s Increases His Investment In Jupiter Mines – YET AGAIN

On 9 November 2020, the Chairman of Jupiter Mines purchased another AUD 2.7 million dollars worth of shares (11,483,226 shares to be exact) at on-market prices.  This is Gilbertson’s second large individual purchase in recent months.  His first purchase, which I also commented on in journal (J#12), was 10 million shares on 24th July 2020 for AUD 2.9 million dollars.

Gilbertson’s purchase is a positive for Jupiter Mines and further supports our buy recommendation.  Whenever a Chairman invests his own money, it shows how confident he is about the future of the company.  It also strengthens the alignment of his interests with those of other shareholders.  

The announcement  on the Australian Securities Exchange (‘ASX’) can be read here.

Announcement 2. Intention to Demerge Jupiter Mine’s Iron Ore Assets

On 28 October 2020, Jupiter Mines announced to the ASX that their Board of Directors approved the demerger of its Central Yilgran Iron Ore (‘CYIP’) assets and for those assets to be held by a newly-listed company on the ASX.

The demerger will be achieved via a distribution of shares of this newly-listed company in specie to Jupiter Mines’ shareholders, in proportion to their existing shareholding in Jupiter Mines.

This is not new news. This was reported on page 13 of my 21 July 2020 Special Report, “Jumping Jupiter! – A 17% Yield” where I mentioned that Jupiter Mines was in studies to demerge its iron ore assets through an Initial Public Offering.  The demerger and distribution of shares in the new company is, effectively, a “free” investment ride for you.  We were willing to recommend buying Jupiter Mines up to AUD 0.35.  Based on this price, it would have resulted in a trailing yield of 13.6%.  The stock price at the time of our report (and the price now) had baked in the prospect of the demerger.

With Jupiter Mines’ 28 October 2020 announcement, we are one step closer to realising, as shareholders, a new asset that we are able to sell via the ASX and to crystalise a capital gain.  It is effectively a capital distribution. I don’t expect the price of JMS to adjust down materially once it trades ex the spin-off.

Jupiter Mines’ announcement of the demerger of its CYIP assets can be read here.

Jupiter Mines’ share price has not changed materially since my 21 July report.  Reproduced below a is a 6-month chart of the stock price and the prices’ simple moving average.  The stock has been relatively range bound with the prices’ moving average of AUD 0.24 to AUD 0.27 (see the black line on the chart).  At the time of writing, Jupiter’s closing price as at 10 November is AUD 0.27.  Jupiter Mines, remains a buy and its current price represents a good entry point for you to participate in the capital distribution of the CYIP project.

In addition to receiving your iron ore spin-off shares in-specie, you will be also be offered an opportunity to purchase further shares in the newly listed company.  We will comment on this when details become available.

JMS 6-month chart
Source: Marketwatch

Announcement 3 and 4. Half-Yearly Financial Results & Dividend Declaration

Jupiter Mines announced their half-yearly financial report (for the period ended 31 August 2020) and declared a dividend of AUD 0.01 per ordinary share.  Their announcements can be read here (financial report) and here (dividend declaration).

Jupiter Mines was not immune to the COVID-19 pandemic, and reported declines in sales and revenues. However, the company still managed to be in the black, as you will see in the breakdown below.

Manganese ore sales in six months, as measured by tonnage, fell on a year-on-year basis by 29% to 1.22 metric tonnes from 1.73 metric tonnes in the same period last year.  The drop in ore sales were as a result of the Tshipi mine and the South African rail transport network being locked down due to the pandemic.

Global manganese prices also fell by 15% on a year-on-year basis from an average US$ 4.97 per dry metric tonne (‘dtmu’) to US$ 4.20 per dtmu.  The combined drop in sales and prices resulted in revenue being down 48% for the six months on a year-on-year comparison basis and net profits, were down 57% on the same basis.

JMS FY 2019-2021 breakdown
Source: Jupiter Mines, 28 October 2020 ASX announcement.

Note, Jupiter Mines has a 28 February financial year end, hence we are in the presently in FY2021.

JMS results of announcement
Source: Jupiter Mines, 31 August 2020 Half Year Financial Report.

Based on the closing share price as at 10 November 2020, the trailing yield results in a yield of 6.5%.  There is a significant reduction from the prior year’s dividend per share payments (from 6.5 cents to 1.8 cents per share).  Trailing dividend yields corresponding dropped from 24.1% to 6.5% as shown in the following table:

JMS dividend breakdown

Has the drop in ore shipments, revenues and dividend pay-out changed our investment thesis and our “buy” recommendation?  The answer is no.

There have been NO structural changes to Jupiter Mines’ business model or operations.  The pandemic is a once-off external event.  It shall abate and business will normalise once again.  There is NO reason to sell or change our buy recommendation.  In my view, Brian Gilbertson’s addition to his existing shareholding in the company, together with the upcoming capital distribution from the demerger of the CYIP assets are reasons to keep or build on your holdings in Jupiter Mines.

Journal 11 – “Boosting your investment results with the right exit strategy” provides further commentary on our exit strategy/policy for all our holdings and recommendations.  Our approach to Jupiter Mines is consistent with our exit strategy and policy.

Moving forward, I am confident that Jupiter Mines’ dividend yield could easily go back well into the double digits.

To reiterate, the rationale for our decision and approach in our Special Report:

2020/2021 – Dividend Sustainability:

Is the dividend of 17.0% sustainable for the current financial year ending 28 February 2021? 

The short answer is we do not know for certain.  What is likely is you will receive a double digit dividend and that meets our Double Digit Dividends investment mandate.   Let me explain.

  • We use a trailing dividend yield.  That is, we use last year’s dividend per share to form our basis of what would be this year’s dividend yield based on the purchase price if you bought Jupiter Mines at today’s prices. 
  • We do not use a forward dividend yield, that is, a forecast of what would be “our best guess” of a dividend per share value. Forecasts are fraught with uncertain  assumptions, especially with the Covid interruptions to operations.
  • Buying at today’s price offers a discount to reflect the uncertainty of production caused by the Covid pandemic.  There is plenty of downside protection with a 17.0% current trailing yield by buying now.  Don’t forget our strategy to buy and hold over multiple years.  If a lower double-digit yield is paid in 2021, when the markets “normalize”, a 17.0% yield is easily achievable.

I reaffirm my recommendation to BUY/HOLD Jupiter Mines up to AUD 0.35 per share.  It is currently trading around AUD 0.28.  With a daily turnover of around AUD 1 million dollars, there is no reason for you to bid-up the price materially from its current price should you decide to buy or increase your holdings in Jupiter Mines. 

Until my next journal, happy investing.