The Jubilee Metals (LSE:JLP) share price has been on fire over the past year, increasing by nearly 450%! What’s caused this enormous growth? And should I be adding this business to my portfolio?
The rising Jubilee Metals (JLP) share price
Jubilee Metals is a mining exploration company operating within Zambia. The firm used to primarily focus on finding and extracting platinum. But, more recently, its diversified portfolio now includes chrome, copper, and cobalt too.
The rising value of these metals throughout 2020 undoubtedly helped push the JLP share price higher. However, a lot of the growth appears to stem from the anticipation surrounding Project Roan.
After securing the rights to approximately 150m tonnes of copper-rich surface tailings in June last year, Project Roan was announced. The goal is to establish a facility to process and produce more than 25,000 tonnes of copper per year by 2025. Based on today’s market value of copper, that’s worth around $250m. That’s more than five times the revenue generated in 2020 alone.
Needless to say, this is a massive opportunity for the business. And, so far, everything appears to be going according to plan. The first of three construction phases has already been completed, with phase two and three scheduled for completion in Q3 2021 and Q1 2022 respectively.
Meanwhile, its platinum and chrome operations continue to flourish, with both seeing production volumes in the second half of 2020 increasing 34% and 72% respectively.
Seeing the JLP share price explode on this impressive performance isn’t at all surprising. And if it can continue delivering results, I believe the stock can climb even higher.
The risks that lie ahead
As exciting as these developments are, the mining industry is still fraught with risk, especially for smaller operators like Jubilee. One major disadvantage is their lack of pricing power. After all, the value of the metals dug up is driven by market demand, which can be highly cyclical.
This is why metal commodity prices have a habit of fluctuating. Due to lockdowns around the world, many mining sites remain unoperational, or are working at reduced capacity. This lack of supply has ultimately raised the value of metals like copper to their highest point in nearly 10 years.
Obviously, rising commodity prices hugely benefit the JLP share price. However, if the supply becomes over-saturated, these prices can crash just as fast as they went up.
The bottom line
It’s going to be a good number of years before Project Roan reaches its target production levels. And during that time, the value of copper could decline significantly.
But Jubilee already has established facilities processing other precious metals that continues to provide substantial growth. What’s more, even if Project Roan has inflated the JLP share price, the stock is still trading at a reasonable P/E ratio of around 11.6.
So, to me, this looks like it could be a relatively cheap high-growth opportunity for my portfolio, especially since the world is transitioning to renewable technology that requires a lot of the materials Jubilee is digging up.
