Pedra Branca economics look attractive as Jangada Mines share price forms base

Jangada Mines (LSE:JAN) recently announced a 32% reduction in the projected overall CAPEX costs for its flagship Pedra Branca asset. Economics for the project are looking increasingly compelling, particularly against the current climate of lower commodity prices. However, Jangada’s share price is still hovering around all-time lows, with a current Market Cap of just £4.54m. General market conditions have not been favourable with stocks suffering lower liquidity on AIM. Is it time to take a contrarian view with resource stocks on the junior market, and if so, is Jangada perfectly poised for share price recovery?

The Pedra Branca project covers around 48,000 hectares and includes 3 mining licenses covering 52% of the current resource with 42 exploration licenses.  Fundamentally, the project looks very attractive with the company stating a Net Present Value (NPV) of US$192 million and an estimated average annual production of 64,000 ounces of PGM+Au.

With the recent CAPEX reduction, the payback time on investment is very impressive being achievable in just 1.57 years based on today’s Platinum price of $850, and the following figures.

The processing plant is now forecast to cost $33,800,000 having previously been estimated at US$64.9 million.  The company states OPEX is expected to be $17.32/t on processing 2.2m tonne of ore per annum which equates to $38,082,000 annually. Add in a provision for CAPEX and working Capital of $9,600,000 and the estimated expenditure for year one comes in at $81,482,000.

At today’s platinum price of $850, forecast production of 64,000 ounces of PGM+AU would generate a rough ballpark figure for revenue of $51,850,000. That’s a conservative calculation since Spot Palladium and Gold are priced higher at $1150, and $1225 respectively.

With the commodities sector very much in the doldrums at the moment, these economics could further improve if and when spot prices recover.

In October, Jangada also announced that it has identified significant nickel and copper sulphide anomalies at Pedra Branca further adding to the project’s potential.

Technical Analysis

A look at the daily chart reveals Jangada’s share price has been consolidating around 2.4-2.5p. The stock is near all-time lows but appears to have found a support line formed from previous lows.  This constitutes the bottom of a clear price channel and on reversal, a reasonable first target would be a retest of the top of this channel at around 3.8p.

There are some diagonal lines of minor resistance (dotted) to be encountered en route in addition to the bottom of the previous trend channel (thin black lines). The Relative Strength Index (RSI) is also indicating that the stock is consolidating with a view to reversing the current downward trend.

There is plenty of expected news flow to come over the next few months as Jangada prepares its Bankable Feasibility Study (BFS) and its worth noting that directors aligned their interest with shareholders by participating in the recent fundraise at 3p – Brian McMaster and Luis Azevedo both investing £50,000 each.

Author: Stuart Langelaan

Disclosure: The author of this piece owns shares in the company written about above

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