100 years of resource: Why this little-known ASX mining share has my attention

After stumbling upon this quiet little mining company, I had to take a closer look.

| More on:
A male investor sits at his desk looking at his laptop screen holding his hand to his chin pondering whether to buy Macquarie shares

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

I'll be the first to admit, researching ASX mining shares is not my strong suit. The world of assays and resource estimates sits far outside my circle of competence.

Though, I still sometimes find opportunities in the industry and size my investment (mindful of my minimal knowledge) accordingly. This approach has served well, leading to rewarding holdings in Albemarle Corporation (NYSE: ALB) and Lynas Rare Earths Ltd (ASX: LYC) in the last few years.

This week, another mining company has sprung onto my list, catching my eye in a similar fashion to those that have come before it.

Which ASX mining share am I watching?

I recently stumbled upon a small manganese miner during my routine sifting through ASX companies.

For the uninitiated, manganese is a metal predominantly used as an alloy in steel to improve its material properties. More recently, the metal has found demand in its application within electric battery cathodes.

Standing at a market capitalisation of $421 million, Jupiter Mines Ltd (ASX: JMS) is not an ASX mining share that is discussed all too often. Although, the reality is the number of mentions in the media holds little correlation to the likelihood of wonderful returns.

Instead, there are a few fundamental reasons why I think Jupiter Mines could be a stealthy opportunity.

What makes it appealing?

There are two facets to consider when assessing Jupiter Mines: industry-wide (top-down) and company-specific (bottom-up). Let's first take a look at the top-down considerations, before diving into the nitty-gritty of this manganese miner.

Top-down

The overarching story here, in my view, is the market may not be factoring in the potential for a prolonged manganese shortfall.

Currently, more than 90% of manganese demand is driven by steelmaking, which is expected to weaken in conjunction with slowing economies. However, continued appetite for electric vehicles could actually end up outstripping supply — supporting, if not increasing, manganese prices.

Earlier this year, some industry participants warned that high-purity manganese supply could fall into deficit by 2024.

At present, manganese is used in small quantities to stabilise the cathode in lithium-ion batteries. But, what happens if Tesla Inc (NASDAQ: TSLA) and others decide to use more manganese to reduce the amount of cobalt?

Even without this, the incredible growth forecast for EVs and battery storage could drive much higher prices for the lesser-known metal.

Source: Manganese ore price, Trading Economics

Yet, manganese prices have mostly traded sideways, as shown above, while the likes of lithium and rare earths have boomed. This leads me to believe that the supply and demand imbalance has not materialised to date, likely failing to incentivise new projects.

Bottom-up

Now comes the hard, but important, question: why pick Jupiter Mines of all the ASX manganese mining shares?

Jupiter Mines owns a 49.9% interest in the Tshipi open-pit manganese mine in South Africa — which is located adjacent to South32 Ltd's (ASX: S32) Mamatwan mine. Both are placed in the Kalahari Manganese Fields, believed to be the largest manganese-bearing formation in the world.

Tshipi, itself, has a strong track record of delivering on its goal of producing 3 to 3.6 million tonnes per annum (mtpa) of manganese ore. Additionally, the mine has been able to meet this target while maintaining a low cost of production.

Though, what I find most appealing is Jupiter Mines' price-to-earnings (P/E) ratio of 5.4 times. Meanwhile, the Tshipi mine is estimated to still have more than 100 years of mineable resource remaining.

Hypothetically — assuming earnings remain flat, and Jupiter Mines is able to maintain a payout ratio of around 60% — in approximately nine years I will have made back in dividends what I originally invested. The following decades — assuming resource estimates are correct — would be pure profits on my investment.

Next move

Don't get me wrong, there are still plenty of risks. For instance, Jupiter Mines is completely reliant on the price of manganese. Whereas other ASX mining shares, such as South32, are diversified across several metals. Similarly, the company has all its eggs in one basket geographically.

Moreover, there are other, more established mining companies trading on similar earnings at the moment. For example, South32 is also trading at 5.3 times last year's earnings. Likewise, iron ore behemoth Fortescue Metals Group Ltd (ASX: FMG) is perched at 7.4 times earnings.

Nevertheless, I personally think Jupiter Mines is an interesting proposition given the combination of manganese demand, a low earnings multiple, and an extremely large resource. At the least, I think it could find its way onto South32's acquisition shortlist at a substantial premium to today's price.

In the meantime, I will be running the ruler over this ASX mining share again to ensure I haven't overlooked any dealbreakers.

Motley Fool contributor Mitchell Lawler has positions in Albemarle, Lynas Rare Earths, and Tesla. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Tesla. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Opinions

A man reacts with surprise when her see a bargain price on his phone.
Opinions

2 ASX shares to watch while they're still dirt cheap

I’m bullish about these two stocks.

Read more »

two computer geeks sit across from each other with their laptop computers touching as they look confused and confounded by what they are seeing on their screens.
Technology Shares

'Signs of rotation' from ASX tech shares to value stocks and cyclicals: expert

Tech shares shone brightly in FY24 but will this trend continue in FY25?

Read more »

Modern accountant woman in a light business suit in modern green office with documents and laptop.
Opinions

Are Goodman or NAB shares a better buy?

Both of these blue chips have been excellent in 2024. Which is the better buy?

Read more »

Young people shopping in mall and having fun.
Opinions

1 ASX dividend share down 31% to buy right now

This dividend stock is very compelling to me.

Read more »

A smiling woman sips coffee at a cafe ready to learn about ASX investing concepts.
Opinions

How I'd invest $10,000 in ASX shares right now

I’m bullish about the prospects of these stocks.

Read more »

A woman looks quizzical while looking at a dollar sign in the air.
Technology Shares

Are DroneShield shares still fundamentally expensive now?

DroneShield shares still look expensive, but the growth is there...

Read more »

Man smiling at a laptop because of a rising share price.
Dividend Investing

One ASX dividend machine I'd buy over Fortescue shares right now

When it comes to dividends, growth can be better than a high yield.

Read more »

A young man sits at his desk working on his laptop with a big smile on his face due to his ASX shares going up and in particular the Computershare share price
Opinions

Why I'm still super excited about Guzman y Gomez shares

GYG is an exciting prospect in my opinion.

Read more »