The stock of Zimplats Holdings (ASX: ZIM) has increased by a significant 17 percent in the last three months alone. Since of the company’s strong success, we chose to investigate its financial indicators in more depth, because a company’s financial health over the long run is often what determines market results. The return on equity (ROE) of Zimplats Holdings was the topic of this study.
Return on equity, also known as return on assets, is a significant statistic used to determine how effectively a company’s management is employing the company’s assets. It is used to determine the profitability of a firm in proportion to the amount of equity capital invested in it, to put it simply.
Its primary activity is the production of platinum group metals (PGMs), as well as related metals, which include nickel, gold, copper, cobalt and silver extracted from the Great Dyke in Zimbabwe. Zimplats Holdings Limited was founded in 2008 and is headquartered in Harare, Zimbabwe. Platinum, palladium, gold, rhodium, nickel, ruthenium, iridium, silver, copper, and cobalt are among the metals represented by the company’s sectors. The Company, via its wholly owned subsidiary Zimbabwe Platinum Mines (Private) Limited, which is a producer of platinum group metals (PGMs), is involved in the exploration and development of ore deposits situated on the Great Dyke, Zimbabwe.
Its Mineral Resource base totals roughly 223.6 million ounces 4E, according to the company. A total of four underground mines and one open pit mine are operated by the company, and the ore is supplied to three concentrator modules by the company (two at Ngezi and the third one at Selous). Three of the four underground mines are now producing at full capacity, with the fourth mine currently undergoing redevelopment. The company offers white matte (a metal concentrate), which is comprised of platinum, palladium, rhodium, gold, and nickel, among other metals.
History
1986- Delta Gold Limited (Delta) acquired the rights to its first platinum resources on the Great Dyke, which were discovered in 1989, when the company was founded in 1986.
1998 – When it acquired interests in all of the platinum deposits of the Hartley Complex in 1998, it had significantly broadened its scope. Delta and BHP formed a joint venture to build the Hartley Platinum Mine, with BHP owning a 2/3 stake and Delta holding a 1/3 stake. Development began in 1994. Delta sold its platinum assets to Zimplats, a special purpose corporation established for that purpose in 1998. Zimplats has a number of stockholders.
Zimplats is now controlled by Implats to an extent of 87 percent. In 2003, the Zimplats began to expand subterranean activities in the Ngezi area. At Ngezi, they have taken over for the open pit production, which was phased out in 2008, and have been developed to a present 6.2 million tonne per year operation, which includes four portals, an open pit, and two new concentrator modules.
2001 – The Hartley mine had failed to reach its development expectations by 1999, and BHP had placed the mine on “care and maintenance.” Zimplats later acquired BHP’s interest in Hartley, and in 2001, with the support of Implats and ABSA Investment, it began construction on the Ngezi/SMC project in Zambia.
2002 – There was an open pit mine at Ngezi that produced 2.2 million tonnes per year. A truckload of ores was hauled to Selous, where they were processed in the Hartley Mine concentrator and smelting facilities, which were operated by the Selous Minerals Corporation (SMC). In April 2002, the first converter matte was shipped from the United States. In the years leading up to 2003, Implats steadily grew its stake in Zimplats until it made an unconditional cash offer to the minority shareholders.
2002-2005 – Zimplats has an 87 percent stake in the company. Mining in an open pit (2.2Mtpa).
2006-2009 – 36 percent of the land has been handed to the government. 340-million-dollar Phase 1 expansion project (mining and milling up to 4.2Mtpa). 504 million dollars for Phase 2 expansion (mining and milling up to 6.2Mtpa)
From 2010 to the Present – As part of its Indigenisation implementation strategy, Zimbabwe Platinum Mines (Private) Limited granted a 10 percent ownership share to the Zimplats Employee Share Ownership Trust (IIP). Inauguration of the CSOT. Precautionary shutdown of the Bimha Mine. Improvements to the Bimha Mine. P6 Replacement Mine Construction Project.
In order to Calculate the Return on Investment (ROI), What is the Formula to Use?
The following is the formula for determining the return on an investment:
Return on Equity is calculated as Net Profit (from ongoing activities) minus Shareholders’ Equity (in dollars).
As a result, using the method above, the return on equity for Zimplats Holdings is as follows:
32 percent = US$563 million to US$1.7 billion (Based on the trailing twelve months to June 2021).
The term “return” refers to the profits of a corporation over the course of a year. One way to think about it is that the firm earned A$0.32 in profit for every A$1 in shareholders’ capital that it had at the time.
What is the Significance of Return on Equity (ROE) for Earnings Growth?
Until now, we’ve learnt that the return on equity (ROE) gauges how effectively a business generates profits. According to how much of these profits a firm reinvests or “retains,” and how well it does so, we may determine the earnings growth potential of a particular company. In most cases, when all other factors are equal, firms that have both a greater return on equity and a higher profit retention rate are the ones that have a better growth rate when compared to organizations that do not have the same characteristics.
Earnings Growth at Zimplats Holdings, as well as a 32% Return on Equity
First and foremost, we accept that Zimplats Holdings has a relatively high return on equity (ROE). Furthermore, the company’s return on equity (ROE) is better than the industry average of 13 percent, which is pretty outstanding. According to the conditions, the significant five-year net income rise of 63 percent achieved by Zimplats Holdings was to be anticipated.
When we looked at the rise of net income in the sector as a whole, we saw that Zimplats Holdings’ growth was extremely impressive when compared to the industry average growth of 24 percent over the same time, which was encouraging to observe.
When determining the value of a company, earnings growth is an essential factor to examine. The investor should attempt to determine if the predicted rise or reduction in profits, whichever is the case, has already been included into the price of the stock. This therefore assists them in determining whether the stock is poised for a promising or a sad future. The price-to-earnings ratio (P/E ratio) is a useful indication of predicted earnings growth since it indicates the price the market is ready to pay for a company based on its earnings prospects. As a result, you may want to see whether Zimplats Holdings is selling at a high or low price-to-earnings ratio in relation to its industry.
Do you think Zimplats Holdings is Making the Best Use of its Profits?
The payout ratio for Zimplats Holdings for the last three years has been 31 percent, which is a relatively low figure. The remaining 69 percent will be retained by the corporation. According to appearances, the dividend is well covered, and Zimplats Holdings is reinvesting its earnings effectively, as indicated by the company’s remarkable growth, as we highlighted before.
In addition, Zimplats Holdings has been paying dividends for the last six years, which is an impressive record. That the corporation is devoted to sharing earnings with its shareholders is shown by this action.
Zimplats Holdings (ASX: ZIM) Performs Excellently in the Area of Capital Allocation
In order to find equities that have the potential to grow in value over the long term, what tendencies should we be looking out for? In an ideal scenario, we’d want to see a firm growing the amount of capital it invests in its operations while simultaneously improving the returns on that capital. If you notice this, it often indicates that the firm has a strong business strategy and offers a large number of lucrative reinvestment chances to investors. As a result, when we examined the ROCE trend of Zimplats Holdings (ASX: ZIM), we were quite pleased with what we discovered.