The electronics manufacturing industry is a very competitive industry with narrow margins. For Jabil (NYSE: JBL), it is no different. Currently, Jabil's operating margin is under 3% while others in its industry range from about 1% to 5%. However, in September's fourth quarter earnings call, management repeatedly expressed a desire to expand its margins. While it hasn't given specific details as to how it will do this, Jabil may be counting on a secret weapon: e-waste.
That's right, electronic waste.
What is Jabil doing?
Instead of letting used electronic devices pile up in landfills, Jabil recycles them and retrieves the metal. According to an article on Mining.com, Jabil worked with EnviroLeach Technologies to setup a 650,000 square foot facility where "Jabil will extract gold and other precious metals from the e-waste to manufacture electronic components for Dell, Hewlett-Packard and other clients". The existence of this facility in Memphis, Tennessee is confirmed in multiple EnviroLeach documents. According to EnviroLeach's Management Discussion & Analysis from 2017, "the plant is designed to process 10 tonnes per day of Printed Circuit Board Assemblies".
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What has the company said?
Overall, not much. If you look at the company's 10-k reports, then you won't find anything about the facility. Looking on the website, you won't find anything about it, either. However, the website does provide a couple of blog posts about the importance and value of e-waste recycling along with a page that gives an overview of Jabil Environmental Technologies. According to the page, "Jabil Environmental Technologies (JET) provides some of the world's largest brands with environmentally sound and socially safe disposition and disposal of e-waste."
So what does all of this mean?
At the moment, it is hard to say, but it could mean a lot. If e-waste "mining" ends up being as valuable as some believe, then getting in early, could give Jabil a valuable head start against its competitors while at the same time reaping some impressive rewards.
According to an article by The Verge, "there's 80 times as much gold in one ton of cellphones as there is in a gold mine, says Federico Magalini". The article continues by saying that gold mines contain about five to six grams of gold per ton of material, but there is about 350 grams of gold in one ton of mobile phones. And this is not considering the other metals like copper, silver, etc. that could be retrieved from that same ton of e-waste.
So what does this mean for Jabil? Again, it is hard to say given the scarcity of details. However, if the facility is able to process 10 tons per day and each ton contains approximately 350 grams of gold, then the company should be able to produce about 110 ounces of gold each day. Using a gold price of $1450 per ounce, Jabil has the potential to retrieve $160,000 worth of gold a day or almost $60 million per year. Note that this does not consider factors like the value of the other metals, the cost of the process, or the variability of precious metal content between different types of e-waste which could be significant. One of Jabil's posts mentions that older devices used more gold than current ones, so the returns could be even more for those that can retrieve them.
Given the company's slim margins, $60 million per year could be significant. And what happens if the price of gold and other metals goes up or if Jabil is able to increase its recycling production? In either scenario, the company could see even bigger returns.
As new electronic devices replace old devices, Jabil is taking action. By recycling the devices that otherwise would have gone to a landfill, the company gets its hands on a rich source of gold and other important metals. It is still early, but this secret weapon could be just what Jabil needs to achieve its margin goals and get an edge over the competition.
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