Sylvania Platinum – A Chance To Shine?

5 mins. to read
Sylvania Platinum – A Chance To Shine?

The recent share price performance of Sylvania Platinum (LON:SLP) has lacked any real sparkle, having fallen over 40% this year – so the question is whether the shares of this PGM specialist are now a buy ahead of its finals next week?

In February they were trading at around the 115p level, last night they closed at just 67.5p, at which it is capitalised at £177.5m.

Finals Due Next Week

On Thursday of next week, 7th September, the company will be declaring its results for the year to end June – so are the shares worth buying ahead of those figures and the accompanying Trading Statement?

The Business

The company is registered in Hamilton, Bermuda, while its operations are controlled from its address in Florida Hills in South Africa.

The group primarily engages in the retreatment of platinum group metals (PGM) bearing chrome tailings materials in South Africa and Mauritius.

Tailings are the left-over materials from the processing of mined ore, consisting of ground rock, unrecoverable and uneconomic metals, chemicals, organic matter and effluent from the process used to extract the desired products from the ore.

Sylvania Platinum is a lower-cost producer of platinum group metals (platinum, palladium and rhodium) with operations located in South Africa.

It holds interests in the Sylvania Dump Operations that comprise six chrome beneficiation and PGM processing plants located in the Eastern and Western Limb of the Bushveld Igneous Complex; and various mineral asset development projects, including Volspruit and Northern Limb projects located on the Northern Limb of the Bushveld Igneous Complex located in South Africa.

The Sylvania Dump Operations focus on the retreatment of PGM-rich chrome tailings materials from mines in the Bushveld Igneous Complex.

The SDO is the largest PGM producer from chrome tailings re-treatment in the industry.

Q4 Update – 27th July

The final quarter of the company’s year was to end June, for which it updated that:

  • Sylvania Dump Operations produced 19,072 4E (24,383 6E) PGM ounces in Q4 (Q3: 17,926 4E (22,884 6E) PGM ounces);
  • SDO produced 75,469 4E (95,965 6E) PGM ounces for FY2023 (FY2022: 67,053 4E PGM ounces; 85,659 6E PGM ounces)
  • Exceeded production forecast for the year, which had previously been increased from 72,000 to 74,000 4E PGM ounces;
  • Paid first interim dividend of 3 pence per Ordinary Share on 6 April 2023;
  • SDO recorded $24.4 million net revenue for the quarter (Q3: $26.5 million);
  • Group EBITDA of $7.8 million (Q3: $9.8 million);
  • Group cash balance was $125.0m as at 30 June 2023.

Management Comment On Q4

CEO, Jaco Prinsloo stated that:

“I am very pleased with the strong finish to the financial year where the SDO achieved 19,072 ounces for the quarter.  This performance was achieved on the back of a solid production effort from all operations, with all plants exceeding production throughput targets, as well as the contribution of the Tweefontein MF2 circuit that also added to our performance.

The 18% lower PGM basket price received during the quarter impacted both the 4E revenue as well as the sales adjustment for the quarter.  Consequently, revenues and profits were lower than in Q3, but still resulted in a strong cash position after the payment of taxes, first interim dividends, and share buybacks during the period. 

On the cost front, SDO cash costs increased 1% in rand and decreased 4% in dollar terms, benefitting from the higher ounces produced and weaker exchange rate, but operations are still navigating higher global cost inflation impacts and thus operating cost focus remains a priority.    

Despite the challenging macro environment, I am pleased with the significantly improved production performance of the SDO for Q4 which resulted in the Company achieving PGM production of 75,469 ounces for FY2023, exceeding our increased guidance for the year.”  

Thaba Joint Venture

Earlier this month the group announced details of the Thaba Joint Venture Project with Limberg Mining to process platinum group metals and chrome ores from historical tailings, dumps and current arisings from Limberg’s Chrome Mine in the Northern part of the Western Limb of the Bushveld Complex in South Africa.

The group, which has budgeted $32m for the project coming from the $125m cash balance as at its June year-end, stated that it is expected to take between 18 to 24 months to get into first production, estimated in H2 in 2025.

Sylvania’s CEO Jaco Prinsloo stated that:

“The establishment of the JV holds significant potential for Sylvania as it aligns with the Company’s growth strategy and enhances its position in the mining and processing industry.

The JV will enable Sylvania Metals to access valuable resources, expand its production capabilities, and strengthen its distribution channels for target products, ultimately driving value for the Group and its stakeholders.”

The Equity

There are some 275m shares in issue, of which nearly 12.3m are held in Treasury pending cancellation.

The larger holders include Hargreaves Lansdown Stockbrokers (15.77%), Interactive Investor (13.55%), International Mineral Resources (10.36%), Premier Fund Managers (5.63%), BlackRock Investment Management (4.32%) and Acadian Asset Management (3.69%).

Brokers Views – A Buy With Increased Target Prices Up To 135.4p

Ahead of the end June results being announced next week analyst Rene Hochreiter at Edison Investment Research has just published a valuation update on the group.

The analyst reckons that the new Thaba JV will add significant value to the group’s shares, while increasing the valuation of Sylvania’s shares to 135.4p a share.

Edison estimates that the year to end June 2023 will have seen $134m revenues and $67m pre-tax profits, worth 18.1c per share in earnings and enabling a dividend of 8p per share.

At Liberum Capital analyst Ben Davis states that the shares are one of his firm’s top equity picks, he has recently upped his Target Price by 12p to 122p a share and rates them as a Buy.

My View – Increased Newsflow Could Drive The Shares Upwards

With the finals due later next week, then its Q1 Report to end September expected to be announced in October, to be followed by the group’s AGM in November – it is already hoped that the flow of corporate news releases will help to maintain and build up investor interest between now and the end of 2023.

The group has the firmly declared vision to be the leading mid-tier, lower unit cost, PGMs producing company.

I feel that at just 67.5p its shares really do offer some attractive upside potential, the fall back this year in price gives a clear buying opportunity before the newsflow gathers pace.

(Profile 22.02.23 @ 105p set a Target Price of 130p)

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