doornbos 2

Excellent Q4 production but lower PGM basket

Sylvania Platinum 2 August 2022 Update
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Sylvania Platinum

Excellent Q4 production but lower PGM basket

Q422 results

Metals and mining

2 August 2022

Price

88.5p

Market cap

£235m

US$1.22/£; ZAR16.50/US$

Gross cash (US$m) at end June 2022

121.3

Shares in issue

266.1m

Free float

79.4%

Code

SLP

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

1.7

(5.9)

(14.1)

Rel (local)

(2.3)

(3.9)

(14.9)

52-week high/low

111p

77p

Business description

Sylvania Platinum focuses on the re-treatment and recovery of platinum group metals including platinum, palladium and rhodium, mainly from tailings dumps and other surface sources, but also lesser amounts of run-of-mine underground ore from Samancor chrome mines in South Africa.

Next events

FY22 results

8 September 2022

Analyst

René Hochreiter

+44 (0)20 3077 5700

Sylvania Platinum is a research client of Edison Investment Research Limited

Sylvania Platinum is a safe, low-cost surface platinum group metals (PGM) dump re-treatment company operating in South Africa (SA). Its low-cost operations met production challenges in the first three quarters of FY22, but in Q4 recorded near-record production. However, PGM basket price pressures due to global recessionary concerns, and a modest tick-up in cost inflation, have resulted in a 12.5% reduction in our FY22 EPS forecast. Sylvania is still operating at a healthy margin of 41% on our FY22 estimates (FY21: 53%). Its concerted share buyback programme reduced the share count by 6.8m (2.5%) and has been value accretive to our FY23 forecasts and valuation. We expect a recovery in PGM prices in FY23 due to pent-up vehicle demand and improving supply chains and have left our forecast basket price unchanged. Our FY23e EPS is unchanged, with offsetting buy back and inflation impacts. We have lifted our valuation to 169p thanks to the buybacks. FY22 results are due on 8 September.

Year end

Revenue (US$m)

PBT*
(US$m)

EPS*
(c)

DPS
(p)

P/E
(x)

Yield
(%)

06/20

115

65

14.6

1.6

7.4

1.8

06/21

206

143

36.7

7.8**

2.9

8.8

06/22e

149

78

19.8

5.8**

5.5

6.6

06/23e

178

102

26.8

4.8

4.0

5.4

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Includes declared windfall dividend of 3.75p for FY20 paid in April 2021 and a windfall 2.25p for FY21 paid in April 2022. Windfall dividends are not forecast.

Strong production result

An excellent safety record of 10 years of no lost time injuries at the Doornbosch plant is a tribute to Sylvania and its surface dump re-treatment business. Tweefontein achieved record monthly, quarterly and annual production, while feed grade reached an 18-month high, assisted by Mooinooi. Despite EBITDA being down 44% in Q4 compared to Q3, record Q4 production resulted in 67,053oz 4E PGM for FY22, achieving the mid-range of Sylvania’s revised guidance and points to it likely being the lowest-cost PGM operation in SA with a Q4 cash cost of ZAR10,075/oz. Upcoming peer results could confirm this.

Value-accretive buybacks

Over Q422, Sylvania used its large cash position to take advantage of depressed trading levels to execute a large, accretive share buyback. The company spent US$7.64m on buybacks at an average price of US$1.1196/share (88.51p/share), resulting in a 2.5% reduction in shares in issue. The buybacks have enhanced our forecasts and valuation.

Valuation: 169p/share, up 3.5%

While our absolute valuation is largely unchanged, the value-accretive share buybacks have lifted our per share value by 3.5% to 169p. Rising inflation pressure presents some risk to our valuation, but continued production successes and the gap closing between spot PGM prices and our forecasts provides comfort that the current deep trading discount (48% to our valuation) could narrow over the medium term.

Q422 results and updated forecasts

Sylvania’s 4E PGM (platinum, palladium, rhodium and gold) production in Q4 was 4.8% better than expected due to improved, higher PGM plant feed grade, lifting our FY22 production estimate to the reported 67,053oz, in the middle of the guidance range. Plant feed was the highest in six quarters, assisted by Mooinooi, and remains a focus area. 2E PGM (iridium and ruthenium) production was 7.6% lower than forecast because ore from the plants that produced high volumes of PGMs in Q4 (Tweefontein and Lesedi) have lower grades of these two metals.

The Q4 4E basket price of US$2,589/oz was 22% down on both Q3 and on our expected US$3,347/oz, resulting in an 8.5% reduction in our FY22 forecast. In Q4, recessionary fears rose dramatically as the US Federal Reserve battled inflation with a record 75bp rate hike, supporting the US dollar and putting pressure on all precious metals and commodities. The net impact of higher production and a lower basket price is to lower our FY22 revenue forecast by 6.8%. We expect PGM prices to recover in FY23 on the back of improved vehicle production, resulting from improved supply chains, to meet pent-up demand for new vehicles. We therefore maintain our FY23 numbers, which imply a 15% increase in the basket price versus FY22.

Exhibit 1: Q422 results and forecast changes

Q421

Q322

Q422e

old

Q422

FY21

FY22e old

FY22e new

Q422 vs Q322

Q422 vs Q421

Q422 vs Q422e

FY22e vs FY21

FY22e old vs FY22e

Production

PGM plant feed (t)

323,012

300,869

332,478

331,578

1,272,974

1,222,587

1,221,687

10.2%

2.7%

-0.3%

-4.0%

-0.1%

PGM plant feed grade (g/t)

3.07

3.17

3.19

3.30

3.17

3.18

3.20

4.1%

7.5%

3.4%

1.0%

0.9%

Total 4E PGMs (ozs)

16,289

15,840

17,966

18,837

70,044

66,182

67,053

18.9%

15.6%

4.8%

-4.3%

1.3%

Total 2E PGMs (ozs)

4,891

4,240

5,320

4,914

23,998

19,012

18,606

15.9%

0.5%

-7.6%

-22.5%

-2.1%

Basket price ($/oz)

4,059

3,327

3,347

2,589

3,690

2,890

2,645

-22.2%

-36.2%

-22.6%

-28.3%

-8.5%

Financials (US$m)

 

 

 

 

 

 

 

 

 

 

 

 

4E revenue (US$)

44.1

38.5

45.1

34.4

188.3

145.8

138.7

-10.6%

-22.0%

-23.7%

-28.2%

-7.3%

By-product revenue (US$m)

4.1

3.0

3.7

3.2

13.3

12.5

11.9

7.6%

-21.0%

-12.5%

-9.0%

-3.5%

Total revenue (US$)

48.4

47.9

48.9

34.9

206.1

163.3

149.3

-27.0%

-27.9%

-28.6%

-26.2%

-6.8%

Total operating costs (ZAR)***

211.1

258.2

218.8

245.9

788.5

851.6

878.8

-4.8%

N/A

N/A

N/A

3.2%

Total operating costs (US$)***

14.9

17.0

14.3

15.8

51.4

56.3

57.7

-7.0%

N/A

N/A

N/A

2.6%

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic EPS (c)

5.4

8.0

 

5.2

36.7

22.6

19.8

-34.7%

-4.0%

N/A

-46.0%

-12.5%

Dividend (p)

N/A 

N/A 

 N/A

N/A 

4.0

3.9

3.5

N/A

N/A

N/A

-12.3%

-11.0%

Windfall dividend (p)

N/A 

N/A 

N/A 

N/A 

3.75*

2.25**

2.25**

N/A

N/A

N/A

-40.0%

0.0%

Cash cost (ZAR/4E oz)

12,892

11,538

12,178

10,075

11,189

12,897

13,117

-12.7%

-21.9%

-17.3%

17.2%

1.7%

Cash cost (US$/4E oz)

912

758

798

646

729

852

862

-14.8%

-29.2%

-19.0%

18.3%

1.2%

Average ZAR/$

14.1

15.2

15.3

15.6

15.3

15.4

15.5

2.4%

10.3%

2.1%

1.0%

0.8%

Cash balance (US$m)

101.1

138.0

N/A 

121.3

106.1

135.0

121.3

-12.1%

19.9%

N/A 

17.0%

-8.0%

Source: Sylvania Platinum, Edison Investment Research. Note: *Paid in April 2021 for FY20. **Paid in April 2022 for FY21. ***Q322 and Q422 have been restated, resulting in comparison with Q321, FY21 and previous forecasts not being meaningful.

Unit costs at ZAR10,075/oz improved by 13% on Q3 because of the 3.4% increase in grade and increased PGM production. Total operating costs were 4.8% down on Q3 in South African rand terms, but due to a reclassification between direct and indirect, including the quarterly disclosure of royalties, they are not directly comparable to our expectations. On a comparable basis, allowing for the reclassification (and assessing the EBITDA impact, which declined by 44% in Q4 versus Q3 mainly as a result of lower PGM prices received), South African rand costs were 8.3% above expectation and US dollar costs 5.4%, allowing for 2.1% South African rand depreciation over the period. We have increased our FY22 US dollar cost forecast by 2.3% and have allowed for a similar increase in our FY23 forecasts.

Lower basket prices relative to FY21 and H122 have resulted in shrinking margins and net profit. Allowing for higher production and an upwards adjustment to US dollar cost forecasts results in a 12.5% reduction in our FY22 EPS forecast to US$0.198. The US$121.3m cash balance was 12% down on Q3, largely driven by a concerted share buyback programme costing US$7.64m and reducing shares in issue by 6.8m (3%). The buyback is accretive to our forecasts, especially from FY23, and to our valuation.

Our FY23 EPS forecast was negatively affected by higher forecast US dollar costs, but this was largely offset by the share buyback, resulting in a 0.3% change to US$0.2676. Our FY24 EPS forecasts are largely unchanged.

Valuation

Our PGM outlook for FY23 is unchanged; we think that the PGM basket price will be 15% higher than FY22 levels (and an 18% increase on the Q422 reported basket price) on the back of an improved global economic outlook and increased vehicle production as supply chains improve to supply pent-up demand for new cars. The better-than-expected production in Q4 has been reflected in our FY23 forecasts, but has been offset by moderately increased cost inflation. Inflation is a key area to monitor and poses risk to our forecasts and valuation. In absolute pound sterling terms, our valuation since our Q322 note is largely unchanged, with higher cost inflation offsetting the impact of the time value of money. On a per share basis, however, our valuation has increased by 3.4% from 163p to 169p because of the value-added share buybacks.

We will provide a sensitivity analysis in our FY22 results report for Sylvania to assess the effect of changes in the PGM price on the company’s value, EBITDA and EPS.

Exhibit 2: Financial summary

 US$m

2018

2019

2020

2021

2022e

2023e

2024e

Year ending 30 June

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

 

 

 

 

 

Revenue

63

71

115

206

149

178

175

Cost of Sales

(45)

(45)

(47)

(55)

(61)

(66)

(67)

Royalties Tax

0

0

(1)

(8)

(8)

(9)

(9)

Gross Profit

18

26

67

143

81

103

99

EBITDA

16

30

69

145

80

105

102

Operating Profit (before amort. and except.)

16

24

64

142

77

101

96

Intangible Amortisation

0

0

0

0

0

0

0

Exceptionals

0

0

(10)

0

0

0

0

Other

(2)

(9)

(9)

(5)

(7)

(7)

(8)

Operating Profit

16

24

54

142

77

101

96

Net Interest

1

1

2

1

1

1

2

Profit Before Tax (norm)

16

24

65

143

78

102

98

Profit Before Tax (FRS 3)

16

24

56

143

78

102

98

Tax

(5)

(6)

(15)

(43)

(25)

(31)

(30)

Profit After Tax (norm)

11

18

51

100

54

71

68

Profit After Tax (FRS 3)

11

18

41

100

54

71

68

Average Number of Shares Outstanding (m)

286

286

280

272

271

266

266

EPS - normalised (c)

3.8

6.4

14.6

36.7

19.8

26.8

25.5

EPS - normalised fully diluted (c)

3.8

6.2

14.3

35.9

19.2

26.8

25.5

EPS - (IFRS) (c)

3.8

6.2

14.3

35.9

19.2

26.8

25.5

Dividend per share (p)*

0.0

0.0

1.6

4.0

3.5

4.8

6.2

Gross Margin (%)

28%

36%

58%

69%

54%

58%

57%

EBITDA Margin (%)

25%

43%

60%

70%

54%

59%

58%

Operating Margin (before GW and except.) (%)

25%

34%

55%

69%

52%

57%

55%

BALANCE SHEET

 

 

 

 

 

 

 

Fixed Assets

95

93

74

86

94

104

104

Intangible Assets

57

53

43

45

48

48

48

Tangible Assets

37

38

30

40

46

56

55

Investments

1

2

0

0

1

1

1

Current Assets

41

59

89

188

190

223

254

Stocks

1

2

2

4

3

3

3

Debtors

25

8

12

69

52

59

58

Cash

14

22

56

106

124

152

183

Other

0

28

19

9

10

10

10

Current Liabilities

6

7

9

14

10

12

12

Creditors

6

7

9

14

10

12

12

Short term borrowings

0

0

0

0

0

0

0

Long Term Liabilities

18

18

13

16

18

20

21

Long term borrowings

18

18

13

16

18

20

21

Other long term liabilities

0

0

0

0

0

0

0

Net Assets

112

128

141

244

251

296

325

CASH FLOW

 

 

 

 

 

 

 

Operating Cash Flow

18

25

71

114

93

101

103

Net Interest

1

1

2

2

1

2

2

Tax

(4)

(8)

(15)

(47)

(24)

(30)

(29)

Capex

(8)

(8)

(5)

(8)

(18)

(15)

(5)

Acquisitions/disposals

(6)

0

0

0

0

0

0

Financing

(3)

(1)

(18)

(4)

(22)

0

0

Dividends

0

(1)

(3)

(20)

(23)

(27)

(38)

Net Cash Flow

(0)

8

41

39

18

31

32

Opening net (debt)/cash

15

14

22

56

106

124

152

HP finance leases initiated

0

0

0

0

0

0

0

Other

(1)

(0)

(7)

12

0

(4)

0

Closing net (debt)/cash

14

22

56

106

124

152

183

Source: Company accounts, Edison Investment Research. Note: *Excludes windfall dividend.


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This report has been commissioned by Sylvania Platinum and prepared and issued by Edison, in consideration of a fee payable by Sylvania Platinum. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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This report has been commissioned by Sylvania Platinum and prepared and issued by Edison, in consideration of a fee payable by Sylvania Platinum. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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