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Research: Metals & Mining
Sylvania has maintained annual production guidance despite Q324 results being affected by a 22-day strike, resulting in 10% lower production. The PGM basket price was stable during the quarter, with positive platinum momentum offset by palladium weakness and rhodium prices stable. Operating costs increased by 5.6%, in line with expectations. FY24 production guidance is for 75,000–76,000oz, despite the challenges in Q324. Our PGM outlook is unchanged from our moderated forecasts earlier in the year. We have cut our FY24 EPS forecast by 2.2% from 7.4p to 7.2p on the Q324 miss, but have lifted our FY25 and FY26 forecasts slightly on the back a share buyback programme reducing the number of shares in issue. The company announced a special dividend of 1p/share following the sale of its Grasvally Chrome Mine for US$6.2m. We have lifted our valuation slightly to 120.0p/share due to a slightly weaker sterling and lower number of shares in issue, but have made no change to the carrying value of the exploration assets.
Written by
Rene Hochreiter
Sylvania Platinum |
Q324 results |
Metals and mining |
3 May 2024 |
Share price performance
Business description
Next events
Analysts
Sylvania Platinum is a research client of Edison Investment Research Limited |
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Sylvania has maintained annual production guidance despite Q324 results being affected by a 22-day strike, resulting in 10% lower production. The PGM basket price was stable during the quarter, with positive platinum momentum offset by palladium weakness and rhodium prices stable. Operating costs increased by 5.6%, in line with expectations. FY24 production guidance is for 75,000–76,000oz, despite the challenges in Q324. Our PGM outlook is unchanged from our moderated forecasts earlier in the year. We have cut our FY24 EPS forecast by 2.2% from 7.4p to 7.2p on the Q324 miss, but have lifted our FY25 and FY26 forecasts slightly on the back a share buyback programme reducing the number of shares in issue. The company announced a special dividend of 1p/share following the sale of its Grasvally Chrome Mine for US$6.2m. We have lifted our valuation slightly to 120.0p/share due to a slightly weaker sterling and lower number of shares in issue, but have made no change to the carrying value of the exploration assets.
Year end |
Revenue (US$m) |
PBT* |
EPS* |
DPS** |
P/E |
Yield |
06/23 |
130 |
67 |
17.0 |
8.0 |
4.1 |
11.4 |
06/24e |
89 |
25 |
7.2 |
4.0 |
9.7 |
5.7 |
06/25e |
110 |
36 |
9.3 |
5.0 |
7.5 |
7.1 |
06/26e |
148 |
51 |
13.6 |
7.9 |
5.0 |
11.4 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **1p/share declared special dividend included for FY24, but exclusive of windfall dividends thereafter.
Pressure on Q324 results due to strike
During February 2024, the National Union of Mineworkers South Africa (NUMSA) embarked on a 22-day strike, which affected production at Sylvania’s western operations, resulting in a 5.5% q-o-q reduction in both 4E and 6E PGM ounces mined (9% and 10% below our expectations). Full-year 4E PGM production guidance has been maintained at 75,000–76,000oz. The PGM basket price was flat at US$1,303/oz for the quarter, 5.4% below our expectation. Our PGM forecasts for the remainder of the year and beyond are unchanged.
Special dividend and buybacks
During the period, Sylvania successfully negotiated an early settlement on its sale of its Grasvally Chrome Mine, resulting in proceeds of US$6.2m, supporting a healthy quarter-end cash balance of US$101.3m (vs US$107.2m at the previous quarter end), despite rand weakness, the payment of a US$3.3 cash dividend and the execution of share buybacks to the tune of US$1.2m, reducing issued share capital by 1.7m shares. The company has announced a special dividend of 1p/share to distribute $3.3m of the Grasvally proceeds to shareholders.
Valuation: 120.0p/share, up 1.6%
We have cut FY24e EPS by 2.2% on the Q324 miss, but have increased our forecasts for FY25 and FY26 slightly on the back of lower number of shares in issue. We have lifted our valuation by 1.6% to 120.0p/share to allow for the lower share count and weaker sterling, with no changes to our exploration assets valuations.
Strike temporarily affecting production
The investment case for Sylvania Platinum is mainly based on a low-risk dump retreatment operation, to which we ascribe the bulk of the company’s valuation. It also has exploration assets in the northern part of the Bushveld Igneous Complex of South Africa. A preliminary economic assessment (PEA) is being conducted for Volspruit, with an updated mineral resource estimate (MRE) in the final stages of completion. This will be followed by a preliminary feasibility study in the coming months. In August 2023, the company announced the Thaba JV with Limburg Mining Company, which will diversify Sylvania’s production to include chrome concentrate from H225.
Quarterly results below our expectations
Sylvania missed our Q324 forecasts for two key reasons, namely lower than expected production due to a 22-day wage strike at the company’s western operations in February 2024 and a 5% lower-than-forecast PGM basket price of US$1,303/oz (vs US$1,377), while operating costs were in line with expectations.
Exhibit 1 shows the quarterly results and the differences compared with our prior forecasts.
Exhibit 1: Comparison of Q324 results with Q224
|
Q224 |
Q324 |
Q324e |
Q324 vs Q224 |
Q324 vs Q324e |
Production |
|
|
|
|
|
Plant feed (t) |
636,156 |
580,572 |
666,824 |
(8.7%) |
(12.9%) |
Feed head grade (g/t) |
1.84 |
2.01 |
1.84 |
9.5% |
9.4% |
PGM plant feed (t) |
342,548 |
330,379 |
350,083 |
(3.6%) |
(5.6%) |
PGM plant feed grade (g/t) |
2.84 |
3.06 |
3.03 |
7.7% |
0.9% |
Total 4E PGMs (oz) |
18,232 |
17,232 |
18,904 |
(5.5%) |
(8.8%) |
Total 6E PGMs (oz) |
23,105 |
21,857 |
24,239 |
(5.4%) |
(9.8%) |
Basket price ($/oz) |
1,305 |
1,303 |
1,377 |
(0.1%) |
(5.4%) |
Financials |
|||||
4E revenue (US$m) |
17.4 |
16.1 |
20.3 |
(7.5%) |
(20.8%) |
By-product revenue (US$m) |
3.3 |
3.1 |
3.5 |
(6.3%) |
(11.8%) |
Total revenue before sales adjustment (US$m) |
20.7 |
19.2 |
23.8 |
(7.3%) |
(19.5%) |
Sales adjustment (US$m) |
0.2 |
1.1 |
0.2 |
619.4% |
406.7% |
Total revenue (US$m) |
20.9 |
20.3 |
24.1 |
(2.6%) |
(15.6%) |
Total operating costs (ZARm) |
294.3 |
313.5 |
307.5 |
6.5% |
2.0% |
Total operating costs (US$m) |
15.7 |
16.6 |
16.6 |
5.6% |
(0.4%) |
Other costs (US$m) |
0.7 |
0.7 |
0.7 |
(2.1%) |
(11.1%) |
EBITDA (US$m) |
4.4 |
3.1 |
6.7 |
(30.5%) |
(53.9%) |
Net interest (US$m) |
1.6 |
1.4 |
1.3 |
(10.6%) |
7.5% |
Net profit (US$m) |
1.6 |
2.5 |
6.8 |
63.4% |
(62.6%) |
Gross margin |
24.7% |
18.4% |
30.8% |
(25.7%) |
(40.4%) |
Basic EPS (USc) |
0.6 |
1.0 |
2.6 |
63.4% |
|
Capex (US$m) |
3.9 |
3.5 |
(10.3%) |
||
Cash balance (US$m) |
107.2 |
101.3 |
(5.5%) |
||
Average ZAR/US$ rate |
18.73 |
18.90 |
18.31 |
0.9% |
3.2% |
Spot ZAR/US$ rate |
18.31 |
18.91 |
18.31 |
3.3% |
3.3% |
Unit costs (US$) |
|||||
SDO cash cost/4E PGM oz |
721 |
826 |
14.6% |
||
SDO cash cost/6E PGM oz |
569 |
651 |
14.5% |
||
Group cash cost/4E PGM oz |
898 |
980 |
9.1% |
||
Group cash cost/6E PGM oz |
708 |
789 |
11.3% |
||
All-in-sustaining cost (4E) |
957 |
1,008 |
5.5% |
||
All-In cost (4E) |
1,096 |
1,145 |
8.1% |
Source: Edison Investment Research, Sylvania Platinum accounts
■
Q324 plant feed was 8.7% lower than Q224 due to the 22-day NUMSA strike in February, but has subsequently recovered and FY24 guidance of 75,000–76,000oz remains in place.
■
The PGM basket price was flat at US$1,303 for the quarter, but 5.4% below our expectation. Our PGM forecasts for the remainder of the year and beyond are unchanged.
■
4E revenue was 21% lower than our forecasts (7.5% down on Q224) and by-product revenue was 12% lower (down 6.3%) but, thanks to a positive sales adjustment in the quarter, overall revenue was only down 2.6%.
■
Operating costs were up 5.6%, in line with expectations, while other costs came in below expectations.
■
Net profit was up 63.4% on Q224, but 62.6% below our expectation.
■
Cash levels remained strong at US$101.3m, despite rand weakness, dividend payments and share buybacks.
■
The company announced a special dividend of 1p/share to distribute US$3.3m of the US$6.2m proceeds from the sale of the Grasvally Chrome Mine.
Forecast revisions
We have cut our FY24 EPS by 2.2% on the back of the Q324 results miss, but have left our FY25 and FY26 forecasts largely unchanged in US$ terms and slightly up on a per-share basis due to a lower share count following the share buybacks during the quarter.
Exploration assets steadily moving towards production
The Thaba JV continues to make excellent progress, with the design, procurement and construction elements of the project all on schedule. Additionally, on the exploration front, an updated MRE statement for both Volspruit North and South ore bodies was released. The PEA for the Volspruit project, along with results from the metallurgical test work, are now expected during Q424. We have made no changes to our forecasts or valuation for the JV or the exploration assets, but continue to flag potential upside as more certainty is achieved on the JV and the exploration assets move closer to production.
Valuation
We have lifted our valuation for Sylvania by 1.6% from 118.1p to 120.0p as the result of a weaker sterling versus the dollar and a lower share count following the buybacks. We have maintained our exploration asset valuation at 13.8p/share, with 16.7p/share ascribed to the Thaba JV and the remaining 89.5p/share to the Sylvania Dump Operations (SDO).
Exhibit 2: Valuation downgrade on PGM forecasts
Current |
Previous |
Change |
|
Combined valuation (p/share) |
120.0 |
118.1 |
1.6% |
SDO (p/share) |
89.5 |
88.1 |
1.5% |
Exploration (p/share) |
13.8 |
13.8 |
0.0% |
Thaba JV (p/share) |
16.7 |
16.1 |
3.9% |
FY24 EPS (p/share) |
7.2 |
7.4 |
-2.2% |
Implied P/E (x) |
16.6 |
16.0 |
|
FY25 EPS (p/share) |
9.3 |
9.2 |
0.9% |
Implied P/E (x) |
12.9 |
12.9 |
|
FY26 EPS (p/share) |
13.6 |
13.5 |
1.1% |
Implied P/E (x) |
8.8 |
8.7 |
Source: Edison Investment Research
While the implied forward P/E multiple of our new valuation has increased slightly based on FY24 and FY25 EPS forecasts relative to our previous valuation, the FY26 forward P/E is largely unchanged.
Exhibit 3: Financial summary
US$m |
2022 |
2023 |
2024e |
2025e |
2026e |
Year ending 30 June |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
PROFIT & LOSS |
|
|
|
|
|
Revenue |
152 |
130 |
89 |
110 |
148 |
Cost of Sales |
(62) |
(61) |
(65) |
(72) |
(92) |
Royalties Tax |
(7) |
(5) |
(4) |
(6) |
(7) |
Gross Profit |
83 |
64 |
21 |
33 |
49 |
EBITDA |
83 |
66 |
22 |
37 |
52 |
Operating Profit (before amort. And except.) |
80 |
62 |
17 |
30 |
45 |
Intangible Amortisation |
0 |
0 |
0 |
0 |
0 |
Exceptionals |
0 |
0 |
0 |
0 |
0 |
Other |
(7) |
(6) |
(8) |
(10) |
(10) |
Operating Profit |
80 |
62 |
17 |
30 |
45 |
Net Interest |
1 |
5 |
8 |
6 |
6 |
Profit Before Tax (norm) |
81 |
67 |
25 |
36 |
51 |
Profit Before Tax (FRS 3) |
81 |
67 |
25 |
36 |
51 |
Tax |
(25) |
(22) |
(6) |
(11) |
(16) |
Profit After Tax (norm) |
56 |
45 |
19 |
25 |
36 |
Profit After Tax (FRS 3) |
56 |
45 |
19 |
25 |
36 |
Average Number of Shares Outstanding (m) |
272 |
267 |
261 |
261 |
261 |
EPS – normalised (c) |
20.6 |
17.0 |
7.2 |
9.3 |
13.6 |
EPS – normalised fully diluted (c) |
20.4 |
16.7 |
7.2 |
9.3 |
13.6 |
EPS – (IFRS) (c) |
20.4 |
16.7 |
7.2 |
9.3 |
13.6 |
Dividend per share (p) |
8.0 |
8.0 |
4.0* |
5.0 |
7.9 |
Gross Margin (%) |
54.9% |
49.2% |
23% |
30% |
33% |
EBITDA Margin (%) |
54.5% |
49.1% |
25% |
33% |
35% |
Operating Margin (before GW and except.) (%) |
52.4% |
47.4% |
19% |
27% |
31% |
BALANCE SHEET |
|
|
|||
Fixed Assets |
93 |
101 |
153 |
159 |
161 |
Intangible Assets |
46 |
46 |
42 |
43 |
46 |
Tangible Assets |
46 |
49 |
66 |
69 |
68 |
Investments |
0 |
6 |
46 |
48 |
47 |
Current Assets |
187 |
168 |
132 |
143 |
148 |
Stocks |
4 |
5 |
2 |
2 |
2 |
Debtors |
53 |
36 |
30 |
34 |
39 |
Cash |
121 |
124 |
93 |
99 |
103 |
Other |
8 |
3 |
8 |
7 |
3 |
Current Liabilities |
11 |
14 |
6 |
7 |
8 |
Creditors |
11 |
14 |
6 |
7 |
8 |
Short term borrowings |
0 |
0 |
0 |
0 |
0 |
Long Term Liabilities |
18 |
17 |
20 |
21 |
19 |
Long term borrowings |
0 |
0 |
0 |
0 |
0 |
Other long term liabilities |
18 |
16 |
20 |
21 |
19 |
Net Assets |
251 |
239 |
259 |
274 |
281 |
CASH FLOW |
|
|
|||
Operating Cash Flow |
92 |
78 |
23 |
32 |
48 |
Net Interest |
2 |
5 |
9 |
6 |
6 |
Tax |
(24) |
(20) |
(5) |
(11) |
(15) |
Capex |
(16) |
(14) |
(22) |
(10) |
(6) |
Acquisitions/disposals |
0 |
0 |
(19) |
0 |
2 |
Financing |
(20) |
(11) |
(1) |
0 |
0 |
Dividends |
(23) |
(35) |
(17) |
(10) |
(28) |
Net Cash Flow |
20 |
7 |
(31) |
9 |
7 |
Opening net (debt)/cash |
106 |
121 |
124 |
93 |
99 |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
Other |
(5) |
(4) |
(0) |
(2) |
(3) |
Closing net (debt)/cash |
121 |
124 |
93 |
99 |
103 |
Source: Company accounts, Edison Investment Research. Note: *Includes 1p/share declared special dividend.
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