Healthy production recovery and cost control

Production improvements continued in Q225 with 20,238oz of 4E (up 5.6%) and 26,373oz of 6E (up 7.4%) delivered, largely on the back of higher feed grade in its Eastern operations and despite a four-day planned maintenance shutdown at Tweefontein in October 2024. Operational upgrades at Millsell and Lesedi (Western Limb) are expected to improve production from H225 and into FY26. The Thaba joint venture (JV) will commence production in H225, adding to FY26 forecast production. We forecast FY25 4E production of 78,711oz, ahead of the company’s target range (73,000–76,000oz). Our FY26 forecast is for 81,694oz.

Sylvania delivered unit cost efficiencies between 1% and 5% in Q225 on the back of improved production with total US dollar operating costs up 0.7% (up 0.5% in rand terms). With the rand currently 5% weaker against the dollar compared to November 2024 when we last updated our forecasts, we have reduced our US dollar cost assumptions, which has a positive effect on our forecasts.

PGM forecasts cut, near-term chromite moderated

The PGM basket price in Q225 was 2.3% higher than in Q125, which is a slower recovery than expected. We have lowered our PGM forecasts (platinum and rhodium are most affected), which has moderated the revenue outlook. Recent lower chromite prices are reflected in our near-term forecasts, although our long-term forecast of US$230/tonne remains unchanged.

Valuation: 106.8p per share, down 2.3%

We have trimmed FY26 EPS forecast by 6.1% and FY27 by 3.0% on lower PGM and chromite prices. Our valuation is 2.3% lower at 106.8p/share (down 3.6% for the Sylvania dump operations, down 3% for the JV and up 5.8% for exploration assets), with a weaker sterling versus the US dollar moderating the effect of lower forecasts.

Production recovery and cost control but weaker PGM outlook

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. However, with Sylvania expecting its Thaba JV to start production in H225, the company is set to benefit from a healthy increase in production from FY26 and attractive diversification of its revenue stream to include chrome, which is currently attracting healthy prices. An August 2024 competent person’s report for the Volspruit Scoping Study has resulted in a significant improvement in the outlook for this exploration asset, including an increased life of mine. While our forecasts and valuation include an updated recognition of the impact of the Thaba JV, we remain conservative in valuing the Sylvania exploration assets at book value, which could imply upside going forward.

Healthy Q225 improvement beats our expectations

Sylvania’s Q225 results exceeded our outlook due to 9.4% higher production and 3.5% lower costs than expected, despite a 1.8% lower PGM basket price than expected. Exhibit 1 shows the quarterly results and the variances compared with our prior forecasts.

Exhibit 1: Comparison of Q225 results with Q125

Source: Edison Investment Research, Sylvania Platinum accounts

We continue to see positive momentum for the remainder of FY25. We have lifted our production forecasts and reduced our US dollar cost forecasts (on the back of a stronger dollar), although we have reduced our year-end PGM basket price forecast from US$1,475/oz to US$1,423/oz in line with our new PGM forecasts (see below).

The highlights of the Q225 results are as follows:

• Q225 plant feed was 2.3% higher than Q125, but 3.7% below our expectation due to a four-day planned maintenance shutdown at Tweefontein in October 2024.
• PGM feed grade of 3.5g/t was well ahead of the 3.0g/t we expected, due to a strong performance from Sylvania’s Eastern operations (which include Tweefontein and Lannex, two of its largest operations).
• 4E PGM production of 20,238oz beat our expectation by 10.1%, while 6E at 26,373oz was 9.4% ahead. 4E production of 39,398oz year-to-date provides strong support for the company’s FY25 target of 73,000–76,000oz.
• Healthy production, despite a 1.8% lower PGM basket price than expected, drove Q225 revenue (before sales adjustment) up 8.1% relative to Q125 and 3.9% ahead of our expectation. A large positive sales adjustment, related to actual prices received in the reported quarter for production reported in the previous quarter, resulted in an even larger 17.1% increase in total revenue (12% ahead of our expectation).
• Further cost efficiencies emerged in the quarter with unit costs reducing between 1% and 5%. Total operating costs were only 0.5% higher in rand terms (0.7% higher in US dollar terms), which were lower than we expected by 6.3% and 3.5%, respectively.
• The company’s EBITDA of US$6.7m was more than double the level in Q125, and meaningfully ahead of our expectation of US$2.4m, on the back of the positive factors above. Net profit of US$6.3m was similarly stronger.
• Cash levels reduced from US$94.7m at Q125 to US$77.5m due to US$12.1m of capex spend on the JV, as well as the payment of the US$3.3m final dividend and stay-in-business expenditure.

Downgraded PGM and chromite forecasts

The platinum price has an inverse relationship with the rand/dollar exchange rate (historically, a weak rand results in a weak platinum price in US dollars). This is because a weak rand results in higher margins for South African producers, resulting in continued platinum metal supply to the market, which depresses the US dollar price of platinum. With a high likelihood that the rand could weaken further in 2025 due to dollar strength (it has already weakened 5% since November last year), the platinum price will struggle with gains, especially as above-ground stocks remain at around six months annual production. Hence, we have reduced our forecasts for platinum. We have raised our ruthenium prices sharply due to the increased demand for ruthenium-intensive hard disk drives resulting from the large increase in data storage requirements from AI. We have decreased our iridium forecasts because the outlook for fuel cells and hydrogen electrolysis has stalled, we think temporarily. We think that fuel cells, which are zero emission motors driven by hydrogen, will have a part to play in the future as carbon emissions from internal combustion driven vehicles are ratcheted back inexorably. Our forecasts for rhodium and palladium are little changed from our previous forecasts.

Exhibit 2: Edison updated PGM price forecasts (average June year-end prices)

Source: Edison Investment Research, Austin Lawrence Gidon, LSEG Data & Analytics

Chromite prices have decreased sharply to US$225/tonne (on a cost, insurance and freight (CIF) basis) from US$320/tonne at their peak in the first half of 2024 as a result of lower demand from China and weaker ferrochrome prices. With a weak Chinese economy and possible higher trade tariffs from the US, we see the chrome market steadying at current price levels. While we have moderated our near-term forecasts, our long-term chromite forecast (beyond FY30) remains unchanged at US$230/tonne.

Forecast revisions

We have increased our FY25 EPS estimate by 1.9% to 5.2c on the back of a strong Q225 performance and lift our FY25 4E production forecast from 77,259oz to 78,711oz, ahead of the company’s guidance range of 73,000–76,000oz. We have also reduced our US dollar costs for the remainder of FY25 to account for the cost control shown in Q225 and a 5% stronger US dollar compared to 4 November 2024 when we last updated our forecasts. We have reduced our year-end forecast cash balance by 5.4% to US$59.0m due to a stronger US dollar (with the cash balance held in rand and sterling).

Exhibit 3: Comparison of FY25 and FY26 forecast changes

Source: Edison Investment Research

We have cut our FY26 EPS estimate by 6.1% to 10.1c, largely driven by lower forecast PGM prices and a more conservative view on chromite prices, which affects our JV forecasts. This has been moderated by lower forecast US dollar costs due to a stronger dollar. Our forecast cash balance at the end of FY26 has been cut by 5% on the back of a stronger US dollar.

The impact of our lower PGM and chromite price forecasts moderates in FY27, resulting in a 3.0% cut in our EPS estimate to 11.3c.

Sensitivities

Sylvania is very sensitive to PGM prices and, increasingly, to chromite prices as the JV comes into production. Its second most meaningful sensitivity is to US dollar costs, which are dependent on the dollar exchange rate relative to the rand (as all costs are South Africa-based).

Valuation

We have reduced our valuation for Sylvania by 2.6% to 106.8p/share due to a combination of factors. Our EPS forecast for FY25 has been lifted by 1.9% to 5.2c on the back of a strong Q225 result and an improved production and cost outlook, despite a reduced PGM basket price forecast. The lower PGM and chromite forecasts for FY26 have negatively affected revenue, although this has been moderated by lower US dollar cost forecasts on the back of a stronger dollar against the rand. We use a constant currency approach in forecasting for Sylvania, and since our previous published forecasts in our 4 November 2024 note, the reference exchange rate for this purpose has seen a 5% relative appreciation of the dollar, which has resulted in a downward adjustment to our US dollar-based costs. The net impact is a 6.1% cut in FY26e EPS to 10.7c. Similar PGM forecasts and US dollar cost impacts affect our FY27 forecast, although the EPS downgrade is lower at 3.4% to 11.3c.

While Sylvania reports EPS in US cents, and our forecasts are therefore in US cents, the company is quoted on AIM in pence and pays dividends in pence. Due to the strengthening of the dollar versus sterling by 4% to US$1.25/£ since our November 2024 forecasts, our US cents EPS downgrades have a smaller impact on our sterling valuation. As a result, our combined valuation has reduced by less than the EPS cuts would imply.

Our Sylvania dump operations (SDO) valuation is 3.6% lower at 75.2p/share due to our lower PGM forecasts, offset by lower forecast US dollar costs and moderated by a stronger dollar. Our Thaba JV valuation is 3% lower at 17.0p due to lower PGM forecasts and a moderation of our near-term chromite forecast. We continue to value the exploration assets of Sylvania at book value, which was disclosed as US$47.7m at 30 June 2024. When converted to sterling, this valuation is 14.6p/share, which is 5.8% higher than our 4 November 2024 valuation.

Exhibit 4: Valuation downgrade on PGM forecasts

Source: Edison Investment Research

The implied forward P/E multiple based on our new valuation has increased to 10.6x based on our FY26 EPS forecast, while the FY26 P/E multiple has remained largely unchanged.

Exhibit 5: Financial summary

Source: Company accounts, Edison Investment Research. Note: Forecasts exclude windfall dividends.