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Research: Metals & Mining
Sylvania delivered a 12% increase in Q125 production compared to Q424 and, with an average platinum group metals (PGM) basket price only slightly down, delivered a 10% increase in revenue. The company is guiding for FY25 production of 73,000–76,000oz. Costs were well controlled with South African rand (ZAR) direct operating costs 3% higher and US dollar costs up 6.5%. Attractive unit cost efficiencies of 5% to 8% were delivered. With results largely in line with our expectations, our forecasts remain unchanged. Our valuation has increased by 3.3% to 109.3p/share, affected by a weaker sterling exchange rate versus the dollar.
Written by
Rene Hochreiter
Sylvania Platinum |
Q125 results |
Metals and mining |
4 November 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 delivered a 12% increase in Q125 production compared to Q424 and, with an average platinum group metals (PGM) basket price only slightly down, delivered a 10% increase in revenue. The company is guiding for FY25 production of 73,000–76,000oz. Costs were well controlled with South African rand (ZAR) direct operating costs 3% higher and US dollar costs up 6.5%. Attractive unit cost efficiencies of 5% to 8% were delivered. With results largely in line with our expectations, our forecasts remain unchanged. Our valuation has increased by 3.3% to 109.3p/share, affected by a weaker sterling exchange rate versus the dollar.
Year end |
Revenue (US$m) |
PBT* |
EPS* |
DPS** |
P/E |
Yield |
06/24 |
81.7 |
13.5 |
2.7 |
3.0 |
22.4 |
6.5 |
06/25e |
103.8 |
18.0 |
5.1 |
2.0 |
11.7 |
4.3 |
06/26e |
140.9 |
39.4 |
10.7 |
4.5 |
5.6 |
9.8 |
06/27e |
146.9 |
43.7 |
11.7 |
5.7 |
5.1 |
12.4 |
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.
Healthy production recovery and cost control
Sylvania delivered a healthy production recovery in Q125 with 19,160oz of 4E PGMs, up 12.3% on Q424, and 6E PGM production up 12.1%. Unit cost efficiencies between 5% and 8% were delivered on the back of improved production with total US dollar operating costs up 6.5% (up 3% in ZAR terms), slightly below our expectations. The PGM basket price was slightly down (-1.9%) on Q424 and missed our expectation by 5.5%. Our forecast for a c 9% increase by year-end remains in place and we forecast FY25 4E PGM production of 77,250oz, slightly ahead of the company’s target range of 73,000–76,000oz (based on a healthy Q125 result).
JV on track and exploration asset developments
The Thaba joint venture (JV) remains on track to commence production in H225, adding strongly to FY26 forecast production and benefiting from a large contribution from chrome and healthy current chrome ore prices. The independent August 2024 Competent Person’s Report (CPR) for the Volspruit Scoping Study increased the life of mine assumption and valuation. While we continue to conservatively value Sylvania’s exploration assets at book value, we recognise the growing potential upside and await further information and strategic updates from the company.
Valuation: 109.3p per share, up 3.3%
We have left our forecasts unchanged, with FY25 EPS of 5.1c, growing by 109% to 10.7c in FY26, supported by the Thaba JV, and to 11.7c in FY27. We have increased our valuation by 3.3% from 105.8p/share to 109.3p/share, due to a weaker sterling exchange rate versus the dollar and closer proximity to cash flows. It includes an unchanged valuation for exploration assets of 13.8p based on book value, which is increasingly appearing to offer upside potential, which we will reassess over coming periods.
On track for a recovery year, with upside potential
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 the company expecting its Thaba JV to start production in H225, Sylvania 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 CPR 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 (see our previous report), we remain conservative in valuing the Sylvania exploration assets at book value, which could imply upside going forward.
Results slightly below our expectations due to PGM prices
Sylvania slightly missed our Q125 expectation, due to a 1.9% lower PGM basket price versus the 3.7% basket price increase we had expected. We continue to see positive momentum for the remainder of FY25 and have left our forecasts unchanged (with the basket price increasing from US$1,356/oz in Q125 to US$1,475/oz by year-end). Exhibit 1 shows the quarterly results and the variances compared with our prior forecasts.
Exhibit 1: Comparison of Q125 results with Q424
|
Q424 |
Q125 |
Q125e |
Q125 vs Q424 |
Q125 vs Q125e |
Q225e |
Production |
|
|
|
|
|
|
Plant feed (t) |
600,058 |
625,881 |
678,664 |
4.3% |
(7.8%) |
664,514 |
Feed head grade (g/t) |
1.98 |
2.03 |
1.98 |
2.6% |
2.6% |
1.98 |
PGM plant feed (t) |
336,029 |
327,812 |
356,298 |
(2.4%) |
(8.0%) |
348,046 |
PGM plant feed grade (g/t) |
3.03 |
3.24 |
3.03 |
6.8% |
7.0% |
3.03 |
Total 4E PGMs (oz) |
17,067 |
19,160 |
19,061 |
12.3% |
0.5% |
18,377 |
Total 6E PGMs (oz) |
21,896 |
24,549 |
24,559 |
12.1% |
(0.0%) |
24,098 |
Basket price ($/oz) |
1,383 |
1,356 |
1,435 |
(1.9%) |
(5.5%) |
1,412 |
Financials |
||||||
4E revenue (US$m) |
17.0 |
18.5 |
20.2 |
9.2% |
(8.5%) |
19.2 |
By-product revenue (US$m) |
2.8 |
3.3 |
3.4 |
16.0% |
(4.3%) |
3.5 |
Total revenue before sales adjustment (US$m) |
19.8 |
21.8 |
23.7 |
10.2% |
(7.8%) |
22.7 |
Sales adjustment (US$m) |
0.8 |
0.1 |
0.1 |
(88.0%) |
(13.2%) |
0.1 |
Total revenue (US$m) |
20.6 |
21.9 |
23.8 |
6.2% |
(7.9%) |
22.9 |
Total operating costs (ZARm) |
318.3 |
327.9 |
334.4 |
3.0% |
(2.0%) |
351.5 |
Total operating costs (US$m) |
17.2 |
18.3 |
18.7 |
6.5% |
(2.3%) |
19.1 |
Other costs (US$m) |
0.7 |
0.6 |
0.8 |
(12.1%) |
(17.8%) |
0.7 |
EBITDA (US$m) |
2.8 |
3.3 |
4.3 |
16.0% |
(23.5%) |
2.4 |
Net profit (US$m) |
2.8 |
3.0 |
4.7 |
9.3% |
(36.2%) |
2.8 |
Gross margin |
16.9% |
16.6% |
21.4% |
(1.4%) |
(22.2%) |
16.7% |
Basic EPS (USc) |
1.1 |
1.1 |
9.3% |
|||
Capex (US$m) |
5.3 |
7.8 |
46.9% |
|||
Cash balance (US$m) |
97.8 |
94.7 |
(3.3%) |
|||
Average ZAR/US$ rate |
18.56 |
17.95 |
18.19 |
(3.3%) |
(1.3%) |
|
Spot ZAR/US$ rate |
18.19 |
17.34 |
18.19 |
(4.7%) |
(4.7%) |
|
Unit costs (US$) |
||||||
SDO cash cost/4E PGM oz |
875 |
808 |
(7.6%) |
|||
SDO cash cost/6E PGM oz |
682 |
631 |
(7.5%) |
|||
Group cash cost/4E PGM oz |
1,027 |
976 |
(5.0%) |
|||
Group cash cost/6E PGM oz |
801 |
762 |
(4.9%) |
|||
All-in-sustaining cost (4E) |
1,077 |
995 |
(7.6%) |
|||
All-in cost (4E) |
1,161 |
1,401 |
20.7% |
Source: Edison Investment Research, Sylvania Platinum accounts
The highlights of the Q125 results are as follows:
■
Q125 plant feed was 4.3% higher than Q424, but has not yet recovered to the 667kt level of Q124, which was what we had expected.
■
Due to healthy improvements in both feed grade (1.98g/t to 2.03g/t) and PGM feed grade (3.03g/t to 3.24g/t), 4E PGM production of 19,160oz beat our expectation by 0.5% (up 12.3% on Q424).
■
The PGM basket price was down 1.9% at US$1,356 for the quarter and 5.5% below our expectation.
■
While total revenue was 6.2% ahead of Q424 because of higher production, it missed our expectation by 7.9% due to the lower-than-expected basket price.
■
Cost efficiencies emerged in the quarter on the back of the production recovery with unit costs reducing between 5% and 8% in US dollar terms.
■
Total operating costs in South African rand terms were up only 3% in the quarter and 2% below our expectation, while US dollar costs were up 6.5%, affected by a stronger rand.
■
The company posted an EBITDA of US$3.3m, which was 16% higher than Q424, but 24% below our expectation, with a gross margin of 16.6% versus 16.9% in Q424 not staging the expected recovery due to sustained pressure on the PGM basket price.
■
Net profit was up 9.3% on Q424, but 36.2% below our expectation.
■
Cash levels remained strong at US$94.7m, despite the strength of the rand against the US dollar and capital expenditure of US$7.8m (including US$4.8m on the Thaba JV attributable capital).
Forecast revisions
We have made no changes to our forecasts.
JV progress and mineral asset development
The Thaba JV remains on track to commence production in H225, with the team preparing for cold commission of most areas of the plant in Q325. In our 25 September 2024 update note, we introduced our forecast and valuation upgrades relating to the JV, with a strong focus on the expected chrome contribution and healthy current chrome prices.
Sylvania has three exploration projects, namely Volspruit, Aurora and Hacra. The August 2024 CPR for Volspruit resulted in an increase in the life of mine assumption (from 8.7 to 14 years), which significantly increased the pre-tax net present value (NPV) for the project from US$27.3m to US$69.0m. This would need to be re-calculated on a post-tax basis for us to assess the value of the project to Sylvania. Nevertheless, the value add of the latest CPR is likely to be large and well above the book value we currently use for assigning a value to all the exploration assets.
In addition, a geophysical survey is underway to cover the entire strike length of the Aurora project (a potential low-cost, open-cast resource). The report aims to assess both the continuity of the mineralisation as well as gain a greater understanding of the structural setting of the area, with results expected in Q325. The declaration of an Exploration Target on the Hacra project during August 2024 provides sufficient information for the company to evaluate various disposal options. We continue our conservative approach in modelling the potential upside from the exploration assets and carry them at book value. We will consider recognising the potential upside when more information becomes available and/or if Sylvania announces further key decisions around its strategy.
Valuation
We have lifted our valuation for Sylvania by 3.3% from 105.8p/share to 109.3p/share as a result of a stronger sterling exchange rate versus the dollar and closer proximity to profitable cash flows as we rolled our model forward. We have maintained our exploration asset valuation at 13.8p/share, with 17.5p/share ascribed to the Thaba JV (up 3.8%) and the remaining 78.0p/share (up 3.8%) to the Sylvania Dump Operations (SDO).
Exhibit 2: Slight valuation upgrade
Current |
Previous |
Change |
|
Combined valuation (p/share) |
109.3 |
105.8 |
3.3% |
SDO (p/share) |
78.0 |
75.1 |
3.8% |
Exploration (p/share) |
13.8 |
13.8 |
0.0% |
Thaba JV (p/share) |
17.5 |
16.9 |
3.8% |
FY25 EPS (p/share) |
5.1 |
5.1 |
0.0% |
Implied P/E (x) |
21.4 |
20.7 |
|
FY26 EPS (p/share) |
10.7 |
10.7 |
0.0% |
Implied P/E (x) |
10.2 |
9.9 |
|
FY27 EPS (p/share) |
11.7 |
11.7 |
0.0% |
Implied P/E (x) |
9.4 |
9.1 |
Source: Edison Investment Research
While the implied forward P/E multiple of our new valuation has decreased slightly based on the FY25 EPS forecast relative to our previous valuation, the FY26 and FY27 forward P/E multiples are largely unchanged.
Exhibit 3: Financial summary
US$m |
2023 |
2024 |
2025e |
2026e |
2027e |
Year ending 30 June |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
PROFIT & LOSS |
|
|
|
|
|
Revenue |
130.2 |
81.7 |
103.8 |
140.9 |
146.9 |
Cost of Sales |
(63.2) |
(69.0) |
(81.9) |
(93.4) |
(93.5) |
Royalties Tax |
(4.9) |
(1.4) |
(2.7) |
(5.7) |
(7.0) |
Gross Profit |
62.1 |
11.3 |
19.1 |
41.9 |
46.4 |
EBITDA |
67.9 |
12.3 |
20.3 |
46.2 |
50.7 |
Operating Profit (before amort. And except.) |
61.8 |
7.4 |
14.2 |
37.0 |
41.4 |
Intangible Amortisation |
(4.1) |
(4.9) |
(6.2) |
(9.2) |
(9.3) |
Exceptionals |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Other |
(4.0) |
(4.2) |
(5.3) |
(5.1) |
(5.3) |
Operating Profit |
61.8 |
7.4 |
14.2 |
37.0 |
41.4 |
Net Interest |
5.2 |
6.1 |
3.9 |
2.4 |
2.3 |
Profit Before Tax (norm) |
67.0 |
13.5 |
18.0 |
39.4 |
43.7 |
Profit Before Tax (FRS 3) |
67.0 |
13.5 |
18.0 |
39.4 |
43.7 |
Tax |
(21.6) |
(6.5) |
(4.7) |
(11.4) |
(13.2) |
Profit After Tax (norm) |
45.4 |
7.0 |
13.4 |
28.0 |
30.5 |
Profit After Tax (FRS 3) |
45.4 |
7.0 |
13.4 |
28.0 |
30.5 |
Average Number of Shares Outstanding (m) |
266.6 |
262.6 |
261.6 |
261.6 |
261.6 |
EPS – normalised (c) |
17.0 |
2.7 |
5.1 |
10.7 |
11.7 |
EPS – normalised fully diluted (c) |
16.7 |
2.7 |
5.1 |
10.7 |
11.7 |
EPS – (IFRS) (c) |
16.7 |
2.7 |
5.1 |
10.7 |
11.7 |
Dividend per share (p) |
8.0 |
3.0* |
2.0 |
4.5 |
5.7 |
Gross Margin (%) |
48% |
14% |
18% |
30% |
32% |
EBITDA Margin (%) |
51% |
15% |
20% |
33% |
35% |
Operating Margin (before GW and except.) (%) |
47% |
9% |
14% |
26% |
28% |
BALANCE SHEET |
|||||
Fixed Assets |
101.5 |
117.3 |
156.9 |
169.3 |
165.3 |
Intangible Assets |
46.5 |
47.7 |
48.1 |
48.1 |
48.1 |
Tangible Assets |
48.7 |
61.8 |
101.0 |
113.4 |
109.4 |
Investments |
6.4 |
7.8 |
7.8 |
7.8 |
7.8 |
Current Assets |
168.2 |
140.2 |
107.9 |
111.9 |
117.9 |
Stocks |
5.1 |
5.7 |
4.2 |
2.7 |
2.8 |
Debtors |
35.7 |
34.7 |
39.4 |
46.5 |
48.5 |
Cash |
124.2 |
97.8 |
62.3 |
60.7 |
64.6 |
Other |
3.3 |
2.0 |
2.0 |
2.0 |
2.0 |
Current Liabilities |
13.9 |
14.1 |
12.9 |
14.6 |
15.2 |
Creditors |
13.9 |
14.1 |
12.9 |
14.6 |
15.2 |
Short term borrowings |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Long Term Liabilities |
16.5 |
18.0 |
18.1 |
18.4 |
18.8 |
Long term borrowings |
0.4 |
0.5 |
0.5 |
0.5 |
0.5 |
Other long term liabilities |
16.2 |
17.5 |
17.6 |
18.0 |
18.3 |
Net Assets |
239.4 |
225.5 |
233.8 |
248.2 |
249.3 |
CASH FLOW |
|||||
Operating Cash Flow |
77.7 |
15.0 |
15.9 |
41.1 |
49.0 |
Net Interest |
5.1 |
6.0 |
4.1 |
2.7 |
2.6 |
Tax |
(19.8) |
(6.2) |
(4.7) |
(11.4) |
(13.2) |
Capex |
(14.5) |
(15.8) |
(43.5) |
(19.5) |
(4.9) |
Acquisitions/disposals |
0.0 |
0.1 |
0.0 |
0.0 |
0.0 |
Financing |
(10.6) |
(5.2) |
0.0 |
0.0 |
0.0 |
Dividends |
(35.5) |
(23.4) |
(9.5) |
(13.5) |
(29.5) |
Net Cash Flow |
6.6 |
(27.0) |
(37.5) |
(0.6) |
4.0 |
Opening net (debt)/cash |
121.3 |
124.2 |
97.8 |
62.3 |
60.7 |
HP finance leases initiated |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Other |
(3.7) |
0.7 |
1.9 |
(1.0) |
(0.2) |
Closing net (debt)/cash |
124.2 |
97.8 |
62.3 |
60.7 |
64.6 |
Source: Company accounts, Edison Investment Research. Note: *Includes 1p/share declared special dividend.
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