Sylvania Platinum — Healthy production recovery

Sylvania Platinum (AIM: SLP)

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Research: Metals & Mining

Sylvania Platinum — Healthy production recovery

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.

Metals & Mining

Sylvania Platinum

Q125 results

Metals and mining

4 November 2024

Price

45.8p

Market cap

£119.5m

US$/£1.30; ZAR/US$17.63

Net cash at end Q125

US$94.7m

Shares in issue

261.6m

Free float

88.4%

Code

SLP

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(6.1)

(19.3)

(36.0)

Rel (local)

(4.9)

(17.9)

(43.2)

52-week high/low

77.0p

43.4p

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

Q225 results

January 2025

Analysts

René Hochreiter

+44 (0)20 3077 5700

Marius Strydom

+44 (0)20 3077 5700

Sylvania Platinum is a research client of Edison Investment Research Limited

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*
(US$m)

EPS*
(c)

DPS**
(p)

P/E
(x)

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.

General disclaimer and copyright

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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

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General disclaimer and copyright

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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

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Braemar — Robust trading, but UK budget adds to costs

Government changes to National Insurance (NI) arrangements have added to Braemar’s costs, implying lower profitability. However, underlying operations continue to expand and diversify, and Braemar remains well-positioned to drive its future growth strategy. The trading outlook is promising and Braemar should be able to leverage its strong balance sheet in pursuit of strategic growth. We have maintained our revenue estimates but trimmed our operating profit forecasts to reflect the additional NI charges. However, we maintain our dividend discount model-based valuation of 535p.

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