Sylvania Platinum — Q124 production up, costs down

Sylvania Platinum (AIM: SLP)

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Research: Metals & Mining

Sylvania Platinum — Q124 production up, costs down

Sylvania Platinum is a low-risk, high-yielding South African platinum group metals (PGM) dump retreatment operation. Despite a 15% fall in the PGM basket in Q124 versus Q423, the company maintained a healthy cash position of US$126.9m at end September 2023. Production in Q124 was better than we estimated. Unit costs were down in every cost category in response to higher ounces produced, but despite this, EBITDA and net profit were sharply lower. The company is controlling capex as capital allocation comes under the spotlight against the backdrop of weak PGM prices.

Metals & Mining

Sylvania Platinum

Q124 results

Metals and mining

2 November 2023

Price

71.9p

Market cap

£189m

US$1.15/£; ZAR19.19/US$

Net cash ($m) at 30 September 2023

126.9

Shares in issue

263m

Free float

86.7

Code

SLP

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(9.0)

3.6

(21.7)

Rel (local)

(6.6)

9.2

(22.4)

52-week high/low

112.4p

64.8p

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

H124 results

January 2024

Analyst

René Hochreiter

+44 (0)20 3077 5700

Sylvania Platinum is a research client of Edison Investment Research Limited

Sylvania Platinum is a low-risk, high-yielding South African platinum group metals (PGM) dump retreatment operation. Despite a 15% fall in the PGM basket in Q124 versus Q423, the company maintained a healthy cash position of US$126.9m at end September 2023. Production in Q124 was better than we estimated. Unit costs were down in every cost category in response to higher ounces produced, but despite this, EBITDA and net profit were sharply lower. The company is controlling capex as capital allocation comes under the spotlight against the backdrop of weak PGM prices.

Year end

Revenue (US$m)

PBT*
(US$m)

EPS*
(c)

DPS
(p)

P/E
(x)

Yield
(%)

06/22

152

81

20.6

10.3**

3.8

10.2

06/23e

130

67

17.0

8.0

4.6

10.2

06/24e

112

38

10.5

3.5

7.5

3.8

06/25e

134

45

11.9

4.3

6.5

4.6

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Includes windfall dividend of 2.25p declared in April 2022.

Q124 production results improve on Q423

Q124 saw 4 Element PGM production of 20,173oz in line with guidance and on an annualised basis above the company’s annual guidance of 74–75Koz 4E, noting that Q2 and Q3 are historically lower due to the festive season and fewer production days. Compared to Q423, Q124 4E PGM production was up 5.8%, all-in sustaining costs (AISC) were down 5.8% and all-in costs (AIC) were down 17.3%, a strong performance in USD given the ZAR/USD exchange rate was virtually unchanged. EBITDA and net profits were, however, sharply lower due to a 15% reduction in PGM basket prices over the two quarters.

The Thaba JV and exploration projects are on track

Contractors are on site for the Thaba project and civil works are set to proceed during Q224. Updated draft Mineral Resource Estimate (MRE) statements for the Volspruit projects are being reviewed. Re-logging of 75% of the Far North Project boreholes is 75% complete, with rhodium and ruthenium grades to be included for an updated MRE.

Valuation: Unchanged at 135.4p/share with Thaba JV and exploration

Our valuation and estimates are unchanged. We value the Sylvania Dump Operations (SDOs) at 104.4p/share on a discounted dividend model using a 10% real discount rate. We value the Thaba JV at 17.2p/share and we include exploration assets at book value (13.8p/share), resulting in a total valuation of 135.4p/share. With the inclusion of rhodium in the Volspruit project valuation, this could lift our valuation further, but we will do this after the updated MRE is published in H124.

Good Q124 results with chromite and exploration projects potential

The investment case for Sylvania is based on a low-risk dump retreatment operation to which the bulk of the valuation of the company can be ascribed. Sylvania has entered the chromite production market through the Thaba JV announced in August 2023 where it will see chromite income generated for its own account for the first time. It also has exploration assets in the northern part of the Bushveld Igneous Complex of South Africa which are being steadily progressed with updated MRE statements and a Preliminary Feasibility Study in H224 expected for the Volspruit Projects. Sylvania recently published first quarter results confirming its cash generative ability and strong focus on cost control and capital allocation.

Q124 results: Excellent production quarter

Exhibit 1 shows the quarterly results and the differences between them and our prior forecasts:

Essentially, we underestimated PGM production and overestimated PGM prices.

Sylvania produced 20,173oz of 4E PGMs in Q124, 5.1% higher than our estimate but in line with Sylvania’s own expectations. However, there are a number of public holidays in Q224 and Q324, which may see production restricted so we have not changed our full year forecast. PGM plant feed was 6.7% higher than our forecasts.

Our estimate for the basket price was 7.4% higher than reported by Sylvania. Again, it is too early in the year to change our prices, but we will monitor them carefully as FY24 progresses.

Plant feed grade was 8.3% lower than our estimates, but recoveries are expected to improve with the Lannex fine-grinding circuit and so, again, we have not changed our estimates for the year.

4E revenues were 9.6% lower than we forecast resulting in total revenues 19.6% lower. Total operating costs were 4.4% higher than our estimates resulting in EBITDA being 66.6% lower than our estimates. Gross margin was 50.5% lower than we forecast.

Although our forecasts for PGM prices for FY24 are higher than the Q124 actuals, we lowered our forecasts significantly in our update following August’s Q423 results. In our view it is too early to react at this stage and we have left our forecasts unchanged for FY24.

Exhibit 1: Comparison of Q124 results with Q423

 

Q423

Q124

Q124e

Q124 vs Q423

Q124 vs Q124e

FY24e

Production

 

 

 

 

 

 

Plant feed (t)

702,236

666,824

693,142

(5.0%)

(3.8%)

2,782,643

Feed head grade (g/t)

1.81

1.93

6.6%

PGM plant feed (t)

359,658

358,602

336,174

(0.3%)

6.7%

1,375,513

PGM plant feed grade (g/t)

2.89

2.94

3.20

1.7%

(8.3%)

3.05

Total 4E PGMs (oz)

19,072

20,173

19,189

5.8%

5.1%

75,987

Total 6E PGMs (oz)

24,383

25,533

24,734

4.7%

3.2%

98,063

Basket price ($/oz)

1,581

1,344

1,451

(15.0%)

(7.4%)

1,681

Financials (US$m)

4E Revenue

21.8

19.6

21.7

(10.1%)

(9.6%)

100.3

By-product revenue

3.5

3.3

2.8

(4.4%)

16.4%

12.1

Total revenue before sales adjustment

25.3

22.9

24.6

(9.3%)

(6.6%)

112.4

Sales adjustment

(0.9)

(3.2)

0.0

N/A

N/A

0.00

Total revenue

24.4

19.7

24.5

(19.2%)

(19.6%)

112.4

Total operating costs (ZARm)

289.8

300.5

291.7

3.7%

3.0%

1,295.9

Total operating costs

15.5

16.1

15.4

3.8%

4.4%

68.7

Other costs

0.70

0.70

0.65

(0.3%)

6.9%

2.91

EBITDA

7.8

2.8

8.4

(63.9%)

(66.6%)

36.2

Net interest

1.78

1.64

1.26

(8.0%)

30.6%

5.41

Net profit

3.1

1.8

(42.5%)

27.8

Gross margin (%)

36.5

18.3

37.1

(49.7%)

(50.5%)

38.9%

Basic EPS (USc)

1.2

0.7

(41.7%)

10.6

CapEx

6.2

3.2

(48.0%)

10.8

Cash Balance

125.0

126.9

1.5%

88.4

Average ZAR/US$ rate

18.68

18.65

18.89

(0.2%)

(1.3%)

18.68

Spot ZAR/US$ rate

18.89

18.94

18.89

0.3%

0.3%

18.94

Unit cost (US$)

SDO cash cost /4E PGM oz

660

639

(3.2%)

SDO cash cost /6E PGM oz

516

505

(2.1%)

Group cash cost / 4E PGM oz

824

782

(5.1%)

Group cash cost / 6E PGM oz

645

618

(4.2%)

All-in-sustaining cost (4E)

881

830

(5.8%)

All-In cost (4E)

1,159

959

(17.3%)

Source: Edison Investment Research, Sylvania Platinum accounts

Valuation

Our valuation remains 135.4p/share. We value the operating assets at 104p/share, the Thaba JV at 17.2p/share and the exploration assets at book value (13.8p/share), bringing the total value to 135.4p/share. We will update our valuation if our PGM price outlook changes and as and when the new MRE is published (expected in H124).

Financials

Exhibit 2 shows our forecasts to FY26. Our forecasts are unchanged since we published our FY23 year-end report on 14 September 2023, as detailed above.

Exhibit 2: Financial summary

US$m

2021

2022

2023

2024e

2025e

2026e

Year ending 30 June

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

 

 

 

 

Revenue

206

152

130

112

134

165

Cost of Sales

(55)

(62)

(61)

(74)

(85)

(100)

Royalties Tax

(8)

(7)

(5)

(5)

(7)

(8)

Gross Profit

143

83

64

34

43

57

EBITDA

145

83

66

36

46

60

Operating Profit (before amort. and except.)

142

80

62

31

40

54

Intangible Amortisation

0

0

0

0

0

0

Exceptionals

0

0

0

0

0

0

Other

(5)

(7)

(6)

(9)

(10)

(10)

Operating Profit

142

80

62

31

40

54

Net Interest

1

1

5

8

6

6

Profit Before Tax (norm)

143

81

67

38

45

60

Profit Before Tax (FRS 3)

143

81

67

38

45

60

Tax

(43)

(25)

(22)

(11)

(14)

(19)

Profit After Tax (norm)

100

56

45

28

31

41

Profit After Tax (FRS 3)

100

56

45

28

31

41

Average Number of Shares Outstanding (m)

272

272

267

263

263

263

EPS – normalised (c)

36.7

20.6

17.0

10.5

11.9

15.8

EPS – normalised fully diluted (c)

35.9

20.4

16.7

10.5

11.9

15.8

EPS – (IFRS) (c)

35.9

20.4

16.7

10.5

11.9

15.8

Dividend per share (p)

4.0

8.0

8.0

3.5

4.3

12.0

Gross Margin (%)

69%

55%

49%

30%

32%

35%

EBITDA Margin (%)

70%

54%

49%

32%

34%

37%

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

69%

52%

47%

27%

29%

33%

BALANCE SHEET

 

 

 

 

 

 

Fixed Assets

86

93

101

153

159

160

Intangible Assets

45

46

46

42

43

46

Tangible Assets

40

46

49

65

68

67

Investments

0

0

6

46

48

47

Current Assets

188

187

168

142

159

161

Stocks

4

4

5

2

2

3

Debtors

69

53

36

37

42

44

Cash

106

121

124

96

107

111

Other

9

8

3

8

7

3

Current Liabilities

14

11

14

8

9

9

Creditors

14

11

14

8

9

9

Short term borrowings

0

0

0

0

0

0

Long Term Liabilities

16

18

17

20

21

20

Long term borrowings

0

0

0

0

0

0

Other long term liabilities

16

18

16

20

21

20

Net Assets

244

251

239

268

288

293

CASH FLOW

 

 

 

 

 

 

Operating Cash Flow

114

92

78

32

42

58

Net Interest

2

2

5

8

6

7

Tax

(47)

(24)

(20)

(10)

(14)

(18)

Capex

(8)

(16)

(14)

(22)

(10)

(6)

Acquisitions/disposals

0

0

0

(19)

0

2

Financing

(4)

(20)

(11)

(1)

0

0

Dividends

(20)

(23)

(35)

(17)

(11)

(36)

Net Cash Flow

39

20

7

(29)

14

7

Opening net (debt)/cash

56

106

121

124

96

107

HP finance leases initiated

0

0

0

0

0

0

Other

12

(5)

(4)

1

(2)

(3)

Closing net (debt)/cash

106

121

124

96

107

111

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

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 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

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.

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London │ New York │ Frankfurt

20 Red Lion Street

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London │ New York │ Frankfurt

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London, WC1R 4PS

United Kingdom

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 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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