On top of the healthy production in Q326, Sylvania’s PGM basket price increased by
28.3% from
US$2,374/oz to
US$3,047/oz. This was 12.6% lower than our forecast, with the Iran war resulting in a sell-off
in early March 2026. We forecast a largely flat basket price for Q426 before an uptick
to a more constructive outlook for FY27 based on an expected increase in demand, particularly
from the US as it builds strategic stocks to meet its needs, especially its armaments
and military requirements (see our February 2026 update note).
Despite the lower-than-expected PGM basket price, Sylvania delivered record quarterly
revenue of
US$78.7m (25% ahead of our expectation) due to higher-than-expected by-product revenue (resulting
from spikes in iridium and ruthenium prices), a strong pick-up in chrome revenue (to
US$4.0m) and a large sales adjustment of
US$13.8m. As a result of our flat forecast for the PGM basket price in Q426 (pick-up delayed
due to the Iran war) and our lower chrome production forecast (on management guidance),
we have cut our FY26 revenue forecast by 3% to
US$248.1m. Despite a more conservative view on the JV ramp-up (with full production now only
forecast for FY28), our increased SDO PGM production forecasts for FY27 and FY28 have
resulted in revenue upgrades of 1.1% in FY27 to
US$393.9m and 2.1% in FY28 to
US$426.2m.
During Q326 total operating costs rose by 21% in rand terms, affected by strong plant
feed growth and higher royalty taxes (on the back of strong revenue growth). Dollar
costs rose by 27% to
US$23.7m, further affected by currency weakness over the period. SDO cash cost per 4E PGM ounce
increased by 16% in rand terms and 22% in dollar terms due to the lower feed grade
and plant recovery referred to above. We expect this to improve over the course of
the calendar year as access to higher-grade current arisings normalises and reliance
on lower-grade open pit and historical dump material reduces. We have increased our
FY26 total operating cost forecast by 4% to account for the higher observed plant
feed, plant efficiency and currency dynamics.
Capital expenditure moderated further to
US$3.5m (vs
US$7.3m in Q226) over the quarter and is forecast to peak at
US$30m for FY26, down from
US$36m on revised company guidance, especially as it relates to tailings and infrastructure
investment. The company still expects a meaningful reduction in spend over coming
years, with
US$9.2m guidance for FY27, of which
US$6.4m relates to tailings and infrastructure projects.
During Q326, the cash balance increased by 17% from
US$54.0m to
US$63.3m, with strong operating cash flow, lower capital expenditure and a dividend provision
(interim dividend of 2p/share (c
US$6.8m) was paid post-period). The forecast reduction in capital expenditure, combined with
healthy forecast cash generation and the commencement of JV-related debt repayments,
is very supportive of a strongly growing cash balance over coming years. We expect
a progressive dividend policy over coming years (the 2p/share interim dividend vs
0.75p/share in the previous year supports this) as well as the increased potential
for windfall dividends.
During H126, Sylvania recognised a
US$12.3m impairment loss on its Hacra exploration asset, following a decision not to invest
further in the project. This has had an adverse effect on our FY26 EPS forecasts as
well as our exploration assets valuation, which is based on the company’s book value.
We have cut our FY26 EPS forecast by 19.6% to 28.3 US cents on the back of the impairment
and our slightly lower revenue forecasts. Higher production forecasts for FY27 and
FY28 result in 1.5% (to 65.7 US cents) and 2.5% (to 70.9 US cents) EPS upgrades.
We forecast a healthy increase in the dividend from 2.75p/share in FY25 to 9p/share
in FY26 and 12p/share in FY27 (increased from 10p/share). We forecast a further increase
to 13p/share in FY28. The company launched a
US$2.0m share buyback programme during Q326 and we believe there is the potential for further
buybacks over time as a mechanism to distribute surplus cash if the current conducive
PGM environment continues.
