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  • Writer's pictureMark Watson-Mitchell

Sylvania Platinum – cash generative, low-cost operations and making big profits

I rarely profile any company within the Mines and Metals Sector – but today I am featuring one such group on purely mathematical value grounds.

Yesterday morning, following the announcement of its interim results, I was reading a research note on the Hamilton, Bermuda-incorporated Sylvania Platinum Limited (LON:SLP) and was intrigued by what I gleaned about the group.

Sylvania Platinum primarily engages in the retreatment of platinum group metals (PGMs) bearing chrome tailings materials in South Africa and Mauritius.

Tailings are a by-product of mining. After ore containing an economically-recoverable commodity is mined from the earth, that commodity is extracted in a processing plant or mill. After the commodity of value is extracted from the ore material, the resultant waste stream is termed ‘tailings’.

The Company’s Dump Operations

The company produces PGMs, comprising mainly platinum, palladium, rhodium and gold.

It holds interests in the Sylvania Dump Operation (SD0) that comprise six chrome beneficiation and PGM processing plants located in the Eastern and Western Limb of the Bushveld Igneous Complex; and various mineral asset development projects, including the Volspruit and Northern Limb projects located on the Northern Limb of the Bushveld Igneous Complex located in South Africa.

The company has attractive cash-generative, low-cost operations on the Eastern and Western Limbs of the Bushveld Igneous Complex, with several exploration assets on the Northern Limb that offer future growth potential.

The SDO is the largest PGM producer from chrome tailings re-treatment in the industry.

The operations are positioned in the lowest quarter of industry cost curve and are cash generative with a profitable operational life beyond ten years.

Three Greenfields Projects in the Northern Limb of the Bushveld Complex endowed with PGE-Ni-Cu mineralisation, with approved Mining Rights Near surface deposits suggests a lower cost and lower risk opportunity than typical deep level underground mining techniques.

Nickel-copper sulfide deposits are the source for most of the world’s nickel, and magmatic platinum group metal deposits. These deposits have significant economic value.

Remaining operational life and profile can vary based on slow-down or increase of mining rates and production levels at host mines – current estimates are based on the combination of dump treatment rates and host mine historic production levels.

Interim Results and Outlook

Yesterday the group reported that its net revenues in the six months to end December 2022 were $79.9m ($69.1m), while net profits were $32.6m ($24.4m).

It confirmed that it was debt free and had continued to generate sufficient cash reserves to fund capital expansion projects, process optimisation projects, to upgrade the group's exploration and evaluation assets and to return value to shareholders.

CEO Jaco Prinsloo commented that:

"I am pleased to report that the SDO have achieved 38,471 ounces of PGM production in the period. The 19% year-on-year increase in HY1 production is testament to the commitment of both our operations and management teams to delivering on forecast and through their continued efforts, particularly in working together with our host mine, to overcome the difficulties previously faced with ROM and feed grades at our Western operations.

A result of the increased ounces produced, is the healthy Revenue and Net Profit reported, both of which are robust and provide the Company with sufficient cash reserves to continue to fund capital and optimisation projects, as well as the advanced studies undertaken at our exploration projects.

As we advance into the second half of the financial year, I anticipate continued solid results as the Tweefontein MF2 capital project is optimised and as we work towards the commissioning of the Lannex MF2 in the latter part of the period.

Additionally, we expect to provide further clarity on the significant potential at our exploration projects as we continue our studies and increase our resources.”

The Equity

There are some 266.8m shares in issue.

The larger holders include Hargreaves Lansdown Asset Management (16.05%), Interactive Investor (13.70%), Africa Asia Capital (10.21%), Miton Asset Management (7.06%), AJ Bell Group (6.12%), BlackRock (4.32%), Barclays Wealth (4.23%), Halifax Share Dealing Clients (3.74%), Acadian Asset Management (3.64%) and Banque Cantonale Vaudoise (3.11%).

Directors and Company Employees hold 2.00% of the equity.

Broker’s Views – price objective of 150p a share

Analyst Ben Davis and his team, at the group’s brokers Liberum Capital, currently have a Buy rating out on the company’s shares, with a price objective of 150p, which compares to the 106p level at which they closed last night.

For the year to the end of June 2023, his estimates are for $192m ($152m) of sales, with pre-tax profits leaping to $128.8m ($80.0m) giving earnings of $0.3 ($0.2) and covering a 9.0p (10.3p) per share dividend.

For the coming year they go for $182m sales, $122.9m profits, $0.3 earnings and paying a 14.0p per share dividend.

What shouted out to me when I was looking at their research note was the net cash build-up, from $121m in the 2022 year-end balance sheet, to an estimated $152m by the end of June this year, with $226m forecast for next year.

Liberum are already estimating that on a reduced commodity price led sales of $157m for the June 2025 year end, the group could be making $99.7m profits, with $0.2 earnings and paying a dividend of 11.0p per share – what is more their estimates are for a thumping $258m net cash at that time.

My View – a really quite appealing package of value

I do not pretend to know too much about the mining sector, so I leave that to others to lead and persuade me of value and potential – which is exactly why I take Ben Davis at face value in his company’s predictions.

On the basis of a £281m market capitalisation, with its shares at 105p, the prospects of the group making £106m profits, generating nearly 25p a share in earnings and paying out a thumping 9.0p per share in dividends – makes up a really quite appealing package of value.

And then there is the massive net cash backing to take into account.

In my humble ‘mining sector novice’ view – these shares warrant a very much higher rating.

I now set a Target Price of 130p for 2023.


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