Sylvania Platinum Limited (LON: SLP) – On track to achieve an estimated production target of 70,000 ounces for FY21.

Sylvania Platinum Limited (LON: SLP) is an FTSE AIM All-Share Index listed Company, which is a producer of platinum group metals (PGMs), including platinum, palladium, and rhodium. The core business of Sylvania Platinum is the retreatment of PGM bearing chrome tailings material. It holds mining rights for several PGM projects on the Northern Limb of the Bushveld Igneous Complex.

Moreover, SLP produces low-cost PGMs with low-risk exposure. The Company identifies projects that have a minimum financial and operational risk with a potential for high margins. SLP has a primary objective to maintain a regular stream of income to shareholders by generating generous shareholder returns.

  

(Source: Company presentation) 

Recent Trend of Dividend Payments

The Company had paid a final dividend of 1.60 pence per share related to FY20 on 04 December 2020. Moreover, it would pay a one-off Windfall dividend of 3.75 pence per share on 09 April 2021, driven by the significant cash generated supported by Palladium and Rhodium prices. The ex-dividend date was 04 March 2021.

Growth Prospects and Risk Assessment

The SDO (“Sylvania Dump Operations”) had achieved a solid 36,335 ounces of PGM production during H1 FY21 ended 31 December 2020 despite the adverse impact of the Covid-19 pandemic. Moreover, SLP remained debt-free and would continue to generate adequate cash reserves for financing capital expansion projects. The Company uses disruptive technologies and acquires strong assets to drive growth. The Mooinooi optimisation project is on track for commissioning during H2 FY21. The new Lannex mill, and spiral upgrade had started the operation after being commissioned during H1 FY21.

(Source: Company presentation)

Also, the Company would continue to accelerate R&D efforts to re-treat low PGM grade tailings resources at selected sites.

However, certain potential risks can impact the business, such as credit risk arising from financing activities, foreign currency risk, interest rate risk, ineffective use of IT systems, increased risk of power cuts, retention of key staff. The Company is also exposed to the risk of fluctuation in commodity prices. Meanwhile, the Company may face the operational challenge due to Covid-19 related lockdowns imposed by the South African government.

Industry Outlook Dynamics

According to the recent report from Grand View Research, the market size of the global platinum industry was USD 6.51 billion during 2019 and is anticipated to grow at a CAGR of 5.0% from 2020 to 2027. Meanwhile, the rising product demand in industrial applications would boost up the market growth over the forecasted period. Furthermore, the industrial application segment encapsulates glass, electrical, chemical, medical & biomedical and others.

After understanding the industry dynamics, we will analyse some key fundamental and shareholders statistics of Sylvania Platinum Ltd.

Recent Developments

On 31 March 2021: The Company announced the sale of 17,500 ordinary shares and the subsequent purchase of 17,500 ordinary shares for the SIPP (Self-Invested Pension Plan). Therefore, the total ordinary shares remained at 50,000.

On 29 March 2021: Sylvania had bought back 38,500 ordinary shares of USD 0.01 each in the Company. The total number of ordinary shares with voting rights stood at 272,570,115.

Financial and Operational Highlights (for the six months ended 31 December 2020 (H1 FY21), as on 22 February 2021)

(Source: Company Website)

• During the period, Sylvania Dump Operations (SDO) has achieved a solid 36,335 ounces of PGM production, despite the lower PGM feed grades and lower volumes of fresh arisings.
• In the six months to 31 December 2020, the Company recorded revenue of USD 85.2 million, an increase of 44% year-on-year. The higher PGM basket price drove the growth in revenue.
• On a year-on-year basis, EBITDA and net profit rose by 58% and 70%, respectively.
• In H1 FY21, the cash costs per ounce increased to ZAR11,984/oz as compared to ZAR8,140/oz in H1 FY20, with an all-in sustaining cost (AISC) of ZAR12,188/oz and an all-in cost ("AIC") of ZAR12,988/oz.
• On 31 December 2020, the Company’s cash and cash equivalents stood at USD 67.1 million, an increase of 98% year-on-year.
• The Company reported that it spent around USD 2.5 million on capital expenditure during the period, with the cash balance surged by USD 8.8 million from the last reporting date of 30 June 2020.
• The Board paid a final dividend per share of 1.60 pence and has approved a one-off Windfall Dividend per share of 3.75 pence (which is to be paid on 9 April 2021).
• In December 2020, USD 1.4 million spent on share buybacks and USD 5.9 million was paid to shareholders as a dividend.
• The Company stays debt-free and generating sufficient cash reserves for capital expansion projects.
• Further, the Company expects production to be at 70,000 ounces in FY21.
• During the next three years, SDO stay-in-business (“SIB”) capital will increase due to three new tailings dams to be constructed.

Financial Ratios (H1 FY2021)

Share Price Performance Analysis

(Source: Refinitiv, Thomson Reuters)

On 31 March 2021, at 10:37 AM GMT, Sylvania Platinum Limited’s shares were trading at GBX 104.80, down by around 6.84% against the previous day closing price. Stock 52-week High and Low were GBX 135.00 and GBX 35.88, respectively.

From a technical standpoint, 100-day SMA (GBX 99.08) and 100-day EMA (GBX 101.61) support an upside potential. 

In the last six months, Sylvania Platinum Limited’s stock price has delivered a return of ~88.14% return as compared to ~24.42% return of the FTSE AIM All-Share index and 76.22% return of FTSE All-Share Mining index, which shows that the stock has outperformed the benchmark index and the benchmark sector.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook Scenario

The Company had demonstrated a significant reduction in the production volumes during H1 FY21 due to several operational headwinds caused by the Covid-19 pandemic. Moreover, SLP would seek new PGM tailing treatment opportunities during FY21. Furthermore, the Company had also anticipated an increase in the capital expenditure for the next three years due to the construction of new three tailing dams. SLP remained upbeat about the operations and anticipated achieving a production target of 70,000 ounces during FY21. However, the Board remained cautious regarding the potential adverse impact of the Covid-19 pandemic and highlighted that it would constantly monitor the situation.

Meanwhile, the new Lannex mill, and spiral upgrade would enhance the processing efficiencies and profitability levels based on the current feed sources. The proposed MF2 expansion would be expected to commission towards the end of H1 FY22, and it would improve the upgrading and recovery of PGMs. Overall, the Company would continue to generate sufficient cash for accelerating long-term growth.

(Source: Company presentation)

Considering a decent performance in H1 FY21, operational conditions improving towards normal levels, solid liquidity position & robust balance sheet, debt-free company, higher profitability margins, targeting production at around 70,000 ounces for FY21, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Sylvania Platinum Ltd at the current price of GBX 104.80 (as on 31 March 2021 at 10:37 AM GMT), with lower-double digit upside potential based on 5.22x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

 

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

*The dividend yield is subject to change as per the stock price movement.

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