Sylvania Platinum Ltd

Sylvania Platinum Ltd (LON: SLP) is a producer of PGM (platinum group metals), which includes platinum, rhodium, and palladium. The Company operates through a distinctive line of operations – retreatment of PGM material from mines and developing potential mining operations. Predominantly, it has two projects and operations - Mineral Asset Development & Opencast Mining Projects and Sylvania Dump Operations (SDO). The SDO consists of six processing plants for chrome beneficiation and PGM in Western and Eastern Limb of the BIC (Bushveld Igneous Complex).

Key Dates:

• In July 2021, SLP will release its Q4 FY21 results, while the annual report is scheduled for release in September 2021.
• On 9 April 2021, SLP paid the Windfall Dividend of US$14.3 million.

Growth Prospects

• Strong Financial Position: The Group has a robust balance sheet with decent cash flow generation capabilities to drive shareholder returns. It has the potential to undertake capital expansion projects as the Group is operating with no debt and substantial cash reserves.
• External Growth Opportunities: It is continuously exploring and examining potential surface projects and resources, which reflects opportunities for future growth. It has increased activity in the new PGM tailings treatment opportunities and investigating open-cast and underground ROM (run-of-mine) feed sources.
• Favourable Price Trend: High rhodium price and strong PGM basket price has driven the record profit during the Q3 FY21. Growth demand for automotive to meet stringent emission norms can support the commodity prices in future as well.
• Reliable and Profitable Production: SLP has been navigating through the Covid-19 pandemic by ensuring operational excellence with a production profile intact around 70,000 ounces (oz) of PGM and disciplined capital spend and operating cost.

Risk Assessment

• Current and Emerging Challenges: During Q3 FY21, SLP experienced weak PGM recovery efficiencies due to a higher degree of oxidation in some current feed sources, predominantly at certain Western operations. Moreover, supply inconsistency (to the Lannex milling plant) of ROM materials impacted processing efficiencies and operating costs. Meanwhile, the Covid-19 pandemic continued to impact the production as Q3 FY21 witnessed the lowest production quarter.
• Principal Risks: There are some principal risks and uncertainties which could impact the overall business of the Company. Operational risks arise due to weather conditions, failure in the delivery of equipment, which could affect the Company’s operations. Similarly, financial risks such as lack of funding and liquidity could affect the operations of the Group. The business sustainability depends on the availability of resources as the retreatment of dump material has a finite life. Moreover, the Group needs to conduct due diligence and detailed analysis before investing in any project since an enormous amount of capital is required to undertake any project. On the other hand, commodity prices and exchange rate fluctuations also affect the Company since metal prices are volatile.

Now we will analyse some key fundamental and shareholders statistics of Sylvania Platinum Ltd. 

Recent News and Regulatory Developments

• Share Buyback: On 1 June 2021, SLP repurchased 41,250 Ordinary Shares from an employee. Following the transactions, SLP’s issued share capital stood at 286,155,657 Ordinary Shares.

Financial Highlights for the quarter ended 31 March 2021 (as on 30 April 2021)

(Source: Company Filings)

• During Q3 FY21, SLP delivered 17,420 4E PGM ounces (Q2 FY21: 18,363 ounces) through its Sylvania Dump Operations (SDO)
• SDO reported net revenues of US$74.2 million in Q3 FY21, reflecting a significant growth from the revenues of US$43.7 million in Q2 FY21.
• Similarly, EBITDA and net profit also nearly doubled in Q3 FY21 against Q2 FY21.
• At the period end, SLP had a cash balance of US$102.1 million (Q2 FY21: US$67.1 million), and subsequently, with a strong cash position, the Company disbursed a one-off Windfall Dividend of US$14.3 million.
• Operationally, Mooinooi chrome project has been commissioned within the expected timetable and likely to be completed in Q4 FY20 with continued optimisation. Adjacently, the third quarter also witnessed production challenges due to an inconsistent supply of ROM materials.

Financial Ratios (H1 FY21)

(Analysis done by Kalkine Group)

Share Price Performance Analysis

(Analysis done by Kalkine Group)

On 9 June 2021, at 12:35 PM GMT, Sylvania Platinum Ltd’s shares were trading at GBX 129.00, down by 1.53% against the previous day closing price. Stock 52-week High and Low were GBX 150.00 and GBX 37.25, respectively.

SLP’s price is moving towards the lower standard deviation of the Bolling Bands. Meanwhile, the 14-day RSI is hovering near moderate levels (50.29), indicating indecision in the stock prices. Volumes are showing decreasing trend along with the decrease in prices, further showing lesser participation and trading in the stock. Meanwhile, 200-day EMA (GBX 100.80) is sustaining significantly below the current market price, supporting the upward trend. On the technical chart, the next important support level is at GBX 113.62.

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative) 

Business Outlook Scenario

Despite the lowest production quarter in Q3 FY21, SLP is on track to produce nearly 70,000 ounces of PGMs for FY21. The resilient production was supported by the boosted PGM basket and high rhodium prices, which contributed significant profits. Moreover, the Company has substantial cash resources and no debt on the balance sheet which underpins its ability to pursue the upcoming market opportunities. In a nutshell, the Company has maintained a safe and profitable production portfolio, strengthened licenses to explore synergistic value-adding opportunities, progressed R&D efforts to explore external growth opportunities.

Based on the solid growth opportunity, low-risk and sustainable business model, proven track record of operational excellence, strong free cash flow, disciplined capital allocation, with support from the valuation as done using the above method, we have given a “SPECULATIVE BUY” recommendation on Sylvania Platinum Ltd at the current market price of GBX 129.00 (as on 9 June 2021 at 12:35 PM GMT) with lower double-digit upside potential based on 5.86x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.). 

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

*All forecasted figures and Industry Information have been taken from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

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