Sylvania Platinum Ltd (LON: SLP) – Maintaining safe and profitable production.

Sylvania Platinum Ltd is an FTSE AIM All-Share Index listed Company headquartered in Hamilton, Bermuda. It is a producer of PGM (platinum group metals), which includes platinum, rhodium, and palladium. The Company operates through a distinctive line of operations, such as 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).

In September 2021, SLP would publish its FY2021 annual report.

Recent trend of dividend payments

In FY2021, SLP paid an interim dividend of GBX 3.75 per share. It was paid on 9 April 2021 and had an ex-dividend date of 4 March 2021.

The current dividend yield of SLP at about 1.30% remains above the UK 10-year bond yield at about 0.5495%.

Growth Prospects

• Strengthening license to operate: The Company continues to explore synergistic opportunities which add value to its operations. To achieve that it maintains excellent relationship with host mines, which eases its operational activities and future prospects.
• Safe and profitable production: SLP ensures operational excellence through disciplined cost control and capital spend as well as optimisation of its newly commissioned projects. It helped the Company in maintaining a solid production profile amid the Covid-19 crisis.
• Significant research and development efforts: SLP undertakes significant research and development efforts to retreat the historic dumps and extract value from its exploration projects in the best possible way. It leads to lower capital spend as well as low risk.
• External growth opportunities: The Company continuously explores potential PGM tailings treatment opportunities. Also, it explores potential alternative feed sources. These initiatives could present external growth opportunities to the Company.
• Solid financial position: The Company has a strong balance sheet with zero debt and solid cash reserves. It allows easier funding for expansion and process optimisation projects.

Key Risks 

• Commodity price volatility: There could be significant volatility in the prices of PGM (platinum group metals). Any material fall in the prices could affect the margins of the Company.
• High logistics costs: High logistics costs around additional sources could affect the overall operating costs of the Company.
• Availability of resources: The business sustainability depends on the availability of resources as the retreatment of dump material has a finite life.
• Adverse weather conditions: Weather conditions could turn adverse for mining activities, which could affect the Company’s operations for a considerable period, affecting its financial performance.
• Civil unrest: The Company’s operations and supply chain could be affected by the civil unrests in South Africa, which could potentially impact its margins.
  

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

Financial and Operational Highlights (for three months ended 30 June 2021 as of 27 July 2021)

(Source: LSE Website)

• Sylvania Dump Operations (SDO) produced 16,289 ounces in Q4 FY2021, meeting expectations.
• It led to 70,043 PGM ounces by the SDO in FY2021, exceeding the management’s expectations.
• However, due to decline of 19% and 5% in rhodium and platinum prices, respectively, gross basket price for Q4 FY2021 was down 11% QoQ.
• It contributed to a revenue (4E) decline of 20% QoQ and net revenue fall of 35% QoQ in Q4 FY2021.
• Due to this decline in revenue and 14% and 11% QoQ increase in direct operating costs and general and administrative costs, respectively, net profit fell 64% QoQ in Q4 FY2021.
• However, the Company increased its capital expenditure by 46% QoQ. It led to cash balance falling 1% QoQ in Q4 FY2021.

Financial Ratios (H1 FY2021)

Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 28 July 2021, at 7:10 AM GMT, SLP’s shares were trading at GBX 106.20, up by 2.12% against the previous day closing price. Stock 52-week High and Low were GBX 150.00 and GBX 41.82, respectively.

On a daily chart, SLPs price is sustaining above 200-day EMA of about GBX 105.15 and 200-day SMA of about GBX 105.41, indicating the possibility of an upward movement. The stock price is sustaining between the middle and lower Bollinger bands. Hence, there could be an uptick in the stock price in the near term.

In the last year, SLP’s stock has delivered an excellent positive return of ~112.25%. Also, it has outperformed the FTSE All-Share Precious Metals and Mining index with a return of around 26.34% and the FTSE AIM All-Share index with a return of about 38.44%. 

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

Business Outlook Scenario

SLP delivered a resilient performance in Q4 FY2021, with production in line with the management expectations. Lesedi secondary milling and flotation project execution is progressing well, and the development of the Tweefontein MF2 project has started. SLP has zero leverage, with a debt/equity ratio of 0.00x, indicating financial flexibility to raise further debt, if required, at a cheaper cost. This will help SLP to significantly invest in its funding of capital expansion and process optimisation projects. The Company could benefit from its excellent relationship with host mines, its safe and profitable production, significant research and development efforts, external growth opportunities and solid financial position going into FY2022.

Considering the Company’s solid growth opportunity, its strong balance sheet, its continued and disciplined investments, the better profitability, liquidity and leverage position of the business than the industry, 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 106.20 (as on 28 July 2021 at 7:10 AM GMT), with lower-double digit upside potential based on 4.41x Price/NTM Earnings (approx.) on FY22E 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.

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

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

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

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