Sylvania Platinum Ltd

Hamilton, Bermuda-based Sylvania Platinum Limited (LON: SLP) is a producer of platinum group metals (PGMs), comprising palladium, platinum, and rhodium. The group is involved in the mining of platinum group metals from chrome dumps and arisings, investment in mineral exploration.

Recent News
On 17^th February 2020, the company announced the retirement of Chief Executive Officer (CEO), Mr Terry McConnachie, with effect from 29 February 2020. Furthermore, the Company has advised the appointment of Mr Johannes Jacobus Prinsloo as Managing Director and CEO of the Sylvania Platinum Ltd. with effect from 1st March 2020. In addition, Ms Lewanne Carminati has been appointed as a Chief Financial Officer and Finance Director with effect from 1st March 2020.

Financial Highlights (for the half-year ended 31^st December 2019)
For the first half of the financial year 2020, the company’s revenue surged by 84 per cent to USD 59,032,353versus USD 32,092,210 in H1 FY2019. The group’s EBITDA stood at USD 36.7 million in H1 FY2020, an increase of 197 per cent from USD 12.3 million in H1 FY2019.

The basic earnings per share stood at 8.42 cents in H1 FY2020 versus basic earnings per share of 2.43 cents in H1 FY2019. The company’s cash balance stood at USD 33.8 million for H1 FY2020 versus USD 20.2 million in H1 FY2019. The company paid a dividend of 0.78 pence or USD 0.01 for the period.

PGM plant feed tons for the first half of 2020remained stable in comparison with the first half of 2019. However, PGM plant feed grade reduced by 3 per cent. For the SDO (Sylvania Dump Operations), the cash costs per ounce decreased marginally in ZAR terms and 4 per cent in USD terms, which is maintaining tight costs controls and planning at the operations, and attributable to higher PGM ounce production.

Share Price Performance
 
Daily Chart as at February-21-20, before the market closed (Source: Thomson Reuters)

Sylvania Platinum Ltd at shares were trading at GBX 63.45 at the time of writing before the market close (at 2:13 PM GMT) on 21^st February 2020 and were up by 3% versus the previous day closing price. Stock 52 weeks High and Low are GBX 67.00/GBX 23.00. The group’s stock is reflecting the lower volatility as against the benchmark index based on the company’s beta of 0.42.

Valuation Methodology

*Peers: Firestone Diamonds PLC, Gem Diamonds Ltd, Vast Resources PLC, Petra Diamonds PLC, Shanta Gold Ltd, Griffin Mining Ltd, and Hummingbird Resources PLC

Key Risk Factors
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, etc. could affect the operations of the company. Financial risks such as lack of funding and liquidity could affect the operations of the Group. Fluctuations in gold, copper, nickel and chrome price and the foreign exchange rate could affect the profitability and revenue of the company. Health, safety and environment risks are associated with the company’s business and failure in these could hamper its operations and could cause government intervention which could damage its reputation.

Conclusion
In the first half of 2020, the company has performed decently. The CEO of the company is also retiring and that will impact the good or bad performance. The company had not been able to control its operating and non-operating expenses effectively, which may result in a decline in profitability in the coming years. The company’s operations can be affected negatively due to economic and geopolitical risk uncertainties, as it would disturb the supply chain. As the company operates in multiple geographies, its profits can be impacted negatively due to foreign exchange rate fluctuations. The group faces a risk of fines and investigations which can impact the future growth as it operates in an industry which is subject to the adverse regulatory headwinds, breaches of which can be potentially fatal for the group. However, the group is substantially exposed to the volatility in the gold and copper prices, as recent fall in the gold and copper prices impacted the performance of its shares as well.

The company’s EV/EBITDA, Price/Earnings, Price/Book and Price/Cash flow multiples are significantly higher as compared to the industry multiple, reflecting overstretched valuations. Moreover, the company is trading near its 52-week high, raising doubts at the upside potential at current prices. At the current trading level, the stock was trading quite below its short-term crucial support level, a bearish technical indicator which reflects prices could move down from the current trading level.

Based on the risks associated and support from valuation done using the above method, we have given a “Sell” recommendation at the current price of GBX 66 (as on 21^st February 2020, before the market close at 10:55 AM GMT) based on 1.04x NTM EV/Sales (approx.) on FY20E sales (approx.).
 
 
*All forecasted figures and information have been taken from Thomson Reuters.
*Currency exchange rate taken for 1 US Dollar = 0.775504 GBP.

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