Stock Brief - Sylvania Platinum (LON:SLP)

10th Sep '21 by Jack Brumby

36 comments 11519 reads

Sylvania Platinum is a platinum group metals (PGM) producer with six chrome beneficiation and PGM processing plants in the Bushveld Igneous Complex in South Africa. The company’s share price has been on a stellar run as far back as 2018 on account of surging PGM prices but has recently given back some of these gains despite revealing in its recent Annual Report that net profit is up 143% to $99.8m and closing net cash has risen by 90% to $106m.

Recent share price weakness comes as a result of softer palladium and rhodium prices (down 19% and 43% respectively on their record 2021 peaks), which have caused a drop in Sylvania’s average basket price on a quarterly basis. Importantly though, these markets are still forecast to be in deficit this year, the medium term outlook is favourable, and Sylvania remains hugely profitable at current spot metal prices. Its average basket price for FY21 was up 83% year-on-year to $3,690/oz - nearly five times group cash costs of $755 per oz.

There’s no doubt the shares look cheap - the forecast rolling PE ratio of 3.1x reduces even further after adjusting for cash to just 2x - but how certain can we be that SLP is in fact cheap, given the degree to which profitability is driven by commodity prices? The company has demonstrated that its results - and its share price - can be volatile in the short term but medium term PGM drivers remain positive and the group is forecast to generate nearly one third of its current market cap in free cash flow over the next year alone.

Profile

What are the company's principal business activities, how does it generate its revenues?

Sylvania is a producer of PGMs including platinum, palladium, and rhodium. Unlike miners, the core business of SLP is the retreatment of PGM bearing chrome tailings material at its six plants, although the group also holds mining rights for a number of PGM projects and a Chrome prospect on the Northern Limb of the Bushveld Igneous Complex in South Africa.

Sylvania produces around 70,000 ounces of PGM metals per year with the following prill split.

DsGBY3WMrH1jQwgOk5j8RI0FipKTR-QoUClnfBjMQd2g4FAcKroSJlu19dKPg99IseL-Y7BkLZFo5tcy5FQIc54is-FMx-lC5_cRxp-dCnTyL5qcVX6e7aoIkWIw1LabVvrBGMvR=s0

Source: Sylvania Platinum Presentation, 2021-06-09

Size, Sector & Exchange

Sylvania Platinum is a metals & mining company operating in the Basic Materials sector. The shares currently trade at 101p, valuing the company at £280m (or around £203m on…

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Anthony Beater

11th Sep '21

I sold when I doubled my money. I am still out, but cannot think of a better investment than SLP. Am waiting in the wings for the time being to see how the political situation shapes up. Thank you Jack.

Zoiberg

I have read (apologies, I forget where) that the chip shortage in car manufacturing will begin to improve from this month. It is something I'm going to keep an eye on as it's a key driver of PGM prices.

AnonymousUser1782684

Hi everyone, I’m new on here. This is my first post.
I’m torn between SLP and ATYM. Sure, different metals and risks, though ATYM appears to be less so. SLP pays handsome dividends, ATYM doesn’t.
In the compare table ATYM wins, just about. SLP is better at profitability and liquidity. However, re the momentum and historic values ATYM wins.
I wonder which one of the two will be a medium to long term winner?

Momoko Miyamoto

Hi everyone, I’m new on here. This is my first post.
I’m torn

between SLP and ATYM. Sure, different metals and risks, though ATYM

appears to be less so. SLP pays handsome dividends, ATYM doesn’t.
In

the compare table ATYM wins, just about. SLP is better at profitability

and liquidity. However, re the momentum and historic values ATYM wins.
I wonder which one of the two will be a medium to long term winner?

Hi GenX,

It really comes down to what you think about the short to medium term fundamentals of copper and rhodium, the two commodities that will determine the share price of Atalaya Mining (LON:ATYM) and Sylvania Platinum (LON:SLP) respectively. They are very different commodity situations, rhodium in particular being very unusual as one of rarest mined metals and essentially a by product of mining for other metals. The mid to long term demand for rhodium is also difficult to predict, in the short term it is required in larger quantities to meet tighter emissions regulations globally in combustion engined cars but catalyst substitution and electrification of cars may affect demand longer term. My own view is that automotive electrification will take longer to achieve globally than many expect, it doesn't make a lot of sense if the electricity is generated from coal as it still is in many countries. I also think that rhodium would have continued its recent strong trend were it not for the global semiconductor shortage that has curtailed car production. There is no traded futures market for rhodium which is also another unusual factor. There are many moving parts which determine the price which makes it such an unpredictable rollercoaster.

KevinS1

I have had some good success/profits with Sylvania Platinum (LON:SLP) but regret not watching the price more closely and selling some off when it dropped from its recent highs around £1.40. However, I am not moaning too much as I bought in a lot earlier than this.

I also have a decent holding in Jubilee Metals (LON:JLP) and I like their diversification into copper. I also think they have more upside potential in the medium term although there are questions about their chairman, but it is pleasing to see some sizeable purchase by II's more recently.

I've reduced my overall exposure to these miners as I am concerned about their liquidity in the short-term should there be a market correction and also due to the S.Africa politics. I would look to increase my holdings again should there be any short-term volatility, but happy with progress so far to date.

Gilgamesh_Investor

Hi GenX (nice username by the way!)

It is completely up to you depending on your risk appetite...

They both seem to have good prospects and more importantly they are both profitable, at present. Revenue appears to be growing on both, alongside net profits etc.

I wonder if it would be worth doubling in on both to add some diversification? - I hadn't heard of Atalaya Mining (LON:ATYM) so thanks for sharing, I will be looking to do further research.

Depending on your portfolio, it may also be worth looking at a mining fund, perhaps BlackRock World Mining Trust Blackrock World Mining Trust (LON:BRWM) - again, DYOR but it is worth diversifying holdings in mining companies as I tend to find that they're likely to be one of the most volatile of sectors...

As with all mining companies, there can be high volatility, so i would strongly recommend a minimum of 3 years in either and using dollar/cost averaging over monthly/quarterly periods to average a better price, if your finances allow for it - Also getting in on a stocks & shares LISA or ISA to be as tax efficient as possible!

Good luck! :)

12th Sep '21

Hi Momoko and Gilgamesh, thank you very much for your insight, much appreciated. GenX

Rusty2

I agree if you can’t decide between them why not buy both?

I don’t hold Atalaya Mining (LON:ATYM), I did look at it but not convinced but I hold shares in Phoenix Copper (LON:PXC).

Will Marsh

13th Sep '21

I'm the same but on reflection this share is dirt cheap and the rest of the market is hotter than hot. Miners are out of favour but SLPs performance makes for a compelling case

Berksbee

Would love to know where - I am a holder in SLP and I have car on order - for two months my dealer said the car was in the pool aka - not even on the production schedule - and that they alone had 70 cars in this category!!! Multiply that up across the UK dealers. I had a call last week saying that it was now "expected" 6 months from the date of the call.

This says to me that once the chip shortage eases then there will be at least a year of the manufacturers running at full capacity and PGM flying.

Tommy H

Hi GenX

There is a great write up by @Edmund Shing on £atym under the idle column articles

I hold as an exposure to Copper smaller position slightly negative but leaving it to work itself out. I would sell like I did £slp if drops 25% from peak but that is just my check sheet

Good Luck there is no right or wrong answer only a fear of missing out and a massive rear view mirror

Tommy

15th Sep '21

Thank you RayShaw and Tommy

pgs501

Maybe I am biased as I hold but it baffles me that the price is as it is currently. It appears that the market has largely ignored the following things and the share price has just followed the Rhodium price lower.

1. There is a Book Value of $244m as at 30 June (£176m). $109m of that is cash with a further $68m receivables. This gives the firm a 1.4 P/B at the current £250m market cap, and £127m (51%!) of that market cap is cash or receivables.

2. Whilst the basket price has dropped significantly from April this year (from over $5,000 per oz at the high point to around $2,500 today, assuming weightings of Platinum, 62%, Palladium, 25.5%, Rhodium, 12.5% remained the same) that is still far above the most recent all-in cost figure of $1,027 per ounce. SLP is still highly profitable.

3. This decrease in Rhodium price is down to chip shortages reducing car production. As soon as those chip shortages are sorted out (I appreciate that will be well into 2022) then car production will go back to normal levels which will push Rhodium right back up as the production deficit, which is already large, will become significantly larger. I personally suspect that car production will go above normal levels because there are a lot of people who have been kept from the new car they want for an additional 1-2 years so you will get a bumper year for car sales.

Sure I understand there are risks:

1. PGM basket price could just keep dropping to near the all-in cost, though I see this as unlikely and even if it did there is $175m of cash/receivables to tide us over until the chip shortage is sorted out.

2. South Africa is not a safe Western Europe / USA place to operate. I personally think this is overblown, but I accept it is still a risk. There may be flare-ups every now & again but South Africa are miles away from "doing a Zimbabwe" and seizing assets from what I can see.

To sum up I believe that SLP will not make even close to the $143m PBT that it did in FY 2021, but it does not need to in order to be compelling value. Even if it makes $50m like in the year before that (when Rhodium was between $3,500 - $12,000 for the year), that will be just fine given the balance sheet and the reasonable expectation that at some point this chip shortage will come to an end. When the chip shortage ends I can only see their basket price going up, a long way. Then profits will soar again.

it is worth noting that the rhodium spot price was as low as $700 as recently as 2016. The price is highly volatile and there is no certainty as to the future price direction. The very clever engineers at carmakers are also continually finding ways to reduce PGM loadings as prices rise. The rhodium price has fallen sharply this week to below $12000 having been fairly steady at $17000-18000 for a while. Personally I’ve decided to cash in the rest of my £SLP profits while I still can.

Guybrush

23rd Oct '21

Wonder why the quality rank has dropped 45 points all of a sudden? The health trend is also showing as n/a instead of a number. A data input error perhaps?

Looks odd, can’t see the figures changing much recently, could be a system glitch, maybe worth reporting?

I have found a few errors recently.

DWit199

It's not just Sylvania. Many shares are missing the Piotroski F-score . This affects the Q rank and anything derived from it such as QM and overall stock rank. It has happened before. None of these ranks can be considered accurate at the moment as for every one that has fallen down the ranks due to the error, another must have unjustifiably risen.

I reported it this morning when I discovered the error but I am not expecting a reply until Monday.

25th Oct '21

Yes the F score in not available for quite a few stocks now. I just checked my folios, go into Quality and then the NA will be at the end, if sort on F scores, around 20% are affected. This has happened since 17th September which is when the last prints are available on most stocks.

I will be reporting this also as I use screening to find stocks, this missing data will affect that.

Dragon

Seems to be back.

Yes typical, as soon as I report it, it comes back. Some of the stocks are still showing as blank on my folios, even though the F score has returned.

The F score is also slow to generate, it is among the last fields to update, so maybe a system problem?

Stock Brief - Sylvania Platinum (LON:SLP)

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Jack Brumby

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