SIF Folio: Money from waste makes Sylvania Platinum a tempting choice

Tuesday, Sep 11 2018 by
SIF Folio Money from waste makes Sylvania Platinum a tempting choice

This week I’m looking at one of the top-ranked stocks on Stockopedia. It’s not necessarily a company you’d expect to fit this description. As a small-cap, single-commodity miner operating in South Africa, Sylvania Platinum isn’t without risk.

This very profitable firm currently qualifies for my Stock in Focus screen, which hunts for affordable growth stocks. Sylvania also has a StockRank of 98 and has delivered a very solid financial performance in recent years. In short, it’s the kind of mining stock where I might be prepared to risk my own cash.

Before I get started, let me deal with a couple of potential objections.

What about diversification?

Regular readers will remember that I added mining royalty specialist Anglo Pacific Group to my SIF fantasy fund last week. Adding another mining stock this week might seem unwise in terms of diversification.

Generally, I’d agree. But in this case I think I might actually be improving the balance of the portfolio across sectors. Here’s how SIF looks at the time of writing:


Two things stand out to me.

Firstly, the portfolio’s combined investment in Energy and Basic Materials stocks is less than half the exposure to other sectors.

The second thing you’ll notice is that five of the 10 top-level sectors are missing altogether. The reason for this is that there aren’t currently any qualifying stocks from these (largely defensive) sectors in my screen.

I’ve discussed this situation and my portfolio’s cyclical bias before, here. For now, I’ll just say that I am willing to add more commodity stocks to the portfolio if they pass my tests.

Aren’t small-cap miners usually sucker stocks?

I think it’s fair to say that you have to kiss a few frogs to find your prince in the small-cap mining sector. My approach is to ignore all the companies with no revenue and very few assets (explorers). Instead, I focus on companies with solid production assets and fairly reliable cash flows.

Stockopedia boss Ed Croft commented in his 2018 NAPS article that his rules-led approach “has a good record with mining stocks”. He cited Central Asia Metals, a stock which generated a 30% gain for the NAPS in 2017, plus a more modest profit for SIF during the same period.

I’ve also…

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Sylvania Platinum Limited is a producer of platinum group metals (PGMs), including platinum, palladium and rhodium. The Company is engaged in extraction of PGMs from chrome dumps and arisings, as well as investment in mineral exploration. The Company's segments include Mill sell, Steelpoort, Lannex, Mooinooi, Doornbosch, Tweefontein, Exploration projects and Corporate/Unallocated. It is focused on the retreatment plants. The Company has over seven operational retreatment processing plants, as well as an open cast mining exploration project and a Northern Limb exploration project, which is in the exploration phase. Its assets include Sylvania Dump Operations, Volspruit, Northern Limb Projects, Everest North and Chrome Tailings Re-Treatment Plant (CTRP). The Company holds prospecting and mining rights for a number of PGM projects on the Northern Limb of the Bushveld Igneous Complex. The Company's operations include in Australia and South Africa. more »

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9 Comments on this Article show/hide all

AlanJenkins2 11th Sep '18 1 of 9

Why does Stocko give Sylvania a distress z-score ?

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nbeeny 11th Sep '18 2 of 9

Isn't this Roland's portfolio?

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JohnEustace 11th Sep '18 3 of 9

In reply to post #397769

The Altman Z score looks for Market Value of Equity/Book Value of Total Liabilities >1.439

For Sylvania the value is -4.88, hence the distress label.

BUT the Sylvania liabilities are negative due to a large minority holding being included so I think this is an error in the Stocko programming. The formula used needs to be changed to correctly deal with negative liabilities.

One for the programmers if I'm right?

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mmarkkj777 11th Sep '18 4 of 9

There are a lot of things to like about this stock. It was on one of my filters, value with momentum and I bought early Aug just as it started to break out. I think I was up around 12% before it started to correct, so I'm now at par, including dealing costs, so I'm hoping for a price increase, like before. I'm going to stay with it until at least the end of the year and re-evaluate then.

I noticed the strange Altman score, but didn't know why, so thanks JohnEustace for explaining that.

In this sector I'm also interested in one other stock, Kaz. I got stopped out, but will re-enter when I think the share price has stabilised after the recent development/prospect purchase that sent it tumbling (but it is also profitable and cash generative).

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AlanJenkins2 11th Sep '18 5 of 9

In reply to post #397794


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andrea34l 11th Sep '18 6 of 9

I bought two lots of Sylvania Platinum (LON:SLP) in August, one before the results and one after them. They were flagged up on one of the screens that I created with Momentum > 90 and Quality > 75. Before the results this company passed four screens, and now it is six which cover both Momentum, Quality, and Value, as well as the Neglected Firm screen... although one of the two new screens passed is James Montier's short selling screen. Perhaps the latter is due to the recent correction, which I didn't really understand as the results looked fab to me; maybe short-term investors were escaping with a quick profit...

Thanks for the very detailed SIF analysis, Roland. Although, as you say, Sylvania Platinum (LON:SLP) and Anglo Pacific (LON:APF) are both resource stocks, I don't think there is any commonality in terms of commodities.

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ACounsell 11th Sep '18 7 of 9

Given the relative performance of PGM metals over the last couple of years - Palladium & Rhodium at all time highs and Platinum pretty much at record lows I assume Sylvania Platinum (LON:SLP) success is down to a focus on the two best performing metals rather than the one it is named after! If these commodities suffers any sort of mean reversion can they switch production back to Platinum to keep their momentum going?

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brucepackard 12th Sep '18 8 of 9

Hi Roland, I've owned this stock for several years. 

I like your article but think that you should mention Sylvania is I) 10x smaller than the larger platinum miners II) because it is a tailings business it has structurally lower costs than its larger competitors III) Its larger competitors like Lonmin can't dig the shiny stuff out of the ground and make a profit.

There's an excellent chart on page 20 of their most recent results which makes this point.

So the reason I bought it is the asymmetric risk reward 

I) platinum price stays the same or even falls further, it's profitable and should generate a decent return at the current valuation

II) competitors cut back on capex (or go bust - check out the Lonmin or Impala Platinum share price chart) and platinum price rises THEN we're talking "multi-bagger".  

NB It's already been a multi-bagger for me, but actually I think we could just be getting started.

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brucepackard 12th Sep '18 9 of 9

In reply to post #397969

That's incorrect. Sylvania's success is because it's not a miner, it's a tailings business. Which means its has structurally lower costs (cash cost $450 - $550/oz) is its competitive advantage

- see my response 

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About Roland Head

Roland Head

I'm a private investor, analyst and writer on stock markets, with a particular fondness for free cash flow, dividends and value. My main interests are UK and US stocks. I also have an interest in (profitable) commodity stocks.  I have passed the CFA Level 1 exam and hold the CFA UK Investment Management Certificate (IMC). One of my investment interests is developing rules-based strategies such as my Stock in Focus portfolio. This reflects a significant part of my personal portfolio and is the subject of my weekly column here at Stockopedia. In earlier life, I worked as an engineer in telecoms and IT. The rules-based and quantitative approach required for this kind of work undoubtedly influenced my investing style.  I also learned a lot from seeing the tech bubble deflate in 2000-1, when I was working for a very large and now defunct Canadian telecoms firm.  more »


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