Stock slam on Sylvania I did a few months ago

Friday, Mar 01 2019 by
18

Below is the text of a 3 minute "stock slam" I did on Sylvania Platinum (LON:SLP) at a CFA meet up a few months ago. 
I own it.
Just thought I would share it because other people seem to be interested in this stock. Do Your Own Research obviously. Also, the valuation multiples, price of Lonmin are out of date, but doesn't effect the basic story...


This evening I’m going to pitch you a really contrarian idea. It’s a company that operates in a really hated sector. But although it’s on 7x earnings, paying a dividend, net cash and buying back shares – it’s not a value stock. It’s actually a really good “story” stock. And you can find good stories in the most unexpected places.
It’s a platinum miner in South Africa.
I think I should start by helping you understand why the platinum miners as a sector have been terrible investments over the last decade. Take Lonmin, which in 2008 received a $10bn approach from Xstrata. That’s £33 per share. Ten years later it’s worth 40p a share. And things are actually worse than that 98% share share price decline…because Lonmin did 3 rights issues in 6 years, the most recent one at a 94% discount to the then share price. A bit like banks, if you’d backed the rights issues, you’d have lost more than 100% of your initial investment.
That’s a cautionary tale.
But hopefully I can convince you that Sylvania is a good story, when you understand platinum a bit better.
Most of the world’s platinum is dug out of the ground in South Africa. And at the current platinum price around 4/5 or 80% of mines are loss making and have been for several years. You might wonder, are these guy stupid? Why are they digging stuff out of the ground if they are losing money? And who are the shareholders who keep funding the rights issues? Not just Lonmin but also other big players like Impala Platinum and Sibanye?
The answer to the last question is the South African Public Investment Corp – that is the South African civil servants pension fund. If capitalism worked the way the text book theory say it works, then Lonmin, which has one of…

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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 »

LSE Price
32.5p
Change
-1.5%
Mkt Cap (£m)
94.2
P/E (fwd)
6.2
Yield (fwd)
4.1



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8 Posts on this Thread show/hide all

wilkonz 1st Mar 1 of 8
1

Thank you very much Bruce. That's a brilliant article. I've recently bought some of these last week and they seem to be doing well so far. Your words may tempt me to buy more,.
Best wishes, William

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JollyBiologist 1st Mar 2 of 8
3

This is brilliant- really interesting and adding lots of stuff I wasn't aware of. Thank you! The only thing you missed out was the effect of the price of palladium, which has probably contributed to the recent share price surge.

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JohnEustace 1st Mar 3 of 8
2

In reply to post #453638

I agree on palladium, that's why I bought into Sylvania. You don't mention that those petrol cars that are replacing the diesels need more palladium for their catalysts. It's the overall platinum metals group pricing that matters.
Tak a look at the chart for £2PAL, which I hold, to see the size of the spike.

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AnonymousUser605348 1st Mar 4 of 8

Doesn't it pain you to buy something so high above it's MA? Plus if palladium was the 'catalyst' for this to go higher (see what I did there?) then aren't commodities/commodity stocks more mean reverting? :-S

Would scare the Living Daylights out of me...

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Richard Goodwin 2nd Mar 5 of 8

Presumably the key is the LT cost of accessing tailings. Does Sylvania Platinum (LON:SLP) have guaranteed supply or is supply contingent on dealing with other producers and therefore subject to market forces? If the latter then why wouldn't someone else set up in competition and hence drive up tailings costs?

An equivalent is Central Asia Metals (LON:CAML) which has makes a lot of money from copper tailings. They have guaranteed supply of tailings until their stockpile runs out. In that sense it is like a mine with a finite life. 

Ps thx for the article I unfortunately missed Stockslam and was hoping presentations would be posted.... 

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JohnEustace 2nd Mar 6 of 8
3

In reply to post #453873

From their latest presentation:
"SDO (Sylvania Dump Operations) has exclusive rights to reprocess mine arisings and tailings dumps at current host mines, with a profitable operational life of at least fifteen years, with potential to
significantly extend the operating horizon through consistent ore production at host
mines"
http://www.sylvaniaplatinum.com/im/files/documents/Presentation%2018-22%20Feb%202019%20Final%20FINAL.pdf

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brucepackard 4th Mar 7 of 8
1

In reply to post #453733

Thanks @JohnEustace I only had 3 minutes to get the story across, and just didn't think I would be able to explain how the Platinum Group Metals 4E basket works in the time allowed. But you are correct, platinum miners also benefit to some extent from a rising palladium price.

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midastouch 23rd Mar 8 of 8
2

In reply to post #453558

thats the problem with people nowadays You read article you but that next day you read bad one you selll Do your own reasearch

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