Sylvania Platinum

Thursday, Oct 10 2019 by

I was first attracted to SLP by its appearing in the Zulu Principle screen, then yesterday I saw that it had fallen 15% or so in the past two days. I wondered why this was and whether it represented a good entry point - the only information I could find was on this thread in ADVFN which contains some informed comment about a legal action that has been brought against the company.

On the whole I think that the price drop probably does represent a good entry point, though obviously not devoid of risk. I include the link to ADVFN in case anyone else is wondering why the price has declined.

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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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4 Posts on this Thread show/hide all

Metatron Thu 1:56pm 1 of 4

I hold SLP but I am worried by the price drop as the price of Platinum is cheap relative to Palladium and the stock has also been recommended by Vector Vest UK which would have thought has an influence on small caps

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wilkonz Fri 4:34am 2 of 4

In the absence of any reliable news, I'm regarding this as a tree shake. (I hold),

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john2 Fri 8:51am 3 of 4

In reply to post #520431

Sylvania produce palladium (used in petrol catalytic converters) as well as platinum (used in diesel converters), so they will still benefit from a strong palladium price.

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dangersimpson Fri 11:06am 4 of 4

The drop is almost certainly due to the SA court case, combined with trailing stops being hit. In Rand Sylvania Platinum (LON:SLP) PGM spot basket pricing is up 34% since 30th June, and by my estimation Sylvania Platinum (LON:SLP) have about 50% operational gearing. Quarterly earnings at current spot prices are likely to be some 30% above 19Q4 level despite lower production guidance vs the record Q4 levels. So PGM pricing is unlikely to be contributing to the sell-off since it is still at or around the highs over the last few years.

I don't believe Sylvania Platinum (LON:SLP) has been sued at this stage - it is Sanamcor, operator of their host mines, that is facing the court action. However, Sylvania Platinum (LON:SLP) are named in the affidavit, with the accusation being that when they signed the deal with Samancor they issued shares to a third party which was ultimately controlled by the owners & directors of Samancor at the time, not the company itself, and therefore got favourable terms. The reason that this is an issue, rather than an internal accounting decision by the then owner of the mines, is that the mines operating subsidiaries are only owned 74% due to BEE legislation. This deal could be seen as a way of moving profits out of Samancor avoiding paying the 26%.

While this is a serious accusation, it should be noted that:

- The whistleblower in this case is a disgruntled former director who appears to have been making these accusations for almost a decade and this is the first action that has been taken.

- The plaintiff is the AMCU, which has had issues recently - almost being struck off by the government, and having to back down on pay deals and accept deals negotiated by other unions. I'm sure the timing of this and advancing a claim that was refused by all the other unions has a lot to do with trying to stem their membership losses.

- Even if the accusation is true, then it is one thing to prove that the Sunamcor created this scheme to avoid some of the BEE payments, it is much harder to prove that Sylvania Platinum (LON:SLP) were complicit. If a company you sign a deal with says that here are the terms but we want some equity in your business and it should go to the following subsidiary, you may just assume that the subsidiary is fully controlled by the company.

- The terms that Sylvania Platinum (LON:SLP) signed were not particularly generous, given that Sylvania Platinum (LON:SLP) provided an environmental cleanup, funded all the capex and returned all the chrome to Samancor for a nominal fee. Only since the operational improvements Sylvania Platinum (LON:SLP) have made over the last few years and the PGM pricing has improved is this looking so profitable.

The biggest risk that I see to Sylvania Platinum (LON:SLP) , apart from the reputational damage, is that the current owners use it as an excuse to renegotiate the re-processing agreements. With around $30m cash and Volspruit potentially worth around $20m this puts a floor on the valuation of around 14p per share even if all their contracts were cancelled tomorrow, so that helps protect the downside to some extent.

I am disappointed that we haven't seen a statement from the company - I guess it may be hard for them to make one until Samancor do, but this clearly had a negative impact on the share price so it would be good to get a company response.

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