Sylvania Platinum has now released their final results for the year ended 2019.
Revenue increased by $7.8M when compared to last year. Direct operating costs fell by $1.3M but staff costs were up $1.5M to give a gross profit $8.2M higher. Admin staff costs decreased by $97K and share based payments were down $65K but other admin costs were up $180K which meant that the operating profit was $8.2M higher. Interest income increased by $140K but tax charges were up $1.1M to give a profit for the year of $18.2M, a growth of $7.2M year on year.
When compared to the end point of last year, total assets increased by $16.6M, driven by a $23.3M growth in contract assets, a $4.2M increase in plant, a $7.7M growth in cash, a $4.2M increase in assets held for sale and a $1.8M growth in deferred tax assets, partially offset by a $17.9M decline in trade receivables, a $3M fall in construction in progress and a $2.5M decline in mineral rights. Total liabilities also increased, mainly due to a $686K increase in trade payables. The end result was a net tangible asset level of $74.2M, a growth of $20M year on year.
Before movements in working capital, cash profits increased by $7M. There was a cash outflow from working capital and after tax payments increased by $4M the net cash from operations was $17.4M, a growth of $2.3M year on year. The group spent $8M on property, plant and equipment and $253K on exploration but received $629K due to a refund from the rehabilitation insurance guarantee to give a free cash flow of $9.4M. Of this, $1.3M was spent on dividends, $148K on loan repayments and $120K on treasury shares to give a cash flow of $7.8M and a cash level of $21.8M at the year-end.
Q2 and Q3 were challenging and resulted in lower production volumes and efficiencies. In particular the water shortages at the Western operations, and power infrastructure and supply disruptions in the East, as well as community disruptions associated with social unhappiness, culminated in unexpected disruptions and downtime, impacting negatively on production which led to a reduction in the guidance to 72K ounces.
The SDO delivered record production of 72,090 ounces, including a record quarterly production of 21,789 ounces in Q4. The increase is attributable to a 3% increase in PGM plant recovery with PGM tonnes treated marginally lower and the feed grade remaining stable. The improvement in recovery efficiencies is due to the contribution from MF2 plants at Millsell and Doornbosch for the full year, compared to only six months last year as well as improvements at Tweefontein.
The average gross basket price was $1,277 per ounce, a 13% increase. Although the platinum and palladium prices fell in the second half, the basket price was such that they benefited from the higher rhodium price.
Although the feed head grade decreased by 2% due to the erratic grade during the re-mining of the Doornbosch tailings dump, which reached its end of life, as well as the receipt of lower current arisings than expected from the host mine, the PGM feed grade was marginally higher after being upgraded during classification. In order to mitigate lower front-end feed grades, the operation began mining the new million-tonne tailings dam in Q4 and current arisings from the host mine improved after repairs and improvements to their circuits. Management also began the implementation of an optimised re-mining strategy.
The SDO cash cost increased by 8% in ZAR but the USD cash cost decreased marginally to $532 per ounce. The increase in ZAR terms was primarily driven by above-inflation electricity rate increases, wage increases and higher re-mining costs associated with the final dump floor cleaning and re-mining challenges at Doornbosch.
Utility infrastructure and supply of power continued to present challenges to the operations and execution of expansion projects throughout the year. Delays in the rollout of the MF2 module at Tweefontein, due to power constraints, were counteracted by fast-tracking the module at Mooinooi, which was commissioned earlier than planned in Q3.
Operations in the West were also hindered due to abnormal summer heat and drought conditions which resulted in water shortages in some plants. Lesedi, in particular, where there is no current arisings feed source or tails slurry from a host mine at present was severely impacted. The plant could only treat 52% of its planned tonnage during Q2. To alleviate this impact, further boreholes were drilled and a water transfer scheme was implemented from neighbouring operations, which helped improve supply in the second half. Additional boreholes are being drilled in consultation with water experts and process options continue to be explored to minimise consumption, which could assist in mitigating any future impact.
The relocation of the redundant Steelpoort chrome circuit to Lesedi was completed and commissioning started in June which will contribute to higher feed grades in the coming year. With regards project Echo, Tweefontein MF2 is the next module to be executed but construction depends on completion of an infrastructure upgrade by the national power utility to ensure stable and reliable power supply to the host mine. This upgrade has begun and is expected to commission by 2020. To date, expenditure on project Echo is $9.5M and it is estimated that it will take a further $2.5M to complete.
They are beginning to see the results from the MF2 modules at Millsell, Doornbosch and Mooinooi and expect the resultant ounces from these projects to be sustainable in the coming years. With the increase in the basket price and continued cost controls in place, the group were able to continue to internally fund their expansion projects.
Over the past year, the run up in the palladium and rhodium prices has boosted the basket price markedly which has been very welcome due to subdued platinum prices. The weakness of the rand has also boosted the group’s bottom line. Platinum is forecast to make a modest recovery on the back of a rise in investor activity, but autocatalyst consumption recovery and legislative changes in China and India, power supply issues and industrial activity have a major impact on the potential outcome. Palladium is expected to rise as a result of an increase in automotive consumption but rhodium prices may expect a moderate rise as market fundamentals stabilise following a release from pipeline inventories.
The group continues with an R&D joint operation programme and have conducted pilot work on the pelletising of chrome fines with the opportunity to convert chrome ore fines to pellets for current output and for third parties. As the basic piloting has now finished, engineering will be progressed to firm up a business case in the coming year with a possible view to adding a new business line to the company.
Management has committed to a plan to sell Grasvally Chrome with a sale expected by April 2020. The value of the assets held for sale is $4.2M. After the year-end, the group received a cash offer of $7.8M from Forward Africa Mining.
Going forward the aim is to maintain SDO performance with efficient cost controls, and to achieve a production guidance of around 74K ounces to 76K ounces for 2020.
At the current share price the shares trade on a PE ratio of 7.8 but this drops to 5.4 on next year’s consensus forecast. The group has a net cash position of $21.8M. This year the group is paying a maiden dividend of 4.3% which increases to 6.7% on next year’s forecast.
Overall then, operationally this has been a difficult year with power supply issues and water shortages but the performance has been very good with increased profits, net assets and operational cash flow, with plenty of free cash being generated. The group is benefiting from the increased rhodium price and the weakness of the Rand. Obviously there are risks here, the continued power supply issues are a concern, as is the rocky state of the automotive industry and the effect this could have on platinum prices but a forward PE of 5.4 and yield of 6.7% seems to have more than factored this in to my mind. I hold.
On the 22nd October the group released a trading update covering Q1. They delivered a solid, above guidance performance of 20,797 ounces. Whilst the plant feed tonnes and PGM plant feed grade were 6% and 8% lower respectively, recovery efficiencies increased 11%. Front end plant feed improved 7% but the coarser nature of material being mined impacted negatively on the proportion of fines reporting to the plant. The feed grade was impacted by lower quantities of higher grade current arisings received at the Tweefontein operation, after a production disruption at the host mine. Lower grade current arisings from Mooinooi related to a temporary change in feed source at the host mine, further impacting feed grade.
The improvement in the recovery efficiency can be attributed to a combination of the Mooinooi MF2 circuit that has now been running a full quarter, improved feed stability and circuit configuration at Lesedi following the commissioning of the new milling and chrome benefication circuit, and higher flotation mass pull philosophy at some of the operations which also improved recoveries. Although new circuits at Lesedi and Mooinooi will continue to contribute towards recovery efficiencies going forward, flotation mass pull will have to be lower in the coming quarters to address concentrate quality and payability at the expense of recovery. Steady-state recovery efficiency for 2020 is planned at around 52% to 53% compared to 59% this quarter.
The total SDO cash costs were within budget but increased by 16% in ZAR terms and 13% in USD terms to $550 per ounce. Higher re-mining costs associated with additional feed screening of coarse dump material at Lesedi, and a non-recurring ZAR8M rehabilitation adjustment were two of the most significant contributors to the increase in costs.
Water constraints remain a concern and management continue to explore technologies to reduce water losses and consumption and explore and implement alternative measures to supplement water supply to the operations. Additional trial boreholes are being drilled at Lesedi in order to recover seepage from tailings dam facilities that could potentially be rolled out to other sites if proven successful. Community protests in the Steelpoort area related to community demands and expectations of employment and commercial opportunities resulted in disruption in the Eastern operations in September.
Net revenue increased by 54% to $31.2M. The increase is due mainly to Q4’s pipeline payment and the increase in commodity prices with the 25% increase in basket price to $1,654/ounce. Total operating costs increased 12% largely due to employee-related costs. The changes to the re-mining strategy initially resulted in higher costs and combined with the increase in feed tonnes, increased total mining costs in the quarter. Electricity costs were also higher as the Mooinooi MF2 module was fully operational. Admin costs increased 21% to $600K due to annual employee cost increases and an escalation in travel costs.
Group EBITDA more than doubled to $19.2M and the net profit was up 158% to $12.5M. The group cash balance increased by $4.8M to $26.6M.
On the 31st January the group released a trading update covering Q2. The SDO delivered 19,206 ounces for the quarter, the third highest ever and above Q2 last year. It was 8% lower than Q1, however, as Q2 and Q3 are historically lower due to the impact of public holidays and the host mines closing over the holiday period.
PGM feed tonnes and plant feed grade remained stable. Recovery efficiencies were higher than planned but reduced by 8% on Q1 due to the feed characteristics of material processed, reduced concentrate mass pull strategy and an increase of work in progress ounces at the start of December.
As the volumes of fresh current arisings and RoM fines received from the host mines decrease at some operations over December, operations compensate for this by processing higher volumes of lower grade dump material which has a lower PGM recovery potential than freshly mined sources.
The total SDO cash costs decreased 7% to $510 per ounce, attributable to maintaining tight cost controls and planning at the operations.
Water supply issues remain an area of focus albeit that there was some reprieve where plants experienced some rainfall. The Lesedi and Tweefontein operations are most affected by water shortages but a successful intervention was implemented at Lesedi towards the end of the quarter, which assisted in the reduction of overall water losses. Management will now focus on implementing similar measures at Tweefontein next quarter. This should assist in alleviating production pressures associated with any water shortages.
Power constraints in the form of load shedding, power cuts due to maintenance and power interruptions associated with frequent trips from the utility provider, have impacted operations and led to downtime during the interruptions and frequent consequential chokes in the processing plants. The group continues to investigate alternative long term solutions to help mitigate this.
The host mine has communicated potential retrenchments and production cuts related to some of their Eastern and Western operations, which could potentially result in lower volumes of current aristings and RoM at some plants during the current depressed chrome market environment. The operations are able to substitute current arisings in order to mitigate this impact but at slightly lower feed grades and recoveries.
All Project Echo modules are now fully commissioned except the Tweefontein MF2 project that has been delayed pending the completion of a power supply upgrade by the power utility, which is scheduled towards the end of 2020. Management continues to focus on plant optimisation of the installed infrastructure to improve PGM recoveries and concentrate quality.
Commissioning of the new Lannex Mill as part of the life extension project is scheduled for May 2020 which will enable the plant to improve processing efficiencies and profitability based on the current feed sources and further enable it to accommodate alternative coarser feed sources such as RoM fines from underground or open cast operations, which will contribute to extend the life of this operation.
Net revenue decreased 11% to $27.9M as a result of lower production compared to Q1. This was partially mitigated by the 13% increase in basket price to $1,654 per ounce. Total operating costs decreased 11% and the all in sustaining costs also decreased. Group EBITDA decreased 9% to $17.4M and net profit was down 9% to $11.4M as a result of the lower revenue. The cash balance at the period-end was $33.8M, a $7.2M increase.
Overall then I am not too concerned about the reduced production, this seems to be due to seasonality. The water shortages and power outages are of more concern but these seem to be somewhat under control. The reduced production at the host mines, however, is something that should be watched carefully. Although as long as the sales price of these metals hold up as they are, these issues should be mitigated to some extent.