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Additional Information
Market: AIM, ASX
Sector: General Mining - Platinum Group Metals
EPIC: SLP
Latest Price: 17.25p  (-0.75% Descending)
52-week High: 45.00p
52-week Low: 16.00p
Market Cap: 51.88M
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Sylvania Resources continues to benefit from unique and simple business plan

3rd Jun 2009, 3:24 pm Sylvania Resources continues to benefit from unique and simple business plan

Platinum Group Metal (PGM) producer Sylvania Resources continues to benefit from its unique and simple business plan, which involves solid organic growth based upon the re-treatment of tailings from old South African chromite mines. At the same time, however, the company has seized the opportunity provided by the current market downturn to implement aggressive corporate growth opportunities, recently announcing that it has launched scrip takeover offers for two emerging junior platinum companies, SA Metals and Great Australian Resources.

Corporate activity is abundant at the junior end of the South African platinum sector, with Sylvania Resources right in the thick of it.  Indeed, the company has recently announced its intention to make an off-market takeover offer for two junior Australian-listed companies, SA Metals Limited and Great Australian Resources Limited.

The combination of the PGM assets of Sylvania and SA Metals should provide an opportunity to create longer-term benefits and value for the shareholders of both companies, through improved scale and penetration of the market for the supply of PGM resources. In addition, the acquisition of Great Australian Resources would strengthen the combined entity's interest in PGM projects in South Africa.

Let’s begin with the SA Metals deal. The total consideration payable by Sylvania under the offer will be around A$25.4 million (£12.6 million).  The takeover represents a premium of 120% based on the closing prices of SA Metals as of the 11th May 2009 – clearly management believe that this is a price worth paying.   

Sylvania describes its offer as a logical and value-adding proposal for both SA Metals shareholders and its own shareholders, particularly in the current market environment. We find it hard to argue. This is based on the fact that both companies have complimentary assets and focus. And being a scrip-based offer, SA Metals shareholders will have the opportunity to realise a substantial premium for their shares, as well as retain long term exposure and upside in the development of SA Metals' resources through a stakeholding in Sylvania.



With respect to the takeover of Great Australian Resources the synergies and enhanced efficiency makes the deal a ‘win-win’ for both entities.  Sylvania will pay a 12% premium on Great Australian Resources shares as at May 11th in deal worth A$5.9 million (£2.9 million).  

In our view, both transactions are a clear sign that those closest to the industry can see the emphatic supply side dynamic which is set to spur platinum prices on.  Indeed whilst record car sales in the developing world augur well for demand of the white metal (via catalytic converters), a lack of available credit and uneconomical projects at today’s prices are sowing the seeds for sustained price strength.  Throw into the mix a weakening US dollar and the case becomes even more compelling.    

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