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Market: AIM, ASX
Sector: General Mining - Platinum Group Metals
EPIC: SLP
Latest Price: 17.38p  (-2.08% Descending)
52-week High: 46.00p
52-week Low: 16.00p
Market Cap: 52.36M
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Sylvania Resources: implementing a sensible business model to become a low cost platinum and ferrochrome player

22nd Oct 2009, 10:04 am Sylvania Resources: implementing a sensible business model to become a low cost platinum and ferrochrome player

Having announced the purchase of SA Metals and Great Australian Resources, Sylvania Resources needs to take one further step to become an integrated PGM (platinum group metals) and ferrochrome producer…. its merger with the Ruukki Group.

Sylvania is implementing a sensible business model to emerge as a low cost producer of PGM from treating waste dumps and from mining shallow opencast mines. The merger with Ruukki Group will proceed with Ruukki acquiring 100% of Sylvania through a scheme of arrangement. The offer of 1.81 Sylvania shares for 1.0 Ruukki shares is strongly supported by the company’s independent directors. The latest time for completion of the merger is April 2010.
 
As with many involved in the commodities market, 2009 has been an unforgettable year.  When the PGM prices were very high in FY08, the basket price of PGMs was US$2,626/oz (per ounce) compared with a cost of US$408/oz. It was not surprising that Sylvania reported profit from operations of A$28.7m for FY08, that fell to A$8.8m in FY09 when the basket price collapsed to US$881/oz with slightly higher costs of US$440/oz.

Operating cash flow though has been quite a different matter with positive cash flows of A$19.8m in FY09 and A$10.5m in FY08. In both years there was a draw down on cash reserves after capital expenditures were taken to account. Encouragingly, the company still has a strong balance sheet with cash of around A$23m and no debt.

The company has reported that its dump operations are profitable from its five 37,000 tpa (tonnes per annum) plants with collective annual production of 80,000oz of PGM. However, looking ahead, future growth comes from developing the Platreef Resources where production is expected to rise to 376,00oz pa over the next years facilitated by the construction of 8 X 100,000 tpa modular.

The plants will be built consecutively and Sylvania is hopeful that as production builds the capital requirement will be funded from cash flow. At full production, and in today dollars, the company expects to report annual profits of GBP140-169m. The base metal removal plant will cost R300m (S.African rand) however at full capacity the plant will have annual production of 5,880 tonnes of nickel and 5,040 tonnes of copper.



The price of platinum meanwhile has established a firm upward path. Over recent months the weaker USD has helped but underlying demand will pick-up and replace a weak USD as the principal force behind improving PGM prices.

Overall, Sylvania's business model deliberately avoids high risk underground mining for PGM whilst the operating cost structure is relatively low from treating dumps and mining shallow pits. There is an established long-term growth strategy and the merger with Ruukki Group provides the company with downstream smelting capabilities that is value creative for shareholders.

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