Metals & Mining26 Nov 2010 15:47
Metals & Mining
26 November 2010
Sylvania (SLV)
Price: 45.25p Target Price: REVIEWING Recommendation: BUY Market Cap: £113m
Sylvania and Jubilee finalise a route map for the development of the Volspruit deposit
Sylvania and Jubilee have entered into a Smelting Agreement that seeks to expand on the existing co-operative agreement that the parties signed in February this year. The new deal outlines a framework whereby the two parties have agreed to:
1. Extend their joint investigations into commercialising the exploitation of PGM-bearing resources at Sylvania’s Volspruit property (Northern Limb), which will involve the smelting of the concentrate product using the Jubilee ConRoast Technology.
2. Set out a timeline for the achievement of technical study milestones, which will be undertaken by a new 50:50 JV company which will carry out
o Scoping study for the exploitation of the Volspruit Project - to be completed by 28 February 2011.
o Pre-feasibility Study to be completed by 31 May 2011 (c. ZAR2m cost).
o Bankable Feasibility Study to be completed by 31 January 2012 (c.ZAR5m cost).
Comment
This is good news for Sylvania, which, despite having a more aggressive forecast production profile than almost all of its peers (from existing operations) - reaching record production levels a few weeks ago (and the rally in PGM prices), has unperformed over the last six months. The company’s market value completely ignores any of the growth prospects from its Northern Limb assets.
With this latest announcement, investors now have a clear roadmap outlined for the development of the Volspruit Project (the first of Sylvania’s Northern Limb Projects). If the Feasibility Study proves the project is economically viable, the implied value of its Northern Limb assets could prove ‘game changing’ for Sylvania.
There are, of course, additional hurdles on the route towards commercialisation of the Volspruit Project; most notably, the shortage of power allocation for a new large-scale smelting operation in the Bushveld. However, as we have outlined before, this might not prove as tricky as some commentators might think. Why not? We think that the answer might lie in a partnership with Samancor Chrome (which has already taken a 19% direct equity interest in Sylvania), as the former owns a large amount of idled ferrochrome smelting capacity in the Bushveld and possesses the necessary power allocation, environmental permits and furnaces that could/might be retrofitted for ConRoast Technology.
Recommendation
We are currently reviewing our target for Sylvania as we don’t think that any value is being attributed to this asset at the moment, and we think it deserves more than an acquisition valuation within our SOTP valuation. Why do we think this? The short answer is that our confidence in the commercial viability of these assets is growing because:
· The ConRoast met
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