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AAZ is Azerbaijan, ALTN Kazakhstan

Looks like oil could open $10 down when markets open. With that and the escalation of coronavirus in Italy and world as a whole, monday is not going to be pretty. Hard to know which way gold will go. Is it going to be such a bad day it could get hit with people covering marginal calls elsewhere or will it be the last safe haven standing and catch a bid?

Anglo American are on a pretty sticky wicket claiming FM for this. Could be some big lawsuits against them depending on the Contracts with their customers and whether any customer wanted to go down that route of course.

HUM use WGC AISC defintion and royalties are always included in AISC. Anything that is a direct tax on production (revenue), should always be included in AISC, which of course a royalty is.

Corp/Company Income Tax is outside AISC

Now if they've changed their defintion, we'll find out in next Accounts due soon but dont believe they would have on this particular item. The way they sell gold dore may require slight modification/note in the accounts.

HUM need to recover the Capex costs before any split happens. In any event Mali Governments % is 10% until they pay the 10m owed to HUM for the other remaining 10%. No doubt will be paid by offsetting corp taxes, but therefore no need to double dip in FCF calcs (and royalties incl in AISC).

Fair comment on interest on loans which is outside of AISC, however we're cutting through the gross debt fast and interest payments will be going down. Probably be 3m in interest or thereabouts in 2020, then negligible in 2021 when the loan is near paid off.

I very much doubt the rolling cost of an expansionary exploration programme is $10m each and every year and doubt the G&A costs not linked to Yanfolila are £5m. G&A costs to support Yanfolila are covered under AISC

Ragnar - SLP's 4E PGM of 75-80k p.a is the equivalent of 6E PGM of 100-110K 6E PGM. THS report on 6E basis and are at the 140K Oz p.a. ballpark. It's still not proven they will successfully increase to 160K 6E PGMs. Additionally as THS is classed as a miner falling under Mining Charter and BEE, the THS Minerals entity which the PGMs falls under is 74% THS only, with the remainder BEE.

On top of that their AIC is significantly more than SLP's, THS is $892 per Oz. This is in comparison to SLP's 6E which would be in region of only $500 AIC per Oz on 6E basis.

The most concerning thing about THS is not only the significant Capex costs for expansion outside of AIC, but the "Stay In Business" (SIB) Capex costs pushing their AIC right up and a recurring feature. SLP will make far more free cash because of their much larger margin, even with lower production. And that's even assuming THS can successfully expand to 160k 6E Oz.

I personally believe we're heading for a recession/ major slowdown even before corona hit and I don't see any major reprieve for chrome. The chrome side of the business could be a millstone round their necks for years to come. Spending $53m on a fine chrome project through debt and continuing loss making chrome business, SLP could end this calendar year with $70m Net Cash (not even incl. their trade surplus of $34m) and THS could end it Net Debt $30m+. If THS delay/ suspend the fine chrome project until conditions are better, I may change my opinion. But their SIB Capex and AIC is still very concerning, proving it's not Qty alone that matters. Of course if calendar Q1 20 report shows a 40K 6E PGM Oz meaning they're on track for 160k and increase should also reduce the AIC per Oz, could be a turning point.

SLP 4E PGM Basket is now at $2,875 per Oz based on:
a) Plat $980 (62.1%)
b) Pall $2,680 (25.2%)
c) Rh $12,700 (12.5%), remaining 0.2% gold

I know there can be a huge spread between Rh sell and buys, however its all on contract and quite opaque. Additionally when I worked out the SLP 4E PGM basket for calendar Q4 2019 based on the buy prices from Johnson Mattey (JM), I got to about $1,780, whereas SLP actually achieved $1,830 (because of 6E by-products and perhaps premium achieved on Rh prices). So there is no harm in using the Rh buy prices reported from JM and you're still probably under-estimating the actual SLP 4E PGM basket achieved.

Assuming a refiners fee of 23% (I've gone back to using the more conservative FYE June accounts, as believe it's more accurate, with quarterly and interim sales adjustments figures not distorting it), the revenue to SLP is $2,200 per 4E Oz.

74,000 Oz x ($2,200 per Oz minus SLP All-in Cost (AIC) of $629 per Oz (which includes all Capex, which is running at about $6m per yr, reducing further next year)) = $116m before 28% SA Corp Tax.

Assuming some D&A, after tax of $32m say, you're looking at Net Free Cashflow of $86m p.a.. If you work off a ratio of 5 (conservative considering mine life at steady state 70-80k is circa 7yrs, not including later expansions and 3rd pass material pushing it to 10yrs+ at steady state. Even if nothing changed which will not be the case, post 7yrs SLP still carries on at circa 35-40K p.a. with current arisings) = $430m + $33.8m cash + $34m trade balance owed to SLP = $497.8m (£388m based on 1.28 Forex). That's equivalent to £1.37 share price.

I don't expect these PGM prices to continue, so even if you assume a 20% correction across the board and using same method above, you're looking at 0.99p share price. If you back out the trade balance figure, you would get to Ragnar's 90p ish area.

Think I was bit too quick with my negativity yesterday on THS to 88 - appears to have gone up 10-12% yester (although not sure on the spread which was over 5% yesterday before the rise). However medium to long-term I still standby my assumption SLP is the better PGM play - particularly the only pure PGM play:

- THS' Ferro Chrome 42% will be loss making at $135/ tn.
- THS Net Debt of $12m compared to SLP's Cash position of $33.8m (and of course on top of this SLP has huge trade balance owed to it of $34m due to 4-month delay between SLP providing PGMs to when they get paid by refiners (trade receivables + contract assets minus trade payables).
- THS have huge Capex requirement in 2020 of $117.2m. They need financing/debt/equity for fine chrome Vulcan Project of $52.8m. With Net Debt and huge Capex requirements, not clear if THS can pay a dividend this year.
- THS produce circa 6E PGMs 140k p.a. compared to SLP's 4E PGM of 75-80k (100-105K 6E PGMs if comparing like to like). THS AIC is $892 per Oz compared to SLP's AIC of $629 on 4E basis, so on 6E basis this would be circa $500 only. SLP's margin per Oz is much larger. I'm not convinced based on their Q4 2019 results THS can meet a 160k per Oz production and appear to be hit far more by Eskom load shedding than SLP due to nature of their sites.
- THS is a better play if you believe Chrome will recover, however with China on its knees and the coronavirus, I can't see Chrome recovering anytime soon. Perhaps where it might have started to recover within 6 months from now without Corona, may be looking more like 12-18 months with collapse in construction etc. And when I state recovery, I mean back to levels over $180/tn.
- The leftfield positive developments for THS is the huge Karo Resources Zimbabwe Project (THS have 26%) and for SLP it's potential news on Volspruit.

Hi barnaberible - in short term and in hindsight looks like right play - anyone who sold at 66p can now no doubt buy in lower.

My "good" problem is I'm significantly overweight in SLP, but also even more overweight in gold miners (mostly HUM, but few others too). In fact SLP is the only stock I own outside of gold miners. So if I do sell, I would probably just keep it on the side lines waiting for lower re-entry. As when I compare SLP versus my gold miners, all in my opinion have huge upside, but SLP currently pips them on this PGM basket price.

Coronavirus is a case in point and one that is very hard to play - it's one factor along with recent surge in SLP sp I wouldn't fault anyone for selling. I would have guessed that this should have brought the PGM basket crashing down a long time ago by now. Yet Pall and Rh have ploughed on up, providing a significant bullish buffer even if there is now a retrace. Rh is at a buy price of $12,700! Additionally if ZeroHedge articles are to be believed China is injecting record levels of new debt and pumping money into autos too. Hard to know where all this money will go what will win out - Coronavirus slowdown versus easy money.

Bluebelly - SLP's avg sale price per 4E Oz was not $1,024 it was $1,476 per Oz. SLP report on a 4E basis. They had revenue of $59m versus production of 40,003 Oz for calendar 2H 2019.

However because their reporting is so detailed, on a secondary level they also report on a 6E basis in their back-ups. If you were to revert to a 6E reporting basis for SLP (6E Oz no longer treated as by-products), then you would have to increase the production to 53,000 Oz for 2H 2019. So SLP would become a 100K+ p.a. per Oz PGM producer if you were to compare apples to apples with THS' and JLP's 6E PGM reporting.

In any event for JLP, they report on a 6E basis and if a 4E PGM basket price quoted is to be useful to those trying to work out JLP revenues, it needs to be normalised accordingly. Irrespective if JLP hit their 6E PGM targets, they should be making a lot of free cashflow, albeit for entities like SLP and JLP, there can be a 3-4 month delay from time they provide PGM concentrate to refiners to time they get paid.

Jonah - mix up in what way? When people quote 4E PGM basket prices on sites like LSE or ADVFN for both SLP and JLP, people need to remember neither company receive such PGM basket price and this fact is always overlooked. It's useless quoting such figures if you don't then equate it to actual revenues.

- For SLP to get the true potential sale price/ revenue, you need to deduct roughly 20% off the 4E PGM basket price to take into account the refiners costs/ fees.

- For JLP and based on 2H 2019 calendar figures, it appears you need to deduct circa 46%. This is because JLP also need to deduct 20-25% for refiners costs/ fees, but there is also the major difference between 4E and 6E prices to the downside. the additional "6Es" are ruthenium and osmium which are only $255 and $400 per Oz respectively. They reduce the basket price significantly. Hence you need to cut off circa 46% to any quoted 4E PGM basket price for JLP. Such % could vary from q to q.

There will always be guesswork and potential mix ups unless JLP release their 6E PGM Split. They only have 2 working sites - it really isn't difficult to do. SLP have 6 working sites and manage it on a per site basis and overall.

The most accurate figure you can go on presently for JLP are the figures in their 2H 2019 report and it's clear from the revenue + Oz produced they achieved a price of $992 per Oz. So tracking a 4E PGM basket price at the time of $1,800 would be as much use as a chocolate teapot if not put in the proper context of what that actually means for JLP revenues. Unfortunately it's up to PIs to fill in the blanks in JLPs reporting so of course there is always guesswork which can lead to mix ups.

AAZ then announced meaty dividends, went from strength to strength and is now at £1.40. Maybe SLP will repeat such history. Who knows when next positive curve ball not priced in will occur - Volspruit news, anticipation of meaty dividends, PGM basket price staying at these levels for longer than anticipated as sp still hasn't priced this in etc. etc.

It's always very healthy for long-term holders to sell out, for pull backs to happen and to allow new investors in, so don't fault any of those for selling recently. I've done it in the past, but I just can't find another share at present that beats the SLP undervaluation, even with the recent surge in sp. Even amongst mine gold miners. But in short-term I don't doubt there could be pullbacks as run up has been pretty swift.

I hope you looked at their current Net Debt metric ($12m), their huge Capex requirements this year ($117.2m) and need for additional financing for Vulcan fine Chrome Project of this Capex which is $52.8m (i.e. more debt or equity/ placing) before you dived in.

I also scanned THS but thought it's far too early, but fortune favours the brave I guess. If there is any update on the monster Zimbabwe Karo Resources Platinum Project (update was due in Jan), that could give a welcome boost to the THS sp. But at present the Chrome side will offset the positive news on the Platinum side and doubt it will do as well as SLP in the medium term. Chrome is at $135/tn and not a pretty place for THS or JLP who recently double downed at chrome at the wrong time.

I remember when a lot of people bailed out of AAZ after a great run to the 60-70p region

The numbers on ADVFN bear absolutely no relation to JLP's actual 6E PGM basket split and revenue. First of all the numbers stated on ADVFN are 4E PGM Oz and therefore already wrong in that JLP report their Oz on 6E basis, the 2nd is that Palladium is nowhere near 40% of the basket even if JLP did report on a 4E basis. This error seems to have started when an off the cuff comment was made in an interview that 40% of JLP's revenue was from Palladium.

Take JLP's calendar 2H 2019 results as an example:
6E Oz Produced: 21,802
Revenue: GBP 16,085,000 x Forex 1.3 = $20.9m
Price per Oz: $992 per 6E Oz.

That is in comparison to avg. 4E Basket Price for that period of $1,830. So the JLP price equates to only 54% of the actual 4E PGM basket.

Until such a time JLP finally produce a ballpark PGM split (I won't hold my breath), you're better off taking the SLP 4E PGM basket and multiplying it by anything from 54-60% to come up with a crude JLP 6E PGM Basket Sale Price.

SLP don't hedge - it's all at spot/ on contract for Rh. They provide the PGM concentrate to refiner(s), who have own cut for their services etc. and pay SLP 4-months in arrears based on spot/ contract prices when the PGMs are sold by them.

So as a rule of thumb, take the PGM 4E spot basket price and lop off 20% to get to figure SLP will receive for a 4E Oz. This also roughly takes into account the by-products and sales adjustments.

As an example, SLP's 1H FY 2020 revenue was $59m against 40,003 4E Oz ($1,476 per Oz to SLP). This is in comparison to a PGM basket spot price of $1,830 at the time (i.e. $1,476 being 20% less). So currently based on a 4E PGM basket price of $2,815 (Pall $2,800, Plat $1,000 and Rh $11,500). SLP will receive $2,270. When SLP's All-In Costs (AIC more comprehensive than even AISC and includes all Capex) is only $629, that's a margin of $1,641 per Oz.

If you multiply that margin $1,641 by say 74,000 Oz = $121.4m (before SA Corp Tax of 28%).
Not hard even with a 20-25% correction in today's PGM basket to get to Liberum's valuation of £1.10 per share

Hi Ragnar - the Capex and cash costs are from Jan 2013 presentation, so indeed out of date. There should of course be no real change in the detailed technical assumptions, but of course commercially we've had inflation (incl. Eskom hikes) etc. At the same time though the ZAR has weakened significantly since 2013 (ZAR was at 9 to USD! Now of course bouncing around 14-15), which counteracts any SA inflation since 2013. And considering 2013 market was so hot for PGMs, I actually think we would be surprised to learn the international costs (machinery, plant, contractors, consultants etc.) may actually have reduced. Shouldn't be too much work for SLP to perform internal update to commercial sections of the DFS and go back out for quotations from contractors to get up-to-date Capex estimates.

Agree with your doubts on SLP wanting to develop it themselves, unlike their plan in old days. Would be great if they sold majority to Impala and either was 50-50 JV with Impala as Operator or 51-49 or variation on the theme. Historically Impala were of course v. interested with their 1st right of refusal on 25% equity for 25% Capex. One would hope with explosion in Palladium prices and the richness of the Volspruit open pit mine to palladium + low capex (for Impala) they would be even more interested.

I forgot about the old Investor's Chronicle article from Sept 2019 which stated Liberum mentioned possible future sale of Volspruit (And doubt they would have mentioned this publically without SLP management stating this) so does confirm they're probably not interested on proceeding as a majority partner operating mine, but would prefer them to keep some equity. Be great for SLP to become a 100K Oz per annum 4E PGM miner.

If/ Once they get Environmental Authorisation & Water Use License, the Volspruit sale price should be at least double the book price of $40million. Maybe it would just be better to sell and get a huge special dividend of $40-80million! ; )

Ragnar - picking up on your point, if I compare the FYE June 2019 presentation with SLP website, there has been some quite big changes to the Institutional Investors:

Ignore minor changes as 4million shares were released from Treasury since FYE June 2019 for long-term options/ employee schemes.

https://www.sylvaniaplatinum.com/im/shareholder_info.php

Africa Asia Capital 20.62% to 20.32% (no change)
FIL Investment 9.49% to 8.28%
M&G Investments 9.89% to 7.99%
Hargreaves Lansdown 3.76% to 6.38%
Interactive Investor 3.16% to 4.6%
Premier Miton 4.55% to 4.49%
Majedie 5.77% to 3.71%
SLP Directors etc. 3.44% to 3.62%
Banque Cantonale Vaudoise 3.14% (NEW)
Cannacord 3.47% to 0% (OUT)

Few Notes:
1) Hargreaves Lansdown Asset Management: I don't know if this is a HL fund or if it's simply entity HL uses on PIs behalf to invest. For example for SLP my broker is indeed HL.
2) The newcomer is a regional (canton) bank in Switzerland (Corporate banking/ Wealth Management).

In short to medium term SLP need to restart some type of buyback program to mop up shares so there sharp dips are less severe when an II sells down. Long-term they need to really pump up the dividend yield, to attract new IIs looking for yield and provide extra incentive for existing IIs to continue placing their money in SLP. The Liberum forecast dividend yield for this financial year is too low (is it 4%?) and as house broker not clear if this is their forecast or something discussed in passing with SLP management so have a heads up.

After SLP release Interims 17-Feb, they do their usual 2-day roadshow in London meeting existing and potential big investors. Not sure if they do this in any other country afterwards too. With both the Interims release + roadshow, we should get even more interest.

Volspruit Overview:

• 3.4Moz PGM @ 1.25g/t, of which 1.1Moz Measured and Indicated @ 1.3g/t. Don’t be put off by low grade – it’s open pit, low cost.
• 262.6Mlb of Ni resources and 77Mlb of Cu by-products
• Time to production: 18 months from Approvals
• 120,000 Oz p.a. (74% SLP, 26% BEE, so SLP’s Volspruit Mining Company Pty structure already complies with SA Mining Charter Black Empowerment laws).
• Capex $190m (Impala has right of refusal to provide 25% capital for 25% equity). DFS, Independent Minerals Report, EIA, open pit mining study, smelter study, multiple PFS’ prior to this etc. etc. all completed.
• $445/oz cash cost – low due to open pit + by-product credits for base metals. Compares to current SDO cash costs of circa $510 - 550/oz
• Mining Right for PGMs, gold, copper, nickel and chrome was granted on 28 June 2017. Environmental Authorisation Appeal and Water Use License pending.
• Using 4E bulk sample of 1.25g/t, split appears to be 52.8% Pall, 40.8% Plat, 4.8% Rhodium & 2.4% gold.
• Using above % PGM split and arbitrarily applying $960 Plat, $2,250 Pall, Rh $9,000 and Gold $1,550, produces 4E Volspruit basket price of $2,036.

Unfortunately with SA bureaucracy, approvals takes sometime. But even if it took another 18 months and SLP pays dividends in that time, with these PGM prices we could be looking at $75m cash pot for Capex. If Impala use their right to buy-in that's another $50m. SLP could raise a bond/ bank loan and achieve low coupon/interest rate (based on low risk with SLP + Impala fronting so much equity) on let's say another $50m. The remaining $25m over the 18 month build period from cashflow. If SLP receive both EA and WUL, it would be huge. I doubt this is on anyone's radar. The sale price alone if SLP weren't interested in development anymore is mouthwatering.

SLP have never seemed too interested in developing Grasvally Chrome from what I can see. They've always seemed to have been progressing it, getting all the approvals in place to boost its value for sale, so for any buyer "it's ready to go". I don't know much about the buyer "Forward Africa Mining (Pty) Ltd" (google doesn't help) or if they can still raise the ZAR 115million ($8m) in current chrome market. Lets wait and see. Be nice to have a $4.2m special div from net proceeds ; )

After going through old presentations and reports, the bigger prize for SLP is Volspruit (low cost open pit PGM rich in palladium). They always had big plans to develop this, but then depressed PGM prices in 2014-2015 hit and project was on hold pending improved market conditions. However there is now this nugget in the last FYE June 2019 Accounts: “Due to the attractive palladium component along with the base metal by-products at Volspruit, a possible revival of the asset may be considered in due course.”

Volspruit could be huge and we all rightly focus on Sylvania’s 70-80k Oz 4E PGM producing SDO assets because they alone are so under-valued, that zero value is attributed to Volspruit. SLP still require Environmental Authorisation (refused intially by Limpopo Department of Environment and Tourism’s (LEDET) April 2016 and appealed by SLP June 2016 to Member of the Executive Council for Economic Development, Environment). What may bode well is that Department of Mineral Resources (DMR) which also received SLP’s EIA, later approved the Mineral Rights in June 2017 (from my reading of earlier RNS’ the MR approval normally only comes after EA, hence why I think it bodes well, but things move slowly in SA). The Application for a Water Use Licence (WUL) from Department of Water and Sanitation in progress too. Once/ if both these 2 hurdles achieved (EA + WUL), it’s full steam ahead for either mammoth sale or development.

I do think eventually the coronavirus will have an impact on western markets and PGMs - can't believe Palladium is now back over $2,400 (spot on IG) and Rhodium over $10k! Think nCov is perhaps one thing saving many sweaty bankers from Palladium futures market completely collapsing - they live to fight another day if not for another few quarters, as the shortage is structural, chronic and can't see any reprieve.

Using the Johnson Matthey buy prices over the last calendar Q4 2019, the avg SLP 4E basket price was $1,761, yet SLP achieved a basket price of $1,872. I think 2 main reasons for this are the 6E by-products credits and that in these markets the refiner achieves Rhodium prices at a premium (non-futures non-exchange market, mainly sold through long-term contracts).

http://www.platinum.matthey.com/prices/price-tables

Jan 2020 avg SLP 4E PGM price was $2,299 (!!!). It's now at $2,550 per oz today (!!!). Even if nCov impacts PGMs, PGM basket price has built up one hell of a buffer that is not baked into the sp at all. We're still undervalued even if we went all the way back to the calendar Q3 2019 basket of circa $1,700, so I'm very happy with risk-reward here ignoring short-term gyrations up and down.

Maybe to hedge the PGM risk, it's time to short Tesla which is defying gravity/ sanity.