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Now they've tidied up the share register in last set of buy backs, I would support bi-annual dividends with interim + final dividends. For tax purposes buy backs may suit some investors over dividends, but I'm easy either way and at this point, lean more towards dividends. For new investors who can clearly see the dividend yield, I think dividends would be better at raising the share price too in long run. Back in the day SLP's policy was to provide 2x dividends per year.

After doing quite a bit of research over weekend, I'm starting to see perhaps why SLP want such a large cash pot: Volspruit (low cost open pit palladium rich mine 120k Oz p.a.). If I have time after work will post specifically on this project, however in last set of accounts I missed this statement originally: "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".

As an overview on life of production, in Feb 2018 SLP stated: "71,000 -75,000oz in FY2018, increasing to ~78,000oz for next 10 years as Lesedi is optimised and remaining Project Echo modules commissioned".

Project Echo increases recoveries by 10% at the sites its been implemented and the above "steady state" of 78k for next 10yrs+ took into account Steelport closing (now decommissioned) and Lannex closing too in FY 2019, leaving 5 sites: Millsell, Mooinoi and Lesedi on Western Limb of Bushveld, Tweefontein and Doornbosch on Eastern Limb. However to the credit of SLP, Lannex (also on Eastern limb) is still going strong and even in the last update to be extended: "Commissioning of the new Lannex mill, as part of the Lannex plant life-extension project initiated in 2019, is scheduled for April / May 2020, which will enable the plant to improve processing efficiencies and profitability based on the current feed sources and further enable the plant 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". This means the 78k Oz steady state was actually understating SLP's production capacity with Lannex now still open and other optimisations post Echo.

We still also have Project Echo to roll out in late 2020 to final site Tweefontein. Separate to Echo, there are further optimisations of "circuit modification utilises enhanced fine screening technology for more efficient upgrading and recovery of PGMs".

So I can now see why SLP increased their generic estimated life statement from 10yrs, to start to say 10-15yrs in more recent presentations. If SLP have to use more dump material now to offset any reduction in current arisings from Samancor to maintain a steady state 74-78k Oz, arguably this of course does reduce the production life, put crudely to say 8 - 13yrs (if situation persisted for 2yrs). It may also lower production from 80k (which we appeared to be on track for), back to mid 70s as grade of dump material is lower than current/fresh arisings from Samancor mines. But then who knows what will happen 2yrs from now. What happens if chrome market recovers, the weak players have collapsed and Samancor not only gets back to current production but expands (incl. expanding to Lesedi). We could have a new steady state of 85K Oz+ and life of production still 10-15yrs+. We're also still talking about a "what if". Samancor haven't reduced chrome production yet and the 29% potential reduction mentioned by the FT (which would equate to 13% reduction for SLP if they did nowt, but to be offset by SLP increasing dump material) may not end up being nearly as much as this (particularly as others like Glencore Merafe have started reductions already and smaller ops closed down).

James - In terms of life of production, from last SLP presentation (accompanied the Accounts Release in Aug/Sept) on page 9 they state:

"Profitable operational life of at least ten to fifteen years"
"Potential to extend operating horizon through consistent ore production at host mines"

Theoretically though in very long-term, SLP could continue for as long as the host mines do, however if current chrome arisings make up only 45% of the feed, 55% comes from historical chrome dumps which are finite source until their depletion. As example, Mooinooi the largest Sylvania site of the 6, in 2010 was est. to have 25yrs+ life, whereas Lesedi at start of 2018 was est. to have 7.5yrs of dump material. However Mooinooi's est. life was before SLP developed new tech where they reprocess dump material multiple times extending life further. It could still have 15yrs+ left rather than 10yrs+. Additionally Lesedi is adjacent to Mooinooi and as per the acquisition RNS of 7th Nov 2017: "Pooling Phoenix Platinum [Lesedi] and Sylvania's existing adjacent Mooinooi dump resources, thus providing further flexibility in terms of increasing overall production capacity and extending the life of operations". So you could push Lesedi to 10yrs+ by taking from Mooinooi. These 2 sites make up 90,000 tons per month processing of the total est. 227,000 ton per month. I'll have to do bit more digging for other 4 dump sites (Lannex, Tweefontein, Doornbosch and Millsell), as well as how Project Echo optimises and extends life even further above this.

Lesedi when procured from Pan African at start of 2018 had remaining est. life of 7.5yrs (could be extended through optimisation no doubt across SLP's portfolio - Project Echo also would extend life). Mooinooi the larget of the SDO sites had life of mine of over 25yrs est. back in end of 2010. Of course meaning it has 15yrs left. Not sure about the core Sylvania Dump Operations (SDO) - will have to dig through the Accounts.

I'm always interested in net free cashflow after tax, as this is the sum that grows cash in the bank and cash available for dividends + organic growth/ M&A. Always a bit more than Net Profit as Net Profit takes into account D&A on Assets (which has no impact on cashflow, other than reducing final tax calc and tax paid, of which I include in my calcs below in tax assumptions).

Current SLP Market Cap: £112m
Cash in Bank: $33.8m/ £25.6m
Normalised SLP Market Cap: £86.4m

So just taking calendar year 2020 (different to SLP's financial year ending June 2020):

Sale Price per Oz to SLP: With Plat $960, Pall $2,250 and Rhod $9,000, SLP 4E PGM Basket is $2,328 less refiners margin: $1,785 per Oz.
AISC: assume ZAR 8,800 (conservative - this Q was 8,100 albeit Q before 8,600), with ZAR at 14.4 = $610
Margin per Oz: $1,785 - $610 = $1,175
Total Margin = 74,000 Oz (this therefore assumes SLP couldn't maintain 80,000 Oz which last 2 Qs of 40,000 imply, but that they could mitigate some of Samancor's chrome fresh arisings reductions through existing tailings dumps) x $1,175 = $87m
Total Free Cash: $87m less Capex of $6m and tax of circa $21m = $60m/ £46m

So in terms of ratio to SLP's normalised market cap of £86.4m/ £46m = 1.9! At these PGM prices and applying 5x ratio (conservative considering SLP life of production is 10yrs+) + cash position, in my opinion, SLP Market Cap should be £256m/ 90p sp.

If you apply the same methodology but assume circa 10% correction in PGMs (Plat $900, Pall $2,000, Rhod $8,000) and you assume reduction in SLP production to 70,000 p.a. (i.e. Samancor chrome production reduces by 29% which provide 45% of SLP tailings - so 13% reduction to SLP), total net free cashflow after tax reduces to $47.6m/ £36m. Applying same 5x ratio + cash position would mean SLP Market Cap £206m or 73p.

Paying a commensurate dividend of 10%+ yield at this sp would go some distance to sorting out this chronic undervaluation. The above doesn’t take into Grasvally sale which could net SLP $4.2m and hopefully paid to shareholders by special div (separate to usual div).

SLP's production is also bang on 40,000 4E PGMs after 6 months, well on track and above guidance.

There are a number of upcoming optimisations and nuggets of information in the Report inferring increases in recoveries, which in turn would mitigate any decline in fresh feed from Samancor. That is even before SLP's planned direct mitigations against any decline in fresh feed (flexibility between current arisings and dump material).

If we're looking at 80,000 Oz p.a. and fresh feed accounts for 45% of production and 29% of that 45% is at risk (10,000 Oz) (before SLP mitigations and optimisations to increase recoveries), this would mean a p.a. production of 70,000 Oz. This is before any optimisations and taking worst case scenario of fresh feed from Samancor declining by 29%.

It's an absurd reaction - can't work it out.

In a Q2 2020 where SLP paid tax of $6.8m and paid out a dividend of $2.9m, they still built up their cash position by $7.2million in one quarter alone to $33.8m!

After only 6 months, their EBITDA is $36.6m, their Net Profit $23.9m!!! This is already above the entire FYE June 2019 of EBITDA $30.2m and Net Profit of $18.2m. And this is even before these current PGM prices of pall $2,000+ and Rhodium $9k+ positively impacting the SLP cash position this quarter.

A key SLP mitigation to potential fresh chrome feed cuts is in the Q2 2020 report:

"The currently depressed chrome market is putting pressure on chrome miners and could potentially impact on fresh feed sources at some operations, but operations are able to substitute feed with available dump material in order to run plants at capacity"

The Grasvally chrome sale which was conditional may be looking bit shakey though, albeit in terms of share price it wasn't really factored in. However it would have been nice to get a special dividend of $4.2m from the net proceeds and would have provided a little lift to the sp

A bit like any negotiation and knowing how unions always react, you go in way over what you require, in this case say you want to remove 2,500 jobs and really only end up at say 800-1,000 jobs.

Due to the strength of the unions in SA, many operations have lots of fat and unnecessary labour - in tough times it's the perfect political chance to cut all the inefficiencies. If they cut jobs, it would not have an impact on operations by the same % as job cuts - it's Eskom that is the bigger worry for SA as a whole. At these Chrome prices, the only profitable part of Samancor's business will be the hundreds of thousands of free chrome ore they get back from SLP after the treatment process.

The consultation alone will take 2 months, then longer for negotiations etc. By then the cuts as a result of Glencore-Merafe Rustenburg smelter reductions and all the smaller chrome miners already closed that Tharisa alludes too in their Q report will be filtering down. It also comes at a time Eskom is lobbying the Government to be allowed larger hikes. The Chrome producers will lobby for carve outs and reductions.

Hi 88 - every 6 months when SLP release presentation with the Interims and Accounts, they normally provide an update on the SLP PGM 4E basket breakdown. Each of their dump sites may have slightly different composition and so depending on where production is under or over guidance, is subject to change. The last update we received (presentation should still be on their website from Aug/Sept 2019 pg.21):

Platinum: 61.8%
Palladium: 24.9%
Rhodium: 13%
Gold: 0.3%

Based on above we're still around the $2,080 per Oz mark. SLP report on a "4E" basis and the additional "6E" PGMs of iridium and ruthenium ($1,490 and $255 respectively) are treated as by-products from reporting perspective. Whereas others like JLP and THS report on a 6E basis. If SLP did the same, production would be 100K+ Oz. But it matters not how they present it (although their reporting of any miner or producer is most transparent I've seen), cash is king and SLP are making hay.

SLP PGM basket now $2,080+!

CYB - I don't think these few IIs know anything we don't - for Majedie who have sold down other miners/ producers, seems like re-balancing exercise and they've been in since early days, so must have made a pretty penny to offset other losses they suffered.

As we all know Eskom (power supply) is a concern regarding impact to SA and specifically to SLP, production of PGMs. For SLP, this concern in turn has been effectively completely mitigated by the significant increase in PGM basket price which should more than offset any short-term production decline. SLP's guidance is already pretty conservative in any event at 74,000 - 76,000 Oz for FYE Jun 2020. As Ragnar demonstrates calendar Q4 19 (FY Q2 2020) PGM basket price is significantly up so Q results may pleasantly surprise to counter what most are expecting is lower production due to the Eskom load-shedding. I think Q results may pleasantly surprise and could push us back up over 40p.

Platinum has now eased off to $960, but Pall has blown through $2,000 and Rhodium has ballooned to $6,600 in US trade. We're now at a PGM basket price of circa $1,950. Medium to long-term, we are considerably under-valued, even if PGM basket eased off. Pretty mouth-watering thinking what net free cashflow SLP are making at these basket prices, in comparison to the paltry £109m market cap.

After refining fees, capex, taxes etc. I estimate on 76,000 Oz p.a. the free cashflow is circa $40-44m. With Cash position of $26.6m, huge trade balance surplus ($30m+) and £109m market cap, valuation is absurd.

Hi Ragnar and a happy new year. It's hard to tell how accurate Morningstar is. It differs from the SLP website, which does not list Majedie at all anymore (whereas in MS they have over 4% across 2 funds). Also the SLP website still lists Cannacord at 3.16%, whereas they're not listed at all on Morningstar.

Either way you are right there is a lot of selling and buying. Who knows where these IIs may be rebalancing to. I would have thought at this stage of the global cycle, precious metals (gold and PGMs) would be best place to be. At least I'm sticking to my gold miners + SLP (PGM) for the foreseeable future and sold out of everything else. With central banks easing again (even if Fed isn't openly calling it QE) or unable/unwilling to raise interest rates, I could see this asset/ stock market reflation have more legs than I thought - perhaps it could get all the way to Nov-2020 for US election. However at some point the piper will need to be paid and I don't want to risk being in stocks (other than precious metals miners) when the rug is pulled out.

Next time round, I don't believe the US Dollar will be the safe haven "du jour" nor will gold be aggressively sold down on margin, going down with everything else. It may be sold down at the start of any crash (the traders/ specs who need to cover margins etc. and panic), but by a smaller % and think it would recover quickly with the rush to safe havens.

AISC is more encompassing than just simple "cash costs" and does include all General & Administration (G&A incl. corporate) costs that are attributable to Yanfolila, which will make up the majority of HUM's G&A costs. I tend to add $50 to the HUM AISC now HUM are selling gold dore, so I can benchmark it against the existing spot. Let's also assume conservatively geo-political tensions will settle down and gold spot is circa $1,525 minus $850 AISC = $675 Margin per Oz.

130,000 Oz p.a. x $675 margin = $87.75m EBITDA

Now AISC may not include:
- Interest of 9% on Gross Debt of $39m end of Q4 2019 (assume they will pay off $6m again in Q4) = $3.5m
- G&A and other costs linked to Dugbe, Acquisitions other non-Yanfolila costs = $5m (guess)
- Exploration/ Drilling to extend Yanfolila = $4m (guess - I think most Yanf drilling would be classed as "sustaining capital", although there has always been fierce arguments as to what constitutes "sustaining" and "non-sustaining" when drilling is extending the Life of Mine).
Total Cash costs outside AISC: $12.5m

Total Free cashflow in 2020 before Tax: $87.75m - 12.5m = $75.25m
Tax is a very hard one to figure out. I don't care about D&A from a free cashflow perspective as it's a non-cash accounting item. I only care about it in terms of how it impacts Gross Profit and therefore corporate tax of 30% to be paid. With D&A and Tax credits, not sure what HUM's tax bill could be for 2020, perhaps $15m?

So all in all we could be looking at $60m free cash after tax and all other costs if gold spot avg is $1,525 and 130,000 Oz production. Of course some of this might be used on acquisitions, accelerated drilling, buy-backs etc. who knows.
HUM also currently owns 90% of the mine, until such a time Mali Gov pays the $10.8m for the additional 10%. More likely it will be offset against any corp tax bill and amount to same thing.

So if HUM start 2020 with $20m Net Debt (Q3 2019 was $29m so lets see what Q4 19 results bring), we could be in a very favourable Net Cash position by end of 2020 and would hope buybacks, dividends and acquisitions are on the agenda. If Gold is $1,500+ for most of 2020, I would hope for a div in Q1 2021.

Indeed they've sold a whopping 0.44% to reduce their holding to 4.6%. Appears more of a re-balancing for their own personal reasons much like Majedie have been doing too in the mining space. In early Dec, Sustainable Capital increased their holding by an additional 1% to 13.1% and Jupiter jumped on board in late Dec with 5.6%.

To flip your question around and put it in the correct context based on all the recent II buying, do Jupiter + Sustainable know something we don't?

II and Management now have circa 46% of HUM equity.

Hi Shareminator - agree there is weakness in juniors and midcap precious metals sector , but it may be particular stark for HUM and SLP due to Institutional Investor Majedie selling down in both of these too. I think this compounded weakness specific to SLP and HUM is providing a very good buying opportunity in both.

3.4% was my quick back of the pack calculation. With avg gold price last quarter around $1,472 and HUM sale price $1,422, so a $50 delta equating to the 3.4%. Of course only an indicator as depends when gold was actually sold in the quarter.

Not sure where you get 2% from + 10-20bps. All refiners are extremely protective of their margins for obvious reasons. In any event 2% +$20 would also add up to $50.

Mostyn - I'm afraid I can't answer why they responded to myself and Juxt and not you. I went to the AGM this year, seemingly the only PI to do so and it no doubt makes it easier to respond when you can put a face to the name. I also sent a number of emails before Bert was still in his old HUM position before moving on to Cora.

On Betts Metals, it's a good and valid question. In the Accounts for 2019 it will have to be declared in the Related Parties section. There's nothing wrong with a perceived conflict of interest as long as it's declared correctly in the Accounts and internally HUM have a proper Corporate Ethics procedure, can demonstrate it's achieved a competitive price etc. I'm sure the IIs like Odey, Ruffer, Sustainable Capital and Standard Life have received far more background that us on the matter. A fee of 3.4% from the refiner on the face of it seems fair to me, in consideration they will pay in advance for the dore, refine and then actually need to cover their overheads and make a profit themselves.

Juxt - I got same clear response and just to avoid any doubt, it's not only about timing. As the quote you have from HUM mentions, they have commenced selling gold dore to refiner, rather than paying for the refining fee and then selling refined spot gold. It amounts to the same thing, but there are some minor benefits with selling dore instead of refined gold (payment earlier - before refining, rather than after). HUM confirmed to me this will be made clear in the Accounts.

It's quite easy to work out the refiner's costs. Take the gold spot avg for the quarter and minus the HUM gold dore price (so circa $50 per Oz). So effectively the AISC is $899 if you would normalise ($849 in Q3 + $50).

As long as any future performance options are correctly re-baselined (World Gold Council AISC includes for refining costs, so any AISC needs to be reduced by $50 by HUM). It would not be correct to set a performance metric of say $850 AISC when they now sell gold dore. You would effectively have to lower the AISC metric to $800.

Have to admit I can't work out the last TR1 - looks wrong to me. The last time Majedie was around 8-9% mark was June 2018. By Dec-2018 they'd gone down to 6.7% and June 2019 to 5.7%. The SLP website now doesn't list Majedie at all, meaning they're below 3% (although I assume they may be fully out). Either SLP website is wrong or this TR1 is wrong - I tend to think latter may be wrong.

On other news, good to see Rhodium bounce up to $5,590 - it's still slowly pushing up to higher highs and retraces are higher lows. Perhaps we will see $10k again. When we were talking about $10k when Rhodium was $2k it was slightly tongue in cheek on my part... perhaps not so anymore!