simoan wrote: BTW If your post was in the Mining forum I would never have seen it so you have somewhat raised it's profile by doing so.
Raising the profile of the company as a short term investment was the reason for posting it here. The post was an attempt (I guess poorly executed by me) to highlight the fact that the safety margin with this share is huge i.e. minimal downside risk and is more akin to a value play than a mining investment.
simoan wrote: Am I wrong that the company does not extract any resources of it's own and is totally reliant on tailing from a Chrome producer called Samancor?
For practical purposes you are correct. Although if I was promoting this as a long term mining share to be invested in then I would point out that it has two potential mines of its own; however one is being sold (as highlighted in my cash estimate chart in an earlier post) and the other one is at the permitting stage so some way off being a useful production asset. [/quote]
simoan wrote: I thought I'd made a reasonable point that this means it is also reliant on the Chrome price, which neither you or the Tumblr article did in your bear points.
If the Chrome price falls ...and in the very worst case it could fall to zero should Samancor chrome production become uneconomic... but the SA chrome price is down 25% in the last year according to this website...
Well, splitting hairs perhaps, but it is the price of Chromite Concentrate and to a much larger degree Ferrochrome that is the subject but I take your point. The pricing is not so important to SLP as is the production. Changes in the pricing of Chromite/Ferrochrome has no serious impact on SLP
unless it affects production at Samancor.
Lets take a step back and look at the wider picture. South Africa has over 70% of the world's Chromite reserves. South Africa produces 49% of the world's Chrome ore production. Samancor Chrome is the second largest ferrochrome producer in the world.
Since Samancor became a private it has become almost impossible to find current data regarding its production/business. However they did recently announce a cut in production, but by how much has not been stated. Now you can get into a lot of speculation here but it would perhaps make more sense that there production cuts would be aimed at reducing costs (especially electrical costs as that is a major item) and as such you could speculate they would reduce mining of lower grade material and concentrate on higher grade material. For SLP this would imply an increase in production of PGM as recovery factors would be greater from a lower volume of material. But.. all this is pure speculation left to the real mining experts.
Given that SLP are are two weeks away from completing their first two quarters of the FY you have to ask yourself if Samancor are going to be in such bad shape that they need to severely curtail production to such an extent that it is going to have a material effect on SLP and analyst views. I would suggest that any effect on SLP will have minimal impact on this years' revenues.
simoan wrote:I think you need to let us all know why a decrease in input product would not reduce the amount of output product, and hence the revenues of Sylvania.
To summarise. Already practically through H1 already. Q1 production was materially higher than annualised forecast. PGM prices have continued to climb. A reduction in Samancor's production rate allows SLP to either/and continue using the tailings reserves or the material received from Samancor may in fact contain higher concentrations of PGM.
What is apparent is that Chrome ore and Ferrochrome pricing is highly cyclical. Page 5 of
https://assets.kpmg/content/dam/kpmg/xx ... romite.pdf shows just how quickly things can change when affirmative action is taken.
So lets assume an absolute catastrophe scenario and see where we end up in forecast revenue terms:
Production (oz)
Q1 20,797 (Actual)
Q2 17,000 (Let's say for sake of argument an 18% reduction)
Q3 10,000 (52% reduction over Q1)
Q4 10,000 (52% reduction over Q1)
Total ~57,000
Plug in the commodity pricing and that equates to over $90m revenue; which is still some 20% higher than analyst forecasts!
The last time SLP produced at these levels was back in 2015 prior to new equipment being installed and various optimisation practices. It is also worth noting that In 2015, chrome ore prices collapsed because of a sharp downturn in the Chinese economy, contracting the demand for stainless steel. This prompted many South African chrome producers to cut production and undertake care and maintenance programs at their mines. In practice it did not result in a catastrophe for SLP.
But in reality, production is more likely to be around 70,000 (which even I, a pessimist, is below their 74-76,000 guidance)
I refer back to the whole idea of a short term investment in SLP. The downside risk is negligible given current PGM commodity pricing, already completed production and near term future outlook.
Click for larger graph, can't find anything bang up to date but until recently there were no outages at all since End June.
) outside those resources that would be good too. It's called "Do Your Own Research" (DYOR) Stop being spoon fed everything and work for it. THEN we can have a discussion if you so choose but don't expect me to do your work for you.
