SYLVANIA Platinum raised the prospect of a “windfall dividend” during its new financial year after registering elevated prices for rhodium and palladium which it extracts by ‘re-mining’ chrome dumps in South Africa.
Rhodium, which is in a structural deficit, and palladium, are part of the platinum group metals (PGMs) family and are used in the manufacture of autocatalysts fitted to vehicles. Whilst automotive demand has fallen during the Covid-19 pandemic, recycling numbers and primary supply have fallen further putting upward pressure on prices.
As a result, lower production in the final quarter of Sylvania’s 2020 financial year ended-June from South Africa’s Covid-19 lockdown was more than offset by dollar prices for its metals, which also includes platinum. Rand depreciation against the dollar following a downgrade to South Africa’s credit ratings towards the end of 2020 led to a higher rand price for the basket of metals.
The outcome was excellent for Sylvania: taxed profit increased 125% to $41m. The company subsequently agreed to pay a 1.60 pence per share dividend comprising a first half 2020 dividend of 0.78p and 0.35p from the first half of the 2019 financial year. There was “… potential payment of a ‘metal price windfall dividend’ based on palladium and rhodium price performance for the 2020 calendar year.”
Although in production terms, platinum comprises nearly 62% of production, it was rhodium and palladium that contributed 72% of total revenue for the 2020 financial year. The 4E basket price of $2,015 per ounce was 58% higher year-on-year whilst in rands the, the average price was 77% higher.
Jaco Prinsloo, MD and CEO of Sylvania, said by phone the much-vaunted thrifting of metals such that pricey palladium in autocatalysts is replaced by cheaper platinum had been delayed by the Covid-19 pandemic. But it would provide price support when it happened as a $1,000/oz decline in the palladium price would be offset by a $500/oz gain in the platinum price given the price exposure of the metals Sylvania produces.
According to a Liberum Capital report, Sylvania shareholders could be in line for a special dividend of $10m, equal to some 3.9 cents per share, that would be payable in the third quarter of the new financial year.
“With global car sales growth positively inflecting, rhodium ETF (exchange traded funds) stocks depleted and the rhodium market still tight, we expect the underlying strength in PGM prices will continue to support the group’s solid cash generation,” it said.
Sylvania generated free cash flow of $48.5m before changes in working capital in its 2020 financial year. This was on the back of total 4E production of just over 69,000 oz, some 4% lower than 4E production in the 2019 financial year, the decline put down to Covid-19 interruptions in the final quarter.
Shares in Sylvania changed hands some 2.5% weaker on Monday having last week traded at a five-year higher. The company is currently capitalised at £173.6m.