http://www.miningweekly.com/article.php?a_id=133887The...

http://www.miningweekly.com/article.php?a_id=133887

The cash-flush platinum minnow with major margin

By: Martin Creamer
Published on 30th May 2008
Cash-flush Sylvania Resources is a mining minnow with cash on hand that belies both its age and its size.
The two-year-old, eleven-person Australia- and London-listed company already has a R300-million cash pile that is increasing at a rate of R60-million a quarter.

With rapid ramp-up, Sylvania’s 84% margin of profit is rising towards 89% and its cost level lowering towards R2 000/oz.

The platinum-from-dumps company has been profitable from its second month of operation and now has a market capitalisation close to R5-billion, Sylvania Resources CEO Terry McConnachie tells Mining Weekly.

The dumps Sylvania is contracted to mine will be depleted in five years, at which stage the plan is to have two years of hard-rock mining under its belt.

“No other platinum junior has got off the ground as quickly,” McConnachie calculates.

Founder Ed Nealon, of Aquarius Platinum fame, has the platinum nose, and McConnachie, founder of SA Chrome-Merafe, the chrome nous.

Together they are able to extract platinum-group metals (PGMs) from chrome dumps and have the assets to do so at a rate of 70 000 oz/y from 2010 onwards without any further transactions.

What has to be emphasised is that Sylvania recovers platinum from chrome dumps, which have grades far higher than those of platinum dumps.

Its biggest source of material is from the Kermas-controlled Samancor Chrome, Sylvania owning 74% of Samancor Dump Operations, and its South African black economic-empowerment (BEE) partner Ehlobo Resources 26%.

Ehlobo, headed by former Trade and Industry director-general Alistair Ruiters and economist Rafiq Bagus, is also the BEE partner of Samancor Chrome.

Samancor Dump Operations contains 500 000 oz of PGMs and has grades of 2 g/t to 6 g/t, compared with traditional platinum dump grades of 0,7 g/t to 1 g/t.

The dump material has been sampled on each depositing and Sylvania has access to the sampling results, which have been recorded over the years each time that material has been deposited on the tailings dumps.

In addition, Sylvania also treats current arisings, which is fast becoming the jewel in the Sylvania crown.

Little wonder that Sylvania has, among the holders of its 180-million shares, the likes of JP Morgan, JO Hambro, Audley Capital and Best Asset Class, the last a Swiss platinum-shares-only fund.

Analysts from both Investec Securities and Landsbanki have published reports on Sylvania, Investec’s Rebecca O’Dwyer calculating a share-price upside of 45% and Landsbanki’s Louise Collinge, a 33% upside.

“There’s a lot of upside in our stock, purely on future cash flow,” says McConnachie, who adds that a trial listing on the JSE is a “very real possibility”.

He says, however, that the company would need a new project, especially the takeover of an already-listed project, or a merger with an entity that has a sizeable cash-hungry project.

“We will be working hard to do a listing in Johannesburg, sooner rather than later”, but he cannot put any dates on it yet.

Listing would also be good for BEE Ehlobo, which is precluded from taking on listed UK and Australian stock without Reserve Bank approval.

Approaches for joint ventures from juniors with near-surface deposits of five- and ten- million ounces are being considered and Sylvania envisages listing the combined entities. Building mines of that size would require an investment of a few billion rands.

PRODUCTION RAMP-UP

Production ramp-up from operating plants at Steelpoort and Millsell is said to be rapid and two more plants are under construction.

The Steelpoort plant, on the eastern limb of the Bushveld Complex, is ramping up from a level of 2 000 oz/m, and Millsell, on the western limb, from a level of 600 oz/m.

The two operating plants both have a monthly capacity of 37 500 t and the two under construction – Lannex on the eastern limb and Elandsdrift-Mooinooi plant on the western limb – both have a monthly capacity of 70 000 t.

Lannex wil1 be producing at a rate of 2 000 oz/m by the end of the year and Elandsdrift-Mooinooi at 1 500 oz/m.

Sylvania also owns 25% of the Aquarius-managed Chrome Tailings Retreatment Project (CTRP), the initial benchmark, which it is now consistently exceeding.

While the uptime of the plants, which run around the clock, is critical, recovery is the trade secret.

McConnachie concedes that recovery is an aspect that can be improved and that it is well below that of conventional platinum-miners, owing to different reef being processed. Sylvania originally budgeted for a 32% recovery but has managed to increase the rate to 45%, which the installation of bead mills and extra rougher cleaner cells will lift to 61%.

Sylvania does not process Merensky and upper group two (UG2) as most platinum miners do. The reefs Sylvania processes, by contrast, are lower group six (LG6) and the middle groups (MGs).

“If we were processing Merensky or UG2, we would be looking at anything from 4 g/t to 6 g/t in situ, whereas the LG6 and MG reefs in situ contain 0,7 g/t to 1,5 g/t. But when you take out the chrome that does not contain platinum, you naturally upgrade the tailings to anything from 3g/t to 5g/t and, as a result, the characteristics of the material are radically different,” he explains.

Another point is that some of the dumps are up to 40 years old and, because of iron richness, platinum is not easily liberated.

“We get much higher recoveries out of current arisings, where the particles have not had a chance to oxidise. But we have installed ball mills at every plant to negate that, and we are now busy installing bead mills, which grind the material down much finer so that every bit of platinum can be liberated,” he says.

In this way, recoveries from dump material will be increased by another 15%.

Recovery from current arisings is already at 60%, though current arisings represent only about a third of total tailings at this stage.

“These plants are not capex sensitive, but opex sensitive, so we spare no expense when putting in new technology,” he says.

A significant driver of Sylvania cash is its high basket price, which is the result of 15% of the production being rhodium, compared with the traditional 5% to 7%.

The 15% rhodium translates into 51% of Sylvania’s income, because of rhodium currently selling at $10 000/oz.

TOO SMALL FOR MAJORS

The volume of 500 000 oz of 4PGE contained in the dumps owned previously by majors such as BHP Billiton and Anglo American was considered a negligible number not worth pursuing and the concept of mining platinum from the chrome dumps could have been difficult to get past Anglo and Samancor shareholders in the stodgy days gone by.

But new mining legislation and the entry of foreign juniors quickly put paid to that.

Aquarius’s pioneering CTRP blazed a trail by extracting platinum from chrome dumps owned by Xstrata and Bayer, and Sylvania emulated the model.

When BHP Billiton and Anglo American sold Samancor Chrome to the Kermas group, McConnachie was able to convince the more flexible Kermas to allow Sylvania to process the dumps in exchange for all the chrome at cost. The material has, in any event, to be dechromed in order to extract the platinum, which is the upside for Sylvania.

“It’s a win-win. They get the chrome and we get the PGEs,” McConnachie explains.

He looked intensively at emulating what Ergo did with gold, feeding large volumes into a large central plant, but heavy specific gravity chromite concentrates require a decentralised solution.

Instead of having one centralised plant, Sylvania required several small plants, hydromining close to dumps and mines and thereby eliminating transportation over long distances.

HARD-ROCK EXPLORATION

Sylvania’s hard-rock near- surface assets, still to be mined, include the Everest North project, where a 750 000-oz deposit has been confirmed.

Another is its 16,6% share of Great Australian Resources, which will be used as Sylvania’s exploration arm.

The company has also bought 100% of Aurora and 50% of Harriet’s Wish-Cracouw from Anglo Platinum.

Harriet’s Wish-Cracouw, on the northern limb of the Bushveld Complex, is a possible 900 000-oz deposit on a 3PGM basis. A contractor has been appointed to firm this up to a resource that complies with the inter- nationally recognised Joint Ore Reserves Committee (Jorc) code.

The 16,6% of Great Australian Resources gives Sylvania access to the Mooiplaats platinum-nickel deposit, into which 11 boreholes have been drilled with 24 deflections.
A resource of 74-million tons at 4 g/t is estimated.

“We will build ourselves up to a 19,5% stake and use Great Australian as our exploration arm,” he says.

“We don’t want to consume our very good cash flow on exploration. We will rather take an interest in this and when it is a measured resource, we can develop it on a right of refusal,” he says.

While carrying out a bankable feasibility study on Everest North, Sylvania is con- currently negotiating with Aquarius possibly to exchange Everest North for the right to treat all of Aquarius’s current tailings arisings while it continues to plan a mine so that there is no delay.

Sylvania is also talking to Eastern Platinum regarding an inverted 360-degree hillside dome deposit, the mining of which could be done as a joint venture in order to mine at a combined rate of a million tons a year. “The only way to mine this is as a whole, establishing a decline at the deepest point of 200 m,” says McConnachie.

Power and water supply are two issues still under consideration and 18 months to two years would be required for environmental- impact assessments.

Sylvania chairperson Richard Rossiter says of the growth- destined company with extremely high margins and low-risk operations: “Sylvania is quite atypical to many of the junior exploration companies in that it is producing a mountain of cash flow in the initial part of its life instead of coming back to the shareholders for more cash to drill another hole.
“The challenge we have now is really a great challenge and that is deciding how we are going to spend our cash flow.

“We are going to be getting anything between R100-million and R200-million in cash flow, depending on the price over the next two years and we are certainly looking to aggressively growing this company going forward and certainly participating in the consolidation and growth in the South African platinum industry.”

But its success has also been its weakness in that the subprime crisis lowered the share price when institutions found Sylvania one of the few liquid shares of all the juniors held.

The management team includes CFO Lewis Carroll, mining engineer Peter Cox, metallurgist Gerbrand Haasbroek and mechanical engineer Johan Meyer.

Current negotiations with companies to acquire more tailings offer upside potential, as does treating tailings from traditional platinum dumps as part of a downstream pursuit.