The Sylvania Platinum (LSE:SLP) share price has been on an upward trajectory for the past few years. Despite a blip in the March market crash, it rebounded steadily and enjoyed an excellent 2020. The government classes mining as an essential industry, so although Covid-19 has caused some problems, the group has largely continued with business as usual. With metal prices continuing to rise, this bodes well for a continued run of good fortune for the Sylvania Platinum share price, I feel.
What are PGMs?
Platinum Group Metals (PGM) are used in industrial, medical, and electronic applications. This group includes platinum, rhodium and palladium, which are most frequently used in the manufacture of catalytic converters. But PGMs are also found in magnets, dental work, lab equipment, jewellery, and electrical contacts.
Sylvania’s core business is the re-treatment of PGM-bearing chrome tailings, essentially re-checking the tailings for PGMs. But what are chrome tailings? After separating ore to sort the valuable from the worthless, what it sometimes leaves is ore that may still be of some beneficial use. This is known as the tailings. Sylvania re-treats these to find and extract the PGMs.
Operating in South Africa, Sylvania has several processing plants from which it treats the chrome tailings and its established history and scale mean it produces PGMs at a very competitive cost. It has two core divisions, namely its Mineral Asset Development and Opencast Mining Projects and its Sylvania Dump Operations (SDO). Some 99% of the world’s chromite can be found in Africa, and from chrome tailings re-treatment, the SDO is the largest PGM producer in the industry.
Will the Sylvania Platinum share price keep climbing?
Sylvania Platinum’s half-year results are due at the end of the month and are widely expected to be strong. That’s because the price of rhodium has tripled since July. Demand is high for the metal due to its use in catalytic converters, which are vital for reducing vehicle emissions. Supply issues could be a problem in the future, as the world’s economic problems have discouraged the building of new mines. This gives an advantage to Sylvania.
The company has great cash flow, it’s still growing, and it operates at low cost. These are all significant factors that potential investors look for in a stock. Nevertheless, mining is a notoriously risky industry to invest in, so it’s important that investors remain cautious. If the time comes when catalytic converters are no longer needed, then the price of PGMs could fall. The price of platinum has already taken a hit as demand for diesel cars falls. And the widespread adoption of electric vehicles could significantly dent demand for all three, but it’s unlikely to happen soon.
Plus, if fuel-cell vehicles become viable, I expect platinum demand will soar as a single fuel cell would need around an ounce of platinum. Therefore, I don’t think it looks like the demand for PGMs will slow down soon. I also think established mining companies would adapt to exploring for alternative metals if demand for PGMs plummeted.
Investing in Sylvania Platinum
I’m tempted to invest as I think the Sylvania Platinum share price could have further to climb. Last year’s dividend yield was 3.6% and I expect its forward dividend to be much higher. Investing in commodities can also be a good hedge against inflation.
