Forgive junior miners for despairing. Even encouraging news on future production seems to have no real impact on share prices.

Investors are wary — and rightly so. In these uncertain times, it’s tough predicting which way the commodities run is going.

Take junior platinum producer Sylvania Resources. This Aussie and London-listed player recently released first quarter results. By all accounts the news was pretty good. But the share price barely moved.

Clearly juniors, even if they are good, are out of vogue. And they are even less fashionable if they operate in South Africa. With all the negative news about power cuts, safety and labour issues, foreign investors are understandably cagey.

Despite all that, Sylvania seems to have done pretty well. In fact, it can barely even be called junior anymore!

Stepping up production

Take a look at its recent third quarter financial results to March. Shimmering indeed!

One of Sylvania’s key strategies has been to access platinum tailings dams held by South Africa’s big boys. This is the rubbish they discard.

Of course that is not the only plan. Sylvania is an active explorer. But CEO Terry McConnachie said last year that aggressive growth would come from extrating platinum group metals (PGMs) from chrome tailing dumps. And it seems to be achieving its objectives.

Cash costs here are lower than those of other platinum producers for a number of reasons. Less power is needed, building the retreatment plant comes cheaper than a deep mine, and so on.

That is good news in this precious metals environment. Even if prices remain high, which we think is likely for the short term at least, costs are rising. Anglo Platinum, the world’s biggest producer, saw cash operating costs increase by a whopping 41% for the year ended December 2007.

Wages are up, safety is an expensive headache. Capital costs are up. And as for fuel prices… need we say more!

But in spite of all this, Sylvania’s production is expected to meet the targeted output of 70,000 PGM oz by 2009/2010. Already production in this financial period has risen by 34% with Sylvania’s PGM output hitting over 4,800 oz.

So what has it done? Well, it has gone about improving grades and volumes at its dump treatment operations. The most successful has been the retreatment of the Samancor Chrome dumps for PGMs. Samancor is one of the biggest ferrochrome producers in the world.

And it has been pretty successful. These Samancor dump operations alone saw production rise 48%. Okay, so this was tempered slightly by lower output at its 25% owned Chrome Tailing Retreatment Programme (CTRP) (an operation is 50% owned by Aquarius Platinum). But on the whole it was work well done.

A vision for growth in dark times

The future looks pretty shiny too. In the next quarter production is expected to rise again. That is down to focusing on improving output from the dump operations. It has already improved recoveries and processes at two key Samancor operations — Millsell and Steelport.

It is not the first time treating tailings has been successful. AngloGold, for example, has done it profitably too. And, of course, the plants to retreat the tailings are not that expensive.

And by the end of this calendar year, Sylvania will complete the construction of another plant known as Lannex. That will feed a further 70,000 tonnes of feed per month, doubling the size of the existing two operations.

So, the future may look bright — but Sylvania has not escaped South Africa’s power cuts. Yet, due to the surface and near surface nature of its operations, it uses less power than South Africa’s deep mining operations.

An active explorer too…after all we do need new finds!

Sylvania is more than a one horse wonder. It’s an active explorer too.

Take the Everest North project on a farm in the eastern bushveld of South Africa. There is apparently an inferred resource of some 796,000 ounces of PGMs. Obviously more tests are needed to test the viability of the project — that is happening at Aquarius Platinum’s Everest South Mine, which is currently under construction.

It is quite a complex arrangement, which looks something like this: Sylvania pays ZAR2m to Aquarius for the privilege of testing viability at Everest South and for that gets to prospect the Everest North project area. At its own expense! If the project proves viable the two companies will apply for a mining right to be transferred to Sylvania. Sylvania will then pay Aquarius ZAR6m when the right is granted.

CEO McConnachie appears to be the right guy to be behind this operation. He has 25 years’ mining experience. He has a good track record with black empowerment (crucial in South Africa). Plus, he has experience launching and listing a successful business. (He founded SA Chrome which is now Merafe Resources and the empowerment partner for mining major Xstrata.) He is also keen to keep costs under control.

Add to all of this that Sylvania is a prime takeover target and we can’t help wondering whether here is a horse worth backing!

Keep mining,

Erin and IsabelSource: Platinum Producer Sylvania Resources