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Bushveld Minerals Limited: THE INVESTMENT CASE

Bushveld plans coming together as it completes Vametco acquisition

Company has just agreed to spend the best part of £12mln on the Vametco vanadium mine next door to the company’s own deposit at Brits
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INVESTMENT OVERVIEW: BMN The Big Picture
Vanadium makes steel harder

“On the vanadium side I’m very comfortable”, Fortune Mojapelo, Bushveld Minerals’ (LON:BMN) chief executive told Proactive Investors a year ago.

So comfortable in fact that he has just agreed a US$16.5mln deal to buy the Vametco vanadium mine next door to the company’s own deposit at Brits in South Africa.

It has been a  long slog to get to this point, but the acquisition is now finally over the line.

Bushveld will pay vendor Evraz for a 78.8% stake in Strategic Minerals (SMC), the Evraz subsidiary that owns the open pit mine and processing plant at the Vametco site.

The deal has been financed through a fee payment to Evraz of US$1.646 million and a bridge loan of US$11mln from The Barak Fund SPC.

There is also a $3mln financing agreement with Wogen Resources and a cash contribution of US$820,000 from Bushveld and partner Yellow Dragon Holdings Limited.

Vametco, which broke even at the operating level in 2015 on sales of R629 million (£30mln), has the mining right for vanadium at two licences at Brits.

The operation is adjacent to Bushveld's own vanadium deposit, which, unsurprisingly, is a continuation of the mineralisation [strike] at the Vametco mine.

Mojapelo said: "We are particularly pleased to have acquired such a quality operation for what we believe is a very low price relative to its value in use to Bushveld.

Broker Shore Capital said the deal was made the more pleasing due to rising vanadium prices.

"Bushveld appears to have timed its transaction well, initiating the Vametco acquisition at ‘bottom’ prices and completing it just as prices and the rand have turned in its favour. With luck, this trend will continue," said analyst Yuen Low in a note.

"If vanadium prices continue to rise Vametco will not only be a cash cow, it could be a cash elephant," says analyst John Meyer in a comprehensive note.

What's it worth?

House broker SP Angel, valuing the Vametco operations, says if it was to use the PFS (prefeasibility) assumed price of US$7.5 per pound for vanadium pentoxide and its implied Ferro-Vanadium ‘FeV’ price then the net present value is 244mln at a 12% discount rate on a more conservative and cautious model.

For Evraz, Vametco was a minor plant which could easily be cast adrift with a US$16.5mln price tag looking a lot better in roubles, says analyst John Meyer.

For Bushveld, Vametco is a major opportunity to save over $200mln in capital costs and four to five years on the road to development.

"Critically the company has saved a minimum of three years on feasibility, financing and construction with the added benefit of taking on the Vametco plant at a time of rising vanadium prices and with a fully committed management and operating team," says the analyst.

It rates Bushveld a 'buy' targeting 11.6p.

 

Plenty of vanadium in reserve

Ore reserves at Vametco are 27mln tonnes (JORC), sufficient for 24 years at current production levels with what Bushveld says are the highest in-magnetite vanadium pentoxide (V2O5) grades in the world at 2.55% on average.

Resources overall are in excess of 135mln tonnes (Mt) at vanadium grades of 2.1%.

In 2015, Vametco produced 2,419 tonnes of vanadium but Bushveld sees scope to increase production from nameplate capacity 2,750t to 3,340t through targeted de-bottlenecking.

Bushveld says the Vametco is one of the cheapest primary producers of vanadium in the world, realising an all-in cash cost of US$17.33 per kilogram of vanadium (kg/V) for the year 2015.

Mojapelo added that the acquisition cost was attractive for a robust operating asset and less than 10% of the replacement value.

In addition to vanadium nitride for the steel industry, Vametco produces a vanadium oxide product more suited to batteries.

Brownfield a fraction of cost of new site

Buying a brownfield site makes more economic sense for a company of Bushveld’s size, Mojapelo told Proactive Investors.

A pre-feasibility study estimated the cost of building a greenfield mine at its own Mokopane deposit at almost US$300mln, with the definitive study alone to cost US$9mln.

“Buying a brownfield site accelerates the path to production by several years and significantly reduces the capex requirement.”

While maintenance costs may be higher for an older plant it still won’t be anywhere the ten times extra a new plant would cost, he said.

The Vametco orebody is also “one of the richest you find anywhere and you’d be hard pushed to find a better investment than this in the vanadium space”.

Demand for vanadium will grow, he believes, underpinned by its use as hardening agent in high quality steels and its potential in the energy storage/battery sector.

That’s a message he will take to potential backers of the project.

Strings to the bow

Vanadium may be the current focus, but Bushveld has other strings to its bow including iron ore, titanium, tin and coal, where both these latter two have seen major developments recently.

In no particular order, Bushveld has the P-Q iron and tin project in South Africa with a JORC compliant 939Mt VTM deposit.

The tin project at Mokopane has an estimated 18.500t and there is more potential metal at Marble Hall, while Bushveld’s Greenhills subsidiary has agreed to take a material stake in the Uis tin project in Namibia.

Lemur brings in Chinese partner

In Madagascar, Bushveld’s acquisition of Lemur Resources brought with it the Imaloto coal deposit but in a major step forward  a new Chinese partner, Sinohydro,  has just come on board.

Mojapelo said: “Sinohydro and its parent company PowerChina, bring a wealth of technical expertise in building such projects and bringing them into operation.

The MoU reinforces the commercial merits of the project and the bankable feasibility study will add significant value to the development of the power project.”

The feasibility study will assess an initial 60Mw independent power producer (IPP) coal power plant and associated 200 kilometre transmission line in southern Madagascar.

Coal fuel for the power station will be provided from Lemur's coal mining permit area in Madagascar.

Sinohydro will prepare the bankable study at its own cost within 12 months of signing the MoU.

Broker lauds ‘star performer’

Bushveld was a "star performer" among AIM-listed basic resources stocks in the first quarter of 2017, broker SP Angel said in a note.

Shares in Bushveld surged 306% in the first quarter and by 256% over the past year.

"Vametco profits should rise sharply on markedly higher vanadium prices and on proposed initiatives to increase the range of production from the plant,” the broker said.

Beaufort Securities, meanwhile, said the memorandum of understanding with Chinese group Sinohydro at Imaloto in Madagascar sets out clear objectives for the two parties.

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