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Bushveld Minerals Limited

Bushveld Minerals ups resource after acquisition doubles down on vanadium


Bushveld is hoping to increase vanadium production significantly following completion of South African deal


Quick facts: Bushveld Minerals Limited

Price: £0.21

Market: LSE
Market Cap: £238.7 m
  • Bushveld is a low-cost integrated miner of vanadium, a mineral that is often added to steel in order to increase its strength

  • Vametco vanadium mine and processing plant in South Africa is currently in phase 2

  • Has set up its own energy storage subsidiary as part of strategy to develop deeply integrated vanadium business

  • Owns integrated thermal coal mining and independent power project in Madagascar

Bushveld Minerals Ltd (LON:BMN) has had a productive 2019, agreeing a major acquisition, increasing the resource estimate for its Vametco vanadium mine and roaring into profit.

Final results for 2018 on 23 May showed revenues soar to US$192mln from US$3mln as the price of vanadium, a steel additive, shot higher to offset a 3% dip in production to 2,560mln tonnes due to stoppages.

The price of Vanadium surged 149% over the year due to excitement over its application as a potential electrolyte for batteries, coupled with supply issues in China, helping pre-tax profits rocket to US$86.6mln compared to a loss of US$900,000 the year before.

Bushveld also recently unveiled an updated resources and reserves for 74%-owned Vametco in South Africa, with an indicated and inferred resources totalling 1.28Mt vanadium at 0.78%, of which indicated resources account for 965.9kt vanadium compared to 336.6kt previously.

Probable reserves now stand at 279.1kt at 2.02% compared to 137.2kt at 1.96% previously.

Addition continues long-term strategy

Since the year end, Bushveld has doubled down on vanadium with the US$68mln acquistion of Vanchem, which has producing vanadium assets in South Africa. An up-front payment of US$6.8mln will be followed by payments between 31 July and 31 October.

The Vanchem business consists of integrated vanadium extraction and production facilities comprising including a core salt-roast processing plant that produces vanadium trioxide and pentoxide, an electric smelting ferrovanadium converter, located at the Highveld Steel & Vanadium site, for conversion of vanadium trioxide to ferrovanadium, and an alumino-thermic smelting facility, located at Highveld, which converts vanadium pentoxide into ferrovanadium.

The acquisition is consistent with the company’s long-term strategy of acquiring existing, low-cost scalable brownfield operating assets in South Africa to help with the development of its significant and high-grade resource base.

It should allow Bushveld to boost production to 10,000mtV per year, as Vanchem already produces approximately 960mtV on an annualised basis, utilising only one of the three kilns on site.

The acquisition also unlocks the potential supply of the feedstock from the company’s Mokopane vanadium project, significantly reducing the potential capital outlay and accelerating the development schedule.

By transporting a crushed, screened and dry magnetic separated ore 200 kilometres for beneficiation at the Vanchem plant, the capex bill for Mokopane is likely to be cut to US$20mln.

Vanchem processing facilities also provide product diversification as they produce vanadium oxides, ferrovanadium and vanadium chemicals in addition to the Vametco’s Nitrovan offering.

Further growth will come with the refurbishment of the plant and by bringing all three kilns online at an estimated additional cost of US$45mln. This will allow the plant to reach a 4,200mtV/annum steady state.

The total expected outlay of US$133mln in acquisition and ramp up costs is around 45% of the required capital for a standalone development of Mokopane, according to the recent definitive feasibility study.

Accelerated production schedule

The schedule will be accelerated too, as the first Mokopane concentrate may be feeding the Vanchem plant within 12 months of the completion of the deal.

The deal secures a cash generative asset and increases Bushveld’s exposure to a commodity supported by a structural deficit market dynamics.

Broker SP Angel remains a firm buyer of the shares, although it is currently in the process of updating its model and precise forecasts.

Analyst comment

Analysts at Peel Hunt said the Vanchem addition provides for a production growth factor of 1.8 times over the medium term while creating a "significantly more sustainable cash flow profile", with the acquisition offering potential for "further upside".

“We believe that BMN debt of less than US$20m for the purchase gives the company plenty of room for expediated expansion works,” analysts said.

On long-term prices, they said Vanchem's longer-term potential for underlying earnings (EBITDA) is "at least equal to that of 2018".

Marking to market for changes in ferrovanadium prices, this reduces 2019 EBITDA forecast 23% to £57mln but increased the 2020 estimate 10% and made changes closer to 20% for the two years after.

House broker SP Angel reduced their assumed vanadium price to $60 per kg for 2019 and 2020 due to lesser compliance with the new Chinese regulations than expected, though they expect "punishment of Chinese officials to create better compliance this year".

But they said the Vanchem acquisition offsets these lower prices.

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