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Bushveld Minerals Limited: THE INVESTMENT CASE

Bushveld aims to be Brits winner with vanadium deal

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
Bushveld aims to be Brits winner with vanadium deal
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 to spend the best part of £12mln on the Vametco vanadium mine next door to the company’s own deposit at Brits in South Africa.

Conditional terms will see Bushveld pay vendor Evraz US$17.2mln (£11,9mln) in two tranches for a 78.8% stake in Strategic Minerals, the Evraz subsidiary that owns the open pit mine and processing plant at the site.

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 Brits vanadium project acquired in November, which is a continuation of the mineralisation [strike] at the Vametco mine.

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.

All–in-cash costs were US$17.33 per kg.

Mojapelo said: "The acquisition price of US$17.2m is, we believe, attractive for a robust operating asset and is less than 10% of the replacement value.

The phased structure would allow it to take advantage when vanadium prices improve.

He added that in addition to vanadium nitride for the steel industry, Vametco produces a vanadium oxide product more suited to vanadium batteries. 

The first tranche will see Bushveld pay US$4.68mln cash, including the US$500,000 deposit, by 17 June for 23% of Strategic Minerals.

A further US$12.5mln is payable a year later for the remaining 55.8% conditional on the receipt of regulatory approval in South Africa.

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 in February 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 cost may be higher for an older plant it still won’t be anywhere the ten times extra a new plant would cost, he says.

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 sector.

That’s a message he will take to potential backers of the project as to finance the second phase of the acquisition Mojapelo said the company will need to raise funds.

Sense to the deal

Broker SP Angel notes that Bushveld had cash of £6.1m (approximately US$8.9m) at it last half year end, indicating it has adequate resources to meet the first tranche.

“Bushveld Minerals has secured an important strategic acquisition of an operating, low-cost, long life vanadium asset in South Africa.,” it added.

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.

Admittedly, these are hardly investors’ flavour of the month at present, but times change and the mining cycle will turn up again.

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

As well, the tin project at Mokopane has an estimated 18.500t and there is more potential tin at Marble Hall.

In Madagascar, Bushveld’s acquisition of Lemur Resources brought with it the Imaloto coal deposit while downstream there is now the battery development business Bushveld Energy.

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