Bushveld Minerals Ltd (LON:BMN) has completed a complex set of transactions to give it control of Vametco, a major vanadium producer based in South Africa.
As there are only two other major vanadium producing countries in the world, Russia and China, prospects look good for both Vametco and Bushveld.
“We’ve always believed the structure of the industry does favour us,” says Fortune Mojapelo, chief executive.
“There’s the relative concentration of supply, but the commodity itself is a really solid one.”
Vanadium prices on the up
Rising vanadium prices have shown the timing of the deal to be nigh-on perfect.
In January 2016, vanadium languished at a low of US$14.41 per kgV, but SP Angel has just based its new 14p per share valuation of Bushveld using a long term price for the steel hardening additive of US$27.5 per kg/V.
China environmental rules pushing vanadium higher
The broker can see the price going even higher.
“Ferro vanadium prices bounced off $34/kg and look as if they may move substantially higher in the short term and may also settle higher in the longer term.”
SP Angel added its price assumption may well prove to be ‘very conservative’ if China continues to enforce environmental restrictions.
This will cause the long term closure of a number of plants and restricting the processing of vanadium-bearing slag material.
“If we were to assume today’s ferro vanadium price over the long term this would nearly double our valuation for Vametco and for Bushveld Minerals.”
The broker adds it had assumed no value to Bushveld’s vanadium redox battery division, even though this is being tipped as a potential source of electricity storage facilities at power stations.
SP Angel also allowed nothing for the Lemur coal/power plant development, where a power purchase deal has just been agreed.
Attractive terms of the deal
Bushveld will have 59.1% of Vametco once it completes the buy-out of partner Yellow Dragon.
The deal is being funded US$4.5mln in cash with the remainder in new shares. There are also two deferred payments of US$600,000 and a further payment based on profits.
“The deal appears highly value accretive as we value Vametco more highly than the indicated acquisition price on our vanadium assumptions,” added Angel.
At 9.25p, up 21%, Bushveld is valued at £61mln.