Bushveld Minerals Ld - Q1 2020 Operational Update

Market Abuse Regulation ("MAR") Disclosure

Certain information contained in this announcement would have been deemed inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 until the release of this announcement.

4 May 2020

Bushveld Minerals Limited

("Bushveld Minerals" "Bushveld" or the "Company")

Q1 2020 Operational Update

Bushveld Minerals Limited (AIM: BMN), the AIM quoted, integrated primary vanadium producer, with ownership of high grade vanadium assets, is pleased to provide an operational update for the three months ending March 2020 ("Q1 2020"), in respect of Bushveld Vanadium and Bushveld Energy, as well as other corporate activities.

Key Highlights

Bushveld Minerals

Vametco

·      Production for Q1 2020 was 652 mtV (482.5 mtV 74 per cent net attributable interest) in the form of Nitrovan, marginally ahead of Q1 2019 production of 649 mtV despite being impacted by the Covid-19 nation-wide lockdown as well as higher than usual rainfall during the quarter.

·      Sales of 898 mtV (664.5 mtV 74 per cent net attributable interest) achieved in Q1 2020, 77 per cent higher than Q1 2019 as a result of additional production volumes in Q4 2019 and increased customer demand.

·      Underlying production cost of US$18.90/kgV, an eight per cent decrease relative to Q1 2019, supported by a weaker ZAR:USD rate.

·      Early completion of the annual maintenance programme, which was initially planned for Q2 2020 for a period of 10 days. No further maintenance shutdowns are planned for the remainder of 2020.

·      In line with the Government's "risk-adjusted strategy for economic activity", following a 35 days Covid-19 lockdown production is ramping up to normal levels.

Vanchem

·      Solid operating performance, with production of 219 mtV despite being impacted by 10 days of power rationing as well as the Covid-19 lockdown during the quarter. Vanchem's production for Q1 2020 represented 31 per cent of total Bushveld attributable vanadium production.

·      Sales of 182 mtV achieved comprised of a range of products during the quarter.

·      The underlying production cost for the quarter was US$18.5/kgV, due to stock build up, as Vanchem has been ramping up production from December 2019. We expect inventory levels to normalise in Q2 2020.

·      Completed the scoping study of a refurbishment programme and prioritised a total of around R85 million as critical capital spend required for 2020 to enable Vanchem to continue to sustainably operate. We expect to incur most of the spend during the second half of the year.

·      As with Vametco, production is ramping up to normal levels following Government guidance.

Bushveld Energy

·      Approved construction of vanadium electrolyte plant, including receipt of funding approvals for equity and debt from the Industrial Development Corporation ("IDC").

·      In line with its strategy of partnering with Vanadium Redox Flow Batteries ("VRFB") companies, on 1 April Bushveld announced that it held a 8.71 per cent shareholding in Invinity Energy Systems plc ("Invinity") the entity created by the merger of Avalon Battery Corporation and redT energy plc.

·      Completion of due diligence to acquire Enerox as part of an investment consortium. Bushveld Minerals will continue to update the market on developments around the progress and structure of the transaction.

Capital structure and liquidity

·      As previously reported, on 30 October 2019, the Group secured ZAR375 million facilities from Nedbank, comprised of a ZAR125 million revolving credit facility ("RCF") and a ZAR250 million term loan which was drawn down at the time. The Group drew down the remaining RCF of ZAR125 million at the end of March 2020 to enhance liquidity and provide financial flexibility during this uncertain environment. Overall, the Group's unaudited gross cash and cash equivalent position as at 31 December 2019 and 31 March 2020 was US$34 million and US$34.4 million, respectively. The 31 March 2020 unaudited gross cash and cash equivalent position includes the full ZAR375 million facilities.  

·      As the near-term impact of Covid-19 on operating conditions is uncertain, the Group is taking cash preservation measures to manage near term liquidity while preserving the long term sustainability of the assets. These include reviewing and limiting operational expenditure where necessary as well as deferring some growth associated (non-critical) capital expenditure across the mining, processing and energy businesses.

Outlook

·      2020 production and cost guidance for both Vanchem and Vametco remains under review and will remain so until the Company is in a position to quantify the impact of the Covid-19 pandemic and the South African nation-wide lockdown.

Fortune Mojapelo, CEO of Bushveld Minerals Limited, commented: 

"This update comes in the midst of the global Covid-19 pandemic that has not only changed our world but will continue to change it in ways we have not fully understood yet. I am pleased that these difficult circumstances found Bushveld Minerals in a sound state financially, with a set of quality low-cost production assets.

"We are fortunate to operate in a country whose leadership has taken early decisive action to limit the spread of the Covid-19 virus while ensuring that we build the necessary public health care capacity and identify fiscal responses to manage the coming wave of infections, while treatments and vaccines are still under development. Navigating this situation requires us to meet the immediate challenges of ensuring the safety and health of our workers, sustain business continuity and ensure readiness to scale back up to full capacity in due course, while also supporting the fight against Covid-19 among our host communities.

"We used the lockdown period to strengthen our health and safety protocols together with business continuity measures, conducted maintenance and processed intermediary stockpiles, as per the guidelines received from our authorities. We are pleased that both Vametco and Vanchem are safely increasing production to normal levels.

"I am glad that our suppliers and service providers have continued operating and servicing the Company. We have continued to pay our employees during the lockdown, have not had to declare force majeure while continuing to meet our customer orders. In addition, we have carried on playing a supportive role in our local communities by supplying water and sanitisers to local hospitals, police stations and old age homes. I am particularly proud of the management team that has worked so hard to ensure the Company is not only prepared to weather the Covid-19 storm but does so with empathy and responsibility to all our stakeholders.

"From a liquidity perspective, we started the year with a healthy cash balance. We retain a cautiously positive growth outlook on the vanadium market and the Company's role therein. This notwithstanding, we have undertaken a review of our capital spending, deferring some non-essential capital expenditure for the near term whilst preserving the long term integrity of our business and still positioning the company for growth in the vanadium market in the medium to long term. Furthermore, to enhance our liquidity position and financial flexibility we drew down the full ZAR375 million of bank debt facilities. Meanwhile, the Company's finances have benefitted from a weakening Rand, given its revenue and cost bases are mostly foreign currency and local currency denominated, respectively. This places us in a stronger position to navigate through this evolving situation.

"We are confident that the measures we have taken will enable us to build an even more resilient Bushveld Minerals, well positioned to exploit the upturn when it comes.  

"We are releasing this announcement later than we would have typically done. This has been necessitated by the need to better understand and so provide clarity on the impact of the pandemic and the fast-evolving environment and regulatory landscape we are operating in.  We also expect to be in a better position to disclose more on our renewed plans and capital expenditure requirements in our 2019 full year results announcement, when we believe there will be more clarity on what the rest of the 2020 financial year will hold.

"Our intention is to continue adapting to this fluid environment and do everything necessary to protect our people and our business, while doing our part to fight this global pandemic."

Conference call

fBushveld Minerals Chief Executive Officer, Fortune Mojapelo, Finance Director, Tanya Chikanza  and Bushveld Energy Chief Executive Officer, Mikhail Nikomarov will host a conference call at 9:30am BST (10:30am SAST) today to discuss the Quarterly update with analysts. Participants may join the call by dialling:

Tel:                   United Kingdom: +44 3333000804; South Africa: +27 216724118

Toll Free:          United Kingdom: 08003589473; South Africa: 0800111446

Pin:                  47594360#

Alternatively, a list of international dial-in numbers are available here:

https://events-ftp.arkadin.com/ev/docs/NE_W2_TF_Events_International_Access_List.pdf

A replay of the conference call will be available on the Company's website post the call.

Covid-19 Response

The Company rapidly developed and implemented a detailed programme in response to the Covid-19 pandemic. The programme prioritises the protection of its employees and host communities through rapid implementation of health and hygiene controls in the workplace, protocols for dealing with suspected cases of infection and business continuity measures to minimise the disruption effects of the pandemic on the business.

Bushveld Minerals has established a Covid-19 Task Team to ensure that the Company is best prepared to navigate this period. This includes the following work streams:

§ Health and Safety: designing and implementing protocols aligned to those provided by the World Health Organisation, the   Department of Health, National health organizations (such as the National Institute for Communicable Diseases), the South African Department of Minerals Resources and Energy ("DMRE") and other Government authorities, to safeguard our employees and operations.  Our response approach has been to create awareness in the workplace, minimise transmission risk and intervention in identified or potential cases.

§ Human Resources: proactively managing the workforce; focusing first on the high priority vulnerabilities and establishing business continuity measures and protocols to enable the organisation to adapt as the epidemic unfolds.

§ Finance: establishing cash preservation measures to manage near term liquidity while preserving the long term sustainability of the assets. These include reviewing and limiting operational expenditure where necessary as well as deferring growth associated (non-critical) capital expenditure.

§ Information Technology: assessing and addressing systems and cyber vulnerabilities whilst enabling the teams across the sites to work and collaborate remotely

§ Supply Chain: ensuring security of supply chain, specifically, anticipating potential disruptions and putting in place sufficient contingency plans. Bushveld continues to work with customers to fulfil orders and meet their requirements while still complying with Government directives. The supply chain is open and customer orders remain robust.

§ Stakeholder and Community: continued engagement and collaboration with employees, Government, and communities to reduce the impact on society.

§ Customers: engaging with our customers and leveraging our existing relationships to secure demand post the current lockdown.

§ Medium term and Vanadium market outlook: understanding and planning for the impacts of Covid-19, beyond the immediate disruption to our operations and the markets we operate in. Despite the impact of Covid-19 the vanadium price has been resilient across all regions. China's Purchasing Manufacturing Index indicated improved rebar production and demand driven by the restart in the construction sector. China's rebar consumption is tracking up 10 per cent year on year, with China being a net vanadium importer during the month of March.

Looking ahead we expect vanadium demand to remain robust in the medium to long term spurred on by supportive fiscal stimulus and increased infrastructure investments. Growing calls to take advantage of the fiscal stimulus opportunities to accelerate the energy transition are also expected to provide further support to the growth of the energy storage industry in which VRFBs have a significant role to play.

Our protocols have functioned effectively, and we will continue to monitor the situation and update our measures in line with the guidelines from the South African health authorities and Government.

Bushveld Vanadium

Bushveld has one of the largest, high-grade primary vanadium resource bases in the world. The Company's vanadium resource base currently consists of three mineral assets, Vametco, Brits and Mokopane, and its processing facilities consist of Vametco and Vanchem, which are all situated in South Africa.

While Bushveld Vanadium was initially operating at the run-rate required to meet its 2020 guidance at Vametco and Vanchem, this was interrupted when the South African Government issued a directive on 23 March for a 21 days nation-wide lockdown effective from midnight on 26 March, for all citizens, to minimise movement of non-essential businesses and activities. On 9 April, the Government announced a two week extension of the lockdown period to 30 April.

As per the Amended Disaster Regulations announced by the South African Government on 16 April, mining operations were allowed to re-open and operate at a reduced capacity of 50 per cent of normal production levels during the lockdown period.

On 23 April, the Government announced that it will follow a "risk-adjusted strategy for economic activity". The approach proposes five alert levels, with five being a hard lockdown and one being where normal activity can resume. Different parts of the country may be at different alert levels at any one time, with levels adjusted up or down based on the rate of transmission in each area. The Government announced that the country's lockdown would move to level four on 1 May, where open-cast mining will be allowed to scale up to full employment and supply chains for permitted goods and services will be allowed to recommence.

Consequent to the disruption in production during the lock down period there is uncertainty around the operating outlook and Bushveld is reviewing its 2020 production and cost guidance for both Vametco and Vanchem. An update will be provided as part of the Company's 2019 full year result announcement once it has quantified the impact of Covid-19 and has more certainty on the road ahead.

Vametco

Table 1: Operational highlights for Vametco (on a 100% basis)¹

1.     Based on provisional, unaudited figures. Bushveld's net attributable interest of the above figures is approximately 74 per cent.

2.     mtV = metric tonnes of vanadium.

3.     The vanadium price is based on the FeV mid average price for the period, published by LMB for sales to Europe, CRU Ryan's Note ("CRU RN") for sales to the United States and Asian Metals for sales to Asia. Vametco realised price is based on the prior month's mid average price.

4.     Excludes depreciation, royalties and selling, general & administrative expenses. Q4 2019 production cost decreased from US$15.2/kgV to US$14.6/kgV post audit review.

·      Vametco's production for Q1 2020 was 652 mtV in the form of Nitrovan from magnetite concentrate, marginally ahead of Q1 2019's production (Q1 2019: 649 mtV) and 26 per cent lower than Q4 2019 (Q4 2019: 880 mtV). This decrease in production was due to:

Ø Excessive rains that caused flooding in the mining pit. Extra pumping capacity has since removed the water from the affected area;

Ø The nation-wide lockdown that was announced on 23 March and came into effect from midnight on 26 March resulting in several days of lost production in the quarter; and

Ø As previously communicated, the Group had guided for volumes to be weighted towards the second half of the year after Vametco completed the construction and commissioning of the kiln off gas facility, which has since been placed on hold due to Covid-19.

·      Vametco sold 898 mtV in Q1 2020, which was 77 per cent higher compared to Q1 2019 (Q1 2019: 508 mtV) and 33 per cent higher than Q4 2019 (Q4 2019: 673 mtV), underpinned by additional volumes being available for sale as a result of the production volume increase in Q4 2019 and increased customer demand.

·      Underlying production cost of US$18.9/kgV, an eight per cent decrease relative to Q1 2019, supported by a weaker ZAR:USD rate.

·      Vametco was granted approval from the DMRE to conduct reduced scale operations. As a result, Vametco has successfully completed its annual maintenance programme, which was initially planned for Q2 2020. No further maintenance shutdowns are expected for the remainder of 2020.

·      As per the Amended Disaster Regulations announced by the South African Government on 16 April, mining operations were allowed to re-open and operate at a reduced capacity of 50 per cent of normal production level during the period of the lockdown, under agreed precautionary measures with labour. Vametco restarted operations when it was grated the permit to ramp up to a 50 per cent capacity.

·      In accordance with the "risk-adjusted strategy for economic activity", open-cast mining will be allowed to scale up operations to full employment from 1 May. As Vametco is an open-cast mine, it is ramping up activities to normal levels, under agreed health and safety measures.

·      Vametco's 2020 production and cost guidance remain under review and will remain so until the Company is in a position to quantify the impact of the Covid-19 pandemic and the South African nation-wide lockdown.

·      A JORC compliant Competent Persons Report ("CPR") for the updated Mineral Reserve and Resource Estimate for Vametco was published on the Company's website on 30 January 2020.

·      Vametco sells the majority of its product to the United States, Europe and Asia, with an average delivery period of eight to 12 weeks to the final customer. The timing of deliveries that occur on or around half year and year-end impacts the timing and quantum of revenue recognised for commodity sales in each financial period.

Other projects underway at Vametco

·      The kiln off-gas project has been placed on hold due to Covid-19 restrictions. A review of timing for completion of the project is being considered and further detail will be provided accordingly. The purpose of the kiln off-gas project is to comply with environmental regulatory requirements and further increase kiln feed throughput. Engagements with the relevant authorities are underway.

Vanchem

Table 2: Operational highlights for Vanchem

1.     mtV = metric tonnes of vanadium.

2.     Excludes depreciation and selling, general & administrative expenses.

·      Production in Q1 2020 was 219 mtV. Operations were affected by the 10 days of power rationing during Q1 2020 as well as the nation-wide lockdown which was announced on 23 March and came into effect from midnight on 26 March.

Ø Production numbers are provided at the time of reporting, after which, based on customers' demand, Chemicals and Flake may be further processed to the required finished product, which will result in production and cost adjustments in line with the demand profiles of the various products.

Ø Vanchem's production for Q1 2020 represented 31 per cent of total Bushveld attributable vanadium production.

·      Achieved sales of 182 mtV comprising of a range of products was also achieved during the quarter.

·      The underlying production cost for the quarter was US$18.5/kgV due to stock build up as Vanchem has been ramping up production from December 2019. We expect inventory levels to normalise in Q2 2020.

·      As per the "risk-adjusted strategy for economic activity", global business services for export markets will be allowed to recommence. Vanchem is ramping up activities to return to normal levels, under agreed precautionary measures.

·      Completed the scoping study of a refurbishment programme and prioritised a total of around R85 million as critical capital spend required for 2020 to enable Vanchem to continue to operate sustainably. We expect to incur most of the spend during the second half of the year.

·      Vanchem's 2020 production and cost guidance remain under review and will remain so until the Company is in a position to quantify the impact of the Covid-19 pandemic and the South African nation-wide lockdown.

Mokopane

·      The definitive feasibility study ("DFS") to mine the Main Magnetite Layer based on the assumption that Mokopane will be the primary feedstock supplier to Vanchem. As part of Group's growth associated (non-critical) capital expenditure review, timing for the DFS is now under consideration. This does not affect's Vanchem's processing ability as it has sufficient ore supply to support current levels of production, until H1 2021. The Company retains the optionality to supply magnetite concentrates from Vametco to the Vanchem Plant.

Brits

·      Brits Vanadium Project ("Brits") is an extension, along strike, of the Vametco mine, it includes prospecting rights and a mining right application on farms adjacent to Vametco.

·      The Company's interest in the asset ranges between 51 per cent and 74 per cent through three different companies, one of which is Caber Trade Mining and Invest 1 (Pty) Ltd ("Caber Trade"), the mining right applicant, and in which the Company holds an interest of 51 per cent.

·      The Caber Trade mining right application was recently refused by the DMRE due to not fulfilling  certain conditions that had been set out in the 2012 letter of acceptance. Caber Trade has subsequently lodged an appeal against the decision on the grounds that the process followed in taking the refusal decision was administratively flawed.

·      A JORC compliant CPR for the Maiden Mineral Resource was published on the Company's website on 30 January 2020. It is noted that the Caber Trade properties were not included in the CPR and the mining right refusal therefore has no impact.   

Bushveld Energy

Manufacturing

·      An investment decision was made on the vanadium electrolyte plant. The investment commitment from Bushveld is up to R68 million through 2022, which includes capital expenditure, working capital and ramp-up support.

·      The IDC also approved the investment for its share of equity and all the debt funding for the project.

·      The shareholding structure between Bushveld Energy and the IDC has been updated to 55 per cent for Bushveld and 45 per cent for the IDC, reflecting additional work Bushveld had conducted in 2015 and 2016 on the project, prior to entering into the Cooperation Agreement with the IDC. This  also reflects the IDC's preference that Bushveld Energy should have control of the project.

·      An Engineering, Procurement and Construction ("EPC") company was selected from among the tendered bids to build the facility in East London, South Africa.

·      The Bushveld Electrolyte Company ("BEC") has been established as the operational company for the electrolyte business.

Investment

·      A loan of US$5 million (together with the accrued interest and commitment fee) announced in Q4 2019 has been converted into an 8.71 per cent equity interest in AIM-listed Invinity Energy Systems, the result of a merger between Avalon Battery and redT Energy. The investment is in line with Bushveld's strategy of partnering with VRFB companies, including taking minority equity positions through the VRFB Investment Platform ("VIP").

Ø The ability of Invinity to secure more than GBP10 million in new funding during a volatile equity market in March, is testament to the resilience of investor confidence in energy storage and VRFB technology.

·      The Investment Consortium, that includes Bushveld, has completed its due diligence work on Austrian-based Enerox, including technical, legal and financial reviews. The Consortium previously acquired a 24.9 per cent share in the company. Bushveld Minerals will keep updating the market accordingly on developments around the progress and structure of the transaction.

Impact of Covid-19 and South African lockdown

·      Overall, our view of the situation is consistent with a recent assessment by IHS Markit in that "Despite a subdued year in 2019 and a challenging start to 2020 caused by the Covid-19 outbreak, the outlook for energy storage remains strong, with cumulative installations of grid-connected battery energy storage predicted to reach 64.3 GW / 179 GWh in 2025."

·      Delays of several months are likely for our projects in South Africa, due to the nation-wide lockdown to mitigate the spread of the virus. For BEC, this means remote work, such as engineering and design and some procurement, can advance as scheduled, with delays likely to start of construction of the civils works for the building. For our deployment projects, impact comes from an inability to source foreign experts to maintain hardware. In addition, due to Covid-19 nation-wide lockdown there may be delays in the issuance of the Environmental Impact Assessment for the Vametco mini-grid that could extend deployment into 2021.

·      In all our projects, we are also budgeting slightly longer supply chain times, including logistics, through H1 2021.

Lemur

·      Lemur appointed a consultant to conduct the DFS, which commenced in Q1 2020 and is expected to be completed by the end of Q3 2020. Output of this study will be the mine design and scheduling for the Imaloto coal mine. 

·      The Social and Environmental Impact Assessment ("SEIA") studies are ongoing and on schedule with the coal and water samples currently undergoing tests in South Africa. Lemur expects to submit the SEIA studies to the Ministry of Environment by Q2 2020.

·      The EPC contract negotiations for the Imaloto power station with Sinohydro and the preferred bidder for construction of the transmission lines are ongoing.

·      Engagement with potential lenders for project finance is still ongoing with the objective of achieving financial close now expected to occur within twelve months.

·      Lemur is in continued discussions with Sinohydro, a subsidiary of state-owned Powerchina, and other potential strategic equity investors for the implementation of the Imaloto power project

ENDS

Enquiries: [email protected]

ABOUT BUSHVELD MINERALS LIMITED

Bushveld Minerals is a low-cost, integrated, primary vanadium producer, with ownership of high-grade vanadium assets. 

The Company's flagship vanadium platform includes a 74 per cent controlling interest in Bushveld Vametco Alloys (Pty) Ltd, a primary vanadium mining and processing company; 100 per cent of Bushveld Vanchem, a primary vanadium processing facility with a beneficiation plant; the Mokopane Vanadium Project and the Brits Vanadium Project.

Bushveld's vision is to become a significant, low-cost, integrated primary vanadium producer through owning high grade assets. Whilst the demand for vanadium remains largely anchored in the steel industry, Bushveld Minerals believes there is strong potential for an imminent and significant global vanadium demand surge from the fast-growing energy storage market, particularly through the use and adoption of Vanadium Redox Flow Batteries. Bushveld Energy, the Company's energy storage solutions provider, plays a leading role in the development and promotion of the role of vanadium in this market.

The Company's approach to project development recognises that, whilst attractive project economics are imperative, they may be insufficient to secure capital to bring them to account. A clear path to production within a visible timeframe, low capital expenditure requirements and scalability are important factors in ensuring a positive return on investment. This philosophy is core to the Company's strategy in developing projects.

Detailed information on the Company and progress to date can be accessed on the website www.bushveldminerals.com.

About Vametco

Vametco is located near Brits on the Western Limb of the Bushveld Complex. The integrated operation comprises a vanadium ore mine and a processing plant that produces mostly Nitrovan^TM, a trademark product sold in major steel markets across the world. The mine lies adjacent to the Brits Vanadium Project, which will in future serve as an alternative source of near surface run of mine ("ROM") ore feed to the Vametco plant.

The Vametco mining operation uses open pit bench mining methods to mine a well-defined orebody. The deposit is continuous with limited faulting and dips in a northerly direction at approximately 19 degrees.

ROM ore is fed into a primary, secondary and tertiary crushing circuit, followed by milling and magnetic separation to produce magnetite concentrates. The magnetite concentrates are fed into the extraction process which includes the kiln for roasting followed by leaching and precipitation. Thereafter the precipitated vanadium as ammonium metavanadate is converted to modified vanadium oxide ("MVO") in rotary calciners. MVO is fed into the mix plant and finally into the shaft furnaces to produce Nitrovan^TM. 

About Vanchem

Vanchem is situated at Ferrobank Industrial Park in Emalahleni Local Municipality, Mpumalanga Province in the Republic of South Africa. Vanchem is a primary vanadium producing facility with a beneficiation plant capable of producing various vanadium oxides, ferrovanadium and vanadium chemicals. Vanchem uses the salt roast beneficiation process, similar to the one used at Vametco. The plant comprises: a core salt-roast processing plant, including 3 roasting kilns, an electric smelting ferrovanadium converter, an alumino-thermic smelting facility, also located at Highveld, a vanadium chemical plant; and a rail siding linking the plant with Bushveld deposits and additional potential supply sources through the national rail network.

About Bushveld Energy Limited

Bushveld Energy is a leading energy storage solutions provider, focusing on the African market. Bushveld Energy recognises that electricity in Africa intersects paramount potential for social transformation with an immense commercial opportunity.

Bushveld Energy is focused on developing and promoting the role of vanadium in the growing global energy storage market through application in vanadium redox flow batteries. Its near term strategy is to deploy several VRFB systems as part of its longer term vision to become a significant electricity storage provider in Africa, meeting the demand for utility scale energy storage in Africa by leveraging South Africa-mined and beneficiated vanadium.

http://www.bushveldenergy.com