Vanadium prices are now as high as they’ve been since the end of the great mining boom of the early part of this century and if the current upward trajectory continues for just a little bit longer, there will only have been one instance in the past 40 years when the vanadium price has been higher.
Not surprisingly, that one instance was at the beginning of the same mining boom, when the start of the so-called Supercycle that occasioned the emergence of China as a global economic power had industry buyers and investors scrambling for every single commodity they could get.
Back then, vanadium’s strength rapidly faded as the euphoria of the boom years dissipated and the global financial crisis followed. This time around though, things could be different.
While it’s true that much of the recent strength in the vanadium price has been due to the recovery of the global economy over the past couple of years and the resultant increase in steel demand, new demand from energy storage, embodied particularly in the development of the vanadium redox flow battery has added another dimension.
At present, around 91% of global demand for vanadium is accounted for by steel. But within a short few years, that looks set to drop to around 70% as the energy storage business takes off.
Energy storage subsidiary
Meanwhile, constraints in supply where only a limited number of new vanadium projects are expected to come into production in the near future mean that the current vanadium deficit can be expected to continue, placing upward pressure on vanadium prices.
It’s in anticipation of the growth in demand from energy storage that Bushveld Minerals (LON:BMN), a company that’s timed the latest run-in vanadium almost to perfection, has set up its own energy storage subsidiary, Bushveld Energy, giving substance to its aspirations to develop a deeply integrated vanadium business.
Both the vanadium mining and the energy storage business of Bushveld are focused on Africa, and in particular in South Africa where some of the world’s largest and richest deposits lie.
Bushveld has long had a position in vanadium, but it’s the recent consolidation of its ownership of the Vametco mines that has driven the stunning advance in share price this year. Investors have not been slow to appreciate that one of the few companies in the world with primary vanadium production presents a real opportunity.
The vanadium price has gone up more than five times in the past two years or so, but Bushveld, which now has a production capacity of 3,750 metric tonnes of vanadium per year, equivalent to just over 4% of the global vanadium market, has increased in value by a factor of more than 10.
Still a lot of upside
The company is now worth a handsome £244mln on the London stock exchange, and with the third phase of production expansion still to come, could be worth even more.
“There’s still a lot of upside,” says chief executive Fortune Mojapelo.
And that’s not just from future production increases.
As far as can be ascertained, the energy storage business isn’t accounted for at all in the way the market values Bushveld, and yet the global energy storage market is worth many times the vanadium market.
“Vametco gives us a platform,” says Mojapelo.
“It’s like going up a mountain. Vametco is the base camp from which we can go for the big prize – to become one of the largest and most integrated vanadium platforms in the world. We are one of only three primary producers, and one of only two vanadium focused play companies in the world. We are low cost, and we have a medium to long-term target to increase production to 10,000 mtV per year.”
Meanwhile, Bushveld Energy has just taken delivery of Africa’s first vanadium redox flow battery, and its technicians are now integrating the battery into the research facility of South Africa’s major electricity utility Eskom. The plan then is for Bushveld to build its own 200MWh capacity electrolyte plant at East London.
Global storage market
“I believe we will crack the energy storage market,” says Mojapelo.
If Bushveld can do that, then the subsequent growth of the company could put the recent stellar performance well in the shade.
After all, the global energy storage market is projected to be worth more than US$70bn by 2030, as against the US$6bn for the vanadium market on its own.
And Mojapelo himself is beginning to build a track record of entrepreneurship in the metals and energy space.
Coal subsidiary Lemur
Not only has he built Bushveld up from a startup to its current mid-tier status, but he has also recently been instrumental in the spin-off of Afritin Mining (LON:ATM), a Namibian tin company.
Next cab off the rank might be Lemur, Bushveld’s coal subsidiary, where feasibility work is ongoing.
“We will find a way of unlocking that value,” says Mojapelo.
With the vanadium price riding high, it seems there’s little that Bushveld cannot do at the moment. It’s a young company, with an eye both on the technological and the mining future, it has plenty of production and cash flow, and its plans for the growth of its energy business are well advanced.
The company’s production growth plans, to more than 10,000 mtV in the medium term, are also geared to make it one of the lowest cost producers of vanadium so that it can continue to generate healthy cash flows even in an eventual reduction in vanadium prices whenever it comes.
Not surprising that investors with one eye on the future have been piling in droves of late.
SP Angel maintains 'buy' rating, hikes target price
SP Angel maintained a 'buy' rating on the shares and raised its target price to 87p from 37p in a note to investors on November 12.
The broker noted that vanadium prices have jumped in China and Europe due to a shortage of available material.
“We are struggling to see how the market may supply/demand for vanadium in the next two years and we feel vanadium prices should settle at a higher price level than previously envisaged for the longer term,” the broker said.
It added: “Our valuation for Bushveld Minerals rises to US$1.6bn assuming an 8% discount rate and a long-term exchange rate of ZAR14/USD or 90p/s on our new vanadium price and production rate assumptions.
“We assume production rises to 10,000 tonnes per annum in 2023.”