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Bushveld Minerals Limited: DEEP DIVE

Bushveld Minerals doubles down on vanadium with major acquisition

Bushveld is hoping to increase vanadium production significantly following completion of South African deal
Bushveld Minerals doubles down on vanadium with major acquisition
OVERVIEW: BMN The Big Picture
Vanadium is in demand for use in the next generation of batteries and energy storage devices
  • 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 agreed a major new acquisition in the vanadium space, an area in which it already has considerable expertise.

For an aggregate consideration of US$68mln Bushveld will acquire Vanchem, which has producing vanadium assets in South Africa.

US$6.8mln was paid on 30 April, with the remaining amount due for payment between 31 July and 31 October.

The money will come from existing cash resources, cash flow, and from debt facilities currently under negotiation.

Addition continues long-term strategy

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

Broker Peel Hunt said the US$68m acquisition provides for a production growth factor of 1.8 times over the medium term, while creating a "significantly more sustainable cash flow profile".

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

On long-term prices, he 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, Huff said he had reduced his 2019 EBITDA forecast 23% to £57mln but increased the 2020 estimate 10% and made changes closer to 20% for the two years after.

Peel Hunt maintained its 'buy' rating and 45p target price, "but see further upside due to Vanchem".

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