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Bushveld adds value as it consolidates control over Vametco

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Bushveld Minerals (LON:BMN) 8.8p, mkt cap £70.7m – Bushveld adds value as it consolidates control over Vametco
BUY – Target price raised to 14.3p from 11p
(Bushveld Minerals now holds 59.1% of Vametco)

• Bushveld Minerals is consolidating its control over Bushveld Vametco and the Vametco vanadium mine and process plant in South Africa.
• The acquisition of the remaining 55% of Bushveld Vametco which Bushveld did not own is value accretive on our modelling and raises Bushveld’s effective stake in Vametco to 59.1% from 26.6%.
• We are upgrading our target price to 14.3p from 11p based on Bushveld’s increased share of the cash flow from Vametco..
• Bushveld Minerals are to acquire a further 55% of Bushveld Vametco raising its stake to an effective 59.1% of the Vametco vanadium mine and process plant.
• The deal is being funded $4.5m in cash with the remainder being paid for on the issuance of new shares. There are also two deferred payments of US$600,000 and a further payment to be calculated by reference to the EBITDA of Vametco which on our modelling costs another US$9.61 in 2020.
• $6.6m worth of new shares are being issued raising the number of shares to around 863m.  The deal appears highly value accretive as we value Vametco more highly than the indicated acquisition price on our vanadium assumptions.
• Vametco produces around 3.5-4% of the world’s vanadium with global demand growth set to take off on the application of new regulations in China causing steel producers to now add regulatory quantities of vanadium to rebar and other types of structural steel.
• Vanadium production is also being curtailed in China where a ban on the processing of slag material is restricting the production of vanadium and other metals from this source as part of the drive to improve air quality standards.
• Bushveld Vametco managed to repay the acquisition costs and associated debt within an impressive four months of the acquisition of their first 26.6% of Vametco. We hope this second deal will result in a similarly quick repayment of the debt associated with the deal.
• The team are looking to expand market share to >10% of global vanadium supply over the next 3-5 years in a move which could add significantly to production expanding nameplate capacity to 5,000tpa of FeV from 3,000 tpa currently.
Conclusion:  We are excited to see vanadium prices take off but cautious in our revised valuation. We see Bushveld as offering unusually good value for investors in its cash flow generation and upside cash flow potential.  Our revised earnings table is for 100% of the Vametco vanadium operations of which Bushveld now has an effective stake 59.1%. The ongoing rise in vanadium prices should have a substantial impact on Vametco’s profit through the fourth quarter as indicated in our revised numbers.

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