Bushveld Minerals* (LON:BMN) 30p, Mkt Cap £16.8m – Vanchem acquisition to potentially add 4,200mtVpa and unlock Mokopane Vanadium Project
New earnings estimates to follow tomorrow
BUY – Target price under review
- Integrated vanadium producer, Bushveld Minerals, announce entering into a business and share purchase agreement with Vanchem Vanadium Products Ltd (VVP) to acquire complementary vanadium production assets in South Africa.
- The Company is acquiring the Vanchem Business for an aggregate Consideration of US$68m, settled in two phases:
- US$6.8m paid on 30 April 2019; and
- US$61.2m settled no sooner than 31 July 2019 and no later than 31 October 2019.
- The Vanchem Business consists of integrated vanadium extraction and production facilities comprising:
- Core salt-roast processing plant, including 3 roasting kilns, that output vanadium trioxide and pentoxide;
- Electric smelting ferrovanadium converter, located at the Highveld Steel & Vanadium site, for conversion of vanadium trioxide to ferrovanadium;
- Alumino-thermic smelting facility, located at Highveld, which converts vanadium pentoxide into ferrovanadium; and
- Vanadium chemical plant producing various vanadium chemical products.
- In addition, Bushveld will acquire 100% of the outstanding shares of Ivanti, which has economic rights to certain secondary vanadium units treated within the Vanchem Plant and generates profits from the sale of these secondary units to the Vanchem Plant. VVP will hold rights to 50% of Ivanti profits for a period of 12 months following the completion of the transaction.
- The acquisition is consistent with the Company’s long-term strategy of acquiring existing, low cost scalable brownfield operating assets in South Africa to expedite the development of the Company’s significant and high-grade resource base. The transaction offers a pathway to production capacity of 10,000mtV/annum.
- The Vanchem Business provides immediate production growth, adding an estimated 80mtV per month (approx. 960mtV on an annualised basis), utilising only one of three kilns on site (20-25% kiln capacity).
- The acquisition also unlocks the potential supply of the feedstock from the Company’s Mokopane Vanadium Project significantly reducing development capex and accelerating the development schedule. By transporting a crushed, screened and dry magnetic separated ore approx. 200km for beneficiation at the Vanchem Plant, capital expenditure requirements are reduced to US$20m.
- The expedited Mokopane development as primary feedstock does not remove the optionality to construct a primary vanadium beneficiation plant at Mokopane, as demonstrated in the 2016 PFS by MSA Group Ltd.
- Vanchem processing facilities also provide product diversification producing vanadium oxides, ferrovanadium and vanadium chemicals in addition to the Vametco’s Nitrovan offering.
- Refurbishment costs to bring all three kilns online are estimated at approx. US$45m. The capital expenditure is planned to be spent over a five year period, from the completion of the transaction, to allow the plant to reach a 4,200mtV/annum steady state.
- The Company plans to finance the entire Consideration, the associated capital expenditure and Mokopane development from existing cash resources, future cash flows and, to the extent necessary, debt facilities.
- CEO Fortune Mojapelo adds “The vanadium chemicals capability will be particularly key as the Company grows its exposure to the emerging stationary energy storage industry through vanadium redox flow batteries”.
Conclusion: The acquisition brings a number of benefits to the Group potentially ramping up production by 4,200mtVpa (ie more than doubling the current output rate), bringing the Group closer to the 10,000mtVpa target, unlocking the Mokopane Vanadium Project at significantly reduced development cost ($133m in acquisition and ramp up costs is c.45% of the DFS Mokopane development capex) and accelerated schedule (first Mokopane concentrate may be start feeding the Vanchem plant in 12 months period following the completion of the deal), significantly improving flexibility of existing operations reducing reliance on a single processing plant (number of kilns to go up to four from current one) and mine, expanding the final product mix including the output of vanadium electrolyte from the Vanchem’s existing chemical plant. The deal secures a cash generative asset and increases the Group exposure to the commodity supported by a structural deficit market dynamics. We will update our earnings and production estimates and release undated numbers in due course.
*SP Angel acts as Nomad & broker to Bushveld Minerals.