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Today's Market View - Vanadium leasing structure accelerates value creation.

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Bushveld Minerals* (LON:BMN) 24p, Mkt Cap £269m – Vanadium rental / leasing structure to accelerate value creation. Vanadium forecasts adjusted.

(Bushveld Minerals owns 74% of Vametco, 84% of Bushveld Energy in South Africa, 100% of Lemur Holdings, 9.5% of Afritin)

(Vanchem: Our figures assume Bushveld completes the acquisition of Vanchem later this year)

BUY – Valuation 90p

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  • We are adjusting our valuation in Bushveld Minerals following our review of value offered by the new Vanchem business, Bushveld Energy and the other business units.
  • We have also adjusted our assumed vanadium price forecasts to account for the recent price correction.
  • Bushveld Minerals recently announced it is to acquire the operating Vanchem vanadium business in South Africa, a move which should bring low-cost expansion and greater flexibility to the group.
  • Bushveld agreed to pay US$68m to acquire the Vanchem plant and facilities to be settled in two stages. US$6.8m was paid on 30 April 2019, US$61.2m will be settled no later than 31 October plus a 12 month period after completion of the Transaction. A further US$0.5-1m will be paid to VVP, which provided services to Vanchem.
  • Vanchem is currently producing around 80mtV of vanadium per month but is also in Business Administration in South Africa. This is similar to being in Administration in the UK though the process appears to be more helpful to the longer term operation of businesses than our own medieval system.
  • Vanadium price assumption:
  • We are pulling back our Ferro-vanadium price forecasts for 2019 to $50/kgV from $60.4/kgV in response to the fall in ferro-vanadium prices to around US$36/kgV FOB China. For 2020 we assume $45/kgV and we maintain out longer term price forecast at $45/kgV.
  • We still see vanadium demand and prices rising in China in response to better compliance with the legislation introduced in November last year.
  • Demand for vanadium electrolyte for Vanadium Redox Flow Batteries VRFBs should also come into the market to support our estimate price assumptions.
  • While demand for vanadium for electrolyte may be price sensitive we see the invention of new lease finance structures for the vanadium in VRFB’s as enabling the financing of VRFBs at higher vanadium price levels going forward.
  • Bushveld Energy: Bushveld’s vanadium rental financing service should accelerate the planning and ordering of new VRFB systems to support South Africa’s power grid.
  • Critically it should reduce the cost of financing and spread the cost of the vanadium in the electrolyte over a longer period rendering the cost of vanadium less critical.
  • We are raising our valuation for Bushveld Energy to US$149m as we see the ‘VRFB’ business as offering a practical solution for the storage of growing solar and wind power in South Africa.  This assumes a relatively low margin on electrolyte sales for VRFB batteries and a more normal project finance type cost for VRFB unit sales.
  • While there are other battery solutions on offer, many of these suffer from high parasitic losses, high component renewal costs or increased risk of outright failure leaving VRFB’s as the preferred grid-scale storage solution for power utilities.
  • ADROIT market research forecast CAGR growth of 8.3%pa for grid power storage in Europe to hit $1.11bn by 2025 with VRFBs expected to account for 83.8% of the total market share.
  • Bushveld Energy aims to participate in 1,000 MWh of opportunities in Africa by 2020 and there is sufficient current demand in the market for vanadium electrolyte to support the installation of a 200 MWh capacity facility in South Africa.
  • We have cautiously assumed a more modest market of just 300,000MWh in 2021 and for Bushveld to be involved in the development of around half the VFRB instillations and electrolyte sales.
  • Bushveld’s current VRFB jv is being trialled at ESKOM should have a peak output of 450kWh as a single unit. It should be relatively simple to roll out multiple units to support the rapid growth in wind and solar farms being installed in South Africa as ESKOM moves to supplement its ageing coal-fired infrastructure.
  • Valuation: we value Bushveld Energy at US$149m representing 8.8 pence per share to our valuation on Bushveld Minerals. We have added 7.93p/s for Bushveld’s other assets, cash and subsidiaries including Lemur and the P-Q Iron and Titanium project. Our revised ferro-vanadium price forecast adjusts our valuation for the Vametco-Vanchem vanadium business to £801m representing 72 pence per share.

Conclusion:  Bushveld is extraordinarily well placed to participate in the high-tech Vanadium Redox Flow Battery business. The integration of the business to produce vanadium electrolyte from its in-house vanadium feedstock gives its security of supply, while the new and innovative lease-finance model for the vanadium in electrolyte should make the financing of VRFB’s less sensitive to spot vanadium prices. We see this as a major advantage for Bushveld placing the Company at the very centre of this valuable growth market.

Bushveld’s location in South Africa should also help in the participation of a World Bank funded ESKOM renewables Support Project which is designed to facilitate accelerated development of large scale renewable energy capacity in support of the long-term carbon mitigation strategy of South Africa.

*SP Angel acts as Nomad & Broker to Bushveld Minerals. 

 

Vametco 74% & Vanchem 100%

 

 

2018A

2019e

2020e

2021e

2022e

2023e

 

 

 

 

 

 

 

 

 

 

Ferro Vanadium

US$/kg

 

 

81.2

50.0

45.0

45.0

45.0

45.0

Vanadium sales

mtV

 

 

2573

3096

4370

5432

6422

7911

Sales

US$m

 

 

192.1

148.5

188.7

234.6

277.3

341.6

Operating costs

US$m

 

 

65.0

78.9

98.3

120.0

139.7

167.7

Operating costs

US$/kg

 

 

25.3

25.5

22.5

22.1

21.7

21.2

Operating profit

US$m

 

 

95.2

69.6

90.4

114.6

137.7

173.9

Pre-tax profit

US$m

74.00%

 

86.6

60.9

85.3

110.5

132.9

169.8

tax

US$m

 

 

37.6

17.4

24.3

31.5

37.9

48.4

Post-tax profit

US$m

 

 

49.0

43.6

61.0

79.0

95.1

121.4

EPS

US$c/s

 

 

2.9

3.9

5.5

7.1

8.6

10.9

PE

x

 

 

6.9

7.8

5.6

4.3

3.6

2.8

EV/EBITDA

x

 

 

4.3

5.2

4.0

3.1

2.6

2.1

EBITDA

US$m

                     -  

 

95.2

69.6

90.4

114.6

137.7

173.9

Free Cash Flow

US$m

                     -  

 

 

35.0

57.0

77.9

98.0

133.0

Vametco Cash Flow

US$m

74.00%

 

 

41.1

48.7

57.3

65.5

68.4

Vanchem Cash Flow

US$m

100.00%

 

 

-6.1

8.2

20.6

32.4

64.5

*Source SP Angel. SP Angel acts as Nomad & Broker to Bushveld Minerals. 

Caledonia Mining (LON:CMCL) 475p, Mkt Cap £51.1m – Quarterly dividend declared

  • Caledonia Mining announces 6.875 cents per share dividend on each of the Company’s common shares, reiterating the strategy to maximise shareholder value including a quarterly dividend policy which the board of directors adopted in 2014.
  • The company reports a 31st March 2019 cash balance of US$9.7m and again confirms plans to increase production at its 49% owned Blanket gold mine in Zimbabwe “from 54,511 ounces of gold in 2018 to approximately 75,000 ounces in 2021 and approximately 80,000 ounces in 2022; Blanket Mine's target production for 2019 is between 53,000 and 56,000 ounces.”
  • Caledonia also restates the intention, originally announced in November 2018 “to increase its holding in Blanket Mine to 64%, subject to receipt of, amongst other things, regulatory approvals.”
  • In our view, increasing its holding in the Blanket mine is a sensible, low risk, expansion opportunity for Caledonia Mining in an asset which it knows extremely well and is in the process of transforming and rejuvenating through the new Central Shaft which is accessing deeper level ore reserves beneath the 750m level and extending the mine life.

Conclusion: Caledonia Mining is a consistent quarterly dividend payer in accord with a policy initiated in 2014. Major developments at the Blanket gold mine are aimed at increasing gold output to around 80,000oz by 2020 and underpinning the mine’s life beyond 2034.

 

Ironveld (LON:IRON) 0.85p, Mkt Cap £5.6m – Strategic review of mining assets

  • Ironveld reports that it has commissioned an independent strategic review of its mining assets in order to determine the best way to deliver shareholder value from its vanadium/titanium project located on the northern limb of South Africa’s Bushveld igneous complex.
  • The company states that during the course of funding discussions for the project development “the Company has received expressions of interest in acquiring certain underlying assets of, the Company. In view of this, the board has now determined to instigate the Strategic Review, that may result in the sale of the entirety of the mining rights over the Project.”
  • “Separately, negotiations with potential development partners who have completed due diligence continue and may lead to offers of financing that would facilitate the commencement of smelting operations by the Company”.
  • Commenting on the review, Giles Clarke, Chairman, said that “We believe that we have one of the premier in situ HPI, vanadium and titanium deposits in the world and we believe that the potential of the Project is best recognised by third parties. We have therefore initiated the Strategic Review to ascertain how our assets can best deliver value to our shareholders”
  • The company also points out that “The sale of the majority or the entirety of the mining rights over the Project would likely constitute a fundamental change of business for the purposes of Rule 15 of the AIM Rules. Accordingly, any disposal would be conditional, inter alia, on shareholder approval being obtained at a general meeting”.

Conclusion: The strategic review provides the company and its shareholders with the opportunity to decide whether their interests are better served by developing the titanium vanadium assets in South Africa or selling the project. We await the outcome with interest.

 

Keras Resources* (LON:KRS) 0.4p, Mkt Cap £9m – Drilling at Calidus returns very good grade over 4m composite results

(Keras currently has 458m shares in Calidus, representing approximately 32.3% of the Calidus issued share capital. On successful completion of the PFS, due this month.

Keras will then receive an additional 265m performance shares in Calidus which will then be converted into ordinary shares)

Keras’s 723m shares in Calidus value at A$21.7m (£12m) at the current share price.

BUY, Valuation 1.04p

Click for our last full note on Keras

  • Keras Resources reports that the Escrow period for its shares in Calidus has expired and the shares are now available for trading without restriction on the ASX.
  • Keras intends to distribute its shares in Calidus pro-rata to its shareholders which should return greater value to Keras shareholders than its current market capitalisation.
  • Furthermore, we also expect Calidus shares to go better on publication of its pre-feasibility study considering progress made on its 1.25moz Warrawoona gold project where latest results include intersections of: 8m grading 8.06g/t Au from 56m down hole, 4m @ 8.87g/t Au from 48m and 12m @ 2.37g/t Au from 52m.
  • Recommendation and valuation: We base our recommendation on the value gap between the share price and our valuation of 1.04p per share.
  • Around half our valuation is based on our assumption that Keras should produce some 6,000t per month of manganese concentrate in Togo where the Keras team are currently waiting for approval to move to a full-scale mining license and for confirmation of its offtake agreement. We assume no additional capital is required following the production of a 10,000t bulk sample for shipment.
  • The remaining value is in Calidus Resources shares which recently moved higher in Australia to A$0.30c/s.

Conclusion: It is rare to see a company distribute more than its entire market value in shares in another listed vehicle. We also see Calidus Resources as offering good potential for further value depending on the results of the pre-feasibility study and ongoing exploration at the Warrawoona gold project.

*SP Angel act as Nomad and broker to Keras Resources

 

Orosur Mining* (LON:OMI) 3.8p, Mkt Cap £5.7m – Investment into Continental Gold for Colombian gold mine encourages Orosur

Continental Gold (CVE:CNL) C$3.79, mkt cap £718m – US$25m investment by Eric Sprott

  • Continental Gold report that veteran investor Eric Sprott has made a US$25m investment at C$3.10/s into the company.
  • Continental are building the Buritica gold project in Colombia
  • Buritica hosts reserves of 3.71moz of gold grading 8.4g/t and 10.7moz of silver grading 24.3g/t.
  • Buritica’s mineral resources stand at 5.32moz of gold grading 10.32g/t gold and 21.0moz of silver grading 40.8g/t.

Conclusion: we are encouraged by Eric Sprott’s investment into Continental Gold and look forward to further results from Orosur on its Anza project which is being advanced in joint venture with Newmont Mining in Colombia.

*SP Angel act as Nomad and broker to Orosur Mining

 

 Panoramic Resources (ASX:PAN) A$0.285, Mkt Cap A$157.8m – Disposal of Thunder Bay North Project

  • Panoramic Resources has announced the sale of its wholly owned Thunder Bay North PGM project located approximately 50km north-northeast of the city of Thunder Bay in Canada to Canadian listed Benton Resources (BEX CN – C$0.06 – Mkt Cap C$5.1m) for C$9m.
  • Referring to the Thunder Bay North Project, Panoramic Resources’  website states that “Approximately 145,000m of diamond drilling has been completed so far in the north-western part of the Current Lake Intrusive Complex. On a platinum equivalent (Pt-Eq) basis the resources are currently estimated to be:
    • Indicated Mineral Resource: 9.83 million tonnes at 2.34g/t Pt-Eq for 741,000 Pt-Eq ounces
    • Inferred Mineral Resource: 0.53 million tonnes at 2.87g/t Pt-Eq for 49,000 Pt-Eq ounces.”
  • Mineralisation is reported to be open towards the east where recent drilling “has extended the mineralisation 550m to the east”.
  • In January 2015, Rio Tinto Exploration Canada( RTEC), entered into an agreement to earn a 70% interest “in the project by spending up to C$20m over 5 years. In January 2017, RTEC confirmed that it had achieved the minimum spend of C$5m on the Project.”
  • Among the conditions for the transaction with Benton Resources are:
    • “Benton raising sufficient finance to fund the Purchase Price;
    • Rio Tinto Exploration Canada Inc. (“RTEC”) and Benton completing the acquisition by Benton of the Escape Lake Project from RTEC; and
    •  PAN PGMs being released from its future obligations under the Earn-in with Option to Joint Venture Agreement (“EJVA”) with RTEC that was signed in July 2014.”
  • Panoramic Resources’ Managing Director, Peter Harold, explained that “The timing of this sale is opportune as our focus is solely on the ramp-up of the Savannah Nickel Project in Western Australian. Thunder Bay North has not been a priority Project for us and we feel it best to move the Project on to Benton Resources, a Canadian explorer with a proven track recorded of fund raising and successful exploration in Canada.”

Conclusion: Panoramic Resources is selling its Thunder Bay North platinum group metals project to Canadian exploration company Benton Resources for the equivalent of approximately US$9/oz of indicated PGM resources in order to focus on its Savannah nickel project in Western Australia.

 

 

Analysts

John Meyer – 0203 470 0490

Simon Beardsmore – 0203 470 0484

Sergey Raevskiy – 0203 470 0474

James Mills -0203 470 0486

 

Sales

Richard Parlons – 0203 470 0472

Jonathan Williams – 0203 470 0471

Abigail Wayne – 0203 470 0534

Rob Rees – 0203 470 0535

 

SP Angel                                                            

Prince Frederick House

35-39 Maddox Street London

W1S 2PP

 

*SP Angel are the No1 integrated nomad and broker by number of mining brokerage clients on AIM according to the AIM Advisers Ranking Guide (joint brokerships excluded)

+SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.

 

 

Sources of commodity prices

 

Gold, Platinum, Palladium, Silver

BGNL (Bloomberg Generic Composite rate, London)

Gold ETFs, Steel

Bloomberg

Copper, Aluminium, Nickel, Zinc, Lead, Tin, Cobalt

LME

Oil Brent

ICE

Natural Gas, Uranium, Iron Ore

NYMEX

Thermal Coal

Bloomberg OTC Composite

Coking Coal

DCE

RRE

Steelhome

Lithium Carbonate, Ferro Vanadium, Antimony

Asian Metal

Tungsten

Metal Bulletin

 

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