Today, Bushveld signed off on its long-awaited and transformational deal to buy Russian firm Evraz's 78.8% stake in Strategic Minerals Corporation.
The latter holds 75% of Vametco Alloys which in turn runs the Vametco vanadium mine and process plant 8km northeast of Bushveld's Brits project.
"If vanadium prices continue to rise Vametco will not only be a cash cow, it could be a cash elephant," says analyst John Meyer in a comprehensive note.
For Evraz, Vametco was a minor plant which could easily be cast adrift with a US$16.5mln price tag looking a lot better in roubles.
For Bushveld, Vametco is a major opportunity to save over $200mln in capital costs and four to five years on the road to development.
"Critically the company has saved a minimum of three years on feasibility, financing and construction with the added benefit of taking on the Vametco plant at a time of rising vanadium prices and with a fully committed management and operating team," says the analyst.
The acquisition will add cash flows, profits and the potential for dividend distribution depending on vanadium prices, he adds.
SP Angel also noted that a restated JORC resource at Vametco is estimated to contain 139mt grading 2.1% “with scope to increase the reserve base by targeted exploration of the inferred resources".
The mine and plant is one of the cheapest primary producers of vanadium in the world with all-in cash cost of production at US$17.33 per kg of Vanadium, says Meyer.
Valuing the Vametco operations, the broker says if it was to use the PFS (prefeasibility) assumed price of US$7.5 per pound for vanadium pentoxide and its implied Ferro-Vanadium ‘FeV’ price then the net present value is 244mln at a 12% discount rate on a more conservative and cautious model.
Overall, for the Bushveld group, the broker has a target price of 11.6p and rates the stock a 'buy'.