Prices of the steel additive have risen by 11% over the past month and are up by 150% since Bushveld agreed to acquire the Vametco vanadium business in South Africa.
That timing makes Bushveld one of the luckiest companies it knows, added SP Angel.
It timing has been ‘spectacular’ in terms of agreeing the acquisition at the bottom of the vanadium market and then completing the deal as prices take off.
“Vametco is one of the cheapest primary producers of vanadium in the world, realising an all-in cash cost of US$17.33/kgV (US$3.57/lb V2O5equivalent) for the year 2015.
“We reckon the business should be substantially cash generative with prices now at $6.07/lb.
“Our modelling shows the plant to be highly leveraged to the V2O5 and FeV prices. Profitability should also be helped by further falls in the South African rand.”
The broker adds that vanadium prices should remain supported by rising demand for hardened steels and lower levels of secondary vanadium from magnetite and slag production.
Buy with a price target of 11.6p in SP Angel’s view.
Shares were little changed at 8.2p though they have risen by more than 300% this year.