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Bushveld Minerals Limited: THE INVESTMENT CASE

Bushveld has the largest primary vanadium resource base anywhere, at a time of increasing price strength

Bushveld Minerals is rapidly emerging as a significant player in vanadium
Vanadium
INVESTMENT OVERVIEW: BMN The Big Picture
Bushveld is emerging as a key player in South Africa's globally significant vanadium sector

The three main platforms to Bushveld Minerals Limited (LON:BMN), as outlined by chief executive Fortune Mojapelo, are industrial metals, coal and vanadium.

In each area the company has extensive interests in South Africa, in particular on the various limbs of the famous and highly mineralised Bushveld area in Guateng Province to the north, as well as additional assets in Namibia and Madagascar.

READ: Bushveld Minerals Limited details expanded working capital facility with Wogen Resources

The focus, though, as emphasised by Mojapelo, is firmly on vanadium. To that end Bushveld has recently completed a complex set of transactions that give it a significant interest in Vametco, a former Evraz-owned vanadium producer. This interest, alongside Bushveld’s own home-grown vanadium project on the Bushveld Complex, the Mokopane vanadium project, will combine to give the company some clout in South African vanadium production.

And that in turn will make it a significant international player, as there are only three major vanadium producing countries in the world: South Africa, Russia and China.

“We’ve always believed the structure of the industry does favour us,” says Mojapelo. “There’s the relative concentration of supply, but the commodity itself is a really solid one.”

While it’s true that the company’s Mokopane vanadium project boasts some of the best in-situ and in-concentrate vanadium grades in the world, it’s also worth noting that when vanadium prices were low this project still looked economically viable.

WATCH: Bushveld Minerals riding high on back of strengthening Vanadium prices

The pre-feasibility study released in January 2016 showed a healthy 24% pre-tax IRR on the basis of a US$7.50/lb V2O5 price, which today looks very conservative in an environment of per pound vanadium prices in excess of US$9.

Considering a net present value of US$418mln against a capex spend of US$298mln for the Mokopane project, it is easy to understand the company’s excitement surrounding the US$16.5mln acquisition of the operating Vametco mine and processing plant by Bushveld Vametco Limited (in which Bushveld Minerals has a 45% interest).

“We’ve always looked at four things,” says Mojapelo. “Is it the right commodity, the position of the asset on the cost curve, whether there’s a clear path to production, and does it have scalability.”

All of Bushveld’s assets fit into these criteria, but what’s been making the company particularly interesting to investors lately has been the improvement in the vanadium price.

In January 2016, vanadium stood at a low of US$14.41 per kgV according to Metalbulletin, but then rose steadily to close out 2016 at US$23.23. This price improvement then continued into the first half of 2017, resulting in increased revenues for Vametco, which is already well established as a producer, and improved sentiment towards Bushveld overall. 

It took a while for the market to wake up to all this, but when it did, the effects were clear enough. Bushveld’s shares have risen more than fourfold since the start of 2017, from around 2p to the current price of just over 9p. At one point, earlier in August, they were a five-bagger at 10.25p, only for seasonal light volumes to take back a small amount of the gain.

READ: Bushveld Minerals pushes ahead with tin float

But overall the outlook is good.

“The next 12 months should see growth at Vametco,” says Mojapelo. “We think that there are opportunities for supplying ore directly into China. And we’ve got scale. We’ve got the largest primary resource base of anyone in the vanadium space so I think it’s a very exciting future we have ahead of us.”

 Some investors might be deterred by perceptions of political risk. But this is a management team that’s highly experienced operating in South Africa.

“A good political system will always self-correct,” says Mojapelo, and he cites the announcement and subsequent suspension of the country’s third mining charter while further consultations are undertaken as a case in point, adding, “even if potential legal processes may have played a role in forcing this.”

“One obviously hopes that all parties – government, business, labour et al – have the appreciation of how so much more can be done through a consultative approach that considers the multiple legitimate interests of the various stakeholders.  Meanwhile, our job is to make sure that at Bushveld we do our part to proactively position the company to excel even in the midst of this uncertainty.”

READ: Bushveld retires US$3mln prepayment financing for vanadium interests

And on that score, the ledger looks pretty good. There’s the latest news on the financing structure for the Vametco deal, which has been fine-tuned with the retirement of a pre-payment facility. There’s the outlook for vanadium as a whole.

There’s the potential listing of the tin assets inside the Greenhills subsidiary, the further development of the energy business, which seeks to further the application and usage of vanadium in power and battery technology and may shortly move to the development of an electrolyte manufacturing plant, and the continued evaluation of its coal project in Madagascar which it is developing into a vertically integrated mining and power generating project.

What’s more, says Mojapelo, the company continues to look for brownfields opportunities. This is a company that’s shown its ability to do deals, and a willingness to back itself when markets were tough.

The share price is now beginning to reward patient investors. But there could be a lot more to come.
 

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