Bushveld Energy Q1 2018 Update.
“In South Africa, demand continues to rise, evidenced both by greater enquiries for provision of single-acid vanadium electrolyte or direct projects that require energy storage for at least four hours per day. This has allowed Bushveld Energy to continue growing its regional project pipeline.”
“However, conversion of potential projects is currently low due to regulatory uncertainty over the treatment of energy storage, the lack of progress of South Africa's renewable energy programme and opaque official guidance on the direction of the country's energy policy as published in the Department of Energy's Integrated Resource Plan.”
Developments since this update ;
1. April 2018 Radebe signs off outstanding REIPPPs.
2. October 2018 Eskom announces 1440MWh BESS Project.
2. March 2019 Draft IRP includes battery energy storage allowance of over 2,000MW.
3. May 2019 Radebe instructs NERSA to grant licenses to SSEG projects with a combined capacity of 500MW.
Let the conversion begin.
Thank you SloppyGuiseppe.
The most telling section for me was this one ;
"Mojapelo says that should Bushveld Minerals be awarded a portion of the tender, the company plans to deliver on it through a combination of systems that are imported and locally sourced and assembled. The more time that is permitted between order placement and delivery by Eskom, the greater the amount of components that could be sourced from South Africa."
Bit by bit, step by step, the plan is being uncovered and it is all starting to look rather familiar. BMN clearly know exactly how they are going to approach this tender even before the documents have even been released.
Within the World Bank Restructuring Paper there are guide dates as to when each step of the tender process will take place. However, they are just that, a guide. It is Eskom that is in charge of the process and the timings.
BMN can tender for this project on the basis that they can deliver good local content against the current guide dates. However, what I am reading is if Eskom are prepared to allow them a longer period to deliver then they can push their local content element even higher and deliver Eskom and the S.A. government an even better outcome centred around substantial local content. How does FM even think that is possible in a competitive tender?
In the BusinessLive article from 24th April the BMN said this ;
"To take the value addition of vanadium to the next step would be orders from Eskom and other big users that would justify the construction of the batteries in SA"
"Bushveld would need critical mass in orders of about 50MWh a year."
FM said "You need a solid pipeline that's sustainable and not just a single order from Eskom. But if we get 10MW with four to five hours of storage then you have a business case"
So despite what FM states on 24th April, the reality is that an Eskom order of 10MW or more would be enough to encourage localised component assembly or! BMN actually know that they will have combined (those other big users) or dare I say rolling orders from Eskom, that will enable the business case to be secured for locally assembled components.
The Eskom tender is expected to be decided upon around Dec 2019. That would then signal a 2020 roll out of localised assembly be it perhaps scaled at first, coupled with locally manufactured electrolyte coming on stream.
However, 50MWh of work secures the localised assembly but it does not answer the 1,000MWh of energy storage mandates that the company continues to advertise even whilst being quoted in this manner but perhaps those rolling contracts do.
It all points towards something sizeable but more importantly a sense of confidence within the BMN ranks that Eskom mandates are going to be secured, but then we all knew that already didn't we.
Thank you Sloppy Guiseppe for your regular and often very informative offerings they are much appreciated.
Time for a holiday this end. See you June everyon
Whilst you talk about the 3rd party oil being talked about last year, the Chiritza station wasn't announced as being completed until 21st November 2019, and the company needed to establish how they wanted to exploit this 4,000 bopd gain. To do that they needed to understand where Platanillo was heading.
It was only 6-7 weeks prior to that that we were told that the company had discovered oil in the T sands at Pintadillo. It would have taken at least the time inbetween those two announcements to establish if they could/should push on with Platanillo drilling to the north. Bear in mind they had planned 3 drills there.
Clearly, they didn't feel they could get the required growth from Pintadillo, which bears out in the 2,000 bopd now committed to 3rd party oil transport. However, they now only have 3,000 bopd head room with an improving Platanillo.
The decision to conclude a 2,000 bopd deal says more to me about their thoughts on future Platanillo and Putamayo production than it does about their 'inability' to exploit this further capacity.
The company is pushing to drill Put 8 and Put 9/12 later in the year (I suspect Put 8 has the bigger chance). Any level of decent success on any one of those licenses and the circa 2-3,000 bopd of spare capacity comes under pressure, given that OXY signed up to their licenses because of what OBA enables them to do.
There is certainly room to criticise but we are arguing over limited uplift in my view. I would dearly love to have seen 4-5,000 bopd, but for reasons i explained earlier, how can a local oil company cancel its contracts in order to rely on the OBA, if it has a break clause that says the moment AMER find oil they are out? That doesn't work. The deal has to be medium to long term.
So with drilling due to pick up substantially in 2020 in the Putamayo, AMER needs to start planning for the future and levels above 9,000 bopd, and that from what we are told in the reports, will have to come from a more captial intensive programme along the lines of what I posted earlier.
They can only utilise the OBA as quickly as they can improve the RODA. The next capital investment will be a big one and that will need capex, and that capex will come from greater utilisation of the OBA. Yes its slow but it isn't all down to AMER.
Beating guidance by 2 months is significant when the BOD is constantly being accused of not hitting its targets. This BOD is accused of being overzealous with dates but when they issue a conservative one and beat it, they are criticised anyway. Your 'conditioned' statment assumes you know me and I assure you, you certainly do not.
One key point I feel you are missing by concentrating on the numbers is the fact that AMER is now an authorised transporter of oil and it is that which is key here not the physical barrels that will be initially achieved in 2019.
This is about OXY, 2020, and what comes from this development.
I am slightly confised reading the reactions this morning. This RNS is positive revenue generating news. Yes the exact vlumes will need to be clarified as this development unfolds, but first and foremost the company has achieved the self imposed deadline of H1 and beaten it by nearly 2 months.
To me it look s like they have signed up one initial local producer with a view to testing the concept. Onc e they are comfortable with this they will look to add numbers be it through the first signed contract or others.
I would think that once they have agreed to take 3rd pary oil they are committed to the purchase over a contracted period, otherwise the seller would perhaps face issues with alternatives arragements, which they are perhaps looking to cancel 9i.e. trucking contracts), and therefore must be careful not to over step their position. Since this deal was introduced earlier in the year Platanillo has begun to show signs of improved production. Therefore, the size of the 3rd party deal may well be affected by this development also.
All of that aside it is a good deal and from where I am sitting it is a deal that will generate steady cash flows even if oil prices fall back because the profit is made from the transport cost savings, which are fairly static, and not the oil price itself.
Lastly, I would think that this now opens up the possibility of a further development of the transport network in and around the RODA system. Hence the indication regarding OXY ;
"the ability to transport additional volumes, including third party oil through the Ecuadorian network was a significant factor in securing the Occidental farm-in deal."
They cannot possibly be talking about the initial 9,000 bopd because they already had that and as the Anardarko deal has demonstrated, OXY aren't in this for the 4-5,000 bopd that is available through the system. They are here for the 50,000 bopd capacity that OBA can achieve when the RODA system is taken out of the equation.
That quote is for me a direct indication that there is a plan to either twin the RODA or run an additional pipeline that perhaps bypasses the RODA altogether. The available capacity (limitations) is tied solely to the RODA system and not the SOTE or OCP.
For me this deal signals the start of the process to prove that 3rd party oil is viable and can act as a driver to invest larger capital in the export system.
If not then why would the OXY comment be included? 3rdparty oil through the OBA has nothing to do with OXY, yet.
So the initial deal and its details may not be as wished for but it isn't about that, it is about what this starts because either OXY want large scale success on their shared licenses or they want to take AMER out completely, either way it will be at a premium that grows each time AMER adds further production or 3rd party oil to that pipeline.
@Bella6532 Bushveld Vanadium is the umbrella under which the various vanadium companies sit.
Right now Bushveld Vametco is the company that holds the original companies that were all part of the Strategic MInerals Corporation owned by Evraz.
Bushveld Resources holds the businesses that hold the rights for the farms that make up the Brits and Mokopone projects.
That's it, there are no more.
The 'Vanchem Business' is being bought by Bushveld Minerals but they are not buying Vanchem Vanadium Products or The South African Japanese Vanadium Proprietary Limited.
They are however buying all the shares in Ivanti Resources the smallest entity in the total package but not included within the 'Vanchem Business' description. They are buying production businesses from these companies, which is interesting because the producing assets are the businesses.
So in very simple terms the company needs "a South African subsidiary" in order to hold these new businesses that is separate to all the other current entities. My bet would be on Bushveld Vanchem.
There are several very good reasons why the new business will be kept separate to the others but I do feel very strongly that there is a black empowerment transaction to come in order to bring the business into line with the overall company standard and ensure maximum impact with Eskom and their pending large scale energy storage mandates.
100% of nothing is nothing. Circa 75% of something upto 360MW is a very big deal indeed.
That enough from me this week for sure. My fingers can feel just how much talking I am have been doing.
Enjoy your weekend everyone.
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My view is that Vanchem has been brought into the fold to supply Bushveld Energy with ore from Mokopone. Thus making it completely independant from the steel market based operations at Vametco.
Yes when asked the two can share as can the 3 deposits. But when times are right then I predict two operations feeding two completely separate markets. This prevents the need to make a decision on who is most important. The long term steel customers will want their product no matter what the price of vanadium and what that does to increase VRF demand and opportunities for BMN. By separating the two there is no need to even go there.
I believe the Vanchem expansion will be "expedited" (FM Webinar) as fast as the VRFB market requires and if it is as good as I believe it to be, then it will be a lot quicker than 5 years.
Right now the company is saying 5 years becasue the market isn't confirmed. But rather beautifully ans as usual, Vanchem is doing exactly what is needed to service the current start position for electrolyte, and to top it all of it has a chemicals plant already.
We will shall see.
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Now that the next brownfield has been delivered I need something new to keep me distracted.
I believe that Vanchem will be the hub from which the electrolyte plant will be fed.
We have already talkd about the expanded 1,000MWh electrolyte plant requiring 5,500mtV of feed. There is talk within the Energy Storage 101 webinar of VRFB developments that will take this down (initially) to 4,400mtV.
Theoretically Vanchem has a capacity of over 5,300mtV. 90% of this is 4,770mtV.
BMN have only just got their teeth into Vanchem and i think they will look to drive even more production out of it.
FM stated today ;
"We talked about the fact that we believe that we should be targeting a production capacity of about 10,000mtV.. .For most people that have wondered how we are going to get there given that Vametco alone running at full capacity cannot run more than 5,000mtV per annum."
"Well here is the answer"
Vametco will go to 5,000mtV and will not expand any further. More of that later.
So if 'about' 10,000mtV is going to be greater than 9,200mtV then it will have to come from Vanchem. Not that it is really needed.
FM also talked about leveraging the chemicals plant and also the chemicals ability of Vanchem to compliment Bushveld Energy. "Where we are building a plant to produce minimum 200MWh of electrolyte."
To date BE have talked about the first part of the electrolyte facility process being housed at the mine entrance and Vametco has been mentioned. However, that's only because the Vanchem deal hadn't been closed out.
Vanchem has from what I can see the right equipment to deliver that front end process. As a new purchase its existing contracts are at best 'new' and they look to have been with Duferco companies. Therefore, they are at worst expendable or at the very least transferable to Vametco.
That then leaves Vanchem with a clean slate with which to pursue other arrangements.
Vanchem is currently 100% owned by BMN and has more flexible options when it comes to BEE ratings/ownership. Vametco comes with added mining related consequences and profit sharing.
Vametco has a final bill to pay YD in 2020 that is EBITDA related. It would be better if production and thus profit at this facility was kept to levels that were necessary until after that point. Adding enhanced downstream products should be avoided if possible.
At 200MWh initial production the electrolyte facility requires 1,000mtV of supply from early 2020. Vanchem can currently offer 960mtV and will be fully owned by at latest Oct 2019.
Vanchem currently has a 5 year plan to expand to 4,200mtV. The electrolyte plant has a long term plan to expand to 1,000MWh.
FM when answering analysts questions in Wednesdays webinar stated that the timeframes for the expansion of Vanchem is conservative and dependant on market demand. The same goes for the electrolyte plant.
Some Key Facts.
Vametco requires zero further capital investment to achieve 3,400mtV production.
Vanchem cost of $68m and $45m of capex to achieve "steady state production" of 4,200mtV per annum.
Both targets are production not capacity.
BMN have now confirmed exactly what it will take to achieve a production level of 7,600mtV.
Better still FM in his interview today confirmed that Vanchem would be paid for out of debt and cash flows, stating ;
"equity only considered quite frankly as a distant 3rd from those 2 priorities that i have just mentioned"
BMN has a clear and defined path to 7,600mtV that is measurable and affordable and does not come with further dilution.
First stop in 2019 is a production rate of 4,360mtV setting up for 2020 and the march towards electrolyte.
2018's greatest disappointment was the inability to achieve the original 3,680mtV target and missing the 5,000mtV nameplate capacity expansion by the end of 2019.
Vanchem in its current form with just a few further additions in 2020 will effectively delivers that phase 3 result in line with the original plan.
At 4,360mtV BMN needs EBITDA of just $24,650 per mtV to achieve the same full year result that was achieved at Vametco in 2018.
The more production that is added the lower the EBITDA figure needs to be to remain constant and the further we travel away from thsat already distant dilutive idea.
In my opinion the Vanchem deal delivers the BMN story as it is currently written in all of its glory and it is now just about waiting for the pieces to be brought together into what will be a beautiful piece of architecture when it is complete.
When BMN completed the deal for Vametco I knew back then that the chances I had taken back in 2015/early 2016 were correct and that the rewards i had envisaged from those decisions, would be realised. Is so.
I now find myself once again in that position with the opportunity to compound and expand on those gains to a level that really should be illegal.
The closing of the Vanchem deal is the moment that was required to seal it and whilst it is not 100% there, it has far fewer hoops to jump through than Vametco did the day they signed the SPA with Evraz.
I don't honestly care if those reading what i say here believe me. I don't care if they buy, sell, short or simply sit on their hands. That's because none of those moves will make a blind bit of difference in the end. They won't stop what is in my opinion now just as inevitable as it ever was but infinitely more defined and attainable.
Vanadium prices won't prevent it from happening. Infact in my opinion if they go up then the end result will perhaps be slightly diminished. If they stay down then the game is definitely afoot
In the meantime we will likely continue to sit here feeling the basic human need to defend our investment from 'trolls' from 'shorters' from any mystery dark forces who may appear to be able to take it away. The reality is they can't really if I am prepared to hold through any storm that is conjured up be it visible or made up.
Here within these four small walls, I cannot possibly describe fully everything that makes me so convinced that this is true. There is so much detail going on here that at times it is the complexity of it all that makes us forget and gives those who would try to take it away, the opportunity to do so. Not I.
The simplest way that i can describe it is as a pyramid, a beautiful piece of architecture in its own right.
The 440mt of resources sit firmly on the bottom acting as the foundation for all that will rely oupon it. Vametco contributed the first set of blocks that made up the next level of the structure. Vanchem completes this particular part of the build and enables those levels that come above it to also now be completed, delivering the final form.
I always believed that the pyramid would get built but with Vanchem on board i now know it for sure.
It won't come overnight. My timeframe remains 3 years but likely the full story will take closer to 5. I can wait. It'll be worth it.
This is my opinion only. Others will think differently as is their right. I know where i stand and where god willing I will be in 5 years. I look forward to it i really do.
@SOTRR The presentatio on te acquisition states ;
"Bushveld Minerals Limited has conditionally agreed to acquire, through a South African subsidiary, from Vanchem Vanadium Products (Pty) Limited (“VVP”) the Vanchem Plant"
So they are already (understandably) employing a subsidiary to make the purchase.
One thing we must all be aware of here is the BEE element still exists but not in the more stringent format that is applied to mining projects. There is nevertheless a points system with a maximum score of 105 points for 'large enterprises' which Vanchem alone is, and this is made up of 5 sections of which "ownership" makes up 25 points and a full score in this category requires 25% ownrship to be achieved.
If BMN wants to do business with the likes of Eskom then they will be seeking a level one/two score. How they achieve it is still to be seen and it isn't absolutely necessary that the score maximum points in this particular category but it would certainly help. Plus i believe that FM and Co have S.A and Africa at their heart and will want to comply with this.
How thye go about it exactly I do not know at this point. Duferco held these businesses for a long time and to date i cannot find any evidence of a black empowerment transaction.
But I repeat. If BMN do look to sella 25% stake in these businesses then it will be for the greater good that comes down the road. Its all about preferential procurement and the points that Eskom can score by issuing contracts to level 1 BEE compliant suppliers. For every R100 spent on a level 1 company eskom would book 135%, so R135.
It makes a serious difference to their goals and places a BMN led consortium much higher up the food chain. Throw the IDC into the mix who i believe are essentially taking up the role of the BEE partner for BE, and the coctail becomes all the more intoxicating.
So its nothing to be afraid of, it is not in any way confirmed but it is a question to be answered along the way.
@SOTRR No the comparison that I did was on a purely 100% basis for both Vametco and Vanchem.
The key takeaway is that Vanchem on that basis is demonstrating that it is more profitable than vametco. Highly likely because it is not carrying such a large overhead for a large workforce. That may change as it expands production and the costs of remote min9ng are added in.
However, what is clear is that the previous owners has got it set up on a simplified production basis, which means it is a very profitable little enmterprise even at 'just' 960mtV.
Moving forward I would be confident that any financial forecasts could at the very least include the Vanchem tonnage as if it were Vametco. Knowing that this remains conservative.
So essentially BMN post 31st July will have increased Vametco production by nearly 1,000mtV.
Whilst on (again) I would also point out that n ow the deal is out in the open the actions needed to complete the deal are next to nothing compared to what they could have been.
When we have talked about the options available i have had concerns over regulatory issues but becasue Vanchem is a processor, it sits outside the control of the DMR, which takes away a very heavy regulatory weight.
Furthermore, it is 100% owned (for now at least) and so there are no lengthy negotiations to be had with disgruntled BEE partners or local land owners.
Finally, Duferco have already helped us greatly by getting it back into production. So from day 1 of ownership it starts paying for itsel, rather than requiring what I had worried would be a 12-18 months refurbishmen tprogramme just to get it running again. After all it has been shut for 4 years.
So te deeper I go into it the better and better this deal looks, and if FeV prices turn north then its impact should grow even stronger as the deal is completed and the plans for its future are unveiled.
The figures are pre-tax profits but yes that is what the figures are pointing towards given that Vanchem was in business rescue for nearly 4 years prior to the Q3 2018 re-start. I would think that the prospects of both companies making any profits during that time were limited at best.
The $11.5m figure represents 240mtV sold for a pre-tax profit of $47,900 per mtV. Vametco achieved $40,900 per mtV in EBITDA and the pre-tax profit figure wouldn’t have been too much lower than that, so the Vanchem result isn’t beyond the realms of man. It is important to remember that Q3 2018 enjoyed very high prices with the EUR FeV mid price averaging circa $85.50 per kg. However, there is more than a strong suspicion out there that Vanchem was also shipping a lot of its product to the US where prices in Q3 were recorded by Evraz as being circa $87.50 per kg.
That makes the $47,900 very achievable and even points towards an even better result achieved against lower ramp up tonnage.
Prices for this year (from 31st July short stop date) may well come in lower but I suspect some of this will be balanced out by the increased tonnage (80mtV), so there are ample grounds for claiming that a good percentage of the pre-tax profits at Vanchem could be retained at that sort of level.
As a good example as to why this would be true, if we reduce the Q3 production figure at Vanchem to even 200mtV to allow for a ramp up, then the pre-tax profit comes in at an elevated $57,500 per mtV, which place total operating costs at $30,000 per mtV based on US prices. That doesn’t look too far out to me given that the BMN Vanchem acquisition presentation states that “The Vanchem business case is robust at lower prices (US$33/kgV) than current vanadium prices (˜US$50/kgV); …”
I strongly suspect that the $33 per kg level is not break even.
It is also important to appreciate that the Vanchem purchase price would have been priced on longer term average vanadium prices and not just the spike that occurred in late 2018. Hence portraying it to be more of a bargain.
All of that now said, the long and short of it is that yes if all variables remained the same and my assumptions regarding the Q3 start up are correct, which the FeV price and operating cost indication support, then Vanchem at approximate FeV prices of circa $85 per kg would make $46m in pre-tax profits per annum.
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That rather interesting point aside, the reason that Evraz fell foul of the Competition Commissions was because it already had significant vanadium projects in Russia that were already feeding the European market.
Here is the full EU decision, which I dug out many moons ago when investigating the first brownfield acquisition.
To avoid the competition commission ruling against them Evraz only needed to offload Vanchem and guarantee feedstock through a portion of the supply from Mapochs, which in turn secured the supply to downstream companies in Europe (Treibacher and Hochvanadium). They were able to keep the vanadium steel **** production that fed both Vametco and in part Vanchem too. This was despite the fact that the new combined company was coming from a starting position of circa 85% of the steel **** world market and 40% of the entire world market of vanadium feedstock.
Page 36 Item 66 demonstrates this better ;
“166. The impact of the divestiture of Highveld's vanadium operations and the Mapochs mine on the new entity's market shares post-transaction is illustrated in the table below:
Bracket 1 - Market shares without the remedy
Bracket 2 - Market shares with the remedy
Vanadium feedstock [40-50]% [30-40]%
High-purity vanadium pentoxide [70-80]% [40-50]%
Vanadium oxides [10-20]% [5-10]%
Ferrovanadium [10-20]% [5-10]%”
BMN of course doesn’t own Highveld and is acquiring Vanchem in a market where the Chinese supply has expanded significantly since 2007-8. Their combined acquisitions will equate to just circa 10% of the world FeV market when fully expanded and refurbished, which isn’t guaranteed at this time. This equates to the post remedy levels shown above.
I therefore do not see any problem whatsoever because the percentages of market control are a no worse than what Evraz was achieving and the world market has changed significantly.
The S.A. CC may need to do due process on the deal but whilst BMN may become the biggest operator in S.A. (Rhovan remains so until further expansion occurs) they will still be in a smaller position than that held by Anglo American prior to selling Highveld Steel and Vanadium to Evraz.
At that point Anglo held Vametco, Vanchem, Highveld Steel and Mapochs. Whilst BMN will technically hold more feedstock (Mokopone and Brits are not currently in production so we are talking theoretical), the downstream products that they will control will be no different to the previous position. So in my view there is no way that the S.A. CC can rule that it is a given BMN are returning redundant S.A. processing to a state that is smaller than that previously controlled by Anglo American.
So it’s a no problem from me.
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@Halespur I don’t believe I was alone in fighting that fight, but I thank you for your kind words.
The enclosed document describes what Evraz had to do and instigate in order to abide by a ruling set down by the European and South African Competition Commissions.
Note 2 of the companies involved now form the majority of the value that BMN is paying for the Vanchem businesses.
At that time Duferco agreed to pay $160m and was only receiving half of South Africa Japan Vanadium (Proprietary) Limited.
BMN have agreed to pay $68m knowing they need to spend $48m to get Vanchem back up to its 4,200mtV operating level.
This is roughly the same level that Duferco was achieving in 2014 (4,122mtV), which is the last time they updated the world on Vanchems production.
So, BMN are paying a price that in reality would equate to $116m for a facility that Duferco agreed paid $34m for some 10 years earlier.
@mcgro In a nutshell possible but highly unlikely given BMN would have had to declare this at some point along the line and certainly no later than yesterday's announcement. In my opinion.
@Coffeecups Please refer to my last post. As far as I have seen BMN hasn't even received its section 11 change of ownership from the DMR nevermind the MIning Right.
BMN stated previously that they would not commence de-lineating Brits until the section 11 was in place. So the fact they began this in early 2018 was significant. Technically until the section 11 is completed, Brits is still under saable Minerals ownership, although i am sure BMN have sable wrapped up tightly considering they have received their company saving monies in full.
Looking back at the developments we have seen since then I would think that BMN made a strategic decision to invest in the resource drilling because time was the one thing they did not have given their future plans and their timing.
In early 2018 BMN could afford to invest in a drilling programme of this scale without needing to worry itself about cost control in the same way it had when the 'de-lineation' comment was first made.
So I see it as a needs must move based on the risks involved. The full year accounts should shed more light on this if the company doesn't announce something in the meantime.
As I have stated previously, I would think the company is working hard on this and adjusting the ownership structures of the Brits project. Uitvolgrond portion 3 is 'only' 65% owned with the current BEE partner controlling the rest. There is scope to adjust this without too much pain, much like with the Vametco transaction. It is the easiest form of acquisition out there.
More interestingly the Mining Right for Brits is according to the company website on Portion 2 of Uitvolgrond, when they have been drilling portion 3.
Therefore, I expect that the company will/have made an application for the Vametco mining right to be extended onto Uitvolgrond Portion 3. This process can be 'lengthy' but it is the simpliest way of achieving it. That would call for the BEE partner at Vametco to then step in and buyout the partner on Portion 3. This giving BMN the opportunity to adjust the ownership to something more in line with Vametco (74%/26%).
Another 9% of Brits given its resource quality would be most welcome.
@Richken For me the addition of Vanchem (assuming the deal is closed as planned) gives BMN the final piece in their puzzle and will deliver something close to the 10,000mtV they have stated is their medium term plan.
If they indeed wish to do so.
As you have in part communicated, with a 2nd processing facility and 3 mining deposits, the last of which will soon have its own published ore reserve,. the company has the flexibility to interchange, develop and even reduce production as they see fit or developments in their circumstances change.
One example of this are the mining rights for both Brits and Mokopone. I agree with a number of comments yesterday that BMN must be very confident of receiving one or both of these in the near term.
However, with Vametco and its soon to be re-defined resource, the company can feed both Vametco and Vanchem, and even expand both operations without having to wait for this regulatoty approvals. So the expansion plans are further de-risked.
Once the regulatory approvals begin to be received, instead of delivering an actual production start, they will act as a driver of improved profitability.
The same goes for any potential unrest with the workforce or unexpected downtime at the plant, as was witnessed at Vametco last year. The further Vanchem is re-furbished the more it can step in to counter any issues that Vametco potentially could face. It wouldn't be s mooth ride but it would be a whole lot smoother than Vametco on its own.
That added ownership and power stands BMN in good stead when the unions and workers threaten to strike for reasons that are deemed unjust. BMN can begin to push back. Again it isn't as simple as I make it sound but the point is the level of risk associated with these types of issues will be reduced, and that will reflect in the overall valuation as time goes by.
Two big risks of operating and investing in S.A. reduced.
The need to seucre a mining right and get past exhaustive regulatory barriers, reduced.
The installation and potential future expansion of a VRFB backed PV installation at Vametco tackles another big stumbling block in S.A., energy supply.
I am confident that in time Vanchem will go on to receive its own VRFB/PV solution also.
That would then be 4 big risks associated with operating and investing in S.A. that would be either eliminated or removed from the picture.
Then of course we have the operating efficiences that owning 2 plants can introduce both at corporate and project level. These will factor in in time and when coupled with brand new high grade surface ore, they will create a very enviable and desirable fully integrated platform.
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However one decides to look at it Vanchem is looking like a much stronger addition to the BMN stable. Vametco was naturally the first brownfield target because it came with an active mine.
In reality, once the business was established as a producer and all the assets in the group sufficiently progressed, then Vanchem is actually the bigger and better prize to be had.
As the presentation clearly states on slide 18 under "Brownfield infrastructure create scope for low capex and quick scale-up of production capacity;"
"Vanchem is the most developed brownfield V primary production project in the world & to complement one of the
best greenfield primary V project in the world, Mokopane"
And better still there is. . .
"Scope to leverage Vanchem’s chemicals production to enhance company’s vanadium electrolyte manufacturing capacity"
It is literally a stairway to vanadium heaven.
Vanchem was built in the 1970's well before VRFBs were a considered option for such a facility's outputs. However, what this facility and the one at Vametco have done is enabled BMN to set themselves on a course to what will arguably be the cheapest enabler of those batteries in the world, and along the way they can reap considerable benefits from an active and willing steel market.
We need to wait for the actual figures from Vanchem and the cost mix when Mokopone is broughy on linbe as an ore supplier, but already from what i can see, Vanchem has the potential to deliver far stronger profits than Vametco, even if FM and Co don't want to say it yet.
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2. Vanchem Profitability
Tooked away rigth at the bottom of yesterday's RNS were some profits figures for the 3 busineeses that BMN are acquiring.
"VVP reported, on an unaudited basis, for the year ended 30 September 2018, profits before tax of R141,877,347 and had gross assets of R1,174,141,003.
SAJV reported, on an unaudited basis, for the year ended 30 September 2018, profits before tax of R7,402,329 and had gross assets of R28,380,402.
Ivanti reported on a company basis (which captures the performance of the Calcine benefits following from the limited recommissioning of the Vanchem Plant from the third quarter of calendar 2018), on an audited basis for the year ended 30 September 2018, profits before tax of R9,834,885 and had gross assets of R55,241,199."
Note - To be absolutely clear, the Ivanti figures are "on a company basis" so would include far more than just the calcine processing at Vanchem.
Note - Whilst BMN state in the RNS that they are buying businesses off VVP and SAJV, the reality is that those 2 companies are the businesses. Hence why the RNS doesn't mention "company basis" when talking about their individual profitability.
If we park the Ivanti contribution for now, we can see that VVP and SAJV achieved pre-tax profits of $11.5m year ending 30th Sept 2018 (BMN ZR 13.2 pr dollar rate).
However, "the Vanchem Plant was partially re-started in the third quarter of 2018, after VVP was able to procure magnetite ore from third parties."
Therefore, these figures are for what these two businesses achieved during Q3 2018 only.
Even if we assume zero ramp up and a full Q3 of production, then these combined Vanchem businesses 'only' produced 240mtV in Q3.
On a very simple basis (in reality a variety of products was produced) that equates to $47,900 per mtV and we are being exceptionally generous on their full production capabilities in Q3.
In the same quarter Vametco made EBITDA of ZAR 336.8m at ZAR 14.1 and sold 584 mtV = $40,900 per mtV.
So during the same comaparable period in Q3 2018 Vanchem was 17% more profitable than Vametco per mtV even on a EBITDA to pre-tax profit basis and assuming Vanchem went full pelt from 1st July 2018.
The RNS from yesterday states "currently producing circa 80 mtV per month using a single kiln," it does not say that Vanchem produced 80mtV per month since July 2018.
There are other things to consider such as the reduced production at Vametco during Q3 due to the strike. However, Vanchem through its current reduced set up is still able to produce far more profitability than Vametco when only producing 80mtV a month compared to Vametco's Q3 average of 194mtV.
Plus we haven't included anything for Ivanti, be it minor and 'only' 50% of profits for the next 12 months. In addition, Vanchem was buying ore from 3rd parties. BMN will soon enough supply its own ore.
To place that 4,360mtV in perspective, ARC Capital in their patest broker note, which is still pre-Vanchem because the deal has not been closed out yet and there are no costings available), states that BMN (through Vametco) will achieve 4,200mtV in 2021.
That will now be surpassed in 2020 with a full 17 months of ownership at Vanchem with which to instigate the staged refurbishment and further add to that figure.
Whilst i don't subscribe to all that broker tend to say, the updated ARC valuation is essentially based on what they believe 2019 is expected to achieve (Vametco only), which is 3,000mtV at feV mid price of $60 pr kg.
That achievement delivers a 45p a share valuation from ARC.
If Vanchem completes on 31st July then that figure would need to be adjusted 400mtV higher just on what Vanchem is achieving right now.
Furthermore, as demonstrated already a few days ago, the average price for 2019 when taking into account 60% sales to the US is running at $83.75 per kg on a calendar year basis. With a 1 month lag on prices this figure would be several dollars higher.
Yes Q2 prices are down considerably from this level but then the average has a long way to fall before it reaches that $60 per kg ARC figure.
Furthermore, none of the plans for Vanchem have thus far been achieved or indeed the facility purchased.
So all in all the 45p valuation is going to come under considerable pressure through the adjustmennts required for 2019 only, and of course ARC do not currently recognise any contribution from Bushveld Energy.
They will soon enough.
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