ASX Vanadium Stocks up 300%

Alfacomp

2 April 2018

The recent appreciation in the price of the commodity Vanadium (see Loudspeaker's Vanadium Price project), coupled with new environmental restrictions on steel and vanadium slag processing in China has led to a reinvigoration of the primary Vanadium explorer and developers sector. This is most notable on the Australian ASX exchange where at least half a dozen Vanadium explorers or developers are listed

Since the start of the year there has not only been a further 45% increase in Vanadium commodity prices but also much wider appreciation of this on the ASX market - King River Copper (KRC) has led the way with spectacular market cap rises of at one point almost 1000%. The exploration action has not been restricted to KRC - recently Tando Resources (TNO) announced a deal to acquire a project on the eastern limb of the Bushveld Complex. These projects are somewhat earlier stage than the more mature projects (currently at PFS/BFS stage) of Australian Vanadium (AVL) and Technology Metals Australia (TMT) both based at the Australian Gabanintha site.

Now would seem an opportune time to see how these projects are all faring, and to introduce the idea of an Index of Vanadium stocks. Concentrating on the above ASX stocks, plus the dual market listed Aura Energy (AEE:ASX, AURA:LSE) and tracking market capitalisation from Jan 1, 2018 we obtain the following VAN-ASX Index behaviour:

All stocks considered, bar Aura energy, have risen strongly since the start of the year - the Market Capitalisation weighted index rose 100% in mid january and then another 100% in the second half of march, seemingly once post Chinese New Year Vanadium price rises kicked in.

South Africa vs. the Aussies

A comparison between Bushveld Minerals (BMN:LON) and the VAN-ASX index shown above is illuminating for those recently arrived here.

As can be seen above, until march the 16th this year BMN's share price was stuck, barely responding to the situation in the wider market. As explained here this appears to be entirely due by a stock overhang of shares sold by the Erongo group, who BMN had previously purchased the Namibian Uis Tin mine from. The Tin assets were then floated off as Afritin, but the Erongo group were forced to retain their shares in BMN until the 19th Dec. All 41 Million of these appear to have been sold between the 19th Dec 2017 and the 16th March 2018. Once Erongo finished selling the overhang lifted and BMN's SP became unstuck.

The question now is, how far can BMN's share price go ? The previous article suggests a minimum price of 27p just for BMN's Vametco assets - significantly higher than the Broker forecasts, but more reflective of current Vanadium prices. Even taking into account the recent Institutional Investor dilution of c. 14% this should equate to a price increase of c. 280% over Jan 1st prices.

This result is clearly in line with the performance of the VAN-ASX index and should be taken as a minimum lift ignoring as it does any potential developments in relation to Mokopane, Imaloto, Brits, Vametco production increases, a putative Sojitz buyout or developments at Bushveld Energy. 

South Africa vs. the Rest of the World

Can we treble check such an estimation ?

Well a direct comparison with the world's only other pure play Vanadium producer outside of China, Canadian listed Largo Resources (LGO:TOR), is about the best that we can do (Glencore, which runs the only other primary Vanadium mine is a Top-tier mining company that has many other mined commodities).

A direct comparison between the Market cap of BMN and Largo is shown below.

Largo mines 9,600 Tonnes of Vanadium Pentoxide per year, seemingly almost 3 times higher than BMN Vametco's 3,750 Tonnes (Nitrovan, Vanadium contained). It must be remembered that Vanadium Pentoxide (V2O5) is only 56% Vanadium by weight, so that equates to only 5,376 Tonnes of contained Vanadium, or 1.4 times BMN's Vametco.

Another thing to consider is that Largo, having constructed a new mine from scratch some 2-3 years ago, also has significant long term debt (US$ 196 Million as of Sept 2017) - thus their enterprise value (the amount needed to buy the company - to buy all the shares and pay back the debt) is around £140 Million higher at £540 Million.

Taking this into account BMN's Vametco should be valued at minimum £385 Million. Bushveld Minerals owns 59.1% of Vametco, so should have an equivalent market cap of £227 Million, some 50% above where it currently is (21p).

The recent Institutional Investors placing raised some US$22.2M, some of which is targeted to "Simplify Bushveld's organisational and corporate structure to improve Bushveld's exposure to the underlying cash flows of its assets". Some have interpreted this as a signal that BMN is set to buy out Sojitz's 15.9% stake of BMN Vametco.  Should this happen, BMN's stake of Vametco will rise from 59.1% to 75% - a multiple of 1.27, which would put BMN's MC, purely from Vametco, at £288 Million (26.4p per share).

Multiple estimation methods are pointing to a fair Market Capitalisation for BMN of 27p per share.

This article only conveys the personal opinion of the author. Whilst every effort is made to ensure the content is accurate, we cannot guarantee the accuracy of the data shown. This article does not constitute professional, financial or investment advice and must not be used as a basis for making investment decisions.

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