10 June 2018
Last week we had a number of new visitors on the LSE board, some of which wanted bringing up to speed on the subject of Bushveld Minerals. In response to one particular query from tones777 one of our most prolific posters, BigBiteNow, replied with a really concise and helpful summary, reproduced in full below.
With BMN there is a long and short term story, driven by the fact that a great many key events have been signposted/communicated as being set for delivery over the next 4 months.
First and foremost BMN is a fantastic mining play, given it’s one of just 3 pure play Vanadium miners during a time when the mineral it mines and processes, has enjoyed the greatest price rise of all the periodic table entrants.
Not only that but it is a new player that has achieved its status without the need to hold debt. Plus it has rapidly employed the increased revenues to secure a path to a circa 80% near term growth in production.
If that weren’t enough, the company has an enormous high grade resource at 2 further sites. One being Mokopone with a measured resource of 1.4%, the other Brits with historical grades of upto 2.6% and a direct extension of the Vametco strike. As LTHs will tell you it has always been earmarked as a means to supply the aging Vametco mine with near surface cheaper ore.
At just 800m from Vametco the company could literally throw it over the fence, so one can easily imagine the substantial cost savings that will bring against the deep excavations currently taking place at Vametco. (ed - that's Brits shown above, right next to the Vametco mine and processing plant.)
But if that also were not enough, the company is actively seeking out further distressed local brownfield and has indicated very strongly they are looking to take a larger stake in Vametco by taking out Sojitz. Thus turning 59.1% into 75%.
However, bubbling away in the background is the prospect of a direct play in the fast growing utility scale energy storage sector.
A sector that is growing in stature at a near unmeasurable pace, as the wider world switches onto the idea that VRFBs are better than lithium-ion for a large number of applications.
One would have to go a long way to find another example of a miner that is in such a steep growth cycle, that is actively taking part in arguably the most exciting new sector since the internet took hold.
A miner with a $3 billion Vanadium market directly influencing and possibly leading the charge into a market of $70 billion plus.
I say influencing and leading because VRFBs are perceived to be under threat from the supply shortages and thus the prices of FeV.
But with BMN we have in my opinion the greatest chance, if indeed it were ever needed, for the market to be supported by its key supplier, to drive its prices lower and make that all important breakthrough into mainstream acceptance.
If VRFBs are to succeed, which for me is clear given their technological advantages, public demand for greener solutions, and most importantly Chinas drive, then nobody right now is better placed than BMN.
They have control of one of the largest highest grade resources of V in the world, they are close to signing off the construction of the first electrolyte plant in the Southern Hemisphere, and they have a foot in the door at Eskom, the largest utililty in Africa supplying 45% of Africa’s electricity. (ed - Mikhail Nikomarov pictured, CEO of BMN subsidiary Bushveld Energy and one of the authors of Mckinsey's ' 'Brighter Africa' report.)
And all of that is essentially a percentage free carry play because the mining business as it stands, is substantially undervalued at the current valuation.
But if for some reason one felt that they need a little added security, the company has a 100% owned interest in a PPA and concession signed coal play with a pending BFS.
So where does all of that leave us on terms of progress and those next 4 months.
Well let’s start with the coal play. The BFS is due this month. The company has previously stated that once the PPA, concession and BFS were in place, then Lemur is a $200m NPV Project. Yes it needs more PPA agreements with the private sector, but given the need for electricity in southern Madagascar, for me it’s highly likely they will come sooner rather than later.
On the Vanadium Mining side of things, Q2 production will be out by the end of July and at $69,000 averagd mid price and just 760 mtv sold, Vametco will achieve over $50m in revenues for just that one quarter.
By the end of Sept we can expect H1 results with an average of mid price $61,500. This paving the way to the anticipated $150m EBITDA stated by the CEO in his presentation at 121Mining in February.
In between we have the mouthwatering prospect of the Mokopone Mining right, the Brits resource statement, the completion of phase 2 expansion at Vametco, a brownfield acquisition, and the buyout of Sojitz, which would take ownership from 59.1% to 75% of that $150m EBITDA.
Then on the BE side the Eskom battery will be completed this month (picture shows site preparation at Eskom's Rosherville campus last month) and the EPC for the electrolyte plant will begin in Q3.
In addition, I expect the feasibility study for the plant to be released showing costs and profitability, which is reported as being fine tuned as we speak.
That’s what should happen in the next 4 months, but it’s not everything. There are offtakes for both the coal and the electrolyte, plus further VRFB projects, but these are purely added bonuses to bonuses that are already stated, because the mining business is so undervalued as we stand.
Looking further forward we can expect the new Chinese rebar regulations to take hold in November and with it further evidence that high V prices are for the medium term.
All as Vametco ramps up from 3,680 mtv this year to 5,073 mtv in 2020, thus further driving this investment as a miner with a huge amount of free carry offerings to back it up.
All of that has me marking this as a strong buy, which I will continue to do so until the news is out and the SP demonstrates fair value for what has and will come to pass.
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