Bushveld Minerals (BMN) has turned out to be my best performing mining tip ever and shows that it is possible for a small AIM outfit to become a successful producer. I first covered the company as a speculative buy back in mid-May 2016 and subsequently the shares have seen an 18-fold increase in price to the current level of just under 38p and the company is now valued at almost £415 million. A lot of its success comes down to what looks to have been near-perfect timing in its acquisition of South African company, Strategic Minerals Corporation and its Vametco vanadium mine and processing plant - where it produces its own trade-marked Nitrovan vanadium product.
The deal cost Bushveld just $17.2 million in total to complete, along with future payments of up to $5 million, and at the time the vanadium market was on its knees, with vanadium pentoxide trading at just $5/lb and ferro-vanadium in the low $20/kg range. An awful lot has changed since then for this metal which has traditionally been used to make steel more resistant to wear, but has more recently also been in demand for use in batteries – including for solar and wind farms. This increased demand, along with a lack of supply, has led to a sharp increase in price, with vanadium pentoxide now trading at over $26/lb and ferro-vanadium at more than $117/kg – and in China both trade at more than a 20% premium to the European market. Bushveld controls roughly 3% of the world’s vanadium resources, with nearly 440Mt of resources, and the supply/demand dynamics for the metal suggest that the price could well keep on rising – it has shown strong gains just in the past couple of months alone.
Since taking over Vametco, it has continued to expand production and towards the end of last year completed phase one to take production to more than 3,000mtV per annum, and more recently finished phase two and took output to 3,750mtV, and with plans to further increase that to 5,000mtV. Phase three will be self-funded and will cost just $15 million to complete. It also has further upside potential from the Brits vanadium project, which is an extension of Vametco and where exploration has been carried out with some promising grades. Plus, it has the Mokopane project which already has 300Mt of resources for the whole area, although that would cost around $300 million to get it into production. Whilst it is vanadium which is the main interest here, the company also has its Bushveld Energy arm which is involved in energy storage via vanadium redox flow batteries, as well as producing vanadium electrolytes, and it remains on track to produce such an electrolyte by early 2019. Lastly, it has Lemur Holdings which operates in coal mining and power in Madagascar, and the Imaloto power project is expected to produce electricity by 2021, with a DFS expected imminently.
Both this and its energy arm give the company some diversity, although currently its value is underpinned by the vanadium part of the business. During the first six months of 2018 the company generated revenue of £62 million, resulting in a post tax profit of more than £21 million, and given the increase in output alongside higher vanadium prices, that should be even higher for H2 2018. It also generated free cash flow of in excess of £10 million, plus had more than £26 million in the bank at the end of June and was debt-free. All that equated to earnings per share of 1.14p for the six month period, and assuming that we see a rise in EPS for the second half of the year, that could easily be approaching the 3p level, and would give a PE ratio in the 13 to 14 bracket. For a company of this size, and given its growth plus future growth potential from phase three at Vametco, that is actually a fairly low figure.
If you have been holding from anywhere near the share price lows it would be prudent to at least bank some profit, as however good a company looks there are always risks, but despite such a stratospheric rise so far, I would definitely hold onto at least some shares as there could be a lot more to come here. Just how much higher this could go will largely come down to where vanadium prices go from here, but if they do continue to rise steeply, then even from this market valuation there could still be a lot more to come from this share in the future.
Filed under: Bushveld Minerals, Woodford, First Derivatives, Purplebricks, Josh Adams, WANdisco, Malcolm Stacey
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