Bushveld Minerals currently offers a buying opportunity says Gary Newman

Tom Winnifrith Bearcast: Premier African shares soar on spoof newspaper articles. Listen HERE

Almost a year ago I suggested that it would be a good time to consider banking at least some profit on Bushveld Minerals (BMN), but now that the share price has almost halved since then, I believe that the shares are now back in the buy zone. When I last covered the Vanadium producer the shares were trading at around 38p, and anyone who followed my original buy tip at around 2p would have been crazy not to have cashed in some of that profit, especially given the rise in the vanadium price in the lead up to, and subsequent to, that article. Since then ferro vanadium prices have nose-dived – currently trading at around $38/kg on the Chinese market and just $27/kg in Europe, compared to in the $130/kg and $120/kg ranges respectively this time last year. Like most producers in this sector, the future share price is very much a leveraged play on future commodity prices, and the price does seem to have levelled out to some degree in recent months, and I see a good chance of it rising in the near future – even more so if the trade tensions between the US and China start to diminish.

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The previous financial results for the company show just how profitable the business can be and how quickly things can turn around on any sort of vanadium price reversal, especially when considering that the market cap stands at just £232 million currently, with a share price of around 21p. The last set of financials, for H1 2019, up until the end of June, showed that the business generated revenue of $78 million and a post-tax profit of $30.8 million, with net free cash flow of $23.3 million. That occurred at an average ferro vanadium price of $56.3/kg, so the subsequent drop in the commodity price will have had an impact in H2 so far and will result in significantly lower revenues, and profit – up until the end of September prices had averaged $48.2/kg. However, the company does still remain on track to meet its guidance of 2.8-2.9 million tonnes for the full year, and at an average unit cash cost of $18.90-$19.50/kg, and it is seeing growth in its output, with Q2 2019 being its best ever quarter.

'I want my cruise' moan St James's Place advisers! Read from Chris Bailey HERE

There have been other developments as well over the past year, including the launch of an electrolyte rental model for industrial scale batteries alongside Californian company, Avalon Battery Innovate, amongst other developments. But of more significance was the maiden mineral resource for its 62.5% owned Brits project, which h gave indicated resources of 28 million tonnes, containing 129,000 tonnes of vanadium oxide and 72,200 tonnes of vanadium, in oxide – plus inferred resources of 41.8 million tonnes, 195,800 tonnes of VO, and 109,700 tonnes of vanadium, respectively. The acquisition of the Vanchem plant, plus the SAJV business and Avanti shares, is also progressing well and looks set to complete in the near future, for a total consideration of $68 million. The company has already paid a deposit of $6.8 million, and as at the end of June had enough cash in the bank to cover the balance of the transaction. The Vanchem business is expected to need capex of $45 million over a five year period and has the potential to expand annual output by 4.2 million tonnes overall. The facility is located close to Bushveld’s Mokopane project, which will cost $20 million to develop. All of this is expected to be funded from a mixture of existing cash, future cash generation, and potentially a debt facility if required.

Read HERE: A second letter to AIM Regulation re Bidstack PLC – where is the formal lack of profits warning?

Overall I think that this company has done amazingly well so far to grow to the size that it has already reached, and there is plenty of further future potential from both its mining and energy operations. A lot will come down to future vanadium prices, but given that China is looking to phase out inferior quality steels, then I see that eventually driving prices higher once again as long as the current trade disputes are resolved and we don’t see any sort of world economic recession. There is also a lot of potential from the energy storage sector, which is still relatively in its infancy currently, but the applications of vanadium in this area could also potentially lead to a big spike in demand. The spot price of vanadium is out of the control of the company, but operationally it continues to do well and ultimately has the potential to grow its total annual output to around 8.4 million tonnes, once expansion work at Vametco and Vanchem are completed over the next few years, and this would see it controlling as much as 10% of the current world supply of the commodity. There is of course still some risk involved, as a prolonged period of low vanadium prices would have a serious impact on future cash flows and Bushveld’s ability to carry out its planned capex and growth strategy.

Read HERE: System1 Group – half-year trading update… but how’s the outlook (including for “the heart of the increased new product development programme”)?

Based on the current vanadium price and the likelihood, in my opinion, of that being close to the bottom of the down-cycle, I view this as a good time to be buying with a longer term view. Should the share price drop further, and assuming that wasn’t as a result of any factors that would have a serious impact on either future output from the company or vanadium prices, then I would view that as an opportunity to add more shares, as opposed to panic selling like so many PIs seem to do towards the bottom of a cycle – nickel being a good recent example of that. So overall I would view this as a good buy at around 21p and with the potential to return to the recent highs and beyond over the coming years, based on the cash generation that Bushveld would achieve at higher vanadium price levels.

Read HERE: Bulletin Board Moron of the week contest Result – no-one could beat aidenabettin

Filed under: Bushveld Minerals, Premier African, PCG, St James's Place, Bidstack, System1 Group

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