I remember when I first covered Bushveld Minerals (BMN) as a buy back in 2016 at around the 2p level – prior to the completion of its asset acquisition, vanadium wasn’t a commodity that you heard mentioned much. But the company timed things very well in terms of moving into this market and I suggested it might be wise to take a 1,600% profit when it hit a share price of 38p, and ferro vanadium reached $117/kg in the European market (in China it was trading at around 20% above that). That recommendation to take profit coincided with around the peak (circa $130/kg), and since the end of 2018 ferro-vanadium has been much weaker, trading in the $20-30/kg range in Europe, and having seen a similar shaped and sized decline in China as well. The pricing of this metal has always been very volatile and it has tended to have wild swings – one of those previous downturns is what enabled Bushveld to pick up the Vametco operation in South Africa for a knock-down price – and in recent months it has started to show signs of some upwards movement, along with positive forecasts for future demand and prices. Even if that doesn’t result in one of the crazy price spikes that we’ve seen in the past, I would at least expect to see prices increase in the coming years, both in the large Chinese market, as well as the rest of the world.
The primary use of vanadium still is in creating steel with a higher tensile strength, and which lends itself to the types of construction projects that are gathering pace in places such as China and India, and even more so as economies seek to recover from the impact of Covid via large government projects, as well as part of their development, such as building modern cities. So, even on the basis of steel demand alone, I think that vanadium looks interesting for a rise, but in addition to that there is large potential upside from the relatively new vanadium redox flow battery market, which Bushveld is also involved in via its Bushveld Energy operation, which has a number of potential income streams – including producing the electrolytes for these VRFBs, investment into manufacturers of VRFBs (it has stakes in Invinity and Enerox), as well as being directly involved in energy storage solutions on a national level. Before anybody points out that VRFBs have been around for a while, I’m aware that is the case but the figures that I’ve seen suggest that in 2020 they only accounted for 0.3% of total vanadium consumption, but if these types of batteries really take off as well as some predict, that could rise to as high as 50% of demand by 2025, and unless significant amounts of new supply come onto the market by then, that suggests a good chance that the commodity price could go much higher than the $40/kg level it has recently hit in both the European and Chinese markets.
In terms of the operations of Bushveld, it has had issues at times, both with the performance of Vametco and the level of ore output, as well as at its 100% owned Vanchem processing facility, and the company has been working to try and ensure more consistent performance going forwards, and that has included maintenance shutdowns (now completed) and an imminent refurbishment of Vanchem. Based on that, the company still expects to achieve somewhere towards the lower end of its 2021 guidance of 4,100-4,350mtV, despite only achieving 688mtV during Q1 of this year. There is further upside potential, as well as a steady source of ore feed, from the nearby Brits and Mokopane licences – with Mokopane set to become the primary source of feedstock for Vanchem in the future – and both have significant JORC reserves and resources in place (Mokopane has 28.5Mt of reserves at a grade of 1.75%) and the definitive feasibility study for the project is due to be completed this year. The company hasn’t exactly performed all that well financially in recent times, given its market cap of around £185 million at the current share price of 15.5p, but that has largely been down to vanadium prices and inconsistency in output.
Looking forwards, it seems to be making inroads into resolving those output problems - although risk from that still remains if anything was to go majorly wrong with Vametco or Vanchem - and if that coincides with much stronger vanadium prices, then I think it could do very well once again. If we look back to 2018 when vanadium prices were high, it achieved adjusted EBITDA of $101 million – from production of just 2,560mtV and prior to its acquisition of Vanchem. A lot has changed since then and it is hard to do any sort of direct comparison, but does show the potential here, and even more so now that the company is more advanced and in a better position to really take advantage of higher commodity prices, alongside the potential from VRFBs. Like many miners, this is the sort of company where you could spend hours analysing every little detail, but like with most of them, the reality is that it really all comes down to commodity prices and managing to continue producing the resource in line with expectations. So if vanadium does do as well as I expect it to over the coming years, and Bushveld manages to avoid any serious production issues, then I think this company will do very well from the current share price, and I view its shares as a buy at anywhere around the current 15.5p level.
Filed under: Bushveld Minerals, Alien Metals, Itaconix, Ariadne, Julie Meyer, Pharos Energy, BT
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