A production update and a recent acquisition focused investors’ interest on South African vanadium miner Bushveld Minerals last week, causing a price spike that had fizzled out by Friday. But can the Bushveld Minerals share price stage a comeback this week?
To its credit the specialty metal miner succeed in achieving explosive growth in 2018, managing to ramp up revenues from $2.8 million in 2017 to $192.1 million last year and to turn the 2017 pretax loss of $882,000 into a profit of $86.6 million.
The steep increases were generated by last year’s massive spike in the price of vanadium, which is used in cars, specialty steels and industrial sized batteries, but the fickle nature of the minor metals market has also been the main headwind for the Bushveld Minerals share price which is now declining. At 25.25p the company is trading close to a six month low but this needs to be put into context of a share price that was continuously below 10p until late 2017.
Why is Bushveld Minerals interesting?
Compared with the more famous South African miners Bushveld Minerals is a relatively small player with market capitalisation of only £282 million serving a niche vanadium market which is used to make specialty steels used in cars and in specialty tools. But the area of real growth for the metal is vanadium-based energy storage.
To call it vanadium batteries would be a little misleading because the “batteries” are the size of ship containers and can be linked up to produce enough power to supply hundreds of homes for hours or to generate electricity for industrial outlets. This is interesting not only for areas that don’t have access to the grid or stable electricity such as parts of Africa and China and other Asian countries but in the West as storage for renewable energy.
A key problem that the European and American renewable energy industry has been facing is that wind and solar power are intermittent – there is electricity when wind blows but none when it is quiet – and that this power is not easily stored; this makes wind for instance very problematic as the main source of electricity. However, vanadium batteries can provide a solution to that problem.
The largest such battery in use in the US can keep the lights on for 1,000 homes for eight hours. A similar sized battery has recently been commissioned in the Hubei province in China and will be used to store electricity generated by a large solar plant.
Vanadium ups and downs
Much as it would be easy to ramp up the case for Bushveld Minerals over the rise of vanadium prices which have gained the most of all the metals last year, the wild gyrations in the pricing also becomes problematic in terms of its effect on the company’s share price.
While energy storage has the capacity to become a real boom industry as it will try and expand to match the growth of renewable energy other aspects of demand are working against higher prices. The headwind for Bushveld comes from the slump in demand from European car makers who are struggling because of the US tariff increases and slowing demand from China. The price swings in vanadium have been famous – rising 500% over the space of 10 years and dropping nearly 30% between February and April. Vanadium prices are currently not far from a two year low.
In the medium term
Taking a longer term view on the company may then be the better option as Bushveld Minerals’s medium term strategy is to more than double the amount of vanadium it produces. It already owns the Vametco plant in South Africa but has recently completed the purchase of Vanchem, a plant capable of processing vanadium raw material previously owned by South Africa’s Duferco for $68m.
Vanchem units have been shuttered for a period of time and Bushveld now plans to refurbish the facilities at a cost of $54 million to bring them back to their previous full capacity and to then slightly expand production. In the medium term this would increase Bushveld’s total output from 3,000 tonnes of vanadium per year to 8,400 tonnes.
The Vanchem transaction should be completed by the end of July and the company will have to make additional payments in July and October. Timing will be key because it will take time to ramp up the Vanchem production of 960 tonnes per year to the planned 4,200 tonnes.
In amidst all of that the company also plans to list on the Johannesburg Stock Exchange at some point in 2019 to be able to access South African investors. Bushveld Minerals isn’t yet paying a dividend, but it has set a dividend policy for future payments.