This is our first closer look at Bushveld Minerals (LSE:BMN), which we like because of its role within the vanadium mining industry, a sector we expect will become more lucrative as demand for vanadium flow batteries mounts. Bushveld has recently become an even more aggressive vanadium play than previously, following its acquisition of Vanchem.
High grade vanadium portfolio
Bushveld Minerals is a vertically integrated primary vanadium producer, based in South Africa, with access to some of the highest grade vanadium districts in the world. It also has a subsidiary, Bushveld Energy, which is active in the development and promotion of vanadium flow batteries.
Bushveld Minerals, like many other miners, has been struggling with keeping its operations running during the pandemic. It saw an operating loss of $9.9m in the six months ending June 2020. Revenue was well down, at 45% lower on a year-on-year basis. A depressed vanadium price and stoppages have played their role.
The company has said that it is now planning to ramp up operations in the wake of the lockdown although it will not be able to achieve the sort of volumes it was managing pre-lockdown in the immediate future. Production in the area of 3,660 to 3,950 tonnes is anticipated in 2020.
“Since the lockdown in April, we have been able to ramp up operations, however, the virus remains present within our society,” said Bushveld Minerals CEO Fortune Mojapelo. “Sales are being closely managed, and maintaining flexibility across our supply chain remains a key focus. Our strategy to increase sales to China has paid off with prices from that part of the world trading at a premium to those in more traditional US and European markets.”
Bushveld Minerals bullish on production forecast
A pick up in industrial activity in Asia is certainly starting to help the share price. Bushveld Minerals shares were trading at 23p ahead of the crash brought on by the pandemic. The stock has rallied from a low of about 9p and was trading at 11.8p at time of writing. We think it is being held back by a lack of industrial activity, especially in Asia, but also elsewhere in the world. The core dynamics within the vanadium market remain in place however.
The Vanchem acquisition in South Africa will allow Bushveld Minerals to boost its production to 10,000 mtV as well as increasing the supply of feedstock. The deal looks like it will help to support production growth of the medium term, while also significantly contributing to cash flow.
Bushveld Minerals produced about 2,931 mtV in the 2019 financial year. It spent $53m last year to buy Vanchem. Overall, its expansion plans look to be costing in the area of $100m.
The company is also in the process of refinancing its balance sheet, replacing a term loan and a revolving credit facility with funding from Orion Mine Finance, the private equity firm. Duferco Participations Holding, which was the previous owner of Vanchem, agreed to early repayment of $11.5m of its $23m in convertible loan notes.
The Armchair Trader says:
- Excellent one stop play on vanadium mining and flow battery development
- Well placed to benefit from growth in the vanadium battery sector and increased demand
- Suffered from COVID pandemic, including depressed vanadium prices
- Concerns exist over pandemic in South Africa requiring social distancing measures, slowing production
- Looks undervalued and should pick up as industrial activity is stepped up