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Best re read then... They were asked
Thank you so much Pdub for all the hard work you put into transcribing the Crux interview. What a mammoth task and sterling job.
Very much appreciated from myself and everyone here.
Thank you so much
Scott's influence will be short lived there's a few sharper knifes in the drawer now
I don't think they did duck it. Firstly, they weren't asked it explicitly. They answered by saying they like that Avalon are thrifty - what is the natural insinuation from that? They also sid it wasn't their decision - which with a 5% stake , it isn't.
Many thanks @pdub & @girlienextdoor... What an awesome read.
Did duck the question on RedT management though !
Great work pdub. Now a great read as well as a great watch :)
Superb work and a great early morning read Pdub - Thank you.
Pdub, no doubt it will find it’s way to the BP
Thanks again
An excellent interview and now an excellent reference. Great work Pdub, greatly appreciate this mammoth task.
Congratulations pdub a lot of time dedicated to thst effort, thank you
Yachty I am still in the dark ages with some IT stuff. Alfa may be best to deliver that.
Regards. Pdub.
Thanks for that
Epic effort, above and beyond!
Any chance you could Dropbox it?
Cheers
Done. Great interview as many will already be aware. Going to send copy to TBP
Part 18
"The second element with regards to the shares is because of the potential shorting some people are suggesting that your story is big enough and is well understood to maybe consider going on to the FTSE and / or the JSE. Are those considerations for you at the moment?"
FM "We have said that we are working towards a JSE listing in 2020. It is work that is continuing. I think that when you consider an upgrade from AIM to say the main board in London it's something that as a company we will always consider and the benefits that come with that I think are there, particularly if you can do that and be in a position where you start to attract Index Tracking Funds we think that would bring quite a lot of liquidity to the stock and bring a lot of institutional shareholders to the stock. But again you know you don't want to do it for the sake of doing it. You've got to pick the timing correctly and at the moment our focus and our efforts have been on the JSE listing and on making sure that we are attract institutional shareholders to our register which still carries quite a substantial retail shareholder tail. By the we are very appreciative of our retail shareholders because they have been very faithful with the company and hacpve backed the company from the days when it was a one penny stock, and I think we want to make sure that we get more balance within the register, so a lot of our efforts are towards that."
"FM and MN lovely to be able to catch up with you and share this story with hopefully some people new to it, that's what we are trying to get out of you today because I think it's a great story and if told properly it really stacks up, so thanks again for your time. Stay in touch and we will speak to you soon."
FM "I appreciate your time and thank you."
MN "Thank you."
Part 17
"Unbundling doesn't necessarily mean privatisation, it just means it's unbundling, so in your case are there opportunities as a public company to come in and do joint ventures for some or all of the moving parts."
MN "Well I think the regulations aren't really changing, so it's not creating, I think the one part where it may create opportunities is not really tied to Eskom. We've had this renewable energy independent power producer procurement programme REIPP and to date it hasn't really had storage except for CSP had ....? .... ? storage. That is no longer going to be part of the programme going forward so it's only wind, PV and then some biomass, small amounts of coal, things like that. But with renewable energy you now have no way to store that energy unless you are going to talk about batteries or maybe some other kind of esoteric technologies. That to us is an opportunity because Eskom what it wants is the ability to take energy any time of the day. Renewable energy does not allow you to do that and I think with the mandate in the IRP that's really the opportunity for us. To couple storage with solar, with wind, and you see that happening in the U.S. and China quite a bit. There's no reason not."
"Just to finish off on the conversation where I was talking about share price etc. two questions from your shareholders. 1) what do you think is going on with this shorting at the moment? People are trying to understand that. Have you got a view on that?"
FM "We try not to pay a lot of attention to that to be honest with you. I like to think that if anybody shorts your story the best response you can have is to deliver our fantastic business economics that renders the shorter EE that potential tips the shorter out of business right? That's what you want to do and I think quite frankly that we are focussing on the right things that make sure we executing on our strategy, doing the things we said we would do, and if we spend a lot of our time trying to hunt down who is shorting our stock that's going to detract from the real value creation."
Part 16
"Can I ask you about one of your partners Eskom. Recently they've announced a sort of unbundling of Eskom in the press. Now what does that mean for you, what could it mean for you?"
MN "Well first of all the unbundling process they are starting by taking out transmission and the system operator, which is actually a very good thing. It's going to create some independence so it may actually do something. Now keep in mind that unbundling in the UK had mixed results, unbundling in the U.S. And California led to the Enron scandal indirectly, so it's not always a positive experience. I think what it does say is that the Government is trying to do something differently which in itself has already a step forward. For us I think we're also a bit hedged here. On the one hand we see Eskom as a massive opportunity and we actually think that storage can help make the power system in SA more efficient. It's not just about generation. It's also about optimising transmission and distribution which covers some of these spatial differences between where electricity is generated today, from coal, and for where it will be generated going forward, which is win and solar. We think that's part of the solution to some of the challenges that Eskom has. On the other hand think about our minigrid. Not only is that to help defray some of the cost in increasing energy but also if the situation keeps getting worse, if Eskom cannot be solved, we are protecting our asset by being able to supply some of that energy ourselves. Once we have done the first phase we can go to larger phase and self supply even more. We think that other customers, especially if the situation over the next couple of years deteriorates and the unbundling doesn't help, they are going to want that as well. In either way I think we have got a lot of opportunity to ensure that electricity supply is solved for SA and batteries are going to play a massive role. And we are just right in the middle of that market. Whether it's through Eskom or through the private sector we have an opportunity to .......?"
FM "And keep in mind that the fact that they are unbundling ..........? means that they are trying to solve it, and you know what, for the utility that's actually when you want to be dealing with them because it means they are open to ideas, and if you look at this battery programme as a classical example it can only be positive."
Part 15
So those are just some of the things that I think we can do. And then the second point there the point I would just highlight is that we have always indicated that we saw 2019 is the year that the key building blocks of the energy storage piece starts to come into full focus. I think that what's happened this year is that we have the rental product which we issued at the end of last year, but we only announced this first rental product this year. We are in conversation about bigger rental contracts and we announced the minigrid at Vametco. Our deployments piece, I mean we always talked about how SA will be very important market for energy storage. That was before Eskom announced that they are going to be looking to procure 1400 mwH of battery storage. That was before the World Bank announced that's they are going to be looking to deploy $1 billion which will be scaled up to $5 billion through other parties to promote 17500 mwH of battery energy storage deployments in the developing countries. That was also before the IRP was published. It was only published about a week ago, which makes very clear provisions for energy storage 2000 mw and also makes very careful provisions for renewable energy, wind particularly at just about 18000 mw and pv solar of about 8000 mw. So when you look at that and the embedded generation opportunities just the IRP, the Eskom battery programme and what I mentioned in respect of the World Bank programme, take all of that together this is not the story that's been out there for years. It's really this year that this picture is starting to crystallise, and then of course how are we going to work with the vanadium battery companies. It's only last week that we announced the VIP, the vanadium investment platform, the investment into RedT. So what I am trying to say is that we think now the pieces are there. We've put them on the table. I think going forward there will be greater appreciation of what that means for the valuation and the value of BMN and so I'm hopeful that as we go forward that will start to reflect more and more in our share price."
Part 14
"Right so I'm hearing then integration story loud and clear. It makes sense to me. It's well worked through. I get that. So what is the market not getting, because we are looking at the share price. We'll forget the spike that it went through at the beginning of the year. Do you think you are fairly priced today, given your story?"
FM "How many CEOs will tell you ?"
"Not one, but you know what I mean. What's the market missing? What do they not know that you know?
FM "It's a fair question. I wish I knew the complete answer to that question and I don't. But what I can tell you is that even if we for a second ignore attention to the energy storage piece, with our production platform, the kind of growth that we have ahead of us, and the sort of cost improvements on the back of our plans etc etc I hope that the market will give us better and more recognition, and it may be thinking about it that maybe the market wants to see us execute which is why I think today's announcements particularly important because when we talk about the kind if operational improvements we have just been carrying out at Vametco and how effective they are being that breeds more confidence in the market that when we say we will produce x amount we are going to produce x amount of vanadium. We are going to meet this type of cost position we are going to achieve that, and I think that there is possibly a sense in which the market is also waiting to see whether we are going to 1) complete the Vanchem transaction and how we are going to finance it. Remember that it is only today that we announced the completion of the transaction. I'm hopeful that as this gets digested that it will reflect better in our share price but if we go downstream to the mining and to the energy piece I think that part of what we need to solve for us as a company is the fact that typically when you talk to a mining analyst and they are looking at our story invariably they will understand the mining and the processing story a lot easier than would the downstream piece which is energy focussed, and if you look at our coverage it's predominantly on the mining sector. Something which we do need to attend to and make sure that we bring in our energy focussed or ........ ? analysis to our story which I think will have a better appreciation of the energy storage proposition for our valuation.
Part 13
FM "And if vanadium prices stay relatively high, because we have a rental product that is designed to ......? against a high vanadium price environment. So when we talk about the natural hedge that energy storage provides the power of that is not appreciated yet but it is incredible."
"I understand the mining component because it is linked directly to the price of vanadium. Talking about the hedging component what does that mean in reality for things like market cap, share price, growth, etc? Are you in control of your destiny I'm terms of what that can attribute to the company or is it more of a passive ride?"
MN "In some ways we aren't in direct control. Let's take an example of a project like our minigrid. There we are the developers so we get a development fee when that project .....? close. We are an investor co investors so we get the return in equity or dividends from the power purchase agreement that is signed to pay for the energy that minigrid produces. By the way we are supplying a battery into so if we want to we charge a mark up on somebody else's battery. If we are invested in that company we get an additional benefit because our investment has now appreciated in value because that company has now got more deployments.we are supplying electrolyte so we get a fee for manufacturing the electrolyte into that project. We mined the vanadium so now we've got a sale on the vanadium. This integration allows us really to capture the value sometimes 4 or 6 different activities on just one single project. Now I want to be honest we are not going to develop every single vanadium project every vanadium battery project in the world but if it's in Africa then it's extremely active. If it's somewhere in let's say Australia yes we are probably not involved in the development, but we may be supplying vanadium, electrolyte, possibly having equity stake into the company that invested there. Possibly having a stake into the rental product company that is supplying electrolyte for rental. So there's a lot of different ways and it can be extremely active. I don't know who is getting 6 ways to make money on one project. To some there might be only 2 or 3. But in either case it's more than just vanadium and that's what integration allows us to do."
Part 12
MN "The investment into the merger between RedT and Avalon. We're not involved in day to day management so the execution unlike what happens with a Vanchemor a Vametco does not fall on the team here at headquarters. That is their team. We at most play a kind of advisory role through our BoD participation. So actually it doesn't take a lot of management resources in here for execution. That's done by somebody else. It's already established, so if there's more opportunities like that, we are actually on the look out. If it has vanadium and we can create shareholder value we as Bushveld are always going to look at those options. What we do need to execute on are the things more in SA which is around constructing and commissioning and producing electrolyte, and deploying projects. We've put a system with Eskom, we've announced a minigrid that is solar and storage, that's a commercial minigrid. We need to build that and to commission that project and show the commerciability of solar and long duration storage and we are going to build our pipeline because we see there's a lot of opportunities and we can make them bankable."
"But who is driving that car? Are you in the back seat or upfront for working where this things going. I appreciate they are running day to day, it's operations and so forth and they've got a lot of knowledge but you can't be passive can you?"
MN "Well again if you are investing you are investing in the management team, and I think day to day we are not going to be involved. It's part of our strategy. It's essential for us to be able to deal with multiple manufacturers to say if you guys are going to bid on the same project Bushveld is not going to be involved in that decision. We are not even going to know about it. The only thing we want do is supply vanadium into that specific project. If it's in Africa yes we ....? developers there, but we intentionally don't want to get involved because we actually think the market is large enough for a few different companies to be successful and we think there are some that have good management teams. Let them go and execute because they've actually executed pretty well to date. The issue of why they are not larger is they've only been around for a few years and they need capital to grow. The demand is there I think the price that we saw last year hurt some of these companies. They had to push back some of their projects so we haven't seen as many announcements as we would have if prices were more consistent with the historical average. Now it's the reverse so it's actually a great opportunity and we call it a hedge. When vanadium prices are high Bushveld is doing very well because of the mining side. Vanadium prices are lower it makes the energy platform a lot more viable and a lot more valuable."
Part 11
"So let's argue that we were to drop and the market didn't take off, notwithstanding all the work that's gone into research into it being a real opportunity. We still have a large resource base, we still have a large processing infrastructure which will only get lower in terms of its cost of production, and therefore competitive supplying vanadium, even if all we ended up doing was supplying that vanadium into the steel sector. So how big is this downside? We think very very limited. Take the upside on the other hand is enormous."
MN " the other part of it is it requires a whole lot less capital than what we are doing on the upstream . The other is the ability to source external capital for clean energy projects, for clean energy products, for sustainability and the circular economy. That money is out there. Some of it is actually discretionary financing where it is actually cheaper than what you could ever get were you trying to borrow money to build a mine and on much more favourable terms. So we don't have to rely on our balance sheet as far as we would have to for the mining and processing. Yes there's some de risking that we have to do but again it's early stages . The ability to scale up the capital is there, it's just looking for an investable opportunity, so that's what we are providing."
FM "And having said that lets remember we set up BE way back in about 2014 / 2015 so we have been hard at work for a good 4 years and I think yes that is why we can talk with a great deal of conviction about this. It's because when we started talking about it and we started putting some resources towards it, each time you have to face some level of scepticism it's a blessing because it makes you rethink your assumptions, making our own ..........? And every time we've done it we've got even more conviction that it's absolutely the right time for this and that the opportunity is that real"
"I guess in your case MN looking at the BE component you've made a couple of recent acquisitions you're not looking further than that at eye moment because you've got to work out how this business moves forward. It's during an exploratory stage aren't you?"
Part 10
"We want to leave the operations to the management teams. I think that will also allow us if there are other good companies that we want to take a stake in knowing that we are not going to be involved in the operations, that the conflict of interests is not going to be there I think is very important to communicate. Strategically yes we can look and see where the market is going, we can offer some advice there because we have seen a lot, but we are definitely not going to get involved in the day to day operations."
FM "And by the way we also recognise that each of the different companies bring different things. We talked about Avalon. If you look at RedT they have an interesting approach to project development in the energy storage space which we think is very valuable. That's a perfect case where two complimentary companies can bring their relative expertise together to create what we think is going to be a successful VRFB. Not the only one but one of several certainly, and as we indicated through our investment platform we will continue to look for other VRFB companies that we can partner with support. The more there are that are successful that affects scale, the better for the entire industry."
"Fortune favours the brave when it works but when it doesn't work that's when people look back and go that wasn't such a smart move. I think what I can admire here is the fact that you do seem to know as much as anyone else in the market place and you can lead in this space. I'm fascinated to see how that plays out because it's early days. It's a fairly nascent space. I know you did say the technology has been around but it hasn't been around economically."
FM "I agree with you and two points I would make to your statement are 'Fortune favours the brave' now here is a very important point I want to highlight and it is this. The capital that we need to deploy to unlock this opportunity relative to what we spend building a mine, building a processing plant, it's small. Our electrolyte plant we cost us $10 million. What will it produce? 200 MWh of electrolyte and if scaled up to 4 x that and if at 200 MWh it is using about 1100 mtV. If you wanted to build a mine and a processing plant that produces that amount of vanadium for the steel sector you are talking about more than 10 times that amount of money. So the capital intensity is low. The big capital is spent in building the mine and building the processing infrastructure, and for us better yet that we've been able to do it on a brown field site again, which means that we've done it much cheaper than it would take on a green field basis."
Part 9
"The second point we recognise we are uniquely placed to do is to address the question of the security of supply of vanadium and to address the question of the cost input of vanadium into these batteries. And as a company with what we have done now we have demonstrated we can answer those questions very decisively. Once you have done that you are now really in a position where you say ok now to a large degree we have derisked our geologic stance, the VRFB ..... ? We don't need to try and reinvent the technology. What we can do is to work together with them and the VIP is the critical part of how we work with the VRFB manufacturers."
MN "In terms of what we can bring capital is one but I think it is not just our capital. It's the ability to bring other investors along with us. Now a lot of times being the first is difficult, second is a lot easier. We don't mind being the first. We understand the risks a lot better than I think other investors, especially around the vanadium supply piece. We are very confident that it can be solved and we are ready to put our money just to prove that. I think that's one is that we can drive capital towards that both from our own kind of capabilities and also from external investors. The second is .... ? the supply. You see part of that agreement is we have a right of first refusal on supply of vanadium, of electrolyte and vanadium ........... . Those are things we can help solve for both as a product but we can actually develop things around specific to what the customer needs, because sometimes you need a 10 year solution sometimes a 20 year solution 25. There may be certain requirements that are needed to make a project be bankable rather than someone whose buying the battery and has it entirely on their balance sheet. Those are all different ways that we can be flexible. We're not just you know we've got one product and it's kind of a Ford Model T and the colours black you can have it any way you want it as long as it's that. We're a bit more flexible and a bit more creative because we understand that's what the industry needs right now. I think related to that we understand the industry so we can provide some ....... guidance. What we will not do is get into the operations. If you are investing in a company you want to invest in their management. It's about 50% here it's the IP it's the leadership, and what we like. We had a chance to work with Avalon. We did a rental product with them and we really liked that they are thrifty. They got pretty far on probably the least amount of expenditure of the companies we've seen and we would love to have that mindset being taken forward. As an investor I want to know that they are being really thrifty with my capital."
Part 8
"So one of the things that we’ve done through this VRFB investment platform or VIP to keep it short. It’s catchy, but it has a big function behind it, because what we see as besides the supply of vanadium the other obstacle that most of these companies have outside of maybe a Sumitomo which is kind of large enough to support itself is that they need scale and it become the chicken or the egg. To get scale you need to have orders, to have orders you need to get your costs down, you get costs down with economies of scale. One of the things that we liked in this specific transaction of Avalon Battery and RedT is a merger. It’s two companies looking at completely different markets having different skillsets, the ability to maybe have some synergies on the cost side on the R&D side, but you combine their pipelines and all of a sudden you’ve got a lot more scale, you get to that economy faster, and it’s not that you have to wait two years, you get there in one year, for example. Or instead of four years, you get there in two years. It means less capital to get there, and it’s a less risky investment. We think that is very good for the industry, and that is why we like that transaction.""What are you bringing to the party here? Cash? Knowledge? How are you partnering with these people? Are you retaining the existing senior management there or are you just taking over the assets? What's that look like?"FM "Maybe just before Mikhial speaks specifically about what we bring to the party one point to highlight is that we could have taken a view that says look we do like VRFBs and we hope that VRFBs catch on and become a dominant solution for energy storage and hey we are going to supply electrolyte or vanadium pentoxide into that market and leave it at that. The view we took right from the beginning is that it's going to be quite important that we are very proactive given the opportunity and rather than leave it to VRFB manufacturers to do it we saw specific things we can do as a company to unlock it particularly we recognise that the technology is there. The technology is fine but two critical things you need to address. One is the market and energy markets are very very regulated the world over and they are very structural, and there are levers there that if you get right you unlock the opportunity at a large scale, then it becomes the scale that you need to drive the cost down, and also it's very local knowledge heavy in terms of unlocking these opportunities. So don't leave it just to the VRFB manufacturers to go and do that. We can do that and it is not a capital intensive effort. It is an IP intensive effort. People that understand the sector they operate in, that understand the structure of the energy markets and can ..... ? thats one point."
Part 7
"The second thing that we are doing in the electrolyte is that we’ve created a rental product where we’ve taken advantage of the fact that the (electrolyte) doesn’t degrade through use in the battery, it can be fully recovered to be deployed in another battery or converted very cheaply into Ferrovanadium again. So that is the second thing that is going to be more of a financial product.
The second part within what BE does is around manufacturing. We envision there being a facility in SA for assembly of VRFB’s as the market grows. More recently what we’ve started doing is work with the vanadium battery original equipment manufacturers. There is a number of ways with which we work with them, one of the things we’ve announced is investment and I can talk about that further. We definitely feel that these companies – there are some good ones out there, and they are going to generate a lot of upside in their value as the stationary storage market grows, and as we see this trend towards longer duration where our technology is a lot more powerful.
The last piece is around deployments, so we do project development. We’ve got a team that looks to deploy energy storage sometimes coupled together with renewable energy, sometimes on it’s own. And really, that’s quite an exciting opportunity, especially on our continent where the need for energy is very high, but the provision of it is very unreliable.”
“Can we get into some of this – we’ve spoken to a few vanadium companies, some big, some small, some wannabes. And they do like to include their version of how they are going to get into VRFB’s, and it is hard to believe sometimes. You guys are a lot further down the line than most, can you tell us about some of the engagements that you’ve got with industry players, what you are trying to do with them, what’s the timeline, what’s it going to take in terms of your commitment and money to be able to get you to a point of where there is some sort of economic benefit to shareholders?”
MN “There has been a lot of engagement, I mean, I think in the industry we know all the players, this is partially why we think there is more that we can do both from an investment point of view and also a bit of a standard bearer to say look a lot of these companies, well some of these companies are very good ones, they deserve investment and they can offer very good returns on that investment."