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Morning everyone,
As mentioned yesterday, I have now revisited my post on the combined set of VRFB deals made by Bushveld Energy to date. I had misunderstood part of the deal and apologise for any confusion that may have caused. When I set this blog up I did so with the intention that the information that is published there is wherever possible, trustworthy. So a partial re-write was required.
I trust it helps more than it hinders.
https://www.bbnbigbitenow.com/post/bmn-deal-making-on-another-level
Great info Mitchoftheday thank you.
Forming a company and physically paying into it aren’t of course the same thing. Still more to chew over for sure.
I appreciate the positive response everyone and apologies if it was complicated but I didn't want to demonstrate too many assumptions. That said, I think I've missed something which I have attempted to explain here.
https://twitter.com/BigBiteNow/status/1387065802269110275?s=20
This deal looks like it's a stepping stone with MUST as the central cog to allow other deals to be enacted. Deals that can operate outside of the BMN share structure and that BEL can feed into. There's a lot more going on here than perhaps meets the eye.
A strike is a strike, no more no less.
Until it is resolved nobody can say what the true impact is or what BMN can or won't recover. Production this year is heavily weighted towards H2. The strike is taking place in H1 so the impact should be lower than the 2018 strike if brought to an efficient conclusion.
The previous strike lasted 16 days and by my calcs cost c. 200 mtV.
Vanchem production and refurbishment continues and is 100% owned as opposed to Vametco at 74%.
With 2 plants the company potentially has far more options than it did in 2018 when Vanchem was not owned and they simply had to wear the consequence of the strike.
Example.
Once kiln 3 is online, kiln 1 is due to go into a period of maintenance/refurbishment. This strike may lead the company to delay such action if it means stronger production. It will depend on things like available inventory and the vanadium price. Increased production at Vanchem means 100% weighted profits as opposed to 74% from Vametco.
Purely an example of what 2 plants give in terms of options. A situation that will continue to improve once kiln 3 and 1 are fully operational and the plant is running at c. 2,600 mtV.
When everything is said and done, right now it is the vanadium price that is the most important factor in all this right now, followed in my view by the Rand/dollar relationship. It will remain that way until sizeable enough progress can be made on the energy storage business side of things. A move that could come any day now as new vanadium rental contracts come through (see my weekend tweet on this).
Back to the vanadium price.
Upon announcement of the strike on 7th Sept 2018, the share price lost c. 15% over the next 5 days or so. However, by the time we reached the day before the end of the strike (20th Sept 2018), the share price was sitting 16.6% higher than it was the day before the strike was announced, even though nobody yet knew when it would be resolved. The reason for this being a sizeable rise in vanadium prices over the same period of time.
The vanadium price isn't currently surging like it was in late 2018 but it is in an uptrend and if it continues, then any effects from this strike action will be nullified.
Furthermore, a hold at c. $36 per kg vanadium and follow-through on production at a revised c. 4,000 mtV (assuming this strike action removes 200 mtV, which isn't a given, for reasons just explained), still points to a significant disconnect on valuation even at 2021 one-off increased production cost rates.
In all honesty, the fall of the rand from ZAR 16 to ZAR 14.30, will potentially have more impact on BMN's fortunes in 2021 than this strike could ever have, but it doesn't come with the same drama, which some crave more than others.
One last thing to add on Vametco.
Assuming that the mini-grid is continuing to be developed at Vametco, which FM in his last interview certainly indicated was so, then when it comes online, Vametco is likely going to claw back a healthy amount of time and cost.
One of the reasons given for the increase in production costs at the mine was "statutory electricity increase."
Completion in 2021 would mean that this problem would begin to be relieved, improving their cost profile further.
Thank you knutsfordnotary.
In times of poor sentiment when the share price appears to only want to go in a more negative direction, it's very easy to get swept up into that thinking, particularly as many market contributors are happy to simply ride along with whatever sentiment is in play at the time.
In late 2015, if someone had told BMN shareholders that within 5 years they would ;
1. Own not only Vametco but also Vanchem,
2. Hold Mining Right at Mokopone
3. Not only own stakes in not one but two expanding VRFB companies but also have a guaranteed V supply into them,
they would likely have been laughed off the BB.
Securing those 2 facilities and finance to refurbish them, gives BMN all the weapons they need to go on and deliver on their biggest goals. Those facilities and that money give BMN so many options right across the board but as I explained earlier, they can deliver great success from these levels just as vanadium miner, feeding into an expanding VRFB demand.
Their biggest threat in my view is the world economy but even that has the ability to be tempered by an expanding VRFB demand that is real and truly not that far away from countering any temporary setbacks in steel demand.
In the Enerox deal alone, BMN could soon be looking at an investment that is worth between c. 25% and 50% of its current MC, when compared to the fortunes of Invinity.
Currently, Invinity is valued at £125m with c. 19MWh in contracts and a c. 55MWh manufacturing capacity and I consider that to be a subdued valuation based on BMN selling down/news flow.
Based on project wins, Enerox was already two thirds the size of Invinity by the end of 2020. At 30MW production capacity in 2022, Enerox would be c. 3 times the size of Invinity in terms of manufacturing capacity. BMN own 25.25%.
It also abundantly clear that Enerox will be the partner of choice in South Africa and the planned "180MWh of battery energy storage systems" required for BMN facilities, are clearly going their way. Yes they will take time to deliver and the S.A. authorities can be slow to authorise such projects, but those projects are coming. More value.
Throw in Eskom contracts, new and bigger projects through Invinity, electrolyte sales, external demand through other VRFB companies particularly in China etc. All fed by an expanding Vametco and Vanchem and helping guarantee the company, solid profitable vanadium sales.
As far as I am concerned, we are past the point of questioning whether VRFB demand takes off. It's now purely about when. That alone should be getting shareholders in this company excited. BMN has so many avenues to follow on this and a big resource to expand into it all.
Yes, it's taking longer than expected. Yes, the market doesn't get it yet, but all that really matters is that I get it and it is going to happen. Everyone else can play catch up whenever they are ready.
2/2
By that I mean it makes the result all the more achievable with the risk being to the upside and not down.
The ZAR/$ is also key and can play a significant part in the profitability story. my assumption on all of the above figures is for the YTD ZAR 14.90 to hold. If it strengthens against the dollar then profitability reduces. If it weakens then the opposite is applicable.
Profits are calculated on a $35 per kg average sales price. A $5 swing in prices adjusts profitability by c. $29m.
Finally, the path to said $65m pre-tax profits is fully funded, so it's not about profitability being required to achieve it. However, my own view is that this year needs to bring at least minimal profitability, in order to ensure that the expansion to 6,800 mtV can continue. Right now, as far as my calculations show, the combined operations are achieving that.
To be clear these are my calculations only. There's a lot of data behind them but to present that here would just confuse us all and wouldn't help anyone.
On the mining side, this year remains about front end pain in order to realise a stronger more assured future, which given the rise of VRFBs and their potential to protect/strengthen the vanadium price, is in my opinion much more secure than many are prepared to trust.
At any point in time, the energy side of the business can deliver.
At any point in time, the market will begin to appreciate the efforts on the ground in the mining business and give it more credit for it.
At any point in time, the market will begin to appreciate that VRFBs are real and will start to look around for the supplies that are going to feed into them.
Finally, strong profitability looks good to come through in 2022, which opens up new avenues for BMN. It is also the year that the electrolyte plant comes online, which means those mining profits really are a minimum standard because there's clearly stronger returns to be had through enhancing the products of both Vametco/Vanchem.
Right now it's perhaps painful to watch for some shareholders but once BMN starts to demonstrate it is moving towards its goals, then sentiment towards them will change.
$35 vanadium is being achieved right now. More may be about to come but whats important is that $35 vanadium looks like a good long term minimum standard and as BMN expands as purely a miner, they can be very profitable at that level, with everything else treated as a complete bonus on top.
1/2
Having revisited my exercise and my notes, I have the following figures for Vametco,
At 2,850 mtV in 2021 (top end of guidance I would add), I have Vametco total cash cost running at c. $28 per kg. So at a year average $35 per kg achieved sales, the operation would be making c. $20m pre-tax profits - sales commissions.
I don't expect the company to be paying much tax in 2021 due to losses made in 2020 and the fact that the refurbishment costs of both operations, should be tax-deductible under S.A. tax 12I law (see here. Extended to 2020).
https://www.exceed.co.za/section-12i-tax-allowance-incentive-12i-tai/
At 3,200 mtV, I have Vametco total cash cost-reducing to c. $25.70 per kg. That increases profitability to c. $30m based on adjustments made to the same 2021 cost parameters. These being base case $21.50 per kg C1 production cost and a ZAR 14.90 exchange rate.
At 4,200 mtV, I have the total cash cost-reducing to c. $22.30 per kg, meaning pre-tax profits would increase to c. $53.5m.
This is based on my assessment of the H1 2020 total cash costs and 2019 administrative expenses and is generally conservative in its approach. Additionally, I have assumed 30% of any percentage increase in production may be deducted from the overall C1 production cost.
Example. C1 cash cost for 2021 currently running at $21.50 per kg (ZAR 14.90) for 2,850 mtV production.
An increase to 3,200 mtV constitutes a 12.3% increase in production. I have therefore deducted c. 3.70% from the C1 cost.
I arrived at this figure by assessing the difference between Q2 2019 and Q4 2019 production and associated C1 costs.
There we see that an 18.6% increase in production, delivered a 5.4% reduction in the production cost when adjusted for the small difference in the ZAR exchange rate.
Vanchem
Over at Vanchem, I have 2021 production at top end of guidance (1,500 mtV) achieving a total cash cost of c. $32.50 per kg. So at c. $35 average vanadium prices, it can contribute c. $3.75m this year.
At its intended first expansion of 2,600 mtV, I have total cash cost-reducing to $30.50 per kg. Meaning pr-tax profits there should increase to c. $11.7m.
Again, very much focused on being conservative with the numbers, so very achievable.
At Vanchem 3,200 mtV + Vanchem 2,600 mtV, which should come during 2022, we are talking c. $42m in pre-tax profits.
At Vanchem 4,200 mtV + Vanchem 2,600 mtV, we are talking c. $65m in pre-tax profits.
These figures will need to be re-visited as we go along.
IMPORTANT
It is based purely on the mining business selling vanadium products on an mtV cost basis.
It does not allow for any synergies in production, which will undoubtedly come through this year and beyond.
It doesn't allow for any other areas of the business or value-added downstream sales.
It is based purely on a future calculated against a recent past, which isn't entirely fair but creates a natural buffer.
I don't know about "significant profit increase" (a lot of money is being invested by BMN this year) but as the year develops, we should see significant cost improvement. On the mining side at least, I believe the market is looking for this comfort. To believe that BMN management can deliver on their promises and drive production significantly up and costs significantly down.
I think FM gave away his awareness towards this, in that Q4 analyst call.
It all starts with the latest 35-day shutdown and how the plant performs post that. As the year develops, we should see more and more confidence grow in the performance. So as long as the V price behaves, which it should, then recognition of the company's efforts and what it means for the future should start to be factored in. If vanadium prices push on, then things get even more interesting as the two fundamentals then combine.
As support to all this, the Q4 2019 report demonstrates what Vametco is capable of.
Production in that quarter was 880 mtV (remember H2 is always stronger due to maintenance, rainy seasons etc).
The production cost was ZAR 223.4, which equated to $15.20 per kg, which was a ZAR/$ exchange of 14.70. So close to what we have this year. So not far below the calculation s that I have shared in my series of posts.
At some point this year, assuming all goes well, Vametco production costs should be pushing that sort of level once more. the ZAR/$ exchange rate is important and must be monitored but that's the general direction, once +3,000 mtV is secured, and the plan is to go much higher.
Of course, the rand can go the other way also and helps things further. Additionally, the strengthening in the Rand is a direct reflection of the weakened dollar, which to date has yet to show itself in vanadium prices, which are dollar denominated. So potentially something has to give there also, which I remain convinced it will.
https://www.lse.co.uk/rns/BMN/full-year-2019-and-q4-2019-operational-update-w1ncywrmhl6oexg.html
Hi Gambitxjs,
It's complicated but in essence, if we take the H1 2020 figures at their word then essentially yes.
Core production C1 cost was $17.20 at ZAR 16.60 / $ at 1,218 mtV produced. Vametco only.
This year the Rand has strengthened and we are at YTD ZAR 14.90. So we need to adjust to c. $19 per kg against that one parameter.
If FY production was double H1 2020, then we are talking 2,436 mtV.
That means 1% = 24.36 mtV.
400 mtV/24.36 = 16.40%
So a revised $19 per kg C1 production cost, should (in very simple terms) reduce by 16.40%. So $19 becomes $3 per kg.
It's important to employ the C1 production cost because that is a fully Rand denominated cost. The other costs, such as sales and distribution, which aren't fully Rand denominated and so complicate things a tad.
Of course, things like investment and expansion of the plant, plus other areas/demands within the business, will undoubtedly skew things but what we are trying to do is establish how mean and lean the operation will be, once each stage of work completes.
Hope that helps.
I would like to repeat something because it likely got lost in all the detail.
"In 2020, a fully operational Vametco with a completed kiln off-gas project under its belt was deemed capable of delivering ave. c 3,150 mtV. De-bottlenecking and an extended shutdown should only add to that capability."
It's important to stress that said kiln off-gas project (which again I remind us all was designed to recover the 1 month lost to the Covid shutdown, so is a production enhancer), was originally planned to be completed in H1 2020.
"Commissioning is planned to be completed during H1 2020." (RNS 30th Jan 2020). So in delivering that ave. 3,150 mtV, was supposed to contribute at least 6 months to the plant production.
This year, apart from the 35-day shutdown, it will be contributing for c. 11 months and yet FY guidance is only c. 100 mtV above what was achieved in 2020. I don't buy it. Especially when the actual 35-day shutdown is also supposed to be adding to production, a point FM indicated towards in that Q4 analysts call, when asked about the phase 3 Vametco expansion.
So either Vametco is going to beat its guidance this year, which means costs are already coming down and profitability will be up or, next yea guidance is going to be markedly higher than 2021 because that's what the wording strongly suggests.
2/2
However, what's also important to appreciate is that those costs were against a Vametoc operation running at c. 2,436 mtV.
What we are talking about in 2021, should be minimum top-end guidance of 2,850 mtV with at least several hundred more mtV to come next year.
So on a basic production cost level ($17.20 per kg H1 2020), when employing the 2,850 mtV figure, we are talking a c. 16.5% improvement meaning on a like for like basis the production C1 cost drops to c. $14.40 per kg. An improvement of around $2.80 per kg.
What that does is take the up to date figure of $26.40 per kg (defined by employing the 2021 YTD ave. Rand/dollar exchange of 14.90) and deducts $2.80, giving a revised Vametco total cash cost of c. $23.60 per kg at Vametco production of 2,850 mtV.
From that figure must then be deducted the costs of Covid, which are clearly marked under note 4 of the Vametco interims but I'll leave that in as a nice to have.
Now the above is not a concrete figure but it's certainly a strong one, given that it's based on the most recent figures from Vametco.
The higher that Vametco production goes above the 2,850 mtV base case, the better that the total cash cost figure becomes.
This is just one example at Vametco. I am of course abundantly aware that Vanchem is likely a different story right now but there's only so much one can deal with at any one time.
What this example is designed to do is demonstrate just how effective, expanded and assured production at Vametco can be and what it can do for their production profile.
Next year we should a Vametco that delivers upwards of 3,200 mtV or more. That means in theory another minimum $2.40 per kg could be removed from that C1 production cost, pushing Vametco's total cash cost down close to $21 per kg.
That's 3,200 mtV. Vametco is fully funded for 4,200 mtV. So another 1,000mtV of cost reduction to come.
Again it is always more complicated than what I have described but the essence of what I am explaining is certainly true.
The majority of the pain that needs to be felt to start to realise these sorts of results will come in H1 this year. H2 should be a completely different story and will lay the foundations for what 2022 and beyond can bring.
The same applies to Vanchem be it that its path is slightly different but the end result should be the same.
Patience is required to see this through but it's truly about implementation only.
A BMN delivering the sorts of total cash costs I have explained, in even a $35 per kg environment, is going to do very well indeed, and that's only its mining results nothing else.
I hope that I didn't lose you in all of that.
1/2
Afternoon everyone,
Something that may be of interest to some.
BMN FY2020 guidance (RNS 30th Jan), so prior to Covid.
"Expected to produce between 3,000 mtV and 3,200 mtV, a 6 per cent to 13 per cent increase relative to FY2019, with volumes weighted towards H2 2020."
Interims update dated 30th Sept 2020 ;
"Among those impacted was the timing of the commissioning of the Kiln-Off Gas project at Vametco, which was a key part of our ability to catch up on the lost month of production earlier in the year and meet our original guidance for 2020."
and ;
"we halted production at Vametco and Vanchem for almost a full month under the South African government's lockdown measures imposed in late March 2020, followed by a ramp-up towards previous production levels."
From 8th Feb 2021 RNS update ;
Vametco "12M 2020 production in the form of Nitrovan and Ferrovanadium was 2,654 mtV."
Furthermore,
"Q4 2020 production of 703 mtV was 20 per cent below Q4 2019 (880 mtV) due to heavy rainfall affecting overall throughput, incidents at the shaft furnaces due to Eskom power failures and commissioning issues at the new kiln off-gas which have been resolved."
In 2020 Vametco was supposed to conduct a 10-day maintenance programme but in the end, this was swallowed up by the enforced shutdown. Still, Vametco lost an additional c. 20 days + it underwent a ramp-up period and Q4 suffered from a multitude of one-off events but also commissioning issues with the very kiln off-gas project that was supposed to give the plant the "ability to catch up on the lost month of production."
FY Vametco guidance for 2021 with a planned 35-day shutdown ( including de-bottlenecking) is between 2,750 mtV and 2,850 mtV, which at the lower end sits just 100 mtV above what was achieved in that interruption riddled 2020. A year that saw a c. 30-day full shutdown, a subsequent ramp-up and a heavily interrupted Q4.
This year, all being well, the kiln off-gas is doing the full job it was intended to do and that 35-day programme delivers the desired de-bottlenecking and added production, which befits such an extended shutdown.
CEO Mojapelo stated in the Q4 analysts call, his awareness that BMN needed to start delivering on its production guidance and that this year was about under-promising and overachieving.
In 2020, a fully operational Vametco with a completed kiln off-gas project under its belt was deemed capable of delivering ave. c 3,150 mtV. De-bottlenecking and an extended shutdown should only add to that capability.
Why is that important?
In the 2020 interims, Vametco demonstrated total cash costs of $23.90 per kg. This cost "excludes depreciation, movements in finished goods inventories and sales commissions." only. So essentially their cost to operate.
That cost was at ZAR 16.60. YTD we are at c. 14.90, meaning that the overall cost is closer to $26.40 per kg.
Thanks everyone. Really appreciate the positive feedback.
One other thing worth chewing over, during the long weekend, is that said 25.25% indirect ownership in Enerox, makes BMN a 50.5% (so majority) owner of VRFB Holdings Ltd.
A rather broad based business title don't you think?
Everything happens for a reason. There's a reason for the title and a reason for being majority owners, just like their deal with the IDC, one might say.
@DarrylJ
From the 8th Feb RNS ;
"§ Enerox GmbH
In Q3 2020, the Company successfully completed the acquisition by Enerox Holdings Limited ("EHL") of a further 65.1 per cent of the share capital of Enerox. EHL is an investment vehicle formed by a consortium of investors, including Bushveld Energy Limited. On 31 December 2020, EHL owned 100 per cent of Enerox, with Bushveld Energy a minority shareholder in EHL. Under a separate agreement Bushveld secured a right of first refusal to supply vanadium oxide, vanadium electrolyte and vanadium electrolyte rental products to Enerox."
EHL owns 100% of Enerox, not 90%. So BMN owns 25.25% of the whole entity.
Have a lovely weekend everyone.
Excellent post Floyd81 and thank you for sharing.
In all this noise it is being lost.
All 3 BESS tenders now on their system, with deadlines for bids set at just 1 week apart.
Total size = 827MWh
Package 1 has the first deadline at 4th May and according to the World Bank is due to be awarded by 8th July. Its not unreasonable to expect would the other to follow suit shortly afterwards.
So July is shaping up to be a big month in S.A. and perhaps even in BMNs world.
c. 3 months and counting.
The tender document states ;
"cumulative capacity of not less than 60MW and each contract of not less than 20MW substantially completed within the last 7 (seven) years, and that are similar to the proposed Plant and installation."
I simply can't see how Enerox can be included. Plus if they were, then why ask Rongke Power to step in and build a replacement battery at Eskom Rosherville and not Enerox?
Horse for courses in my view and it surely makes sense to partner with the biggest known player to date, when chasing Eskom and their grid scale projects.
My view only.
services."
Hi Alfacomp,
You are absolutely right the document was written in 2019 and so may not 100% apply to developments achieved by BMN since then.
The key reason I highlighted it was because it demonstrates clear BMN interest in the project and a link to their partners. Since then Unienergy have fallen away and been replaced by Rongke Power, so one does have to make a small leap of faith, over to that new relationship. Given they are installing an updated battery at Eskom, this involvement was heavily indicated towards, so shouldn't be an entire new surprise.
As explained in this updated set of tweets, BMn really has to partner with Rongke because Enerox simply cannot meet the criteria for JV members and without a big player like Rongke, BMN/BE would also be struggling to meet, what are stringent suitability criteria. Infact BMN themselves potentially still are but i suspect they will find a way around this. I accept that other plans or approaches may be afoot but right now, I cannot see that Enerox are big enough or experienced enough, to take part in this tender with BMN.
Where I believe they come in is on the mini-grid roll out and future contracts of this sort, which is another potentially very strong contract source for BMN and their products.
https://twitter.com/BigBiteNow/status/1376845501019140102?s=20