Member Info for BigBiteNow

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Good morning all.
In order to get the right perspective on the impact of the industrial action, it is important to analyze the potential impact on the profitability of BMN.
In H1 Vametco achieved 1,360 mtv of production but sold 1403 mtv at $30,190 in EBITDA per mtv.
That’s around £18.5m of attributable EBITDA to BMN. At 70% conversion that would be circa £13m in profit.
The current guidance for the full year is 2,850 – 3,000 mtv. That means the company (prior to the strike) were planning to produce a minimum of 1,490 mtv but up to 1,640 mtv.
If we ignore those figures for the time being and simply say that Vametco in H2 will produce and sell exactly the same as H1, so 1,403 mtv. Furthermore, the production will be shared exactly between the 2 quarters, despite the ramping up of production into Q4, which is clearly demonstrating stronger prices.
That equates to 701 mtv per quarter.
Now within those H1 numbers one can calculate what Q2 achieved. The result is that the achieved sale price was $69,370 with EBITDA at $36,900 per mtv. That’s 53.2% conversion of revenues into EBITDA.
If we go 1 step further and deduct the H2 figures from the combined H1 results, then we have Q1 average price of $51,545 and $22,875 in EBITDA.
That therefore declares that the $17,825 uplift in price between Q1 and Q2, produced $14,025 more in EBITDA, which is 78.7% conversion.
Q3 has achieved an average mid price of around $78,500, which at 78.7% conversion is an additional $7,185 in EBITDA.
As per my post yesterday, Q4 is going to demonstrate its potential with the first reports of last Friday’s prices. It looks very much like we will start the quarter at circa $84 a kg. That’s very strong indeed. Therefore, average prices for the quarter are more than capable of reaching $90.
What that figure mean is that EBITDA at 78.5% conversion will increase by a further $9,000 per mtv.
Therefore, we have at 1,403 mtv in H2 at
Q3 = 701 x ($36,900 + $7,185) = $30.9m and ;
Q4 = 701 x ($36,900 + $7,185 + $9,000) = $37.2m
That therefore equates to H2 total EBITDA of $68.1m against $42.35m in H1. That is a 60% increase in EBITDA, and all Vametco need do is achieve the same production/sales that H1 did.
1,403 mtv over 26 weeks equates to 54 mtv per week. Even if Vametco hits it’s minimum guidance of 2,850 mtv, then there is a week’s worth of float for the industrial action before anything is affected. If they hit the middle point of that guidance, 2,925 mtv, then they have 2.5 weeks of float. And it should be remembered that said guidance includes the previous action from Q3.
But then let us not forget, that none of these figures factor in the weakened Rand. The H1 average was ZAR 12.3, whilst the current H2 average is 13.80 and rising. That’s a 12% difference that goes straight to the bottom line, but is float against the numbers calculated above.

It is for me compelling that on 23rd May John Wardle took 395,000 shares at 20.25p. For all the debate about director performance going missing at Amer, Mr Wardle is the man that should know the most regarding actual performance, be it workovers, profitabaility, drilling, etc etc. 23rd May is just 5 or so weeks short of the end of H1.

Nobody throws away the best part of £80,000 just to prove a point, so for me its a telling indicator of what Mr Wardle believes is still good value here.

I expect some good numbers this week. Whether they will be enough to shake Mr Harbour out completely is debatable, but they should send him well on his way, and once he the drag he has created is gone, then things should get very interesting around here, particularly if that first well comes in.

I appreciate that the strike at Vametco is taking centre stage right now, as it should be. It requires a speedy but fair outcome, a demonstration that the managemet of both BMN and Vametco have control of the situation, and the market needs to be informed immediately that said outcome is known.

It is however a short term issue that is playing out against far stronger medium and long term fundamentals.

For me, a far greater and perhaps more telling piece of market news next week will be the price of FeV. The SP Angel report of last Thursday, quoted MetalBulletin as saying that European prices had gained $3 per kg by Wednesday of that week.

There is a further report to come out on Friday. If that report confirms not only that rise but a further gain also, then we have not only a new yearly high but also what could potentially be one of the largest weekly gains of the year, and it would be coming off a base of nearly $81. What that would then mean for the coming weeks would for me be most telling.

So whilst the industrial actions will not doubt be a topic of much debate, one should not lose focus on those FeV prices, because it is they that will ultimately decide the true success of BMN, not the workers of Vametco.

The market is a most interesting animal isn’t it just.

Whilst I am not delighted with the content of the RNS, not am I too concerned right now.

Let’s assume Vametco loses a week of production through this action. At my example 825 mtv Q4 production rate that would be circa 63 mtv. Not ideal and clearly a negative be it temporary. Market reaction, a 20% drop in SP.

However, the other big news of the week was that FeV prices rose by $3 per kg. At 825 mtv that equates to an additional $2.48m in revenue, which is the equivalent of 30 additional mtv at $83.70 per kg sold. Market reaction, nothing.

Like I say an interesting animal.

@pb940 if that statement is true then things are going to start moving a lot faster than perhaps is thus far appreciated.

That’s a $3 jump from last friday’s Mid price in just 3 trading days. Wow!

@Alfacomp yes indeed, sharp eyes as usual. I did spot that immediately after posting but as the total still remained slightly under the H1 total ($785 x 825 mtv = $648,000 + $41.25m) at $41.9m against H1 $42.36m, I thought it best not to revisit.

The key for me is that Q4 highly likely will exceed H1, which will demonstrate substantial progress in H2 against H1, thus making the current SP position somewhat ludicrous, even with heavy discounts to cover market ignorance.

So as discussed relentlessly here, it starting to look very much like the next move north in Vanadium Prices is now upon us.

As a clear indicator of what that means for Vametco and BMN shareholders I would share this.

Our starting mid price point is $80.70. However, this week is week 1 of 13 in Q4, and we are already seeing prices advance. So I will set end of week 1 as a very attainable $81.50 per kg. I will suppose that over the course of the following 12 weeks, the average price levels off at $86 per kg. This allows for a 2-3 week period to reach that level and then a strike north to around about a $90 high. So not too great a stretch given where we are and the market dynamics in play.

Appreciating the fact that phase 2 is still bedding in, Q4 should given the time frames be demonstrating full operational capacity. However, despite my own belief that Q4 will push hard against its phase 2 937 mtv capacity, I will allow 825 mtv or 88% nameplate capacity for Q4.

I have already demonstrated in previous posts that at $78.50 per kg, the EBITDA rate is 57% with 78.5% of the uplift from $60,800 to $78,500 concerted into EBITDA. That’s a very solid figure and I am happy with it.

If I maintain the 78.5% conversion for the $6,500 uplift to $86 from $78.50, so no further premium be it limited, then Vametco effectively reaches EBITDA of $50,000 per mtv.

At 825 mtv Vametco will produce $41.25m in EBITDA. H1 produced $42.36m. So just short it seems.

However, we must then factor in the exchange rate. H2 right now sits at ZAR 13.77 to the dollar. But as i said yesterday the Rand has all sorts of headwinds this year, including the dollar and a technical recession to deal with. My range was therefore 14-14.50 per dollar.

If we just employ the lowest part of that range, so again leaving a healthy safety margin in place, then even at the same H1 average cost per kg of ZAR 248 (remember the H2 guidance is ZAR 240-250 and Q3 will likely lean on that more than Q4 due to anticipated lower volume), then we have savings of $2,450 per mtv in Q4.

If as yesterday I employ the 78.5% conversion rate, then I can add another $1.59m in EBITDA to Q4. Thus total EBITDA in Q4 reaches $42.84m against total H1 EBITDA of $42.36m

So at an average price of just $86 per kg, at 825 mtv and a ZAR rate of 14 per dollar, Q4 will surpass everything that H1 achieved. It is for the individual to decide how likely it is that those numbers can be achieved, but for me all 3 look easily achievable such that the actual result has every chance of leaving H1 in its well and truly in its rear view mirror.

Some food for thought if nothing else. DYOR as always.

Apologies one and all, in my excitement I have served you a curve ball. It would be a $3.92m - $4.8m saving not $2.45m etc as posted below.

I had read my notes wrong.

It’s quite an experience watching events unfold here these last few days. This is screaming buy on every fundamental one looks at. I am personally rather excited by the pullback in SP because it sets things up very strongly für the next push north. The reasons for it I cannot clearly define but then I don’t need to.

H2 ZAR/Dollar exchange rate sits at an average of 13.77 but with the recent collapse in the Rand (currently trading at 15.60), I would be confident of seeing an outcome for H2 of between 14-14.50. At a very achievable 1,600 mtv in H2, that equates to a $2,450 - $3,000 saving per mtv produced. That’s $2.45m - $3m saving for H2 just on the fluctuations in the exchange rate.

At $80,000 per mtv and employing my previous calculation of 56% realised EBITDA at $80,000 per mtv ($45,000 per mtv), that is the equivalent of between 87 - 107 additional sales of mtv in H2, just on the drop in Rand from 12.3 to 14-14.50. And I am being deliberately conservative in my use of the EBITDA percentage for what are front end cost savings.

Fundamentals fundamentals fundamentals.

@Cindercone I do not have a lot of time left this evening so perhaps i can answer more fully tomorrow.

What i will say is that I believe UET will be falling over themselves to sign a binding agreement with BE, though they are for me clearly a closer partner than the simple MOU currnetly depicts.

UET have very strong backers and partner sin China, but still with BE and their standing in SA and their electrolyte plant, they offer a very lucrative access to SA, Eskom and Southern Africa. So I see a veyr willing partner indeed.

Until tomorrow.

TO further enforce the points raised in my last post, here are soem very interesting quotes fro m the last Annual Report.

"The new government in South Africa and the renewal of investor confidence has brought encouraging signs that suggests a move towards increased regulatory clarity over the treatment of energy storage, the renewable energy programme and the direction of the country’s energy policy as published in the Department of Energy’s Integrated Resource Plan."

Well we now know that the renewable programme is central to the new IRP, which means the REIPP Programme will continue moving forward. That just leaves the energy storage regulation. However, we have the The IDc :

"The IDC also has important stakeholder linkages with the South African government, regulators, utilities and other key players that are necessary to provide a catalytic stimulus for the energy storage industry as they have for the renewable industry to date"

Furthermore, we have that multi million pound investment from the British government in a clean energy battery storage project. Those projects don't get financed if the regulatory authority isn't on board. Nor does Eskom set up a testing facility for battery storage to find an answer to its 2000MW battery storage shortfall, if it doesn't think it won't get a gree light.

Nor does the SA government sign off a wind and solar led IRP if it isn't aware of the need to integrate thoe renewables with battery storage, particularly when they have stated that they consulted directly with Eskom beforehand. So for me the approval is or will be there when it is needed.

Its merely about proving the technology and proving BE's ability to deliver VRFB projects at scale, which is for me highly likely much further down the road than we are led to believe.

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That therefore means that battery storage is already there, it has made it, it just needs to have time to grow as an industry. If that is then the case then we simply down to price and quality of the product and who can guarantee that the best. A full yintegrated vanadium mining business is very high up on the list of possibles don't you think.

However, all of that is a bonus because BMN is demonstrating clear signs that it is the front runner for the battery storage contracts for Eskom. Why? Because not only do they have a battery in play that will prove its supoerior capabilities against its competition, but its a local battery offering local beneficiation, offering local jobs and the opening up of a brand new and potentially very large local industry driven by the contracts it gains for what is an SOE, oh and it is backed by the government investment organisation The IDC, which has the necessary influence needed in SA.

Given who is now in charge of SA and what he is demonstrating he wants to achieve, that dangling carrot is for me just too irresistable to not be eaten, and their is clear evidence that Ramaphosa is aware of the situation, not only in his words but through the actions of his chosen ministers in both energy and the public enterprises.

Any sort of 'large scale mandates' received from Eskom will open up the industry and the client pipeline for BMN on scale that has never been seen before. BMN will have its regulatory approval without really ever having having had to see it signed off, because Eskom is that approval and its the key to the shop floor.

Not only that, but with The SADC BMN has free trade access to a further 13 countries in Southern Africa, hence BMN's desire to point out the high local content of its batteries. Plus it and its customers has access to the battery at Eskom. So with an eskom endorsement the opportunities in Africa for me will really take off.

So given all of what I have said, the 'punt' as you call it does not exist, because BMN is all of its whole and nothing less. It isn't a budding miner with just decent grades, its a fully operational and expanding producer with some of the best grades in the world, and certainly the biggest resources. That position coupled with the pricing environment makes the 'punt' on BE a free carry, and that's the key.

I wouldn't be backing BE if it didn't have BMN behind it, which is why I don't invest in stand alone VRFB manufacturers, because there is sufficient risk remaining in the industry to warrant taking a safer option and BMN is that option.

To be clear, because I am prone to a word or two here, VRFBs are in my humble opinion going to happen and BE are going to be right at the centre of it all, I am very clear on that and am willing to back it.

And in essence, it all starts with Eskom and those 2000MW.

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@Cindercone I have read this subject, this company to death these last 4 years. There is very little in that time that I haven't digested or read and re-read, such that sometimes it is truly difficult to convey every little detail within these 4 lines.

In essence I am only really so confident because the cumulation of that reading lead sme to believe very strongly that not only are BMN in with a very good chance with BE, but that it has the very best chance of actually leading the chagre on VRFBs and that market penetration.

Firstly, VRFBs are the very best technology for long duration storage. The only things that are currently holding them back is their price and the regulatory authority to employ them at scale. Solve those issues and its down to performance, and the VRFB then wins hands down.

The price has been undermined by the fact that their main component, Vanadium, has very volatile pricing and thus for a long time it has been very difficult for budding VRFB manufacturers to secure it at a consistent and assurred price. That in turn has had a knock on affect to their ability to invest in manufacturing at a scale that enables them to tackle the costs of other elements of the battery, and thus bring the whole cost down to a level that is commercially viable.

What BMN holds with its fully integrated model is the key to unlocking that pricing conundrum. BMN is not only just one of 3 primary vanadium producers, it is the most advanced fully integrated vanadium miner in the world.

It has the largest highest quality resources in the world, it's electrolyte plant is the only one in the southern hemisphere and thus is the most advanced in terms of planning, and its management team are the leaders of Vanitec and chair its Energy Storage Committee.

It is about as a big player as you will find in VRFBs outside of China. Therefore, if anybody has the means to answer the questions about secured supply and pricing, then its BMN and I am absolutely certain that they have. That therefore just leaves the regulatrory issue.

On the regulatory side of things, since I have been following the energy storage industry, I have seen its world exposure multiply on an eye opening scale. Back even in 2014/15 it was very difficult to find projects, articles, information on energy storage. Now they are everywhere. With that acceptance comes government and regulatory recognition, such that we see an announcement by the PM of Great Britain committing to a multi million pound investent in battery storage. An unimaginable development 3 years ago.That change has happened in just 3.5 years. So just imagine what the next 3.5 years hold for this industry.

As discussed last week, we now have confirmation of the prices for w/e 31.08.2018. Average European FeV mid price was $80.70 per kg giving a Q3 average of $78.70. The mid price has sat above $80 for 9 of the 13 week quarter range and at $80.70 has dropped just $1.30 from its peak. A position that bodes very well for the rest of the year. Note the FeV price picked up slightly last week. It will be interesting to see if there is a more sizable move this week. For now I have stopped recording the US price because there is no evidence in the H1 update that the premium is being enjoyed, though I do find that a little strange. For the record, the US Q3 average stood at $83.10 per kg, with the mid price not falling below $86 for the last 6 weeks. Incredible strength all round. https://www.vanadiumprice.com/mb-non-ferrous-price-changes-31-08-noble-alloys-bulk-alloys-ores/

Remember H1 v H2 to date

FeV price $60,800 v $78,500 – 29% increase and rising.

Rand 12.3 v 13.77 – 12% increase and rising.

If BMN do nothing but achieve the same unit production cost in H2 (ZAR 248 per kg), then costs per mtv reduce from $20,160 to $18,000.

If BMN do nothing but achieve the same units sold in H2 (1,403 mtv), then Vametco revenues increase by $25m and EBITDA increases by around $13,900 per mtv or nearly 50%.

That means that as it stands every piece of production expansion, cost saving, mine development, Brits, Mokopone, brownfield, Lemur, BE etc etc is a free carry against where we stand today.

However, one must ask oneself , how likely is it that Vametco will mit add phase 2 production in H2. How likely is it that FeV prices will average at $78.50 per kg in H2, or that the Rand will hold its average at 13.77. Remember the current price is ZAR 15.10.

I am aware there are PR issues, they are the same ones we have periodically discussed here here last 3-4 years. They should be most definitely be noted, they should most definitely be raised with the company, and they should continue to be monitored in the future. But given the sheer volume and size of the developments that are to come here, given the progress to date and what the BOD has set this company up to achieve, they should not be allowed to disproportionately misrepresent or undermine the investment case.

The achievements thus far are but a first step in what is s very bright and big future for this company. Vametco is but a springboard (be it a very profitable one) to the real prize that is VRFB market penetration. With that comes a whole host of opportunities for all of BMN’s assets. Remember most Vanadium miners are simply happy to be gearing up to mine and take advantage of the ballooning V prices. Many don’t see that the real money to be made is in the driving if VRFBs and what it can do for those mines. That an integrated model can deliver market protection and deliver far greater returns than simply digging up V as fast as one can.

This investment story is highly likely the greatest I will ever witness. So for all of those reasons this BOD deserves some slack, be it with a slightly more watchful eye than perhaps before, because as it stands, all of that is going to be achieved in the not too distant future,

Good morning.



Here is a very interesting and informative piece on the political situation in SA. It takes the points I made last week further, in that it depicts the current front line in the political control for SA.

I have to say I agree wholeheartedly with the view point that Ramaphosa has in the last few weeks forced some blows to those that would oppose his will to lead the ANC and SA.

The removal of Mahumapelo from the North West Province is a case in point but more so it was the NEC’s decision to disband his entire provincial executive committee, and that it came with barely a whimper from those that would oppose it, that demonstrates that the power shift just took another giant leap towards the Ramaphosa camp.

I would add that I was also of the mind that Ramaphosa had perhaps blown out his initial fanfare and was looking under pressure in areas beyond those connected to the state owned enterprises (see thread below). However, these last few weeks have demonstrated otherwise.

Ramaphosa is playing the long game and a slower game, but he is allowing the previous actions of those that he would depose, to spearhead his cause against them. There is no better example of this than with the Zondo Commission, which is already painting Zuma and his chosen ministers in a very bad light indeed. In the meantime, he is taking control of those entities that will drive a stronger economy, because he knows in the end it will always come down to jobs and how much the average South African has in his or her pocket. It is a simple solution, but one that the previous regime completely forgot through its own greed.

All of this bodes well for the likes of BMN. We talk here about PE ratios and what is fair value, but the reality is there will always be a discount due to the political environment and the past actions of the Zuma era. A stronger more assured and trustworthy SA leadership with defined and measurable policies, be it perhaps not always as we would ideally want them, will nevertheless enable companies such as BMN to realize their true worth.

Ramaphosa at this juncture, appears very much to be playing a good game of thrones. He is winning the battle and with it he is driving an investor and business friendly SA forward. That alone should do more for BMN’s standing in the investment community than any other fundamental bar perhaps its commodity pricing. So its well worth following closely. But as I say Ramaphosa is definitely winning and so if one believes that that change is taking place, then BMN as an investment becomes a whole lot stronger, because the biggest risk associated with its success is being slowly but systematically removed from the table.

https://www.dailymaverick.co.za/article/2018-09-02-a-few-good-weeks-see-ramaphosas-ever-tighter-grip-on-power/amp/?__twitter_impression=true

@Choppy I have to disagree with you there i’m afraid. The perceived delays to the drilling campaign has been a sticking point with investors. I have bought in first and foremost because of the much improved production and cash net backs position. However, I did hold back somewhat because I wanted to see that first N Sands spud confirmed because it is delayed and it is Amer led, and it opens up 2-3 more potential follow on drills. That said it wouldn’t have been that late if the rig hadn’t been employed for the PUT 22 repairs.

The other 2 drills Indico 1 and Mirraparriba 1 were communicated as spudding in Q3, so they are still, as far as I am concerned, until I hear otherwise, still on Programme.

What the spudding of and therefore commencement of the N Sands drilling does, is take that delay argument off the table. It’s now time to look forward and drive the drilling results along side the August production update and H1 results. Both of which should show strong results.

So whilst this announcement may not provide an immediate impact on the SP, it will in my opinion in the coming weeks, add strength to the reaction to the figures that will be released. So for that reason I am adding more to my position because it’s far too undervalued even with the perceived problematic history.

I am aware that there is long standing discontent with the BOD here, so i will tread carefully. Having been invested here before, I am aware of much of the history if not all.

What I simply wanted to say was that from where I am sitting there is much to like about the progress here, even if the drill has yet to show itself.

The 2018 interims will be released next month and they will likely be compared to the same stage last year.

As it stands, despite the drops in production in May and June, the 6 monthly average is 5,894 bopd. That is a 31.7% improvement on 2017’s 4,475 bopd.

Furthermore, taking a comparison of the average price for Brent in 2017 $54,25 and the price achieved by Amerisur $50, we see that the discount was around 7.8%. Whilst such a calculation isn’t without flaws, it is worthy of employing to determine an outcome for H1 2018.
The average price of Brent for H1 this year was around $68, meaning Amerisur likely has achieved around $63 per barrel, compared to a H1 2017 average price of $47.30.

That again is an improvement of circa 33%. These two combined are going to demonstrate that Amerisur has made significant strides on it 2017 performance. At $18.60 costs, we are talking about over $47m in cash netbacks for H1 2018. That is a whopping 102% increase on H1 2017’s $23.95m.Whilst the focus on the drilling campaign is relevant and the increase to reserves a critical step, the actual figures as they stand are compelling, despite the focus on management trust and the drill bit.

The drilling campaign will start, perhaps later than wished for but it will happen. So the reserves are highly likely going to rise at some point because the oil is there. In the meantime we have a greatly undervalued, unloved but successful business, which in my view makes it an excellent buying opportunity, despite the history.

The other point worth reminding ourselves about here, is that Q3 is about to deliver circa $78.50 per kg. That’s a 13.75% jump on Q2. If Q3 also delivers a healthy improvement in product sold, then the EBITDA is going to demonstrate strong continuos improvement.

Q4 may then be the home run, because although it may not shift the yearly average too much, it has the potential to demonstrate a further 10-15% rise in prices, which coupled with a highly likely much stronger production/sales figure, should deliver a very healthy start to 2019.

@Raz10 the actual stand is that as of tomorrow, Friday 31st August Q3 is effectively over in terms of prices and the yearly average is a little over $67 per kg.

Q4 starts on Monday and even if prices just sit still then the average price for the year will be around $70 for the year. However, as we all know there is potential for another push north. That said it needs to move considerably north to make a large impact on the yearly figure.

However, firstly a $70 yearly average is a fantastic result,m. Secondly, a rise through Q4 gives 2019 and a fully functioning 3,750 mtv facility, a even stronger bounce into next year, which will start around about the start of Dec.

Though we are discussing the finer lines of what is a dream like reality. Bearing in mind when prices were $13 per kg, many of us here were dreaming about one day seeing $35.

An amazing result whatever happens in Q4.