I am trying to to answers as many posters as possible as accurately as possible but clearly and understandably my thoughts have stirred the debate, which for me has got to be healthy.
@Endion I believe that nowhere in any of my posts today have I said that BMN is fairly valued. My concerns have been over the rhetoric that the current valuation is considerably below current 'fair value.' Again, I am choosing my words very carefully here because stating short term negatives exist, naturally attracts detailed analysis of the words being employed.
Several posters have employed 2018 profits as the basis for the current valuation but the market is already asking a lot more of companies because the macro environment has changed. Until BMN derives and can demonstrate enough of its business comes from energy storage contracts and/or the market sees significant uplift in vanadium sales to energy storage, it will be judged as a mining business and its markets will be considered to be cyclical.
So for me BMN isn't being valued on 2018 it is being valued on what the market expects 2019 to achieve given the current vanadium price and what that means for the foreseeable future. It is unfortunate but it is the reality. But as I keep saying it is short term and as I posted last week, BMN have enough in the tank to ensure that their plans can be realised such that the driving force of this story and the investment in it, remains in tact, and that for me is all that truly matters and what I focus on when reviewing my reasons for being here and remaining here.
@Pdub Noted and your position is fully respected. This is a place to share opinions and debate them robustly. The moment it stops being that it usefulness is considerably diminished.
I do not wish to roll out a list of negatives, that was not the point I was trying to make.
I have been here for 6 years. I have debated with the best and the worst of what this BB has to offer for the last 4 years of that time, you included. I have led the fight against the very worst this BB has seen and defended my investment to the hilt, dedicating many hours of my time and research without question and I did it because the quality of the management team and this story warranted it but also because I know that a great many investors that visit these BBs simply do not have the time that I had/have and so rely on accurate information that can be traced back through provided documentation.
I am not here today wishing to dismantle all of that effort. Nor have any of my posts being directed at questioning that long term story. My words are very clear on that.
I am talking about the cycles of this story and our ability to recognise when the risk has increased and our willingness to accept that and talk about it openly, and in doing so supporting all investors that join us here with their decisions. The BB is convinced that it is performing this role well. I am here to say that I do not agree. Hence the debate.
@Sanchez599 Duly noted. My response was designed to capture a more general feel I have been getting from reading the BB these last few months, which I should have explained more clearly.
My last response to Ophidian plus my other subsequent posts may help in explaining my current thoughts as to why the drop in valuation has been so severe and why that does not necessarily mean that the pain will not extend further than we would all like to see
I would stress though that this is just my opinion shared on a BB with a view to encouraging responses and opinions that may well help mould my view point. However, I will say this, if we aren't prepared to accept that this potential future pain is there, that it is possible and there is good reason for it, then we risk feeding the negative narrative even more because when the pain comes the questions start being asked, how can this be happening?
I therefore disagree with your assessment that "LTH's regularly discuss all facets of BMN and being confident of the end game as most of us are does indeed mean there is no fear around these discussions."
The perception may be there that they are fully discussed but in my view the reality is something else. Fears may not exist because the reality of their impact be it potential or real are sometimes avoided or talked down. That is natural and I have done it myself. No investor is perfect, no one is immune to ignoring these things at times because it suits our narrative for being invested.
I repeat my earlier message. In my opinion if an investor here is long on this story then they have in my opinion an exceptional investment that whilst carrying risk, has the potential to deliver really big returns. However, if investors are jumping in here for a shorter term gain then the risk reward is in my opinion right now diminished and one should be careful promoting it as anything else. That said BMN should never be about short term investment. The long game is the story here.
@Ophidian In terms of 2015 and the opportunity I agree wholeheartedly. There is potentially massive upside here in what is a really unique story.
On the "value of the assets and amount of cash being produced" I am not sure but am happy to debate it through here and take on board others opinion. If it then adjusts my current beliefs then great, I welcome that.
I would re-iterate that the future BMN that I am invested in is a completely different beast to the one we see today and the shorter terms influences are for me just that, short term. There are longer term risks, which I am mindful of but they too right now do not adjust my long term belief and/or the risk reward is substantial enough to warrant them being carried.
Right now whether we like it or not the majority of the current BMN valuation is based on its ability to generate profits from the mining arm. I do think there is some limited value in there for the energy business but given that we have no financial model to date, it is limited, be it with substantial future uplift when the milestones start to get hit, although it is the financial models that are really going to drive it home. Until that comes it is about belief in the progress delivering a final outcome and the potential being realised.
BMN had a really strong H1 and on that basis is undervalued. However, H2 is unfortunately currently not demonstrating the same outcomes. If vanadium prices rise then that situation changes and so will the valuation here. If we base the metrics on H2 then the valuation, whilst being for light, is not supportive of a valuation substantially north of where we are today.
We also have to remember that right now S.A. based businesses are being discounted due to the political and regulatory situation in S.A. If BMN was operating in a more stable environment then the valuation would be much higher. So for me we have to be a little careful with how we apply traditional metrics.
So even though H1 was strong and the cash position equally so, the value being created is being hampered by the current vanadium price and the discount on S.A.
There are good many catalysts that could land any day that have the ability to alter the situation. Vanadium prices are the obvious one be it they require more time but the really big developments will for me, in the current environment, be on the energy side of the business. However, BMN will need to start demonstrating how these developments affect the bottom line before their impact can truly be felt.
@Sanchez599 I appreciate that there is an element present on this BB that is demonstrating that it is not prepared to see BMN in a positive light. Therefore, LTHs who wish to discuss factors that many would deem negative are perhaps seen as feeding this narrative and perhaps should refrain.
However, in my view all that does is set those LTHs up as an opposing faction that is merely doing the exact same thing in the opposite direction.
BMN is a wonderful story and I am here to see the whole of that story unfold but in doing so we must be prepared to talk about all the ongoing factors along the way, be they 'negative' or 'positive.' If we fail to do this then we are cheating ourselves and those contributors to the BB that either do not have the required knowledge, history, or the time to engage with the fundamentals that make up the BMN story.
The end game here for me is certain and the rewards that come with it substantial, even when debating existing negative influences. Therefore, to openly debate negatives and concerns along the way should not carry fear nor the persons that come with it. They are in the main based around short term events in a cycle that BMN is looking to break out of such that it never plays a strong role ever again. The negative voices do not believe this and are taking advantage of short term negatives to exploit investors fears. However, this is being compounded by the fact that LTHs appear to be refusing to engage with the negatives in a manner that enables them to be removed from the equation. Thus the methods employed feed the problem.
I would make it clear that whilst a great many of us here are still in healthy profits with BMN, a great many others are under water, some heavily. Therefore, whilst the SP may well rise in the coming weeks/months it may not remove much of that pain unless it moves substantially north. As long as those shareholders remain under water they will feel pain. The longer they stay under water the greater that pain will become. That's normal.
My post attempted to respect that position.
Finally, in my opinion one must be careful to expect value to be included for developments that are yet to be fully realised. That we may believe in their future value does not automatically mean that the market will attribute the correct value for them now. BMN have many developments in progress but they are not currently sufficiently developed to allow the market to value them properly. That of course creates opportunity for those that believe but that might not be enough to deliver the returns that investment is expecting.
As I have already said the progress is happening the results will come but right now to say that BMN is hugely undervalued given the current headwinds, is for me incorrect and far more patience is required, which I have described as pain, in order to deliver the rewards we are all ultimately here for.
I would like to add that this drive that BMN have instigated through their desire to support the energy storage market is designed as a trigger for the other components that exist in the VRFB supply chain. Perhaps obvious but well worth repeating again and again.
BMN know that by stabilising and giving certainty to the vanadium input costs they are allowing the VRFB manufacturers that they choose to do business with the opportunity to tackle their own financing and expansion issues, by enabling them to approach their own backers with a far more concrete business case.
This is why BMN are so damn popular at these energy storage conferences because right now they are a beacon of light for an industry that has a very big prize at the end of the tunnel but limited maneuverability to move towards it.
The current argument against VRFBs is not based on the future market size but VRFBs ability to compete with lithium to achieve it.
BMN are delivering the foundations for their corner of the industry in order to allow their chosen VRFB partners to really attack the other input costs into their VRFBs. Hence why BMN has been talking about localised VRFB manufacture in S.A. This in turn should deliver a far more competitive VRFB product that can carve out that share that is currently being questioned.
The beauty of this all is that BMN through BE is the key player in this relationship and thus should hold the best cards at the negotiating table. BMN management play fair and will always relay their desire to support the industry but business is business and any belief that they are not looking to take a dominant position in all of this or that VRFB manufacturers aren't/won't be falling over themselves to do business with BE, in my opinion demonstrates a misunderstanding of what is actually taking place here.
However, as I have indicated several times over the last few months, I believe it is going to take more time for this story, the true BMN business model, to be communicated and that will come through actual demonstrable progress.
Whilst S.A. has delivered BMN key brownfield assets, which have effectively made BMN, it is also acting as a weight on BMN's shoulders and things are taking longer than planned.
So the whole story requires patience and the ability to hold through all the noise and negativity that comes with a growth story that is perceived in some quarters to have lost its shine. However, that shine was actually caused by a short term trend that in the end will demonstrate itself to have delivered a significant portion of the investment that will go on to deliver the greatest parts of this exciting story, faster than anticipated. Its just that the detractors won't appreciate that because they aren't prepared to look deep enough into the investment case and the plans that BMN are trying very hard to execute. The same process was seen during the Vametco acquisition and look how that turned out.
Good morning all,
Firstly, thank you Pdub for your efforts over the weekend in typing up the interview notes. It has saved me and I am sure a great many others a great deal of time.
A key takeaway for me, which really acts as a good reminder to a key discussion I have had recently, is this message that the other key components in the VRFB (see part 4 - electrodes and membrane) can achieve substantial cost reductions once they establish scale. That may be obvious to some but not all.
What BMN are striving to do is abolish the key cost component of vanadium electrolyte, which is historically upto 40% of the total cost of the VRFB when priced at historic pricing levels, which to me is effectively the prices we are seeing in Europe today (So circa $30 per kg FeV).
In order to do this we may find BMN pushing on with the expansion of Vanchem production even when market pricing reflects minimal profitability. A point at which many producers would likely mothball expansion plans. This is because BMN see the need to drive greater supply in order to ensure that the material is there to help capture what is a very significant share of a very large future energy storage market, a market they clearly believe strongly in. Whilst leasing will help eliminate the cost of vanadium in the energy storage market, what it will also do is potentially remove significantly more vanadium from the steel market, which in turn will either push up prices or encourage further substitution.
Some might say that's fine as the energy storage market is big enough to carry the load, but it isn't that simple and the steel market remains a key ingredient in any vanadium producer's mix, particularly when we know that the energy storage market is going to need time to develop (end of next decade is mentioned by MN)
Prior to BMN achieving the acquisition of Vametco I often talked about my belief that the ability to acquire a brownfield asset enabled BMN to move into what I called the inner circle. What that does is remove (to a great extent) the need to rely on vanadium prices to achieve production expansion. Being in the inner circle means when vanadium prices drop significantly, finance isn't automatically removed from the equation and projects do not need to be put on hold.
As the holder of the largest tier 1 assets in the world (the interviewer states "2 of the World's 7 tier 1 Vanadium assets in terms of grade"), backed now by 2 significant brownfield processing assets, BMN has the ability to be the swing producer.
It may well mean there is a little pain to be endured en route. Investment takes time and in a market of lower prices means smaller profits and likely some debt burden along the way. However, for those prepared to be there when it all finally comes together, the end game should be quite something and BMNs position in it all well worth the pain suffered along the way.
@Colt45 Yes very well pointed out although it does raise more questions than answers. The Oak Trust employs the same registered address as Bushveld Minerals and are seemingly now the holder of a considerable number of shares in the company. Whilst it is clearly not down to BMN to ensure these updates are filed in timely manner the outcome does nothing to assist with the removal of the confusion associated with YD, particularly when the buyer of the shares are registered to the same address as BMN.
I also note that the Orange Trust (no mention of Oak Trust) are a major shareholder in ATM.
I would add that whilst the Indico-2 spud does create a rather unique ticking clock scenario in terms of how it may potentially affect the approach of potential bidders, the fact that we have still not had an official offer, means there should still be some way to go before the bid process is concluded.
There were 40 days between the Indico-1 spud and the initial oil column result. There were then just over 3 weeks until the flow rates were confirmed. There may well be a speedy/hurried and successful bid prior to the Indico-2 result but right now the percentages say that Indico-2 will certainly spud and be well on by the time any realistic bids are received/considered/refined. Unless the offer is a good one then for me the BOD would be well within their rights to await the outcome of Indico-2 prior to responding to these bids, whilst fully respecting takeover code prescribed time frames of course. My point being that I believe even with another 3 weeks wait there is every chance of getting close enough to the Indico-2 result to ensure that its outcome is concluded prior to a bid being accepted (said speedy/hurried successful bid respected of course).
There were 6.5 weeks between the Calao-1 drill result and the spud of Sol-1 and 4.5 weeks between the Indico STT result and the Calao-1 spud. However, at the time of the Calao-1 announcement AMER stated that the next drill would be at Indico. Then Nathan Piper in his interview from 17th April stated that further to the analyst conference call (exact date fails me but it was post 9th April Final Results) the next drill would be Sol-1.
So there is an argument there that the Sol-1 spud was perhaps extended by these discussions but its a very loose one at best. Whatever the case ONGC have demonstrated that it takes them on average 5.5 weeks from the end of the last drill until the spud of the next.
It has currently been 1.5 weeks since the Sol-1 update so on that basis my own view is that we are looking at minimum 3 more weeks possibly 4. Perhaps they will turn things around quicker this time but personally I don't see the leopard changing its spots too much. So on the limited information we have had to date we likely have (unfortunately)a while to wait yet for the next spud.
@ColonelDrake In addition to my last response, I would offer the following extract from the I3E Final Results RNS dated 31st May 2019
"On 9 April 2019 the Company announced that it had executed a contract with Dolphin Drilling Limited ("Dolphin) to utilize the Borgland Dolphin semi-submersible drilling rig for a 94-day programme which is due to commence between 15 July and 15 August 2019."
I appreciate that delays can occur but the programme (not drilling programme), which should contain contingencies is designed to take 94 days in full.
Furthermore, the company goes on to state ;
"The drilling commencement window was agreed by the Company and Dolphin to ensure the availability of necessary equipment and to provide adequate preparation time to crew and mobilise the rig from its current mooring location in Norway."
So the rig should be ready if Dolphin have got their dates right but if they haven't then it is they that have bought into the programme and where the emphasis will be to deliver.
@ColonelDrake Perhaps I should have been more specific in my wording, such are the trials and tribulations of attempting to post one's exact view point on these BBs.
The rig mobilization is indeed critical if the estimated spud date drifts too far. However, given that we are still inside the indicated timelines published by the company, it is for me not a concern at this time.
Furthermore, there is no guarantee that weather will delay the drills. As an example I refer back to my house favorite HUR. Back on 9th November 2016 HUR spud the Lincoln well and by 19th December the well was successfully completed. I absolutely 100% respect the fact that the North Sea can be very rough in Winter but I refuse to buy into a problem that right now does not materially exist and where examples can be seen of drills achieved beyond these anticipated cut off dates.
This is particularly true when considering that it is the first 2 drills that are actually key here. L2 delivers phase 1 and the RBL facility. A3 delivers Liberator phase 2 and potentially 40,000 bopd by 2023 even without Serenity. So if worst case scenario Serenity did indeed need to be delayed then it does not stop I3E delivering Liberator in full as planned, and that is more than enough to deliver considerable returns from these levels. Yes the Serenity drill would likely come at a higher cost but by that stage it would be immaterial compared to the revenues being generated from 2020 onwards.
I repeat, I respect the validity of your concerns but not the magnitude at this juncture.
Whilst in the grand scheme of things it really isn't critical as to when the rig actually moves, I would point out that there has been no signal from the rig for the last 12 hours or so, so we actually do not know.
That aside, even with the various current market headwinds we are clearly seeing driven by fears of oversupply and the trade war between the US and China, the current MC for I3E going into a 3 drill campaign of this magnitude and with this sort of chance of success, is simply far too cheap. Yes there may be potentially institutions selling into the rise but in my view the risk reward at these levels will see substantial interest as we move through the spud and up to the first result.
That is because the COS of the first drill when coupled with the fact that it will form the basis for the RBL decision, which in turn guarantees first oil, is such a significant catalyst for value, that the gap between said end value and what we are seeing now is simply too high.
I repeat my previous analysis of HUR, which was valued at £167m (17p a share) at spud of the Lancaster pilot well and £373m (38p a share) on the day the results of the pilot well were announced, and that was in a year when Brent was trading at just $44 a barrel.
One could argue that the appetite for oil stocks is lower than in 2016, one could argue that HUR had a greater initial oil resource to unlock but oil is even after recent shocks still trading some $16 a barrel higher than 2016 going into these drills. Plus I3E require $100m to develop Liberator phase 1, which will reportedly come through an RBL. HUR stated no intention of employing a dilution saving RBL and had a reported development cost of $240m prior to Lancaster pilot drill.
Bear in mind also that HUR issued over 347m (some 55% of the current total shares in issue) new shares to fund their drilling campaign just 2 months prior to the drill commencing at a price of 15p.
Yet after the pilot drill the SP still reached 38p and the company was still valued at £373m.
Even if one applies discount by ignoring the stronger oil environment and the substantially lower development costs and instead presses home any perceived disadvantages that I3E carries, it is still a long drop from £167m to the current £75m (fully diluted) we are seeing given that I3E when fully diluted will have another £27m in the bank and has already offset drill costs until first oil.
In my view I3E is cheap and the institutions know this too and so the sell off will be percentages driven and the demand for shares in the lead up to the pilot drill result will be high because it is a very solid drill with very solid potential and that is always going to be popular.
Lets me be absolutely clear here I am not for one moment saying the right men/women are in charge, I am saying that the quality if the asset and its proximity to a very lucrative gas market mean that I am willing to give the management team some slack because they never had an asset this good under their control.
At these sorts of valuation levels I can afford to do that because the deal when it comes, even if average in its make up, will secure a really good return from here. If its a really good deal and that for me would be 40% plus retained ownership, then the rewards push even higher, and it is that risk reward that I like.
If I could I would have the asset in a more trusted pair of hands but then if that were the case then perhaps I wouldn't be able to buy at circa 4p a share.
As for your second post, I trust CHAR can deliver and well.
@Scotscout My view is that the quarterly update has to be taken at face value or it starts to become far too misleading for a document that is designed to update the market on progress in a clear and concise manner.
Therefore, production and sales in the period are just that and no more, in my view.
In the Q4 production update is very clear that there was a 71 mtV surplus, which means we have had 3 sequential quarters of stockpiling.
I believe I understand your point regarding rolling lag between production and invoiced sales but as i explained in my earlier posts, sales over the same period have been fairly consistent at 586, 584 and 607 mtV, so any lag simply hasn't been accounted for when one considers that actual production were 657, 649 and 742 mtV.
So for me the only thing that could be happening is stockpiling and the sales are indeed what the company is achieving.
I am with you in that some stock may be sold during what is a lengthy maintenance period but that may well be attached to the pricing and how the company feels about selling additional stock at that price. Right now they are fairly consistent with their quarterly sales, which reflects controlled selling, which means any push beyond this is by choice rather than a desire to meet existing client needs.
As Ophidian demonstrated earlier and I concur, Vametco could well deliver 600 mtV of production in Q3 even with a 24 day shutdown because the plant has improved so much. So they may not actually need to dip into additional stocks at all.
As for the invoicing date there are other s here with better knowledge of these things than me so I will leave it to them to answer you if they can.
Yes of course things can go wrong and yes CHAR management is not loved and I recognise and hear that loud and clear but the Lixus licnese is a game changer from these levels, and the risk reward is worth taking on the management angle because the assessment of the management is based on a different set of criteria to the ones now demonstrated by this license award.
@MrJinx With all due respect as a shareholder be it a seemingly reluctant one, you are presenting an unnecessarily negative view point of the Lixus license based on nothing but a hunch and past grievances.
There are a great many discovered off shore assets out there in the world sitting dormant that will go on to be developed by companies that did not make the original discovery. There are a good many valid reasons as to why licenses such as Lixus are given up even when they have a discovered resource sitting within them.
One very good example is the Liberator field in the North Sea, which I3E are about to drill. Bought for just £3m with an existing discovery.
Further examples can be found in Asia. I would encourage you to review the latest interviews and reports from CORO Energy to see just how many discovered fields are sitting dormant in that part of the world, despite the fact that they too sit next to markets with equally high gas prices as those currently found in Morocco. Opportunities such as these do exist and just because it is CHAR that controls it doesn't make it a bad asset.
Furthermore, how exactly can Lixus be described as an albatross when the only commitment CHAR has on the block is $1m of seismic. We are not talking about a company that has signed up to a commitment to a costly drill here. That decision is for the company to make and was clearly signed off prior to them signing on the dotted line.
Finally, you appear to be measuring CHAR ability to negotiate a deal on Lixus against the results they achieved on wildcats drills where no discovery already existed. Whilst there is always a chance that any management team could make that error, the percentage chances of them doing so with such a strong asset and a 75% starting interest is highly unlikely.
In terms of the farm out, in 2018 CHAR released 6 presentations across the whole of that year. In the 3 months since the Lixus acquisition they have matched that figure and included presentations at MMEA Scout Group and the Africa Assembly Oil and Gas Council, as well as the Africa E&P Summit (see below for details of what the first two organisations are all about).
That to me demonstrates that the company is getting itself out there and promoting the Lixus license to the right sort of people. They are doing that because what they have with Anchois 1 its satellites and its locality to the Morrocan market, is a very attractive asset that can generate its partners a great deal of cash flow, and the law of averages says CHAR do not need to beg or give all of it away to secure said partner and move it towards production.
None of that is reflected in the current SP and so the risk reward for me is very good from these levels.
@Ophidian Yes that ties very much in with my earlier thoughts. The crucial thing being that BMN should be able to maintain their minimum sales figure of around 600 mtV backed by their stockpiles, which in turn should give them confidence to commit to those levels of sales (at least) whilst the maintenance is all taking place. It may be at that point that they decide to release some of their stockpile to boost their revenues for Q3, if said Q3 vanadium prices don't rise sufficiently high enough.
It is also important to recognise that we are judging Vametco on what it sells but that figure is some way short of what it is producing and that has been a main point of mine here today.
With the much lower production costs seen in Q2, Vametco is demonstrating that at achieved sale prices of circa $49,000 per mtV and ZAR 14.40, the facility can still achieve EBITDA of up to circa $83m if it were to sell everything it produces. It is their choice not to that reduces that EBITDA figure not a lack of sales or most importantly production.
A point that is perhaps more relevant from next year onwards but at the very least shows that V prices do not need to climb very far to see Vametco producing very healthy cash flows.
Revise that to 4,000 mtV for 2020 (Vanchem costs still to be clarified but more than cancelled out by the likely 300 mtV production/ sales discount based on my circa 4,300 mtV estimate for 2020), then at $49,000 sales price and ZAR 14.40, BMN could deliver total EBITDA that beats that achieved in 2018 but at a higher level of ownership.
That target isn't all that testing and thus well within reach.