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.
@Ophidian Yes you may well be correct. I certainly got a sense that the process and general set up at Vametco was very unorganized and it has taken BMN management a while to get this under control. That isn't a criticism because at the end of the day BMN itself is a very young company and the experience has come on the job. Hence the reason why the investors who came on board in the March 2018 placement for me insisted on the appointment of Michael Kirkwood as a more steady pair of experienced hands.
There is as we have discussed very much a sense of security and control emanating from the Q2 update, which demonstrates that much has been learnt throughout all of this. The company was decisive in their move to install a new GM at Vametco and that is perhaps already contributing to this positive affect. It all bodes well moving forward.
For now I am happy to build in a slightly more conservative estimate and an expectation that Vametco will deliver somewhere close to its 3,400 mtV target in 2020 with 3,250 mtV looking about right. I think the expansion to 4,200 mtV is going to be quite expensive and with Vanchem closing will continue to be 'reviewed' as we move through the rest of the year. Like Vanchem with its 5 year expansion plan it will for me be all about how much cash the business is generating. Debt of course can come into it to a certain extent but I don't think they will want to stretch themselves too much.
So if vanadium prices and indeed other revenue streams deliver faster, then the expansion plans will do too. However, I see 2020 being a year of limited expansion beyond what we already have and thus total production will likely be in the range of 4,250 - 4,450 mtV. That's not to say that expansion at Vanchem won't take place more that it will take time to be completed given the plant won't now be under BMN control, until November 2019.
I certainly see some limited extra production from Vanchem in that time but it will for me be just that, limited.
I am being deliberately conservative because in times of lower revenues I believe one should test the bottom end of what can be achieved and see if it indeed holds up.
That said with Vanchem on board BMN will actually likely get close to achieving the equivalent of phase 3 expansion at Vametco in line with the timings originally announced, so the progress will be very good indeed and should not be seen as anything less than that.
If more is then achieved then all the better.
Given what I have posted this morning I believe the means by which Vanchem is closed out is key here not just the added production it brings with it. I think the production is difficult to assess becase we don't yet understand what its production costs are. However, I think the confirmation that it really is going to be paid with cash flows/debt would really be a major milestone in the to date relatively short life of BMN.
Sorry another error on my part.
"The Q2 figure of $16.40 per kg (even lower) was achieved at ZAR 14 per US$, which means the production cost when averaging 742 mtV was just ZAR 243 per kg.
To achieve the target of $20.40 per kg the exchange rate would need to drop to ZAR 11.95 per US$ if as advertised the production cost increase is purely going to be down to the exchange rate."
That is incorrect.
The Q2 2019 figure of $16.40 per kg was achieved at ZAR 14.4 per $. That makes the unit cost was ZAR 236 (not 243) meaning the exchange rate has got to drop even lower to ZAR 11.6 per $ to achieve the bottom end guidance of $18.90 per kg, when based purely on the exchange rate.
This makes the argument even stronger that BMN are aiming low and planning to achieve higher.
@Ophidian I appreciate your engagement on this thank you. The Q2 figure and subsequent report was a little surprising because I was expecting a drop off for the signposted 24 days of maintenance. However, as the report states this has been to Q3.
"Vametco commenced a 24-day planned maintenance programme in July, which is expected to be completed in August and will not affect annual guidance."
Despite this relatively long period of maintenance I do feel that the company is demonstrating a renewed approach of under promising and over delivering and it is backed by a renewed confidence in reliability of the figures being produced. So for me mid range guidance is definitely on (2,850 mtV), which would deliver a further 1,460 mtV in H2, delivering at least the same production costs achieved in Q2.
However, given what they have already achieved in Q2, I do feel that the current trajectory should go on to deliver a really strong end of year result, setting up the plant for their goal of 3,400 mtV per annum during 2020. The report is deliberately conservative with FM saying ;
"with several further productivity initiatives to be implemented during the course of H2 2019, from where we can continue to build towards our target of 3,400mtv per annum during the course of 2020."
But I do feel that they can now get very close to this figure in 2020.
Where I disagree with the company is on the production cost and the affects of the ZAR7$ exchange. On this FM says ;
"Unit production cost guidance of US$18.90/KgV to US$19.50/KgV for the 2019 calendar year remains unchanged due to the anticipation of a stronger ZAR relative to the USD during H2 2019."
To average even the bottom end figure of $18.90 per kg H2 has got to come in at $20.40 per kg (H1 17.40 per kg achieved).
The Q2 figure of $16.40 per kg (even lower) was achieved at ZAR 14 per US$, which means the production cost when averaging 742 mtV was just ZAR 243 per kg.
To achieve the target of $20.40 per kg the exchange rate would need to drop to ZAR 11.95 per US$ if as advertised the production cost increase is purely going to be down to the exchange rate.
Right now the Rand is running at 14.83 and has averaged ZAR 14.15 in H2 (37 days). With the issues being faced by Eskom and the US/China trade war, it is difficult to conclude that the exchange rate will improve very much. So for me the figure should be closer to the $16.40 per kg figure achieved in Q2 than the guidance reiterated in the report. But as I say I am basing this on the reasoning given by BMN, which may actually change moving forward.
Again, I am seeing this as a new more conservative and professional approach to forward guidance and market expectations and I expect to be surprised to the upside on both despite any offsets required for the loss of production during the maintenance period.
at would place the exchange rate
Returning to my earlier post and simplifying the numbers some more, i would offer this ;
BMN Vametco is now stockpiling vanadium even when the price of vanadium has been very high.
In 2017 and 2018 Vametco sold more vanadium than it produced, be it minimal.
2017 plus 72 mtV
2018 plus 13 mtV
However, the 2018 figure is skewed by the fact that in the last quarter of that year the surplus was 71 mtV.
In 2019 this has expanded despite the fact that the price of vanadium has dropped off.
Q1 = 142 mtV
Q2 = 135 mtV
So even when prices were at their very highest and even when they began to pull back at what for many was an alarming rate, the company still felt able to stockpile nearly 350 mtV. This despite the fact that the company knew it would soon be announcing a $68m deal to buy Vanchem, which comes with a $45m refurbishment cost, be it spread over 5 years.
To place that in perspective, Vametco produced 2,049 mtV during those 2 quarters meaning they stockpiled 17% of their production.
One could argue that BMN expected higher prices to last for longer but if anything Q2 demonstrated that this wasn't an issue because by that point the drop was very clear. Yet they still stockpiled 135 mtV and sold barely more vanadium than they did in Q3 (584 mtV) and Q4 (586 mtV) 2018 at 607 mtV.
This despite producing 85 mtV more than Q4 and a whopping 205 mtV more than the now notorious Q3 2018. Yes they need lead in and proof that they can achieve extra production before they can sell it, but as demonstrated they have significant surplus stock from the previous 2 quarters already.
What this all says to me is that BMN are very confident that they can achieve their expensive expansion plans by the means stated in the Vanchem acquisition RNS.
There they said ;
"The Company plans to finance the entire Consideration and associated capital expenditure from the Company's existing cash resources, future cash flows as well as, to the extent necessary, debt facilities which are currently being negotiated."
From what I have calculated from the 2018 accounts and current cash flows, BMN are going to need a debt facility to complete the Vanchem acquisition. As I posted previously, the extension to the end of October certainly helps and the current very surprising all in cost also supports a further solid quarter of cash generation. However, the debt facility will be required because Vanchem is not the only horse in the stable that needs feeding, and we also have the question of how fast does BMN want to move with the expansion at Vanchem post acquisition close.
That aside, the holding back of vanadium stock is very interesting because after all everything happens for a reason but if nothing else it demonstrates a confident well organised BOD at a time when vanadium price movements have surprised us all, and that should not be taken lightly or indeed under appreciated. But then we knew that already didn't we.
Morning Ophidian, I am having all sorts of problems with the LSE posting service this morning having already lost 1 lengthy post already to its glitches.
I have taken the average sales price figure to be total revenues ($30m) divided by the total number of mtV sold (607). That equates to $49,400 per mtV.
The $39,400 figure is the average FeV for the period (Q2) only. See note 3.
"The vanadium price is based on the FeV mid average price for the period, published by Metal Bulletin. Vametco realised price is based on the prior month's average price."
That is why I make the point that the average FeV price printed by BMN is a red herring. Evraz have always included (until recently) the US Ryan Notes pricing, which I am surprised BMN do not, given they are selling over half their product there. It wouldn't answer all questions but would be more relevant data at least.
Apologies, I have noted an error in my last post.
"but a $30,000 (Q3 18 to Q2 19) difference in sales price alone ( and Q3 18 sold surplus stock) does not deliver a circa $15,000 per mtV difference in EBITDA."
That should read "does not deliver a circa $15,000 per mtV difference in all in costs"
A few key points that I believe are worth considering.
Taking a look at the Q2 numbers we can see that Vametco achieved EBITDA of $27,840 for every ton that was sold in the period (607 mtV) against a realised price of circa $49,425 per mtV. That equates to a total all in cost to produce of just $21,580 per mtV. That is mightily impressive and considerably lower than the previous quarter.
In Q1 Vametco achieved 508 mtV of sales at $87,200 per mtV achieving $31.7m in EBITDA, which equates to $62,400 per mtV, which in turn equates to an all in cost of just $24,800 per mtV. I say 'just' because Q4 delivered sales of 586 mtV achieving $60.2m in sales at an average price of $102,730 per mtV and EBITDA of $67,580 per mtV, which equates to an all in cost of $35,150 per mtV.
To compound this further, Q3 2018 produced the following numbers ;
584 mtV sold creating $46.6m in revenues = $79,800 per mtV.
EBITDA $25.5m, which equates to $43,670 per mtV.
Total all in costs for Q3 = $36,130 pr mtV
So between 3 the last 4 quarters, the total all in cost has been as follows ;
Q3 2018 = $36,130
Q4 2018 = $35,150
Q1 2019 = $24,800
Q2 2019 = $21,580
What makes this significant drop off in costs (and yes there are royalties to consider but it cannot just be that) all the more compelling is the fact that the difference between production and sales is weighted towards 2019, meaning actual total costs in the period were greater if as expected they were booked in the period (See below). Better still in Q3 2018 more product was sold than produced and so this should have skewed the EBITDA figure even higher as the costs to produce said surplus were booked when the product was actually manufactured, or so the theory goes.
Q3 2018 = minus 47 mtV
Q4 2018 = plus 71 mtV
Q1 2019 = plus 142 mtV
Q2 2019 = plus 135 mtV
I have generally employed a circa $32,000 per mtV all in cost for Vametco until such time the data demonstrates otherwise. I respect the fact that at far higher prices the royalties are much higher, but a $30,000 (Q3 18 to Q2 19) difference in sales price alone ( and Q3 18 sold surplus stock) does not deliver a circa $15,000 per mtV difference in EBITDA. Nor can the exchange rate be looked upon as being the reasoning because the fluctuations between Q3 18 and Q2 19 are minimal (ZAR 14 to 14.4 spread).
One thing that is clear is that production costs (not all in costs) are down and it isn't just down to the exchange rate.
A $21,000 per mtV cost in Q3 2018 has become a $16,400 per mtV cost in Q2 2019 and that looks well supported moving forward given we are witnessing near ZAR 15/$ and if nothing else production looks like it will at least match Q2 if not better it.
In the current pricing environment there is much to like about the direction Vametco is now heading but I am still scratching my head on those cost figures and how they dropped so fast and so far.
Personally I didn't buy into CHAR for the elephant scale wildcat drills, I bought in because of Lixus, although I do like the potential tie ins and partnering options for MOH-B and KEN-A.
The company may call them rill ready prospects but as far as I am concerned they are pure bonuses that I see very little chance of being farmed out any time soon. The company may big them up but the reality is for me completely different.
MOH-B and KEN-A could well come through sooner but the best strategy in my view is to push the farm out on Lixus and drive a re-rate that then allows the company more wriggle room on MOH-B and KEN-A. I also cannot see why anyone would sign up for those two prospects if Lixus is still available. So it is all about Lixus for me and quite frankly that is more than enough to deliver really healthy returns from these levels.
With all due respect the company only completed the Feasibility Study and Gas Market Assessment a little over a month ago. Without these documents, which are clear markers on the path to the farm out, the company couldn't possibly meaningfully commence or indeed conclude said farm out in a satisfactory manner. To be done right and to achieve the best deal for shareholders it should indeed take a good few months to conclude, particularly when as I believe, CHAR holds such a good set of negotiating cards.
My own expectations are for an announcement to be made by Sept/Oct this year. That would be circa 3-4 months post FS.
Given the size of the prospect and its close proximity to a strong gas market, the level of interest should stretch to more than one option and thus making the chances of a successful farm out very good and the potential returns from these levels very attractive. In the meantime there is very little to discuss.
@Rossannan My conservative viewpoint is and remains as such that the likely price is around 23-25p but that is only because I do not wish to be disappointed as i have been in the past by previous takeovers I have witnessed . However, there is mounting evidence that there are other interested parties and that alone could well drive a valuation that none of us can yet appreciate, such that as viewpoints such as yours and mine are indeed conservative in their make up.
Furthermore, there hasn't been an official bid yet and thus the actual process hasn't even truly started yet. If we then add a second or indeed third bid to that process, then it will only get even more complicated and extended. So even at circa 13 weeks the Indico-2 result is still well within reach without further updates on where the process is heading.
Finally, whatever the doubts about achievable price and or bids etc, it is for me well worth sitting on our hands and awaiting the next physical developments because at just short of 18p, we are still some way away from that supposed top end 25p marker.
Morning all, yes a modest discovery but confirmation that the oil stretches from Mariposa all the way down to Sol-1, which is a circa 13km fairway.
Slide 18 of the enclosed Feb presentation clearly demonstrates the potential activity generated by the initial Indico discovery. This Sol-1 discovery will only further add to that.
I like many others here am at a loss as to why the block is still only being drilled with 1 rig. The Calao-1 well result was announced on 26th March and it then took circa 7 weeks before the next well Sol-1 was spud (11th May). At the time AMER stated that this would be in the Indico structure, which in itself demonstrates a communication problem between the 2 parties. I accept that there is evidence that ONGC need time to upgrade surface facilities and acquire land etc but that shouldn't stop wells being drilled particularly when they are from existing pads. Even to a lesser trained eye it is clear that the block is on a go slow because after such a monster find at Indico the block really deserved more energy being applied to it. This is particularly true when I consider what GeoPark achieved on Llanos 34 in the first year post the initial 'large' finds.
It is of course of little use now and AMER will be judged purely on what it is offered for its assets going forward but it is a damn shame and it is with hope that we at least get to witness the results of Indico-2 materially affecting the bid process be it we likely have around 13-14 weeks to 'survive' until that point in time.
@Margaret365 Yes this is another intriguing development. I will admit to a simple lack of knowledge here when i openly ask on what basis Stifel can be joint financial broker to AMER and make disclosures on behalf of M&P?
The RNS would imply that Stifel have bought shares and then sold them on to M&P? I can't think why else they would declare a purchase and a sale unless I am reading things wrongly.
@Lindon You are correct. The latest known update (BE Update 27th March 2019) states the following ;
"After promising pilot results at laboratory scale, Bushveld Energy procured two tons of vanadium for conversion into vanadium electrolyte. The scaled-up conversion process is currently being executed. If proven successful, samples from the produced electrolyte will be provided to battery companies for suitability assessment. There is significant expressed interest from VRFB manufacturers for vanadium electrolyte and appetite to add long duration energy storage to power systems and renewable energy projects in Africa overall. "
However, given that we are now some 4 months further down the line, logic says that these samples are out there by now and it is simply a case of the next update being released to confirm this. Hence my reasoning for talking about samples that have/are being sent out to VRFB manufcaturers.
Incidentally, given that there is currently no other example of such a large producer of vanadium producer who is willing and able to produce low cost high quality electrolyte, I would think that every VRFB manufacturer that is worth its salt has been on the phone to BMN inquiring into the possibility of receiving samples because right now the industry needs that to compete.
Given that a business connection already clearly exists with Avalon, I would be very surprised if they are not on the short list of VRFB manufacturers to which electrolyte samples have/are being sent.
With the publicized problems that Rongke Power have had with their Dalian project and their strategic connection with UET, I would expect that they are both very much on a that list too and are for me the biggest current prize on offer in terms of custom given their ambitions and what a guaranteed supply of cost effective electrolyte could do to boost their market penetration and expansion.
Good morning all,
An interesting development with Redt and Avalon today, which ties very much in with the rhetoric expressed in the recent Energy Storage 101 presentation.
Slide 36 raises the point that consolidation has already been taking place in the lithium sector and has enabled these merged businesses to expand and develop far more efficiently.
Navigant Research is quoted as saying that ;
"These developments have brought both greater levels of financial resources and maturity to the still developing energy storage industry.”
With regards to the existing vanadium sector mergers such as the one that brought UET, Rongke and Bolong New Materials together, the BMN team state this ;
"Such transactions are a prelude to greater future activity toward consolidation in vanadium energy storage. Bushveld’s integrated strategy anticipated the necessity of this trend earlier this decade"
There are currently simply too many smaller players struggling to establish themselves and in order to develop the industry that must change, and today's announcement is a stepping stone in that direction. So it isn't truly really about where or if BMN are involved, it is about the industry starting to change itself in order to set itself up to compete for what will inevitably be a very large opportunity in the coming years.
What is key is that BMN have recognised it early and have molded their integrated model around, a model that does allow for a strategic investment in the VRFB manufacturers that goes on to own the local VRFB plant in that BMN will feed into (see slide 59)
That VRFB company for me would be UET but the door is always open until it is closed is it not.