BMN has substantial cash reserves and an used credit facility even before any profits for H2 2019 or indeed Q1 2020, are taken into account. Be it that these weren't along the same lines as H1 2019.
Said cash reserves will also be making money through interest and likely investment.
They also have a minimum of 360mtV of reported inventory, when deducting the 80mtV of product that is being shipped to Redt and installed in their projects.
So in reality we are talking minimum 440mtV of additional sales, that can be employed to counter any shut down and/or maintenance periods.
What price they achieve is open for debate but sales have the ability to at the very least, offset costs for running the business.
They also now have a very favourable exchange rate that will drive far lower costs when they do re-commence operations and the fact that Rhovan is also shut, means that supply will be severely dented, which supports a better balanced market, post COVID-19.
These facts do not take away all the pain but they give the company considerable wriggle room, such that even an extended shut down, would not be too detrimental for BMN.
I doubt anyone of reasonable intelligence really believes that BMN will fail because of this development. Those proclaiming they will, if indeed well read, are clearly looking to take advantage of the situation.
That time will pass, be it we have much to live through first. For those that choose to remain invested, this is time to double down on what you know, monitor developments as they arise and try one very best, not to be infected by the immense noise that is flying around right now.
What we need to see is a clear plan of attack from BMN on what they will do to ensure that the business remains in the very best of shape through this period. I am sure it is being prepared and if it needs a few days to finalise then that is fine because BMN is about far more than its processing plants in S.A.
What we also all should try to do is be realistic about what is happening here and base as much of our discussions as possible on actual facts (my attempt at production costs duly noted).
The reality is the figures from the May 2019 presentation do not break down the difference between the production cost and the cash cost, enough.
The production cost "Excludes depreciation, royalties, selling, general and administrative expenses" but the overal cost breakdown includes a 13% figure for royalties and taxes together.
If we then employ the cash cost and then deduct the percentages from there, then we have to establish what the "sustaining and non-sustaining capex and exploration capex" are, which aren't mentioned individually in the total cost breakdown.
I do feel that my figure isn't all that far away because the production cost is what is key here. However, I will not try to break it down any further for risk of confusing anyone who reads it.
I feel strongly that the costs to carry BMN through a staggered 3 month shut down in 2020, are not all that problematic for BMN to cover.
I say 3 months because for all it is simply not feasible that one 3 week shut down can snuff this virus out. If it does indeed becomes stop start, then a window of opportunity should open up for maintenance and inventory sales.
Important to remember that Rhovan is also shut down. World demand will be far lower for the foreseeable future but supply shut downs will help keep the market closer to balance, than it otherwise would have been. A silver lining so to speak.
Good morning everyone,
No doubt a good few investors are searching for information to establish what this shut down truly means for BMN. The first port of call for me needs to be the fixed costs that can be expected. That being the costs that must be paid each week the processors are closed.
Enclosed below is the May 2019 presentation. Slide 13 offers a breakdown of Vametco costs from 2018.
Total production cost per mtV in 2018 was $19,700 with 2,560mtV being produced at ZAR 13.20
A few broad based figures and assumptions ;
During a shut down a strong argument can be made that the following costs fall away ;
With social expenses, energy, auxiliary materials and electricity all being reduced by a percentage.
G&A and salaries & wages are debatable but at this time I would allow full costs. I would also leave in Other as a means to play it safe. i.e. higher costs rather than wishful lower costs.
Those 3 together amount to 30%
From the other 4 partially reduced costs stated above, which together amount to a further 28%. I would reduce these by 2/3 given the majority will be vastly reduced with social costs likely maintained or perhaps even increased.
So total ongoing cost of around 39%, which I believe to be high.
At $19,700 per mtV x 2,560 x 0.39 = $19.7m
However, as I have been attempting to flag up these last few weeks, the exchange rate today is not ZAR 13.2, as it was in 2018, it is as of day 1 of the shutdown, ZAR 17.60.
The majority of the included costs stated above, are South African based costs.
So there is a potential 33% reduction in costs to be had, although it is of course never that simple.
If so, then the Vametco cost could be around $13m. Add in maximum one third for Vanchem and its c. $17m
I would throw in maximum $3m for head office expenses, not copvered by Vametco.
So we are at base case $20m and that is without lay offs, without government tax incentives/support and I am being deliberately conservative on the figures.
That figure is 1 full year of costs. If we reduce it down to a worst case 3 months, then we are talking $5m.
I posted on 11th March that after all current costs for Redt, Enerox, and Vanchem were removed from the balance sheet, BMN has access to around $44m (note I missed the $3m paid to YD and so $47m became $44m).
So on this very crude basis and it is just that and I would welcome further input from others, we are talking 3 months of costs at $5m vs c. $44m in bank.
So the actual shut down should not hurt BMN or its shareholders too much, be it it will create anxiety. That anxiety is best removed by establishing the facts as best one can and removing as many unknowns as possible. I trust the company will further enforce this shortly.
Hello Bella6532, I trust you are keeping well under the circumstances.
The reason why S.A: has had to go so hard at this so early, is the poor general health of its citizens, be it through HIV, TB or general poverty. That is why I applaud the measures being implemented by President Ramaphosa because the decisions are based on the health of their citizens and not the overall economy because right now, that has to be the focus.
If they don't do that, then their death rate will dwarf anything that Italy could ever get near.
I tried to ease the BB into this this morning because I could see clearly that it was going to come. Not everyone may have cared to take the time to read my posts, but if they did, then perhaps this announcement comes with a tad less shock attached.
The key here is that this is going to happen to a great many businesses and to survive, companies have got to have very good balance sheets. BMN has that and so should be able to see this virus out and be stronger for it on the other side.
There are a great many much bigger miners out there, especially in S.A., who are leveraged far more heavily than BMN are and some of them are going to fail.
That means that picking the bones out of the supply and demand profiles of various minerals, right now is almost impossible.
What now is about is survival and what it means when those companies come out the other side.
Wherever the SP drops to tomorrow, it isn't the real story here nor what is most important because it will be based on an immediate reaction, just like much of what we have seen in the markets, since this virus appeared in our world.
All that matters right now is to survive to fight another day and in doing so execute the parts of the business, that allow BMN to succeed the most in the future, which means anything and everything associated with energy storage.
The exact details of what businesses will be allowed to do during this shut down have still to be made clear and the very best source for that will be the company themselves. So an announcement is to be expected shortly.
The words used by President Ramaphosa were "care and maintenance," so there is potentially room for BMN to bring forward the maintenance programme at Vametco.
It is also important to remember that the government has stated that businesses will be supported through tax holidays. So given that BMN is debt free and has cash in the bank, they should be able to ride out even an extended shut down fairly easily.
The leadership will be working from home, so deals such as Redt and Enerox should be able to continue, so long as the counter parties are able to operate also.
This shut down will come with a cost but it is more than manageable for BMN, given their financial strength. As I said this morning, they have the capacity already in place, so the drive is on the ergy storage side of things and those are corporate items right now, which should not be affected. That said, any business being forced to close temporarily is never a positive but these are extraordinary times and the vast majority of the businesses of the world will be doing exactly the same thing, be it now or later.
Like I also said this morning, Rhovan is also in S.A., so vanadium production is going to take a big hit, be it inventory may kick in first of all. In the long run, given the clear demand drops, it is no bad thing to see market supply also temporarily curtailed, be it hard to see clearly at this early stage.
I applaud the measures being implemented by South Africa and I applaud the delivery and leadership from Ramaphosa. Yes it is a 3 week lock down but they have quite rightly bit the bullet early, in order to curb the outbreak as early as possible. A good many countries could learn from this, including the UK.
What I wanted to hear was that businesses would receive support through this period and that has now been confirmed.
Corporate taxes offset mechanism for a start with more measures to come. South Africa isn't the wealthiest country in the world and lord knows they have crippled themselves well before this virus came along, but the measures announced give them as good a chance as anyone, to limit the full impact, as far as is humanly possible.
For all my criticisms of the leading party in South Africa, the country can be proud of its leadership tonight.
President Ramaphosa is due to address the nation at 19.30 local time, so around 40 minutes from now.
Further to my earlier posts and my point regarding the Rand ;
"Investec projections for a "lite" scenario show the rand could trade at an average of R19.50 to the greenback during the second quarter of the year, before hitting as low as R22/$ in the third quarter and then moderate to levels around R16/$ by the fourth quarter of 2021. In this scenario, a downgrade to junk status by Moody's is accounted for."
"In a severe scenario, which takes into account a global recession and global financial crisis, we would see the rand average R22 to the greenback by the second quarter of the year, before worsening to R24/$ by the third quarter. It is expected to moderate to an average of R16.50/$ by the fourth quarter of 2021."
Personally, I think such estimates tend to stretch too far in either direction but these are extraordinary times and at such times extraordinary things will be seen. A prime example of which are the moves made by the FED today. Moves that unfortunately will not be the last.
Finally, when all is said and done, no doubt the vast majority of contributors here live in good strong economies with good health care and full rights.
Whilst losing money in investing hurts and individuals and families will not doubt come under extreme stress during these times, do try to spare a thought for the people of South Africa, Brazil and all the other poorer nations where this virus is now starting to take a hold.
Deaths closer to home, always understandably have more affect on us personally but whatever the numbers that come out of England, Germany, even Italy, are, they are highly likely going to pale into insignificance compared to what these other countries are going to suffer.
And they are going to have to go through it at a time when the wealthier countries are only really able or willing, to think about themselves a d their own needs. How many nations are going to ship out ventilators or hospital staff, when these country's systems come under the most stress?
Perhaps South Africa or Brazil will somehow get their outbreaks under control quicker, or more effectively. For that I am willing to hope. The percentages say they won't. So spare a thought for all those families and workers, whose efforts have created the opportunity that so many here have profited from, because they are likely going to need every pray we can muster.
This is a time when investors have to work harder than they have ever worked before. If you aren't reading, following, reviewing, with every spare minute you have, then you are failing yourselves and your investments.
This is not a time to be hoping, this is a time to be doing and ensuring, to the very best of your abilities, however amateur you feel you are.
I have laid out my case for what BMN can expect and how I believe they will overcome it, to reach the other side of all of this.
There will be pain but that will be a world wide phenomenon.
It is for each individual investor here to do the same and decide for themselves. Nobody else's opinion should be doing that for you. Check every fact you can yourself. Read every article presented yourself and form your own opinion on it.
Not advice but DYOR is as relevant now as it ever was.
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BMN can make progress in other areas of their business, even with interrupted production.
The electrolyte plant can continue through to financial sign off/contract award. Then it'll be about what restrictions are in place for the contractors who are to build it. If the start date is early H2, then perhaps the more restrictive measures that Ramaphosa and his team will need to instigate, will by then be over.
The deal with Redt should continue and I see no reason why the Enerox deal would'nt complete, though I now expect a lower price because the risk is higher and Cellcube have even fewer options before them.
I would be surprised to see expansion plans at Vametco and Vanchem instigated. I would think cash protection is now key but with targeted investments that make sense (Redt vanadium, Enerox, electrolyte plant being for me the strongest).
Businesses in this environment, are going to need to strike a balance between progress that delivers better security later down the line and protective measures, that ensure the core of the business plan is maintained.
Demand is on the floor right now and that is going to affect world markets for some time to come. China cannot carry us all on their own. BMN's best focus for me is to drive all plans related to energy storage because much of that market should be there, whatever happens economically for the foreseeable future.
They have enough production to support that part of the business for the foreseeable future. At 4,500mtV, BMN has delivered the sort of production that is needed, to ensure their costs are as low as they can be, whilst prices remain suppressed. We can all be very grateful for that.
The Rand, which is currently running at ZAR 17.85 to the dollar, is going to be another big help, whenever BMN are producing. The big question right now is what will Moodys do on 27th March. Will they really downgrade S.A. at the height on this crisis?
Even without their intervention, without a total collapse in the dollar, I cannot see how the Rand is going to trade better than we see today and if anything it is going to drop even more. We could well see some mind blowing exchange rates in the months to come.
That all helps BMN with their production costs. Current guidance at full 3,200mtV for 2020, is $17.20 per kg at around ZAR 15.
A +20% drop in the exchange rate over 2020 will deliver a considerable advantage and assistance, which will ripple not just through BMN's mining cost base but also into the energy storage markets, making all their products far stronger for it and the business better protected for it.
This post is not designed to push a negative angle. It is designed to touch upon the realities of where BMN is and likely will go in the foreseeable future. These are unprecedented times and business will be affected and as investors we must be prepared to see that and talk about it.
If we don't then someone else will and in a manner designed to hurt not
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Good morning all,
Whilst I greatly appreciate that there are at times nefarious visitors to these BBs, we must be careful not to bury our heads in the sand, by ignoring what is staring us in the face. If we do that, then those negative voices that deliver the very messages that we insist on avoiding, gain all the more traction and impact.
Before i go any further I want to be clear, that I personally feel that BMN will survive this crisis, that it has a very bright future and will in time, go on to deliver on its plans to become a fully integrated vanadium producer.
What this Covid outbreak is effectively doing for a great many companies, is creating a time loop, by pushing established plans to dates later down the line. The problem we have right now is that the extent of this extension of time, is not yet fully known and so is difficult to measure. The more intelligent of the nefarious characters out there no doubt know this.
The single most important question for all those companies being affected by this outbreak, is will they still be in business when this is all over. As I have already stated, I believe BMN will be one of them but many will fail, be sold, or be far more diluted on the other side.
The disruption for companies will depend very much on their government's abilities to maneuver their economies through their individual crisis's but also be centred on how afflicted each nation is, by the virus and the extremity of the measures placed on their businesses.
The speed with which the situation is developing across the globe is making it extremely difficult for even the said experts, to generate exact analysis of what we can expect. The situation is fluid and heavily integrated into supply chains, that are changing on a near daily basis.
So what i opinion on today may not be the reality tomorrow. It is merely where I am with what I have understood so far.
Later today the president of South Africa is going to deliver an update on the Corona virus in S.A. and the measures required to protect the people of S.A. from it.
Whatever he says, be it today or next week, investors here and across the mining sector as a whole, need to prepare themselves for the temporary scaling down of mining outputs. It is in my view inevitable.
However, if BMN has to shutdown, then so does Rhovan. Given the situation in Brazil is also deteriorating, I would think it is also a matter of time before Largo does the same. That will likely limit all 4 pure producing processors to the inventory that they hold.
In BMN's case, they have minimum 440mtV of known inventory (minus 80mtV going to Redt). They also have strong cash reserves and a $25m debt facility. So they can ride this out.
However, short term, there is pain to be had and it must not be ignored or shouted down.
I remain invested because I can see the other side and am prepared to wait for that conclusion.
Nersa have today set the clock ticking on the public comments on the Ministerial Determination for the IRP.
Deadlines for comments set at 7th May.
I wrote previously that I saw Q3 as the timing for the tender award. I think that is still achieavble, assuming no corona led disruptions.
It is important to appreciate that the each of the countries of the world are at different stages of realisation, when it comes to appreciating the impact of corona on their lives and their futures.
It is a fascinating human experiment be it clearly an unwanted one.
We see what is happening over 'there' but our minds play tricks on us and tell us its not coming our way. Therefore, business is as usual.
Their attitudes will change quickly in the weeks to come.
There is a going to come a time soon enough when all the bad news is priced in and investors will start to look around to see where the individual value lies.
Are we there yet? Unlikely.
Until we are, I would encourage everyone to be vigilant with their investments, their risk strategies and their mental health.
These are extraordinary times that require us all to do extraordinary things.
For the majority, this is about getting themselves and their families through it, which surely must be the priority for us all. In doing so there is a need to support our friends, our neighbors and our colleagues because we are all going to have to dig deeper, than we have likely ever had to before.
When all of this is over, we need to be able to look at ourselves in the mirror and still like the person we see. That means acting responsibly in everything we do, in our homes, in our streets, our shops and even here.
Being anonymous won't save us because we cannot hide from ourselves.
This virus as economically brutal as it could be, will not break us and it will not beat those companies that hold the strongest cores. BMN is for me on that list.
Like many companies out there, it is going to have to change its path because the course it was on, just got dramatically changed. Just like us, BMN is probably going to have to make some difficult decisions, in order to ride out the effects of this crisis but the same goes for likely 90% of the companies that exist out there and I'm not just talking public here.
Right now the market does not really care for individual bias. Sectors are being hit hard and those that participate in them are being included, however much their individual standings may say otherwise.
Just like this virus, that time cannot last forever. A breaking point will come and the mindset will begin to change as value to risk becomes more relevant or the furthest extents of the effects of corona, become known.
As I pointed out to a contributor on Twitter this morning, GLEN and EVRAZ have all fallen some 45% during the same period BMN dropped 60%, but only BMN was in an uptrend that that time.
GLEN and EVRAZ are far more global than BMN, who are heavily S.A. focused, yet the falls are similar.
For GLEN and EVRAZ to gain from the expansion of green projects and batteries, these markets need to deliver a global performance, that outweighs the affects of the global slow down.
As a fully integrated producer with direct connections to both end users and the powers that decide the projects those end users tender for, BMN does not need the same results. It just needs the success to be seen in its own backyard.
Today's announcement is another strong indicator that BMN is tightening its grip on the bolt to that backyard.
When the dust settles and sectors become individual entities once more, BMN integrated model could well be the beacon that lights the way, to those that to date have failed to follow.