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1/2
Having revisited my exercise and my notes, I have the following figures for Vametco,

At 2,850 mtV in 2021 (top end of guidance I would add), I have Vametco total cash cost running at c. $28 per kg. So at a year average $35 per kg achieved sales, the operation would be making c. $20m pre-tax profits - sales commissions.

I don't expect the company to be paying much tax in 2021 due to losses made in 2020 and the fact that the refurbishment costs of both operations, should be tax-deductible under S.A. tax 12I law (see here. Extended to 2020).

https://www.exceed.co.za/section-12i-tax-allowance-incentive-12i-tai/

At 3,200 mtV, I have Vametco total cash cost-reducing to c. $25.70 per kg. That increases profitability to c. $30m based on adjustments made to the same 2021 cost parameters. These being base case $21.50 per kg C1 production cost and a ZAR 14.90 exchange rate.

At 4,200 mtV, I have the total cash cost-reducing to c. $22.30 per kg, meaning pre-tax profits would increase to c. $53.5m.

This is based on my assessment of the H1 2020 total cash costs and 2019 administrative expenses and is generally conservative in its approach. Additionally, I have assumed 30% of any percentage increase in production may be deducted from the overall C1 production cost.

Example. C1 cash cost for 2021 currently running at $21.50 per kg (ZAR 14.90) for 2,850 mtV production.

An increase to 3,200 mtV constitutes a 12.3% increase in production. I have therefore deducted c. 3.70% from the C1 cost.

I arrived at this figure by assessing the difference between Q2 2019 and Q4 2019 production and associated C1 costs.

There we see that an 18.6% increase in production, delivered a 5.4% reduction in the production cost when adjusted for the small difference in the ZAR exchange rate.

Vanchem
Over at Vanchem, I have 2021 production at top end of guidance (1,500 mtV) achieving a total cash cost of c. $32.50 per kg. So at c. $35 average vanadium prices, it can contribute c. $3.75m this year.

At its intended first expansion of 2,600 mtV, I have total cash cost-reducing to $30.50 per kg. Meaning pr-tax profits there should increase to c. $11.7m.

Again, very much focused on being conservative with the numbers, so very achievable.

At Vanchem 3,200 mtV + Vanchem 2,600 mtV, which should come during 2022, we are talking c. $42m in pre-tax profits.

At Vanchem 4,200 mtV + Vanchem 2,600 mtV, we are talking c. $65m in pre-tax profits.

These figures will need to be re-visited as we go along.

IMPORTANT
It is based purely on the mining business selling vanadium products on an mtV cost basis.
It does not allow for any synergies in production, which will undoubtedly come through this year and beyond.
It doesn't allow for any other areas of the business or value-added downstream sales.
It is based purely on a future calculated against a recent past, which isn't entirely fair but creates a natural buffer.

2/2
However, what's also important to appreciate is that those costs were against a Vametoc operation running at c. 2,436 mtV.

What we are talking about in 2021, should be minimum top-end guidance of 2,850 mtV with at least several hundred more mtV to come next year.

So on a basic production cost level ($17.20 per kg H1 2020), when employing the 2,850 mtV figure, we are talking a c. 16.5% improvement meaning on a like for like basis the production C1 cost drops to c. $14.40 per kg. An improvement of around $2.80 per kg.

What that does is take the up to date figure of $26.40 per kg (defined by employing the 2021 YTD ave. Rand/dollar exchange of 14.90) and deducts $2.80, giving a revised Vametco total cash cost of c. $23.60 per kg at Vametco production of 2,850 mtV.

From that figure must then be deducted the costs of Covid, which are clearly marked under note 4 of the Vametco interims but I'll leave that in as a nice to have.

Now the above is not a concrete figure but it's certainly a strong one, given that it's based on the most recent figures from Vametco.

The higher that Vametco production goes above the 2,850 mtV base case, the better that the total cash cost figure becomes.

This is just one example at Vametco. I am of course abundantly aware that Vanchem is likely a different story right now but there's only so much one can deal with at any one time.

What this example is designed to do is demonstrate just how effective, expanded and assured production at Vametco can be and what it can do for their production profile.

Next year we should a Vametco that delivers upwards of 3,200 mtV or more. That means in theory another minimum $2.40 per kg could be removed from that C1 production cost, pushing Vametco's total cash cost down close to $21 per kg.

That's 3,200 mtV. Vametco is fully funded for 4,200 mtV. So another 1,000mtV of cost reduction to come.

Again it is always more complicated than what I have described but the essence of what I am explaining is certainly true.

The majority of the pain that needs to be felt to start to realise these sorts of results will come in H1 this year. H2 should be a completely different story and will lay the foundations for what 2022 and beyond can bring.

The same applies to Vanchem be it that its path is slightly different but the end result should be the same.

Patience is required to see this through but it's truly about implementation only.

A BMN delivering the sorts of total cash costs I have explained, in even a $35 per kg environment, is going to do very well indeed, and that's only its mining results nothing else.

I hope that I didn't lose you in all of that.

1/2
Afternoon everyone,

Something that may be of interest to some.

BMN FY2020 guidance (RNS 30th Jan), so prior to Covid.

"Expected to produce between 3,000 mtV and 3,200 mtV, a 6 per cent to 13 per cent increase relative to FY2019, with volumes weighted towards H2 2020."

Interims update dated 30th Sept 2020 ;

"Among those impacted was the timing of the commissioning of the Kiln-Off Gas project at Vametco, which was a key part of our ability to catch up on the lost month of production earlier in the year and meet our original guidance for 2020."

and ;

"we halted production at Vametco and Vanchem for almost a full month under the South African government's lockdown measures imposed in late March 2020, followed by a ramp-up towards previous production levels."

From 8th Feb 2021 RNS update ;

Vametco "12M 2020 production in the form of Nitrovan and Ferrovanadium was 2,654 mtV."

Furthermore,
"Q4 2020 production of 703 mtV was 20 per cent below Q4 2019 (880 mtV) due to heavy rainfall affecting overall throughput, incidents at the shaft furnaces due to Eskom power failures and commissioning issues at the new kiln off-gas which have been resolved."

In 2020 Vametco was supposed to conduct a 10-day maintenance programme but in the end, this was swallowed up by the enforced shutdown. Still, Vametco lost an additional c. 20 days + it underwent a ramp-up period and Q4 suffered from a multitude of one-off events but also commissioning issues with the very kiln off-gas project that was supposed to give the plant the "ability to catch up on the lost month of production."

FY Vametco guidance for 2021 with a planned 35-day shutdown ( including de-bottlenecking) is between 2,750 mtV and 2,850 mtV, which at the lower end sits just 100 mtV above what was achieved in that interruption riddled 2020. A year that saw a c. 30-day full shutdown, a subsequent ramp-up and a heavily interrupted Q4.

This year, all being well, the kiln off-gas is doing the full job it was intended to do and that 35-day programme delivers the desired de-bottlenecking and added production, which befits such an extended shutdown.

CEO Mojapelo stated in the Q4 analysts call, his awareness that BMN needed to start delivering on its production guidance and that this year was about under-promising and overachieving.

In 2020, a fully operational Vametco with a completed kiln off-gas project under its belt was deemed capable of delivering ave. c 3,150 mtV. De-bottlenecking and an extended shutdown should only add to that capability.

Why is that important?

In the 2020 interims, Vametco demonstrated total cash costs of $23.90 per kg. This cost "excludes depreciation, movements in finished goods inventories and sales commissions." only. So essentially their cost to operate.

That cost was at ZAR 16.60. YTD we are at c. 14.90, meaning that the overall cost is closer to $26.40 per kg.

Hi everyone,

Here's a further update to my earlier analysis, which was a work in progress but which was cemented, by FM's explanation about where BMN felt Chinese co-production output currently stood.

Whilst the Terry Perles information for Vanitec is very thorough, I am sure that BMN invest and are party to, a great deal more detail than we are able to see. Hence why any discussions on recent prices at the Vanitec webinar, were quickly curtailed by the chair of the meeting.

So its significant that FM not only repeated the message about structural shortages, which itself is interesting, given that Chinese production is up 30% since that 2018 Vanadium 101 webinar but also that he talked about Chinese co-production operating at near full capacity already, due to the move away from blending ores.

If that's really true then it highly likely removes their ability to expand into the supply gap, that will be felt not only outside of their own market but possibly also within it, this time around. So essentially minimum everyone else, including BMN's two biggest markets, US and Europe, with China the icing on the cake.

In essence what he is saying is that the Chinese have thrown their full capacity at that 30% of rising demand at home and it still wasn't enough because they still went net importer...

and they could only do that because ex-China demand, was wiped out due to Covid and so prices were low enough to incentivise importing it into China.

Now that demand is returning and pressure on prices is mounting. However, the incentive to add supply simply doesn't come at $7-8 per lb V205. Its far closer to $15-16 per lb and even then, time is required to implement, hence the overshoot potential, witnessed in 2018.

Nothing is a given but all the ingredients are there, which FM clearly knows because he talked about an expectation that vanadium prices strengthening throughout this year. I would think that he is far more confident about this than he is willing to let on.

It may not be to every investors taste, to see vanadium prices surge one more. In the past it has had a short term feel about it because it suffocates VRFB take up. However, this time around, if prices are going to surge, then at the very least, BMN has its guaranteed supply contracts to Invinity/Enerox and can choose to shelter those longer term, non-cyclical demand drivers, a choice they didn't have back in 2018.

Additionally, significant revenues now, enable significant plans to come to fruition, be they expansion, mine development or VRFB investment.

The share price may not be ready to react just yet and that may be dragging some investors energy levels down but these are genuinely exciting times to be invested in BMN, especially if the above theory/ view point, comes through.

https://twitter.com/BigBiteNow/status/1367442783464804355?s=20

Apologies, I got interrupted before I could add/reiterate, what are for me, a couple of important points.

Whether we like it or not, BMN has got to start delivering on their guidance. As i stated earlier, I got a clear message from FM in the Q4 analysts webinar, that this was something he was acutely aware of, given it was he that brought it up.

There was also a clear indication (when encouraged), that Vametco may well deliver additional output, post the 35 day shutdown.

Despite attempting to make a comparison, no 2 companies are the same, especially when traded on different exchanges. Each has its history, its geography etc etc and we are only talking about a share price moment in time, which alters day by day.

What is absolutely an advantage for BMN, is if they can start to demonstrate their ability to meet guidance, then the next phase of expansion, can be far more readily accepted.

In addition, Largo, whilst expanding again this year, is running out of leg room on their plant, without adding more capacity elsewhere.

BMN don't have that problem. They have a number of stages still to come, which can eventually double their production capacity. A belief that they can achieve it + a clear path towards it, can also add greatly to the valuation.

In addition to all of the above, are the various VRFB/energy storage angles, that BMN potentially has ahead of it. None of that is priced into my very crude comparison. Right now they carry next to zero value but have the ability to act as substantial triggers, by demonstrating BMN is a green tech/transition company.

Finally, what Largo demonstrates, is that an expanded trustworthy vanadium production profile, can allow investors to include much of the future value, in the share price, well before it becomes a reality.

So that (very crude) 45p like for like comparison, at c. $40 FeV, should really be a base case, based purely on a mining business, reacting to an improving vanadium price market and being loved just as much as Largo.

Have a lovely weekend everyone.

@Jvetch

I've recently had an extensive look at Largo Resources and as always, its a very complicated exercise, attempting to define what Largo is and what ultimately, BMN is, can and will be.

In a nutshell, I have Largo at EV valuation of c. £600m, whilst BMN is running at c. £260m, when the Orion CLNs are fully included.

So for me that's c. 130% difference in valuation, not 200% as you have stated.

A review of the accounts for Largo demonstrates, that in the first 9 months of 2020, despite what Largo advertise in their quarterly updates, their break even was around $5.40 per lb V205.

In 2021, Largo is signalling a 20% increase in production, to 12,250t V205.

At the current c. $7 per lb V205 price, that should deliver Largo c. $54m (£38m) in pre-tax profits, when one takes into accounts reduced costs from the larger production profile. (12,250t v 10,260t sales in 2020).

In very simplistic terms, I have BMN achieving roughly the same, when/if the V price hits $40 per kg.

This is based on my estimate of $27.50 per kg total cash cost and 4,225 mtV produced/sold.

However, what we mustn't lose sight of, is the fact that Largo have regularly hit their production guidance, where as BMN, are yet to do so.

In their defense, BMN bought ageing brownfield assets, which have required lengthy refurbishment, whilst Largo built a far more reliable new plant from scratch.

That said, this is the year that BMN needs to start demonstrating that they can do what they say they can.

This is why FM's recognition of this fact and explanation that in 2021, the BOD want to under promise and over achieve, was a critical point in proceedings and something I highlighted at the time.

Personally, I genuinely believe that BMN are finally playing it safe in 2021 and that said guidance is the minimum that we should expect. If true, then the first sign we should of this, is through the Vametco 35 day maintenance programme, which FM has indicated, may well bring additional production from Vametco.

That aside, if FeV hits $40 (which I must stress, is very simplistic, given the complicated mature of BMN product range these days, which itself has additional value, be it that it needs to be demonstrated more clearly), then in my view, BMN should justifiably be matching that current Largo valuation.

So at £600m valuation and c. 1,35BN shares in issue (Orion CLNs fully included), we should be looking at c. 45p

If we are being super accurate, then an allowance has to be made for the reduction in cash, due to the investment in the expanded 4,225 mtV, which affects the enterprise value but in very simple terms, like for like, that's where we should be.

Importantly, this very simple valuation, allows nothing for anything else that BMN owns (Invinity etc) or that it may achieve (VRFB contracts, electrolyte plant, better production etc).

Also, if prices hold into 2022 and 4,225 mtV becomes 6,000 mtV, well then...

2/2
Instead, what FM did at that point in time (Feb 2014), as CEO of the company, was pay himself a base salary of just c. £108,000 and continue to implement a maximum total directors salary cap of £500,000.

His wage and that policy remained the same, until the 2018 financial accounts were released. So well after Vametco came on board and during a year when Vametco delivered its largest ever revenue streams.

All of which should be considered in the following context.

BMN on 28th Feb 2014 had a total of 402m shares in issue, which means that post full Orion draw down, total shares in issue will have climbed by just 237%.

That's against 7 years of operation, of which for 3 years, the company had no operating mine and even when they did, they didn't own very much of it, because Yellow Dragon carried them for most of it, until BMN bought them out in late 2017.

For that 237% of additional shares, long term investors in BMN will receive as a minimum, the following ;

1. 74% ownership of Vametco and 100% ownership of Vanchem, giving them control of 2 of the world's 4 pure play vanadium production facilities.
2. A minimum 6,000mtV production run rate, with the strong possibility of expanding to c. 8,400mtV through future cash flows.
3. A 55% ownership of a minimum 200MWh electrolyte facility.
4. Equity stakes in both Invinity and Enerox, two of the world's leading VRFB players, with a confirmed first refusal off-take agreement to supply all of their vanadium needs.
5. An operational Mokopone mine, feeding into the Vanchem processing facility.
6. Ownership of Brits.
7. A significant foothold and standing, both in the S.A. renewable energy and the wider vanadium/energy storage market.

With the strong possibility of even greater things to come through Eskom, local VRFB manufacturing and the larger VRFB grid/mini grid markets.

Go find me the BOD of an AIM junior, that can deliver even just two fully operational vanadium processors, inside 6 years, for just 237% dilution and I will gladly back it. Never mind everything else.

Past performance doesn't guarantee anyone a permanent future but whatever investors may think about more recent performance, there is no doubting the commitment that FM and his team have, to the people of S.A. and their shareholders.

Those attributes are rare and worthy of some respect. They are also the reason why I let communication failings slide, why i don't allow 'investors' (that BMN have chosen), selling, bother me too much, because that past performance, at the very least, allows me to trust, that the BOD is working hard for my investment.

1/2
Good morning all,

Picking up on the vibe from shareholders, venting some frustration at the BOD on progress, communication and this constant feel of 'investors,' flipping their holdings.

First of all it is not for me to tell shareholders how to feel about their investment or indeed the people that run it for them.

I also agree that there is room for improvement on the communication side of things. The recent Arbengoa development is a prime example, which really should be reported upon, once BMN have details on its affect or a plan of action, to avoid it impacting their mini grid and perhaps wider S.A. based plans.

As a side note, I don't see that having any influence on the current valuation because nothing is factored in for it, given that first and foremost, it is a energy saving exercise for the plant and its wider uses as a demonstration project, simply aren't advanced enough yet, to be exciting the market at all.

What I will offer in their defence is this.

Late last year BMN closed a long fought, long term deal, with Orion finance. Anyone who knows HZM well, knows they are a top mining finance company, that backs projects/businesses, not only with compelling business cases but also because of their ethical leadership.

The one thing that longer term BMN investors will surely have learnt by now, is that FM is building a S.A. mining business, that caters for the needs of the people who work there and those that live on and around its land. This message is repeated many times, through their approach to the BEE policy through Bill Chicane. Their focus on developing a clear fund and open for locals and the upping of the BEE ownership to 26%, immediately after taking control of the full Vametco mine, back in 2018, to name just a few.

It is that sort of leadership that attracts the likes of Orion, who are a long term investor and a significant shift in quality.

Something more.

When Orion convert their $35m CLNs, which for me is inevitable, then there will be a total c. 1.35BN shares in issue and BMN will finally have a significant cornerstone investor, at c. 12-13%.

If I may, I will now take you back to 28th Feb 2014, the closing date of the original BMN financial year, prior to Vametco ownership and also prior to dare I say it Darwin, Lemur cash, Yellow Dragon, Duferco, Vanchem, BE, Orion and certainly Covid.

In Feb 2014 there was essentially no vanadium asset, a vanadium platform yes but . There was tin and there was iron ore, and the bottom was about to fall out of that. Meaning that BMN was going to need to find something else to do, or it was going to go out of business. Or worse still, its directors could strong everyone along for a few years, collect their pay checks and live the AIM high life. After all, thats what a great many others have done and done so well.

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