Member Info for jjhbev

A question for number crunchers out there please.

Revenue in these figures is shown as £62.1m.

In the Q2 update revenue was shown as Rand 1,050m and the exchange rate for the period was ZAR12.3:US$1
Therefore in $ terms revenue would be $85.4m
The $:£ exchange rate at the end of June was appx 1.32 therefore $86m = £64.7m

Any ideas as why the difference? Is it offtake fees? (Largo quotes its revenue on a net basis after deducting Glencore's offtake fees).

Just trying to understand things going forward. Thanks.

Let’s be honest people – this update is an absolute stinker!

Production is down – 630 tons produced when we were guided to expect an increase
Revised guidance indicating only 750 to 800 tons per quarter over H2
Production Costs up – 268Rand per kilo (weren’t we meant to be on our way to 210Rand or less??)
Other Costs per kilo must have gone up based on the EBITDA margin
FM gave no indication whatsoever of any of this in the recent Proactive Investors interview

Not good!!!

Now – a bit of simple, basic (and frankly conservative) analysis of the EBITDA and our share of it:-

EBITDA for this utterly stinky quarter = R332m.
This was based on an “Average Vanadium Price of US$69.2KgV” – So shall we say 15+% higher so far this quarter?
Part of the costs will be Fixed Costs and therefore – assuming any level of production increase – the costs per kilo will fall over this, the next and subsequent quarters

BUT
Even just assuming Q2’s EBITDA is annualised we have an annual EBITDA of R1.33bn – aka US$92m.
BMN’s share of this = $54m or say £43m

What multiple shall we put on that??? Shall we say 10 times – (even though the Vanadium price is close to $15,000 per ton higher [with the first indications of increasing again in China] and production is increasing)
£43m x 10 = £430m which equates to 38p per share

Increasing the sales price by $15k per ton but leaving all other figures unchanged (i.e. pitiful production and costs) would see a Vametco annualised EBITDA of $130m with BMN’s share being $77m – aka £60m or, on a 10x multiple, 54p per share.

In summary, IMO a lousy update which shows the need for much improved performance at Vametco – and indeed BMN. But the idea that BMN is a sell???

Alfa

I would happily work with you to produce a write up. How could we communicate outside of LSE?

I currently hold both BMN & LGO - with much more invested in BMN than LGO. Albeit that that gap is closing with LGO's SP rise whilst we wait for BMN to update the market.

One thing I would flag up straight away is that LGO is a much simpler set up than BMN. LGO has its mine which is performing very well and is due to expand output by approx. a third next summer. It has a bunch of debt but is currently printing money (notwithstanding a very expensive offtake agreement with Glencore which runs to May 2020). The CEO has just indicated that they will look at a 5k tpa expansion next year which, if progressed, will take approx. 3 years from go ahead at an indicated cost of approx. US$75m. He has also indicated no enthusiasm for vertical integration ("we are a primary producer"). It does benefit from owning 100% of its mine in a Brazil with a tax rate of 15.2%. It does however have a huge number of share warrants/options which have to be addressed and factored into valuations.

It is my very firm view that LGO has no interest in acquiring BMN. It is focused on clearing its debt, expanding its mine, looking at share buybacks (to address the warrants/options) and initiating dividends.

Let me know if you would like to follow up

That's what published results can do for a share!

Almost all the production figures, revenue levels and costs were already in the public domain weeks ago but the SP has only really zipped on the back of the financial results actually being published - plus a very good Presentation + Q&A.

So, unless there are some negative things being held back (which I don't think they are) then we might see some of the same type of SP action by the end of next month!!!

Please FM - let's have that Q2 update!

I don’t wish to be unkind but don’t you think the SP Angel note is pretty much worthless?

I can and do accept that analysts should err on the side of caution and they are entitled to use whatever assumptions they wish. However, when those assumptions are so far removed from what is already known then I think “what is the point”.

Just a few brief observations/questions =

As far as I can see the Revenue calculations are based on Vametco receiving 92.5% of the estimated market price for its production – e.g. Looking at the table for Scenario 2 for the 2018 year
3680tons at $66 = $242.9m
Revenue shown in table = $224.4m or 92.5% of the gross figure.
Does Vametco have a 7.5% charge on sales? This charge is applied to all sales calculations. I wasn’t aware of such charge but that could be my ignorance.

In Scenario 1 does he mean 6mths at $66 plus 6mths at $80 or 7mths at $66 plus 5mths at$80? To me his wording implies the former but the calculation (inclusive of 7.5% sales charge) implies the latter. In either case the figures do not appear to take into account that, due to the plant expansion, the production level in the second half of the year will be much higher than the first half – more product is being sold at the higher price and therefore the revenue will be higher than in the calculation.

Operating costs are shown for 2018 at $21.3 per kg. Using a $:ZAR exchange rate of 14 (currently actually 14.5) this implies a Rand cost of appx ZAR300. Given that Q1 Production Costs were ZAR226 and are guided to fall to below ZAR210 the Operating Cost figure appears to me to be very high.

Really, what is the point in presenting scenarios (being scenarios 1 & 2) which have the Vanadium price for 2018 running at either $66 or $80 for the rest of the year but then dropping back to $35 from effectively 1st January 2019??? Is it too much to ask the analysis includes some views as to prices for 2019??? And/or could not a grid of SP target against a range of longer term Vanadium price assumptions (e.g. $35 through say $55) be produced?????

Finally, the scenarios all assume that we are looking only at Vametco and that Vametco will remain as is once the plant upgrade to 5000 tons is completed. Fair enough (if IMO totally unreal) but if that is what you are doing then why not include the amount of cash that Vametco will generate and – at least in theory – retain. This of itself (even under Scenario2 with Vanadium at $66 this year and $35 next year) would result in BMN’s share of cash equating to 7p per share by the end of next year!!! Presumably that should be added to the SP???
Really – what is the point!! (although one might say that even Scenario 2 with the cash value added back shows a 40p plus value in an almost worst case scenario ;-) )

Hi all

As an addition to the comments on SP and earnings here are a couple of thoughts here on Vametco earnings following the recent results – any discussion/observations welcome.

First of all a brief recap of key basic figures for Vametco for 2017

Tons sold = Appx 2700
Revenue = ZAR 1,052m
Ebitda = ZAR 318m
Avge V Price = $33/KgV
Prod Costs = $16.6/KgV (ZAR220)

A few points of note to me are:-

The EBITDA margin in these figures is 30% as compared with the Rev/Prod Costs ratio being 50%. There are additional costs over and above Production Costs which come into play when arriving at EBITDA.

The Production and other costs together totalled approx. ZAR745m in the above figures. This equates to approx. ZAR275/KgV or slightly under $21/KgV based on the exchange rate applicable for the 2017 figures. Going forward this total cost number will drop on a per KgV basis due to reduced Production Costs ( guided at ZAR200), certain other costs will be fixed costs which will spread across a higher production figure and (currently) the ZAR/$ exchange rate means that the ZAR costs will be lower in dollar terms than last year. Overall the total costs should be well below $20/KgV and perhaps be well below $19/KgV.

In recent times we have been talking in terms of Vametco EBITDA being at least $150m. If we continue to see current FeV prices and the production figure of 3700Tons+ is achieved then I think we are looking at much closer to $200m - or more - for the upcoming 12 months.

One simplistic way of looking at things is based on the 2017 Vametco results

2700Tons at $33KgV generated EBITDA of ZAR318m or Appx $24m
If (to make it easy) we assume current pricing is $40/KgV higher there would be additional EBITDA on 2700Tons of $108m
If we then assume a margin of $55/KgV on the additional 1000Tons of production (& IMO this figure is likely to be $60 based on pricing as per Vanadiumprice.com today of $75/KgV) there will be additional EBITDA of $55m

So – using a simplistic & arguably conservative approach – we have a total $187m. Bushveld’s share of this expressed in Sterling is approx. £85m.

Vametco EBITDA of $200m+ could very well be achieved

And the Market Cap is what again???

Hi again BBN I agree with you in full. As we look at things at the present time the Fe V price is very strong and apparently rising to new highs for the year. The exchange rate is 13 rather than12. so I do share the view that $150m could very well be exceeded. If I am concerned about anything it is whether the production targets will be achieved. But even if there were to be any slippage there I feel sure it would be just that - short term slippage - and would not really impact the ongoing developments which as we all know are many. Something I do not understand is why the SP has slipped at a time when the FeV price is on a tear and the outlook is so positive. Hey Ho! Anyway, I look forward to catching up again when we have some current figures to discuss. Best wishes

Hi Daisan My typo. EBITDA was ZAR126m Doh!!

BBN There is meant to be a "smiley" emojie after my disagreement wording!!

Hi again BBN I disagree with your disagreement 😉 There are two separate aspects here. One is the figure for Production Costs & the other is what costs there are in addition to the Production Costs in arriving at EBITDA. I agree with you that, as a result of the low production level, the Production Cost figure in Q4 2017 was very high - ZAR246/kgV � and that that figure will be lower in 2018. It is quoted at ZAR226 for Q1 2018 and they are indeed guiding for ZAR205 in the future. But if you look at the Q4 figures you can get to the EBITDA figure only if costs are much higher than just the Production Cost figure:- Revenue = ZAR 346m EBITDA = ZAR 146m Therefore costs = ZAR220m Production was 540t (with 635t sold) and Production Costs were 246/kgV . If we use the sales tonnage as it is the higher figure then the Production Cost total would be 635 x 246ZAR x 1000 = ZAR 156m Therefore there are approx. ZAR64m of Other Costs to arrive at the EBITDA figure. On 635t this equates to approx. ZAR100/kgV or US$7.5/kgV using the then exchange rate. I assume that this figure is relatively high because of the low production level in Q4 2017 but, for the sake of discussion, the combined total Of Production Costs (ZAR220 in Q1) plus these other costs could well be of the order of ZAR300/kgV for 2018 or US$25 at an exchange rate of 12 - i.e. of the order of $25000 per ton. That�s how I see it. Over to you Best wishes Ps I repeat that I still thank that $150m EBITDA is very much achievable (and hopefully beatable) if the production target is met given current and recent pricing.

Hi BBN I think that the cost assumption used in your figures needs to be increased. I say this based on the figures in the Q4 Operational Update which (unlike the Q1 update) includes EBITDA figures. Note 4 to the figures states that the Production Cost figure of ZAR 246/kgV "excludes depreciation, royalties, selling, general & administrative expenses". The same wording is used in the Mining Indaba presentation. To get to the EBITDA figures shown, my estimate is that the royalties etc. (but excluding Dep) must come in at over $5 per kgV. Of course, the probability is that the prices achieved by Bushveld/Vametco could/should be more than $5/kgV higher than the $60 price assumption (with $64 ytd quoted in the presentation). So I still agree that overall the $150m Vametco EBITDA figure is very achievable if the production guidance is met. Best wishes