The next focusIR Investor Webinar takes places on 14th May with guest speakers from Blue Whale Growth Fund, Taseko Mines, Kavango Resources and CQS Natural Resources fund. Please register here.
Simply Wall St analysis is all algo driven from pro forma financial statements. TBH, it is pretty useless for mining companies since it doesn't take into consideration anything like life of mine, grades, AISC, political risk and so on and so on. So rather than a pinch of salt, I think it requires a bucket of salt. Notwithstanding that, I still think HUM is hugely undervalued, but Simply Wall St adds precisely zero to my Strong Buy conviction.
Just want to flag the latest development in the bidding war between Nordgold and Shandong for ASX listed West African pre-development name Cardinal Resources. Nordgold has just hiked its offer for Cardinal to 90 cents (Aussie) per share, valuing Cardinal at US$275 million. The hike is 28% over Shandong's last offer. Shandong has an option to match (or exceed) Nordgold's offer, so we may not have finished the bidding war yet. I think this move is noteworthy since it is one of the first corporate actions I've seen in the West African space where the bid price is reflecting more realistically the current gold price. It also allows us to get a better idea of the value of Dugbe, which appears to be valued by the market at zero for Hummingbird.
First some differences. Cardinal's flagship Namdini deposit is in Ghana, a lot better jurisdiction than Liberia. Moreover, it sits in the north of the country amongst a series of other existing established mines, so taking the mine to production is a lot easier as there is a lot of infrastructure and talent around for any would-be purchaser to leverage off. Second, it's a lot more advanced than Dugbe in terms of due diligence: fresh PEA and PFS in 2018 and FS in 2019. Further, the 5 million ounce endowment at Namdini is in the proven and probable reserve category while Dugbe's 4 million in is in indicated and inferred. However, like Dugbe, they still need to move a lot of dirt as LOM head grade is 1.13 grams per tonne. Dugbe is a little bit higher than that. Further, the mine will not be cheap to build: US$390 million to give production of around 300k oz per yr for a 15 yr LOM. Finally, Cardinal has around US$25 million in debt and little cash. So if you add the bid price, debt and mine CapX, Nordgold is spending about US$700 million to take the mine into production and still hopes to make a decent return. Obviously, Namdini is far superior to Dugbe as a project, but given the price put on Namdini, it seems strange that the value of Dugbe doesn't appear to be reflected anywhere in HUM's US$190 million market cap.
You can find Cardinal's latest presentation on Namdini here:
https://www.cardinalresources.com.au/wp-content/uploads/2020/06/JUNE-2020-CDV-Presentation.pdf
FYI, this is the release from B2Gold. Emphasises that any incoming Mali government needs them as much as they need the support of the incoming government:
https://www.b2gold.com/news/b2gold-continues-to-operate-unimpeded-at-its-fekola-mine-in-mali
Pretty muted response at the Toronto open. BTO, with huge Mali exposure, down 2%. By comparison EDV, whose major mines are in Bukino Faso and Côte d’Ivoire, up 1.5%.
The seniors Barrick and Anglogold Ashanti have major mines in Mali; they have considerable political punch and are likely to lead any negotiations over mining issues should a new government form. Within their total portfolios, however, Mali is important but not vital. The stock you shoud watch to see the institional investor reaction is B2Gold listed as BTO on Toronto. Market cap is US$6.5 billion. Critically, its flagship mine, Fekola, is in Mali and does 600k oz per annum, over 50% of BTO's total output. So how how that stock reacts at the Toronto open at 14:30 UK time will give you a good idea of institutional investor sentiment.
Excellent. I must have missed that. Everything seems to be coming together nicely now :)
Extract actually originally comes from a BMO Global Commodities Research report authored by Colin Hamilton.
Report is titled "Vanadium: Clarity on the New Rebar Standards"
The report is headed with a "Bottom Line" summary paragraph as follows:
"The year so far has failed to live up to the vanadium price hype that was promised with the introduction of new rebar standards in China. In order to get some insight as to why, we spoke with the China Iron and Steel Research Institute (CISRI). Looking ahead to the second half of the year, we forecast vanadium prices to recover and push higher as the stricter standards are enforced, with inspections at all Chinese rebar mills scheduled throughout June and July."
Under the CISRI interpretation of the situation, although the new standards came into effect in November 2018, they weren't incorporated into actual licences. That process will now take place over the following two months and the licence renewal process also incorporates and parallel inspection.
Seems things are going to hot up in the vanadium space from now onward!
I got this from poster Clipper on the Stockhouse LGO board. And he, in turn, got it from @airic101 on Twitter. It's taken from what looks like a Bluematrix report dated 30 May. I can't (as yet) track down the original report, but still is a very interesting piece of commentary and explains the lag for new rebar standard implementation and the recent downturn (hopefully now ended) in vanadium prices. (the text is a bit rough as the formatting was ripped out in my cutting and pasting).
https://twitter.com/airic101/status/1135992859796987904
Our conversations with yang caifu phd, vice chief engineer of the china iron and steel research institute provided a clearer picture. Chinese rebar producers are required to renew their license every five years, or if there is a change in standards. Inspections take place each ime a license is renewed. While the change in standards was effective in November, the issuing of new licenses is due to take place through June and July. Post July all producers shall be bound to the terms of their new license, which involves adhering to the new standards, This aligns with other market commentary that we have seen from Chinese steel mills and vanadium producers, Yang also mentioned that, at these price levels, steel mills should prefer the use of vanadium to niobium during the production of hol rolled high strength rebar.
Once the standards are enforced, assuming the current 2019 annualized rebar output rate and no niobium substitution, we forecast Chinese vanadium consumption in rebar could increase to 75ktv per annum. Sensitivity analysis suggests that 30% niobium substitution in Grade 3 rebar results in vanadium consumption fallin to 62ktv which still amunts to a 70% increase over 2018 levels. According to CISRI, 2018 Chinese vanadium consumption in rebar amounted to 36kt of vanadium.
Pdub. Thanks for your excellent work getting Terry Perles comments out so quickly. I certainly thought that was the most interesting part of the conference call.
Seeking Alpha now have the complete transcript out. For those who haven't listened to the call, there are also some interesting questions asked of Terry by analysts during the Q&A, particularly an update on stone coal producers in China.
https://seekingalpha.com/article/4264462-largo-resources-ltd-lgorf-ceo-mark-smith-q1-2019-results-earnings-call-transcript
Largo's Q1 conference call yesterday had a lot on the general vanadium market outlook since they brought their vanadium market consultant, Terry Perles of TTP-Squared, onto the call to both present on recent pricing trends at the beginning of the call and field analyst questions where appropriate.
Terry presents from the 12 minute point into the call. Lots of interesting stuff on niobium substitution and how far it can go. He also talks about the Chinese stone coal producer situation in some detail 12 minutes from the end.
There are also nuggets of interest for Bushveld investors throughout the call, but may be easier to see the Seeking Alpha transcript which usually comes out with a lag of a day or two. One analyst asked a question of how quickly Bushveld will be able to bring Vanchem up to speed and so new vanadium supply into the market.
Conference call can be found here:
https://www.largoresources.com/investors/financial-reports-and-filings/default.aspx
AMG had a conference call last week and its CEO Heinz Schimmelbusch had quite a lot to say about vanadium pricing, although he rather loses his temper with the analyst questions about short-term vanadium tends (basically, saying you can't forecast short-term movements, but can get a handle on longer term trends). You can find a transcript of the conference call at Seeking Alpha here:
https://seekingalpha.com/article/4260541-amg-advanced-metallurgical-group-n-v-amvmf-ceo-heinz-schimmelbusch-q1-2019-results-earnings
I'll just pick out one comment about the potential restart of vanadium purchases for the large-scale VRFB project in China which I thought was interesting:
"The other demand is the battery demand. We have information about a particular large stationary battery in one of the China provinces, which is short 3,000 tons of vanadium. That's 4% of the world production. If this project decides to now eliminate, its short position, it actually needs 4000 tons so they bought already 1000 tons. But then they stopped because of the vanadium price spike. If they go back into the market then the vanadium price will be different than if they postponed to go into the market. Given that scenario, you will understand that we are not simply making an assumption and then go our way. We are scenario planners and we are working on this in a very hard way and then we make a comfortable – a decision which makes us comfortable as experienced metal guys."
Just posted this on the Stockhouse BB for Largo, but is just as relevant for Bushveld. All three names BMN, LGO and AMG are cash producing monsters on the back of their vanadium operations. AMG is the first out the gate with a share buyback and LGO has already announced its likely intention to buyback from June. Provided vanadium prices stabilise, it is just question of time for BMN to instigate a cash return to shareholders strategy (I know there has been some disappointment on this board over the non-announcement of a dividend strategy by end March). This is what I wrote on the other BB with regard to AMG:
Advanced Metallurgical Group (AMG) is helpfully providing us with a live experiment on how a speciality metals stock reacts to the announcement of a share buyback program.
Around 50% of AMG's EBITDA came from vanadium in the last reporting period and, like LGO, stock is traidng on a very low multiple. They've just announced a 3 million share buyback program through to mid-October. That is equivalent to around 10% of their 30 million outstandiing shares and would cost around 100 million euros. One thing I like about the announcement is that they intend to release weekly updates on how the buyback is advancing.
As I type, stock is up 10% on the announcement. Worth monitoring going forward and hopefully will provide a great precedent for a Largo buyback come June.
https://amg-nv.com/release/?id=2241103&date=201904
And more information on those stone coal producers:
Brian Nunes
“You mentioned that there is some stone coal mines that are being given licenses that could potentially come back on at the end of this year. Given the steps shift in the amount of tonnage that requires vanadium import and steel making with the introduction of these new rebar standards. Do these operations offset the existing supply deficit? It's my understanding that the supply deficit potentially loss at least a year, year and a half, two years. And that maybe is a little bit of change from that view. Just if you could expand a little bit on what you see as the potential production coming online from these stone coal mines?”
Mark Smith
“Brian, part of the problem as always is the data you get from China, you need to really sit and think about for a while. But the stone coal production numbers that we're getting from the actual stone coal operators themselves those numbers are numbers that have never been physically achieved at any of these mining sites. And so we have to take those numbers and try to put some reality into them. And it is our opinion that although there will be some increased level of production by the end of calendar year 2019, it will not take care of the supply deficit that we have, not only in China but around the rest of the world as well. And the sum total on production versus demand worldwide remains in deficit. So our opinion hasn't changed there.
The deficit maybe slightly less than what we thought, because of the new production coming on towards the latter part of the year, but we also don't believe that the stone coal operators will be able to produce anywhere close to what they're suggesting, because they never have. And remember too that the stone coal production that's coming on, I think this is a very important point as well. The stone coal production that is starting to get some life that will be very expensive production as well. So, in some ways it starts to reset what that minimum market price would be for the materials, because they are the marginal producers.”
Some interesting colour on vanadium pricing from Mark Smith CEO of Largo on their FY results call yesterday. Seeking Alpha has a link to the call and a transcript here:
https://seekingalpha.com/article/4251413-largo-resources-ltd-lgorf-ceo-mark-smith-q4-2018-results-earnings-call-transcript
CEO Mark Smith is sruggling to understand current weakness in vanadium pricing. Early in the Q&A:
“…we are aware of one Chinese producer who has reintroduced domestic iron ore as their feedstock at their steel mill. And so there will be some limited amount of additional vanadium slag that is produced by that producer who will then send it to their subsidiary vanadium company and produce them vanadium from it. It will not largely impact the current supply and demand deficit that will remain the same.”
“The steel rebar producers are in fact complying with the new Vanadium standards that took effect in November of 2018. The Chinese government is sending inspectors out to ensure that compliance. And although we do see some additional production coming online, it's going to be at the latter part of 2019. And so this supply demand deficit is going to be with us for the better part of 2019. And we expect robust pricing to remain pretty much status quo for the time being until we see how that new production comes on.”
He also mentioned that two stone coal operators had been permitted to restart production and referenced that fact in two Q&A exchanges during the call.
In an exchange with legendary investor Lee Cooperman:
Lee Cooperman
“And are you guys surprised at current prices, because I had a feeling we speak to a consultant, you speak to the same guy looking for materially high prices. Are you guys surprised and what do you see as the outlook for pricing?”
Mark Smith
“I'll answer that one, Lee. We absolutely really are having a hard time figuring out what's causing things to happen in the market the way they are right now, because the fundamental supply deficit has not changed one bit. And in fact orders for vanadium are going up in China as a result of this rebar standard. So, it's very, very difficult to explain what's going on. But I think that the general consensus that we're reaching in the industry is that there is an anticipation for additional production coming on in the latter part of 2019 and that has just caused a mood shift in the market. But the fundamental supply deficit has not changed and in fact, is getting worse every day and inventories do not exist. So, I still expect that we're going to see the sacks of the market take over and the mood part of this thing is going to go away, because there just is not enough vanadium.”
Just broadening out from my discussion of CellCube and the vanadium plays BMN, LGO and AMG.
My portfolio is dominated by BMN, LGO and AMG, although I do have some lithium names like PLS, AJM, NMT and so on.
Currently, I prefer vanadium names just because the barriers to entry to new entrants seem so much higher for vanadium compared with lithium and the stocks are cheaper. It's telling to me that even though the vanadium price is still very high (even accounting for the pull-back), it is only really BMN, LGO and AMG that are showing a credible path to increased production.
The only other name that I feel has a chance of bringing new production to market in material quantities (the uranium names are producing only very small amounts) is Atlantic's Windimurra mine. But even there, we have heard little news of progress; in the past they had huge technical problems, so I wonder what is going on there.
All the other Aussie and Canadian names seem to be making little progress beyond adding a few extra drill holes. We still don't see any serious plans over raising enough money to fund the required CapX from TNG, TMT, AVL, TNO in Australia and PCY, FVAN, VRB, VONE and CUBE in Canada.
The situation has been very different in lithium, with the Big 5 (SQM, Albemarle, Tianqji, Ganfeng and Livent) being joined by a whole bunch of new producers: ORE, PLS, MIN, NMT, AJM and GCY and others names coming up a year or two behind with CapX funding in place.
That said, demand for lithium is exploding upward: likely quadrupling or quintupling by 2025. Vanadium isn't showing that growth trajectory, although it may show a quantum leap if VRFB demand kicks in.
Overall, though the vanadium names are trading at cheaper multiples than the lithium names, they have very defendable gross margins since we aren't seeing any new entrants and they all have growth plans that a) can be financed from ample cash flows internally and b) can be executed internally since they already have the necessary skill set of engineers and so on. What is not to like?
Yup that's right. Latest presentation here:
https://amg-nv.com/investors/presentations/
I think LGO and BMN are slightly cheaper but AMG is more diversified. At the minute, vanadium is AMG's major profit growth driver, but its lithium operation is just commencing with official commercial start slated for May. So if you invest in AMG, you need to have a view on lithium really and also advanced metals in general. Obviously different situation from BMN and LGO.
The other major upstream player who could get increasingly involved in VRFB development is AMG.
Strangely AMG rarely gets talked about in both the lithium and vanadium spaces, although it is a major player in both. It is actually the lowest cost producer of vanadium since it is a processor of spent petrochemical catalysts and is paid by the petrochemical plants to take their spent catalysts away (which they have to do for environmental regulatory reasons). Their CEO emphasised this point in his last conference call earlier this month. They are also doubling their production of vanadium going forward and they have a highly successful engineering division that puts them in a great position to manage a downstream project.
And, like, BMN and LGO, AMG are currently generating bucket loads of cash (euro217 million EBITDA in the year just ended). CEO mentioned in this last conference call that major management focus at the minute was doubling the output of their lithium mine in Brazil and their vanadium catalyst recycling plants in the USA, as well as developing a downstream lithium chemical plant JV in Korea. That said, he has mentioned VRFB favourably in the past, so I would not be surprised if AMG were looking at downstream vanadium projects at the minute.
In my opinion, the successful scaling of VRFB requires access to a dependable supply of vanadium, so the more the merrier in terms of who gets involved. Feel that we are in a win-win situation in that if any one upstream vanadium producer can help develop a significant downstream VRFB capability (and they all have the financial fire-power to do so) it will benefit all the others. Once the technology starts to be rolled out in size, it will open the flood gates to a new source of vanadium demand for all.
Full disclosure: I own all three names.
CellCube actually already has an upstream development resource that it hopes to spin out to earn some cash. But it is far inferior to those of Bushveld and Largo and also would cost a bucket load of cash to develop, which CellCube doesn't have.
CellCube also has a market cap of only US$20 million, which for both Largo and Bushveld is just two or three times monthly free cash flow even if they paid a 50% premium to buy them out. Largo can't bid for anything at the minute since it has outstanding bonds with strict covenants that prevent M&A (issued to get its mine up and running when the vanadium price was at its low). However, as of June 1st, those bonds all become callable, so Largo can forcibly retire the bonds (now only US$29 million outstanding) and it has signalled its intent to do just that. So after June 1st, Largo will have both the cash and freedom to do M&A.
So I guess if neither Largo nor Bushveld take a run at CellCube over the next few months it's because they don't think CellCube has any intellectual property worth having. Given how much free cash LGO and BMN are currently generating they could swallow up CellCube in an instant with almost no impact on their respective balance sheets whatsoever. Will be interesting to see what both these companies do M&A-wise going forward.
Stock is up 14% on the news. I view all newsflow around large scale VRFB rollouts as positive for BMN
https://www.prnewswire.com/news-releases/cellcube-announces-100-mw-energy-storage-project-in-us-300811704.html
AMG had conference call yesterday and recording has just been put up. Around about one third of Q&A relates to their vanadium division. Q&A from 20 minutes.
https://amg-nv.com/investors/media/
Always impressed by their CEO and he remains bullish on vanadium market outlook:
- See China rebar reg enforcement somewhat lacking to date but says has no doubt authorities will tighten and this will underpin vanadium pricing
- Vanadium remains in a long-term growth scenario
- Prices have been firming after Chinese New Year
Few new things I learnt from conference call:
- AMG is global leader in titanium alloys, mostly driven by aerospace. While titanium is main alloy ingredient, such allows also contain vanadium so as aerospace use increases demand for high-purity vanadium also increases.
- AMG is lowest cost vanadium producer as it secures titanium through reprocessing petrochemical-plant catalysts. Huge increase in catalyst usage. The next bit was a bit unclear, but from what I understood regulation changes mean that a huge amount of bunker fuel has to find a home and this will require a large jump in vanadium-related catalyst usage. I guess this relates to new bunker fuel desulfurisation regs after googling the issue. Any board posters have expertise in this area? Anyway, upshot is that this translates into a new vanadium growth driver, and one I have not heard of before.
Whenever I listen to the AMG conference call, always impressed by the CEO. No nonsense guy who really knows his specialist metals. Very gruff and conservative, and not the kind of guy to ramp pricing prospects. So the fact he remains very bullish on vanadium outlook a big plus for me.