Tim Watts, CFO at Shield Therapeutics #STX presenting at our Life Sciences Investor Briefing Watch Now
Eskom VRFB project continues to run following upgrades made to the VRFB battery. The battery passed a series of manufacturer and Eskom site acceptance tests in January and February. The battery will have peak output of 450kWh and is co-owned by Bushveld Energy and the IDC.
Vametco based Solar Mini-Grid Project: procurement to start in next few months following assessment of grid connections and local environment. Solar farms to supplement grid power are seeing significant growth in South Africa due to unreliable and increasingly expensive grid supply.
Vanchem: The deal has yet to receive approval from the South African competition commission.
Good progress is reported and the company is confident of meeting the 31 October date for completion with additional debt finance to come from local banks.
Lemur: revised BFS on the coal mining project, including both surface and underground mining to start this quarter.
JSE listing delayed till 2020 pending auditing of the Vanchem business as required for any listing.
Ferro-vanadium prices rose in China last week by 2.8% to US$36-38/KgV. Ferro-vanadium prices held steady in Europe at US$30-31.05/KgV. (FastmarketsMB)
Valuation: The fall in unit costs raises our valuation for Vametco and Vanchem following its acquisition to 92p/s from 90p/s. We value Bushveld’s ownership of Bushveld Energy at 8.8p/s and we have adjusted our valuation on the other assets within the group to 5.4p/s.
Conclusion: It is remarkable that improvements at Vametco mean the business has almost met our full-year EBITDA forecast in the first half.
While we expect current ferro-vanadium prices to lead to lower margins though the second half, unit cost reductions should serve to offset much of the reduction.
Our post-tax profit for the year rises to US$50.0m from US$43.6m for the year assuming received ferro-vanadium prices average US$50/KgV for the year.
The fall in the pound-dollar rate also makes the figures look even better in Sterling terms.
Bushveld Minerals* (BMN LN) 25.5p, Mkt Cap £285m – EBITDA rises by 15% year on year as management drive down unit costs
(Bushveld Minerals owns 74% of Vametco, 84% of Bushveld Energy in South Africa, 100% of Lemur Holdings, 9.5% of Afritin)
(Vanchem: Our figures include Vanchem production of November and December of ~80mtV per month)
BUY – Valuation raised to 92p from 90p
Bushveld Minerals report a significant improvement in vanadium production in the second quarter.
Production of ferro-vanadium sold as Nitrovan rose by 14% in the quarter to 742mtV vs 649mtV in Q1 taking production to 1,392mtV through the first half.
A series of improvements have increased production through mine scheduling enabling better quality material into the kiln together alongside better feed and recovery rates.
Production target: the work means Vametco should be on target to meet current 2019 production guidance of 2,800-2,900 mtV.
Management expect to achieve a run rate of 3,400mtV in 2020 for no additional capital cost and continue to review the timing and investment to get to >4,200mtVpa based on a name-plate capacity of 5,000mtVpa.
Costs fell 14% to US$17.40/KgV in the first half vs US$20.2/KgV a year ago driven by higher feed rates, a weaker rand and other cost initiatives.
Cost guidance remains unchanged at US$18.90-19.50/KgV for the year as we expect the SA rand may appreciate through the second half.
H1 EBITDA was US$48.6m vs US$42.4m a year ago with margins > 50% due to the focus on unit costs, relatively good ferro-vanadium prices and weaker SA rand.
H1 Revenue was US$74.3m in H1 vs US$81.2m a year earlier when ferro-vanadium prices were higher.
H1 ferro-vanadium prices were 14% lower yoy at US$56.3/KgV.
Both sales and EBITDA benefit from a relatively strong ferro-vanadium price and the lag in pricing from December 2018 which feeds through into Q1 this year
Vametco also successfully completed wage and benefit negotiations with the AMCU union to run from 1 July 2019 to 20 June 2022
Bushveld Energy - Electrolyte Plant EIA on track to be completed this year with samples sent to vanadium battery companies for testing.
Electrolyte rental: The financing of VRFB’s through the leasing of vanadium in the electrolyte has got off to a rapid start with the implementation of a first rental contract with Sandbar in the US though Avalon Battery Corporation. Bushveld management are also working on a dedicated vanadium electrolyte rental fund.
Eskom VRFB project continues to run following upgrades made to the VRFB battery. The battery passed a series of manufacturer and Eskom site acceptance tests in January and February. The battery will have peak output of 450kWh and is co-owned by Bushveld Energy and the IDC.
(Part 9) So we have to appreciate that it's not the most straightforward story and it's one which I think the market will only fully appreciate as we deliver very granular initiatives such as the electrolyte plant and we start to produce electrolyte, we deliver the electrolyte rental contracts and the market can see how that works and how it translates into value. As we deliver deployments of VRFBs and as we demonstrate what sort of partnerships we are going to do with VRFB manufacturers. So I can understand why the story is not yet fully understood or appreciated but I think it's only a matter of time."
"I guess one other question. You recently announced a possible change to your dividend policy. Could you just talk briefly about that?"
"On the dividend policy we didn't so much change as announced our approach to dividends. It is the first time we are actually explicitly stating how we view dividends going forwards as a company The key points we wanted to highlight there were firstly that as a company we are still very much a growth story and therefore a big chunk of our proposition is capital growth. However we as a low cost producer we are a cash generating business and we believe that with the growth ahead of us we will be in a position to fund our expansion and our growth and still have sufficient free cash flow to pay out a dividend and we just wanted to clarify that when we do do that, that will be based upon a payout ratio on free cash flows."
"Ok that's excellent. So FM and MN thank you very much for your time today.
(Part 8) So you ask yourself what are the other risks involved for a mining and processing company? Our electrolyte plant that we are building in East London which will produce enough electrolyte for about 200 MWH per annum. That's $10 million Capex every debt and working capital included. Now if I was to build a mining and processing facility that produces the amount of vanadium that is involved in that amount of electrolyte you are talking more than 10 times that amount of Capex. So it is the kind of risk that we are uniquely positioned to absorb and to deal with because we spent the big bucks in building the mines and the processing infrastructure. But having said that I should also add that even though the capital intensity is much much lower going downstream the economic and commercial opportunities are much much bigger. The energy storage market is potentially 5 to 10 times bigger than the commodity market just selling V into the market. So for us it's almost a no brainer and it gives us a very good hedge in terms of the vanadium price. When V prices come off while the mining and processing prices may come down the attractiveness of our energy storage solutions goes up. The best of both worlds."
"That's great. And obviously you do a fair amount of marketing of the company. What's the key factor in your view about the company that investors don't really get?"
"Well there are a couple of things. I think one of the challenges we have is that when you look at us do you look at us as a mining company? Do you look as an energy company, or both? And we think that predominantly we are still viewed as a mining company. As mining and processing companies go we are one of the lowest cost producers. We have a production platform on the back of which we can scale up our production. We are talking about growing our production more than three times over the next 3 to 5 years for a very modest Capex spend. Just the upside in that story alone is quite substantial and we don't think that that's fully recognised and appreciated. Then you talk about the energy (piece) we think that the storage market itself is not fully understood and there are reasons why it's not yet fully understood. The dominant narrative today when people are talking batteries is still very much centred around EVs which is largely a lithium ion space. Stationary energy storage is only beginning to catch on and as it does we think that the market will then cotton on to that. In an EV the use of a battery is typically a single application which is taking the car as far as you can from point A to point B. In a utility in a stationary application a simple battery is doing multiple things from deferring transmission Capex investments to load shifting to integrating renewable energy and frequency regulation etc etc.
(Part 7) However as the trend is moving to long duration where you need capacity support multiple things for a battery to do. Deferral of transmission investment, distribution investment. This is where the flow battery becomes extremely attractive, and one other benefit that I would add is the V battery doesn't degrade. So if you are using it every single day the capacity you have in one year, ten years, twenty years is basically the same. Whereas for a lithium battery you will have very quick degradation, and getting it to last beyond 10 years or getting it to use it much more than once per day is going to be very difficult. So once you've got these use cases of long duration, fairly frequent use the technology becomes not only compelling but extremely attractive."
FM: "By some estimates 90% of stationary energy storage applications by 2027 will be of a long duration nature which really plays to the strengths of VRFBs."
"OK. That's fascinating. Thanks both. That's really useful. So to summarise the business you've got a world class V production base in SA and now you're looking to move downstream into the battery value chain. Recapping on companies that have moved into downstream businesses in the past it has risks associated with it. How would you respond to an investor who was wary about the risks of moving downstream?"
"When people talk about risks associated with downstream, oftentimes they are referring to moving from mining to processing. If you look at the capital investment involved in building a mine relative to the capital involved in building a processing plant you have a huge jump in the capital intensity. That is not what we are doing. With Vanadium you have to build a processing facility. You are either going to build a primary processing facility or you are going to build a very expensive pig iron or steel processing plant. And we in SA as BMN have had the great opportunity of targeting brown field assets which means that we have been able to build the processing infrastructure or capacity very cheaply and very quickly by targeting these brownfield assets. Once we've got these processing facilities then we produce vanadium The downstream we are talking about entering into the energy storage market it's not capital intensive at all. By orders of magnitude you are talking about as much as 10% of the capital intensity of building mining processing facilities. So it is a misnomer that going downstream into the energy market for us requires significantly more patents. So that takes out that capital intensity risk.
(Part 6) The second part is around actually manufacturing and assembling the batteries themselves. I think at some point once the market develops in South Africa we will look to put in an assembly plant here. Together with that we are looking at developing opportunities to take positions directly in some of the battery companies themselves. Obviously we need to be comfortable that there's a good return there, but its a way for us to start having some impact at the IP part of the industry.
Then the third part which is really where we spent the most efforts from the BE point of view is what I call deployments. And there we can do direct sales of batteries as a local value end partner. But much more interesting is what I call project development where if someone needs a storage solution maybe together with a solar plant we can go out and develop this opportunity. Do the business case for it. Raise the funding. Do the permitting. And that's a very interesting kind of market. We've got a pipeline of projects.
Obviously we've done a project with the SA utility Eskom already. We are building a commercial mini grid at our own mine and that's solar and storage combined. There's a financial model behind it that we believe is bankable. And this is a way that we can contribute to the adoption of the technolgy and not just be kind of passive suppliers into the space."
"OK. Thanks very much. Now to some extent in the stationary storage you are competing against lithium ion batteries but the VRFBs got a fairly unique set of properties. Could you just recap how it competes with a lithium ion in these applications?"
"Absolutely. I think that when you think about lithium ion and then the flow battery the difference is do you need power or do you need energy? Use the comparison of a car. In a car the motor gives you the horse power - how fast can you go, how much tork can you generate. But it's the gas tank that tells you how far you can go at that speed with that power. And the flow battery once you add in energy you have a 4 hour battery, 6 hour battery, 8 hour battery, it becomes extremely cost competitive to lithium even despite the cost decreases that lithium has seen. So if you are looking for 15 minutes of storage, 30 minutes of storage, even just an hour, you go and you buy a lithium ion battery. That's why they are so successful in the US where historically you've only had a market for frequency control and other types of ancillary services
(Part 5) "And from the point of view of the batteries I think the leasing deal is very exciting, but your business has also got plans to go downstream into the energy storage chain. Could you talk a little bit about those plans?" ( 38.25)
"So I'll make a couple of comments and Mikhail will talk further around it. And it's the following. When we started up BE our thinking was informed by 2 motivations. The first one was we noted that 90% + of V demand was coming from the steel sector and any opportunity to diversify and strengthen the demand profile for V would be something that would be of interest to us. And then the second motivation was when you look at the energy storage market it is a large market, potentially a $100 billion market by the end of the next decade. So it's a market which commercially is compelling. And on both accounts we decided to create BE to drive VRFBs in the stationary energy storage market. Now what also supports that on top of the economic proposition of this market was the observation that the main hurdle to adoption of VRFB technologies in the stationary market are hurdles that are eminently solvable and that we as a company have a lot of opportunity to have direct impact on it. And one of those hurdles is the availability and security of supply of V, given that VRFBs utilise the amount V of that they do. And just to put that in perspective a 100,000 MWH market by 2027 as forecast by Navigant, if you take out 10% of that as the market share that VRFBs can take up and some estimates put that as 18% to 25% you would need something like 55,000 mtV just to meet that. That's more than 50% of last year's total global vanadium production. And the second hurdle that you needed to address is the one of vanadium contribution to the total cost of the VRFB, which we are solving for through the rental product but also making sure that we've got a low cost production base which is scaleable and this is why as a company we have spelt out an intention to more than quadruple production over the next 3 to 5 years. So if you can solve for those two key hurdles then VRFBs have a unique opportunity to emerge as one of the leading technologies in the global stationary energy storage market.
"And Mikhail do you have anything to add to the downstream plans?"
"So I think just what are we doing. I kind of think of it as 3 directions within BE. One is around chemicals such as manufacturing and the electrolyte. There's some R and D that we do and this is where the sales and the rental product come in.
(Part 4) Second is we believe that financing for rental or lease is actually cheaper than financing that some other clients would get for that the project finance, so you are actually getting the better cost of capital and the reason is because a) there's an underlying value of the V so its not just about cash flows and so that additional collateral has value for investor or a lender. The third part is were taking a large piece of the Capex and we're putting it into Opex, so again you're not spending that money up front. You can do it over longer period of time and even though you shouldn't be looking at just the upfront costs of a battery you are making a decision in which you should be looking at lifetime ownership costs. Current statistics still show that there's about a quarter of all these decisions even at ultility scale are based upon upfront cost."
"And just to highlight what's the % vanadium cost in the total cost of the battery at the moment?"
"At the moment means today's median price or three months ago or three months from now? That question itself is quite loaded because of the variability. But if you look at some historical rates and where V and battery prices are we are talking about 30% just the V and the electrolyte might push that cost upto 40%. So it's a major cost driver. If you ask what is the contribution of lithium to lithium ion battery you're talking about 5 or 6% again depending on what the lithium price is. So it's a much bigger deal to solve for the vanadium cost for vanadium batteries than it is to solve the cost of lithium cobalt nickel manganese for a lithium ion battery."
"And just to round up on the knowledge base on VRFBs are there any other raw material costs which are relevant in terms of the cost of a VRFB in terms of the electrode or membrane or the casing if the battery?"
"Not raw material. The electrode itself is a polymer (felt). It's really a manufacturing question. It's a really there just about scale. Some different companies will use different polymers, different suppliers, some will have materials supplied that have some sort of patent protection and trademarks that might be a little more expensive. But really the second most component is that membrane and its a scale game. So if you can get to scale on manufacturing the prices will drop and they will not have a floor that's driven by commodity prices as electrolyte has."
(Part 3) "We touched on energy storage and batteries. How much do batteries contribute to vanadium demand currently and how much do you forecast they could contribute in the future?"
MN: "A good question. I think the statistics from last year was somewhere around 3% of V consumption went into energy storage, but I think there's a caveat there. The second half of the year was very slow because prices were at near historical levels. At which point just buying the vanadium outright made the battery uneconomical. A lot if projects got pushed back with the expectation of either some sort of solution around the V supply or prices that would return to something more aligned with historical levels. From 2015, 2016, 2017 we saw very good growth, almost doubling in consumption of V into energy storage. In the second half of 2018 that slowed. We would expect that trend to resume now that the prices are closer to historical levels. In terms of where can this go the forecasts are quite broad and it really depends on what % of stationary storage can VRFBs capture. That is a massive market. We're talking about a market that is close to $100 billion by the end of next decade. In terms of what % can it capture? Somewhere between 10 and 25% those are the different forecasts that we have seen. That could equate anywhere between 20 and upto 45% of vanadium production in the future."
"I was going to come back to the V leasing later but I think this answer just leads into it very well. So obviously V leasing sits in the BE subsidiary. Can you tell us a little bit about the deal you have done and what sort of impact that's likely to have on the upfront cost of VRFBs going forward?"
"We are trying to do few things there. One is to reduce the upfront costs. The other is to allay the impact of higher prices and we started this when prices were going up. To be able to solve or taking out the impact of the vanadium price from the battery without taking the V out of the battery. And really what it can do is the Capex can come down to almost zero for an electrolyte lease, depending on how you structure it. The model that we've worked at (1/3 of the) cost upfront or it can be zero, again it depends on what the customer wants. Basically there's a few things that happen. First of all you don't need to recover the full value of the vanadium because there's residual value. So that's incorporated into the product.
(Part 2) "OK. Thanks very much. Just quickly in the June issue of Battery Materials Review we flagged that you've got 2 of the World's 7 tier 1 Vanadium assets in terms of grade. We're tracking 51 vanadium mines and projects globally currently. Going forward how important is grade going to be to Vanadium production?"
"The way you produce vanadium there are two main ways that it's done. You either build a steel plant or a pig iron plant which produces steel or pig iron with Vanadium coming out as **** byproduct which then has to be processed further into Vanadium. That processing utilises a method called the salt roast method.
Alternatively you go direct and you produce vanadium using the salt roast method which is what we do at Vametco. Now the key here is if you are going to process and produce vanadium ideally you want to be running a primary vanadium facility because the key consideration there is vanadium, whereas with pig iron or steel you have to worry about steel economics, not to mention that the capital intensity of pig iron plants is as much as 5 x that of a primary vanadium plant. But you cannot build a primary Vanadium plant if your grade is not high enough above a certain threshold. By the way that's why you find that most of the primary vanadium facilities are located in SA. It's a function of grade. Without it you are forced to go down the path of steel plants or pig iron plants which is prohibitive from the Capex point of view among others."
"You talked a little bit about Vanchem and about how it's going to diversify your product stream. Does that mean that you will move out of FerroVanadium and you'll be able to produce vanadium chemicals etc for batteries and that sort of space? Is that correct?"
"FerroVanadium and some steel plants prefer using FeV, other plants prefer using vanadium carbon nitride products like Nitrovan. So when we have both in our product mix it just gives us more flexibility and more reach in the market. Also the chemical production capabilities are very much important to us given our aspirations in the energy storage industry. We are currently building an electrolyte manufacturing facility and we will look to maximise synergies between that facility and Vanchem. So that ability to produce multiple vanadium products is a huge step for us."
10.08.19 interview FM and MN corrected
(Part 1) "You have a very interesting platform from the battery's point of view. You've got world class upstream vanadium mining and processing assets in SA, quite an interesting downstream business and vanadium leasing and the potential to go into batteries themselves. Can we just start with a summary of the upstream business? Can you give a brief overview of what you've got in terms of your existing assets?"
FM "Sure. Our asset base of mines and processing facilities are based in SA on the Bushveld Complex. We essentially have 3 key assets: Vametco, Mokopane and the Brits project, and in addition to those 3 we have recently announced the conditional acquisition of Vanchem. I'll give you just a quick summary of what each of these assets are.
Vametco is our flagship asset. It's an integrated open pit mine and processing plant and its production base last year was 2,560 mtV. This year we have a guidance of 2,800 to 2,900 mtV, and it has the potential to grow to 4,200 mtV pa over the next 3 years on the back of an expansion programme that we are running.
Then we have the Brits project which is an extension of the Vametco mine. We declared a Resource there recently. The grades are about 1.58% V2O5 and the resource size of the Brits project is approximately 67 million tonnes. Between Vametco and Brits we have a resource base of approximately 260 million tonnes resource.
Over and above that we have the Mokopane project. We have the PFS that we completed and we have a mining right on this project which is imminent. The resource is 298 million tonnes of vanadium and the Mokopane project is intended to be a primary supplier of ore to Vanchem which will be our 4th asset once we complete the acquisition of that plant which we announced earlier this year.
Vanchem itself is a processing facility which currently produces about 1,000 mtV pa and the cost of the refurbishment at a cost of about $45 million will grow to 4,200 mtV pa. In total what the portfolio has is 3 deposits which combined have a resource base of 552 million tonnes with top tier vanadium grades of between 1.58% and 2.02% V2O5, together with 2 processing facilities that combined post refurbishment, our investment and expansion plans at Vametco, are anticipated to produce 8,400 of Vanadium over the next 3 or 5 years.
A really solid upstream set of assets. I would just add that at Vametco we produce a product called Nitrovan which is used by steel plants around the world for strengthening steel. Vanchem will allow us to diversify the product range to also include V2O5, vanadium trioxide, vanadium chemicals as well as FerroVanadium. So between those two processing facilities we will be able arguably the broadest range of vanadium products in a single company."
This comment in The NewYorker:
“Denmark would be interested in purchasing the United States in its entirety, with the exception of its government,” the spokesperson added.
A key provision of the purchase offer, the spokesperson said, would be the relocation of Donald Trump to another country “to be determined,” with Russia and North Korea cited as possible destinations."
In an idle moment I looked at Ebitda margins for Vametco
"Demonstrating to buyers and investors its worth.
EBITDA helps you analyze and compare profitability between companies and industries, as it eliminates the effects of financing, government or accounting decisions. This provides a rawer, clearer indication of your earnings."
H1 2019 Vametco
Revenue $74.3 million
Ebitda $48.6 million
From these figures we get an Ebitda margin of 65%. That is a good margin!
Even for Q2 2019 when V price was lower than Q1 Ebitda was still very good.
Q2 2019 Vametco
Revenue $30 million
Ebitda $16.9 million
Ebitda margin 56%
BMN own 74% of Vametco
For comparison in 2018 Full Year Vametco:
Revenue $192.2 million
Ebitda $107.5 million
Ebitda margin 56%
So even Q2 2019 Vametco had same Ebitda margin as the Full Year 2018 which produced a net profit for BMN of $49 million.
Looks like the interims should show that BMN is very profitable even at this V price. One important factor appears to be the drive to keep production costs low thus protecting margins, and a low Rand / Dollar is helping too.
That's kind VV.
I only posted as many here showed interest in my welfare (a community sprit that our troll simply wouldn't understand). Didnt expect responses and don't want to clog the bb with my issues.
Would like the focus to remain on this great company BMN.
FM on Directors Talk 12.06.19 (just the final part focussing on the future)
"That's great news. Now you've said that the structures and documentation is now in place and forms the groundwork for future projects. Is it safe to assume that there's already been discussion about further projects? And I guess what I'm asking is what else should investors be looking out for in the coming months?"
"If we're talking further projects it depends what we are referring to. If we are talking about our primary producing platform I think that it's fair to say with Vametco and Vanchem our priority is to complete the acquisition of Vanchem, post competition approval, and to make sure that we undertake that refurbishment programme as quickly as possible to get Vanchem producing at 4,200 mtV pa level. At Vametco we have a clear priority to increase the production volumes there. Incidentally the increasing production volumes further lower your costs of production which will make our production that much more competitive. So those are the immediate priorities for us for vanadium production point if view.
On the energy front there are a number of initiatives that we have said that we are doing. Certainly we want to grow our plan of the rental product. We also want to grow our plan of VRFB projects. One of the things we do do is try to develop mandates for large scale energy storage which we can solve through VRFBs. Of course we've got the electrolyte plant that we are building up in East London with the IDC. We have a solar / VRFB mini grid that we are busy with at Vametco, which we are quite excited about and which we would like to use to demonstrate the business case for typically what you call your industrial large energy user customers. So that's a lot of stuff that the market can expect from us.
At a corporate level we have announced that we are looking and thinking of listing on the JSE. We think that we have a story that resonates very very well with the capital markets in SA and would like to create a platform for local capital markets to participate in our story. And we continue the work to expand our organisational capacity. We've seen tremendous growth over the last 2 years and it's quite important for us to make sure that our capacity to manage this growth, as well as the growth that yet lies ahead, is strengthened. And in respect of that you will see some news flow in the coming months and years."
That's very kind RK. My thoughts are with you. Can be a bit nerve-racking waiting those results. Hope the news is good for you and that you will let us know.
The community spirit and support on this bb is so important. Clearly some posters simply don't get it, but I have been truly touched by the generosity of spirit of contributors to the BMN bb.
Kind regards. Pdub.b
Thanks knuttie. I am more concerned about that than a possible return of cancer. One day at a time though. My best wishes to Liz. I take my inspiration from all those that have dealt with this disease.
Kind regards. Pdub.