Bushveld Minerals Regulatory News (BMN)

Market Abuse Regulation (MAR) Disclosure

Certain information contained in this announcement would have been deemed inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 until the release of this announcement

23 June 2020

Bushveld Minerals Limited

("Bushveld" or the "Company")

Full Year Results for the Period Ended 31 December 2019 & 2020 Guidance Update

Bushveld Minerals Limited (AIM: BMN), the AIM quoted, integrated primary vanadium producer and energy storage provider, with ownership of high-grade assets in South Africa, is pleased to announce its full year results for the year ended 31 December 2019.

FY2019 Operational and Financial Highlights

· A sound safety record with no fatalities and a 19 per cent year-on-year improvement in its Total Injury Frequency Rate at our operations.

· Acquisition of the Vanchem processing plant (100 per cent interest) completed in November 2019 for a fair value consideration of US$55.8 million.

· Group vanadium production was up 15 per cent year on year, to 2,931 mtV (on a 100 per cent basis) (2018: 2,559 mtV) as a result of an 11 per cent increase at Vametco and incorporation of Vanchem's two months of production.

· Revenue of US$116.5 million (2018: US$192.1 million) a decline of 39 per cent relative to the prior year, largely due to a 34 per cent reduction in the average realised vanadium price.

· Vametco's production cash cost was down five per cent year on year, to US$18.11/kgV (2018: US$19.0/kgV)

· Group EBITDA of US$32.6 million (2018: US$101.2 million). A 68 per cent decrease relative to the prior year due to a decline in the vanadium price, partly offset by a reduction in cost of sales.

· Gain recognised on bargain purchase of US$60.6 million for the Vanchem acquisition, completed at fair value consideration of US$55.8 million.

· Profit after tax of US$69.2 million (2018: US$49.0 million).

· Basic Earnings per share of 5.51c (2018: 2.90c).

· Underlying earnings per share excluding gain on bargain purchase of 0.12c (2018: 2.90c).

· Cash and cash equivalents of US$34.0 million as at 31 December 2019 (2018: US$42.0 million) with bank debt of US$18.6 million (31 December 2018: nil) after drawdown of the term loan.

o Secured ZAR375 million in debt facilities from Nedbank, in the form of a ZAR250 million term loan and a ZAR125 million revolving credit facility, which have been fully drawn post year end to provide financial flexibility.

o unaudited gross cash and cash equivalent balance as at 31 March 2020 of US$34.4 million including the entire ZAR375 million debt facilities.

· Significant progress at Bushveld Energy, having launched the Vanadium Redox Flow Battery ("VRFB") Investment Platform (VIP) in line with strategy for partnering with VRFB companies, including two successful minority investments and the installation of our first VRFB in South Africa.

Fortune Mojapelo, CEO of Bushveld Minerals Limited, commented: 

"I am pleased to report on another strong financial year for Bushveld Minerals as we continue steadfastly executing on a strategy, we outlined in 2014, to build one of the world's largest low-cost and vertically-integrated primary vanadium platforms.

"Following the completion of the acquisition of a 74% interest of Vametco, over a two year 2017-2018 period, I am pleased to see this flagship asset continue to shine. Production grew and costs came in below our guidance estimates. Despite notably lower vanadium prices compared with a year earlier, we were able to report a solid Group EBITDA of US$32.6 million. After tax profits of US$69.2 million were helped by a one-off gain on the acquisition of our second processing facility, Vanchem, which closed near the end of the year, after it was valued higher than our eventual purchase price.

"The acquisition of Vanchem is another significant milestone for the Company, adding another brownfield primary processing plant to complement Vametco. With a 3-kiln configuration, and a product suite of vanadium pentoxide, vanadium chemicals, vanadium trioxide and ferrovanadium, the Vanchem acquisition has positioned Bushveld to own one of the broadest vanadium product portfolios in the world. Located conveniently with access to rail infrastructure passing close to the Vametco operations on the Western Limb and the Mokopane deposit on the Northern Limb of the Bushveld Complex, the Vanchem plant fits seamlessly with the Bushveld's assets and provides the Company with a flexible and scalable vanadium production platform. Already producing at a rate of approximately 1,000mtV per annum, which is set to grow to more than 4,200mtV per annum following a refurbishment programme, Vanchem will play a key role alongside Vametco and Mokopane in establishing Bushveld Minerals as one of the most significant low cost primary vanadium producers globally.

"With the completion of the acquisition of two of the three primary vanadium producing operations in South Africa and of the four operating primary vanadium processing plants in the world, the Company is now focused on realising the low cost and scalable production potential of these assets as it grows its production base to more than 8,400 mtV per annum. A successful operations transformation programme aimed at unlocking operational efficiencies at Vametco saw the operation achieve record production from magnetite ore, a record we hope to improve on in the 2020 year.

"I am also pleased to report on significant progress in implementing our vertical integration strategy, where our energy storage focused subsidiary, Bushveld Energy, achieved key milestones across all the three key pillars: electrolyte production, supporting Vanadium Redox Flow Batteries ("VRFB") manufacturing and VRFB energy deployments. These milestones include: approvals by the Industrial Development Corporation ("IDC") and Bushveld Minerals for the investment into the electrolyte manufacturing plant in East London, progress towards in respect of the solar PV plus VRFB mini-grid at Vametco and successful investments into VRFB manufacturing which has been vindicated with stellar performance of its US$5 million investment into the Avalon - RedT merger (now AIM-listed Invinity Energy Systems).

"With so much already having happened in 2020, much of what we achieved last year may feel like the distant past. However, it is important to reflect on the strong base we were able to form in that time, one which allowed us to enter this unprecedented period of a once-in-a generation global Covid-19 pandemic not only to survive the storm but still be well positioned to take advantage of the opportunities that await on the other side of this crisis. Vanadium, remains well positioned in a post-Covid-19 world that will still see a rise infrastructure spending, hence increased consumption of vanadium l and will likely continue on a decarbonisation energy transition path that will see energy storage (and with it VRFBs) grow in prominence. Bushveld Minerals' growth strategy will benefit South Africa by ensuring the country's natural strengths help it to become a global leader in our industry.

"Notwithstanding the short-term capital deferments in the interests of cash preservation that have been necessitated by the COVID-19 pandemic, the Company remains committed to its five-year growth strategy that will ultimately lead to a platform producing in excess of 8,400 mtVp.a. and see Bushveld Energy become a leading energy storage player.

"While internally generated cash flow would always be the priority source of funding for this growth programme, the Company will, over the five-year period, investigate a variety of forms of funding, and prioritise spend depending on market conditions, ensuring an optimal capital structure and the best returns for shareholders in the long-term."

Covid-19 Response

As we reported in May 2020 the Company rapidly developed and implemented a detailed programme in response to the Covid-19 pandemic. The programme prioritises the protection of its employees and host communities through rapid implementation of health and hygiene controls in the workplace, protocols for dealing with suspected cases of infection and business continuity measures to minimise the effects of disruption caused by the pandemic on the business. Our protocols have functioned effectively, and we will continue to monitor the situation and update our measures in line with the guidelines from the South African health authorities and Government.

2020 Guidance and Market Outlook

· While Vametco and Vanchem's production were disrupted by the 35-day nationwide lockdown due to the Covid-19 pandemic, the Company retains the previously announced guidance. However, this is dependent on no further Covid-19 related stoppages:

- Vametco is expected to produce between 3,000 mtV and 3,200 mtV at a production cash cost of between ZAR257/kgV and ZAR265/kgV (US$17.20/kgV and US$17.70/kgV); and

- Vanchem is expected to produce between 960 mtV and 1,100 mtV at a production cash cost of between ZAR245/kgV and ZAR260/kgV (US$16.30/kgV and US$17.30/kgV).

· Total capital expenditure expected for 2020 of ZAR135 million (circa US$8 million), with most of the cost being Rand-denominated:

- Vametco: approximately ZAR50 million (circa US$3 million), including:

§ A total of ZAR11 million (circa US$660,000) of sustaining capital;

§ Approximately ZAR35 million (circa US$2 million) for the completion of the kiln off-gas project in order to comply with environmental regulations and further increase kiln feed throughput; and

§ ZAR4 million (circa US$240,000) required for the Vametco Phase 3 prefeasibility study ("PFS") to achieve a steady state production of 4,200 mtVp.a.

- Vanchem: approximately ZAR85 million (circa US$5 million) has been identified as critical capital expenditure required for 2020 to enable Vanchem to continue to operate sustainably, the majority of which will be incurred during the second half of 2020.

Q1 2020 operational performance

· Group production for Q1 2020 was 871 mtV (on a 100 per cent basis) an increase of 34 per cent relative to Q1 2019 (649 mtV)

- Vametco production for Q1 2020 was 652 mtV (on a 100 per cent basis) in the form of Nitrovan, marginally ahead of Q1 2019 (649 mtV) despite being impacted by the Covid-19 nationwide lockdown as well as higher than usual rainfall during the quarter.

- Vametco early completion of the annual maintenance programme, which was initially planned for Q2 2020 for a period of 10 days. No further maintenance shutdowns are planned for the remainder of 2020.

- Vanchem production of 219 mtV despite being impacted by 10 days of power rationing as well as the Covid-19 lockdown during the quarter.

· Group sales for Q1 were 1,080 mtV (on a 100 per cent basis) an increase of more than double the sales in Q1 2019 (508 mtV)

- Vametco sales of 898 mtV (on a 100 per cent basis) achieved in Q1 2020, 77 per cent higher than Q1 2019 (508 mtV) as a result of additional production volumes in Q4 2019 and increased customer demand.

- Vanchem achieved sales of 182 mtV during the quarter.

· Vametco production cost of US$18.90/kgV, an eight per cent decrease relative to Q1 2019 (US$20.50/kgV), supported by a weaker ZAR:USD rate.

· Vanchem production cost for the quarter was US$18.50/kgV.

Analyst conference call

Bushveld Minerals Chief Executive Officer, Fortune Mojapelo and Finance Director, Tanya Chikanza will host a conference call at 9:00 am BST (10:00 am SAST) today to discuss the 2019 full year results with analysts. Participants may join the call by dialling:

Tel: United Kingdom: +44 330 336 9411; South Africa: +27 11 844 6118

Pin: 2990770

Alternatively, the presentation can be accessed as a webcast here:

https://webcasting.brrmedia.co.uk/broadcast/5eea233d5e278421d0698edb

Annual Report

The Annual Report for the year ended 31 December 2019 will be available on the Company's website today at the following link: http://www.bushveldminerals.com/financial-reports/ .

The Annual General Meeting will be held at 18-20 Le Pollet, St Peter Port, Guernsey GY1 1WH at 11 a.m. on 5 August 2020.

For further information contact:

ABOUT BUSHVELD MINERALS LIMITED

Bushveld Minerals is a low-cost, integrated, primary vanadium producer, with ownership of high-grade vanadium assets. 

The Company's flagship vanadium platform includes a 74 per cent controlling interest in Bushveld Vametco Alloys (Pty) Ltd, a primary vanadium mining and processing company; 100 per cent of Bushveld Vanchem, a primary vanadium processing facility with a beneficiation plant; the Mokopane Vanadium Project and the Brits Vanadium Project.

Bushveld's vision is to become a significant, low-cost, integrated primary vanadium producer through owning high grade assets. Whilst the demand for vanadium remains largely anchored in the steel industry, Bushveld Minerals believes there is strong potential for an imminent and significant global vanadium demand surge from the fast-growing energy storage market, particularly through the use and adoption of Vanadium Redox Flow Batteries. Bushveld Energy, the Company's energy storage solutions provider, plays a leading role in the development and promotion of the role of vanadium in this market.

The Company's approach to project development recognises that, whilst attractive project economics are imperative, they may be insufficient to secure capital to bring them to account. A clear path to production within a visible timeframe, low capital expenditure requirements and scalability are important factors in ensuring a positive return on investment. This philosophy is core to the Company's strategy in developing projects.

Detailed information on the Company and progress to date can be accessed on the website www.bushveldminerals.com.

About Vametco

Vametco is located near Brits on the Western Limb of the Bushveld Complex. The integrated operation comprises a vanadium ore mine and a processing plant that produces mostly NitrovanTM, a trademark product sold in major steel markets across the world. The mine lies adjacent to the Brits Vanadium Project, which will in future serve as an alternative source of near surface run of mine ("ROM") ore feed to the Vametco plant.

The Vametco mining operation uses open pit bench mining methods to mine a well-defined orebody. The deposit is continuous with limited faulting and dips in a northerly direction at approximately 19 degrees.

ROM ore is fed into a primary, secondary and tertiary crushing circuit, followed by milling and magnetic separation to produce magnetite concentrates. The magnetite concentrates are fed into the extraction process which includes the kiln for roasting followed by leaching and precipitation. Thereafter the precipitated vanadium as ammonium metavanadate is converted to modified vanadium oxide ("MVO") in rotary calciners. MVO is fed into the mix plant and finally into the shaft furnaces to produce NitrovanTM.

About Vanchem

Vanchem is situated at Ferrobank Industrial Park in Emalahleni Local Municipality, Mpumalanga Province in the Republic of South Africa. Vanchem is a primary vanadium producing facility with a beneficiation plant capable of producing various vanadium oxides, ferrovanadium and vanadium chemicals. Vanchem uses the salt roast beneficiation process, similar to the one used at Vametco. The plant comprises: a core salt-roast processing plant, including 3 roasting kilns, an electric smelting ferrovanadium converter, an alumino-thermic smelting facility, also located at Highveld, a vanadium chemical plant; and a rail siding linking the plant with Bushveld deposits and additional potential supply sources through the national rail network.

About Bushveld Energy Limited

Bushveld Energy is a leading energy storage solutions provider, focusing on the African market. Bushveld Energy recognises that electricity in Africa intersects paramount potential for social transformation with an immense commercial opportunity.

Bushveld Energy is focused on developing and promoting the role of vanadium in the growing global energy storage market through application in vanadium redox flow batteries. Its near term strategy is to deploy several VRFB systems as part of its longer term vision to become a significant electricity storage provider in Africa, meeting the demand for utility scale energy storage in Africa by leveraging South Africa-mined and beneficiated vanadium.

http://www.bushveldenergy.com 

Chairman's Statement

Dear Stakeholders,

It is my great pleasure to report on the 2019 financial year, which was another year of positive developments and growth for Bushveld Minerals.

2019 was a transformational year, in which the Company significantly progressed the business development activities across our upstream and downstream platforms. It saw the completion of a landmark transaction, the successful acquisition of the Vanchem processing facility, which was a testament to the strength of our management team.

Having successfully acquired Vametco and Vanchem, Bushveld Minerals now owns two of the three primary vanadium processing facilities in South Africa and two of the four operating primary processing facilities in the world, setting the Company well on its way to achieve its target of being one of the most significant, low-cost primary vanadium producers.

Although the backdrop to our operations over the past year was in many ways challenging, with continued slow growth in the South African economy and uncertainty over the sustainability of Eskom, the country's power utility, Bushveld was able to advance many of its long-term ambitions. As a truly South African corporate citizen, we believe our strategy - to utilise and beneficiate the country's natural resources, grow our operations, create jobs and assist with alternative energy solutions - contributes towards addressing our country's complex problems.

Bushveld Minerals plans to develop its downstream operations beyond production of end-use vanadium products, to become a key player across the energy storage value chain. As we have repeatedly stated, the energy storage market presents a sizeable commercial opportunity for our Company. Our integrated strategy means we will not only benefit from the uptick in demand arising from this opportunity, but it will also allow us to participate meaningfully in the downstream sector.

The VRFB Investment Platform that we announced during the year is another sign of our ambitions in energy, allowing us to partner with VRFB Original Equipment Manufacturers ("OEMs"). Through this platform, we have acquired interests in VRFB OEM Invinity Energy Systems plc, and, as part of a consortium, in Enerox GmbH.

We were also encouraged by the intentions expressed by Minister of Minerals and Energy, Gwede Mantashe, at the February 2020 Investing in Africa Mining Indaba, and by President Cyril Ramaphosa in his State of the Nation Address, to stimulate self-generation by industry and municipalities. This is good news for us as a mining and processing company, positive for our business as an energy company, and promising for the country at large.

Often a review of the financial year-end such as this one does not coincide with finality of certain events in a company's lifecycle. Bushveld's achievements in not only initiating, but also closing, a number of growth opportunities in 2019 (most notably the acquisition of Vanchem) across its platforms put us on a very strong footing from which to tackle 2020.

The safety and wellbeing of our employees and host communities is a priority for the Group. We are pleased to announce another fatality-free year and an improvement in Vametco's Total Reportable Injury Frequency rate. The sudden outbreak of the Covid-19 pandemic in 2020 has temporarily delayed our progress, along with worldwide economic activity and trade. Bushveld was required to put its operations on care and maintenance for a period of time in order to support the South African government's containment measures. In response to the onset of the Covid-19 virus, we took a number of measures to mitigate the risk of spreading infection and have followed the advice from health authorities in South Africa. Further details on the measures implemented by the Company in response to the Covid-19 pandemic can be found in the Principal Risk section of the report.

As the near-term impact of Covid-19 and operating conditions remains uncertain, the Group has implemented cash preservation measures, as well as reviewed and prioritised its capital investment across the portfolio. We are pleased that both Vametco and Vanchem have now resumed operating at pre-Covid-19 levels. Despite the Covid-19 outbreak we remain confident that the fundamentals of the vanadium market remain robust.

During the year, we were able to attract several managers throughout the business. Bertina Symonds joined as General Manager of Vametco and Tanya Chikanza was appointed as Finance Director of Bushveld Minerals. They have already proved to be valuable additions to the team. I would also like to thank the outgoing Finance Director, Geoff Sproule, for his contribution over the years. We wish him all the best for the future.

After year-end, we were able to strengthen our Board's capability to govern and manage risk within Bushveld Minerals by appointing Dolly Mokgatle as an Independent Non-Executive Director. Dolly is an established business leader who has held various significant leadership positions within several of South Africa's state-owned enterprises, as well as within the private sector. With her leadership experience in state-owned enterprises, she has accumulated extensive commercial and policy-making understanding in the energy sector.

Looking ahead to the remainder of 2020, it is difficult to predict the full impact of Covid-19, whose first epicentre was China before spreading across the world, upending lives, disrupting economies and creating substantial market volatility.

We will continue to monitor the situation carefully and adjust our plans appropriately. We will work closely with the government and all our stakeholders to manage the Covid-19 crisis and ensure business continuity while complying with applicable regulations and ensuring the safety of our staff and communities in which we operate.

The Company remains committed to the capital allocation policy which was developed in 2018 and has created discipline in how we deploy capital, while creating long-term shareholder value. The Board approved a dividend policy based on a free cash flow pay-out ratio, reflecting Bushveld Minerals' commitment to return cash to shareholders in a sustainable manner while prioritising its stated growth strategy. The Board is not recommending a dividend for the year ended 31 December 2019.

After another year of sustainable growth at both an operational and corporate level, I would like to thank Fortune and the entire Bushveld team for their efforts. They have achieved continued operational strength at Vametco while identifying and seizing on opportunities thrown up by prevailing market conditions.

We thank all our stakeholders for their continued support.

Ian Watson

Independent Non-Executive Chairman

Chief Executive Officer's Review

The 2019 financial year was a year in which we were able to maintain a safe working environment for our employees, while continuing our focus on control of costs allowed us to continue to generating profits, despite a significant softening of the vanadium price.

Once again, we achieved a year with no fatalities. We had a single lost-time injury at Vametco, which also recorded an improvement of 19 per cent year-on-year in its Total Injury Frequency Rate. This metric will continue to be a key focus for management as we pursue our goal of zero harm across all our operations.

There were no new cases of occupational health diseases at Vametco in 2019. Since we assumed control of Vanchem in November 2019, there were no fatalities, lost-time injuries or new occupational health diseases reported.

We have instilled a work culture based on behavioural management that views safety and health as of paramount importance. This was achieved through various safety campaigns implemented in 2019 and this ethos has shaped our response as we deal with the challenges presented by Covid-19 in 2020, which are discussed in more detail below.

After safety, another key focus area for the management team is keeping costs at the operating level as low as possible on a sustainable basis. Achieving this goal ensures the Company's ability to generate profits through the commodity cycle, something particularly important for a commodity with the volatility of vanadium. It also ensures that the best possible returns are generated for stakeholders during periods of higher prices, that supply to customers is guaranteed throughout the cycle and the team can seize opportunities in different price environments.

We continue to achieve this primary goal at our flagship Vametco operation, a tier-one vanadium mining asset. Vametco remains among one of the lowest-cost mines in the vanadium sector, providing a world-class asset at the core of our business and giving us unique advantages. In the 2020 financial year we will continue to investigate every opportunity to lower our cost base even further.

During the course of the year, the Group secured ZAR375 million in debt facilities from Nedbank Limited, comprised of a ZAR125 million in revolving credit facility ("RCF") and a ZAR250 million term loan, through its subsidiary Bushveld Vametco Proprietary Limited. This is testament to the Group's financial strength. The facilities have subsequently been fully drawn down to provide balance sheet flexibility to Vametco and the wider Group. We had a Group unaudited gross cash and cash equivalent position at 31 March 2020 of US$34.4 million, which includes the ZAR375 million in debt facilities.

Our strong industry position and improved liquidity positioned us well to take advantage of several investment opportunities during 2019 as we continued on our strategic path to grow into a significant, low-cost, vertically-integrated vanadium business.

In 2019, we strengthened our current and future production capacity with the acquisition of Vanchem and accelerated our growth in the energy storage space with several strategic investments in Vanadium Redox Flow Battery ("VRFB") companies that have well-established intellectual capital and an existing platform of installed capacity.

The acquisition of Vanchem, a brownfield primary vanadium processing plant with a broad range of vanadium products, gives the Company the platform to grow its production base by almost three-fold over the next five years, to become one of the largest primary vanadium producers in the world. The acquisition has many advantages in addition to the significant greater processing capacity for the Group, including flexibility to scale up based on market demand, a diversified product range and the opportunity to unlock our Mokopane resource much sooner and at a fraction of the capital cost envisaged in the 2016 pre-feasibility study ("PFS").

For the energy part of the business, we announced our plans to partner and invest in VRFB Original Equipment Manufacturers ("OEMs") through a VRFB Investment Platform ("VIP"). This is a key part of Bushveld's strategy for two key reasons. Firstly, it will help to accelerate VRFB use, which will increase demand for vanadium. Secondly, it has the potential to provide a natural hedge for the Company against vanadium price volatility. Our downstream and upstream targets will grow the business and generate value for shareholders.

The investments in our upstream and downstream parts of the business were made by adhering to our capital allocation framework while remaining conscious of the volatile commodity price environment. This framework supports better decision-making and growing long-term shareholder value.

Detailed review of operations

Bushveld Vanadium

Vametco

Vametco improved its operating performance during the course of 2019 as we implemented the initiatives identified as part of the Transformation Programme diagnostic review, conducted in 2018. The Transformation Programme was designed to ensure that we maximise production throughput and minimise costs on the back of the improvements implemented by our motivated and engaged workforce. Since Vametco is the Group's primary earnings generator and thus engine for growth, it is imperative that it operates to its full potential.

For the full year 2019, Vametco achieved record annual production of 2,833 mtV (100 per cent basis) in the form of Nitrovan from magnetite feed only, meeting 2019 guidance of 2,800 to 2,900 mtV. This is an 11 per cent increase over 2018's output of 2,560 mtV.

Vametco beat 2019 production cash cost guidance of US$18.90/kgV to US$19.50/kgV, achieving a 2019 production cash cost of US$18.11/kgV. This is a five per cent reduction compared with 2018, when costs were US$19.11/kgV. The performance was achieved through higher production volumes, our cost reduction programme and a weaker ZAR: USD relative to 2018, which was offset by higher inflation.

During the fourth quarter of 2019, when Eskom implemented industrial power rationing, Vametco did not experience any periods of total power loss. Instead Eskom implemented load curtailment, which required maintaining total daily power consumption to 10-12 MW between the hours of 8am and 6pm. As a result, Vametco's operations were not affected by these periods of load curtailment and there was no impact on plant performance.

Vametco's management places a high priority on maintaining strong relationships with Eskom's regional management and customer relations, which has helped us to take proactive steps to reduce any impact of curtailed power supply. The Company has also been looking at ways to de-risk its power requirements through its Bushveld Energy subsidiary, which commenced a procurement process to install a solar plus energy storage 'mini-grid'. This project will use a VRFB and has the capacity to be expanded in the future to reduce dependency on the electrical power grid.

Owing to its strong production numbers, Vametco generated an EBITDA of US$42.8 million for 2019, despite a 34 per cent reduction in the average vanadium price received.

In 2020, we will commence the PFS for Phase 3 of the expansion for Vametco to achieve a steady state production run-rate of 4,200 mtVp.a. by 2025. The preliminary capital expenditure for Phase 3 is estimated at approximately ZAR430 million (circa US$26 million), with most of the cost being Rand-denominated. The capital expenditure and production profile will be finalised after prefeasibility and feasibility studies are concluded. These estimates are subject to ongoing review in the context of the Covid-19 pandemic implications. The Company will, over the period, prioritise spend depending on market conditions.

Vanchem

In November 2019, we were pleased to announce the closing of the transformative acquisition of Vanchem at a fair value consideration of US$55.8 million1, down from the initially proposed sum of US$68 million. Vanchem is a primary vanadium producing facility with a beneficiation plant producing vanadium pentoxide, ferrovanadium, vanadium chemicals and it is capable of producing vanadium trioxide. The plant uses the salt roast beneficiation process, which is similar to the production process used at Vametco.

1: Refer to note 8 for details on the fair value purchase price

This highly strategic transaction combines our existing portfolio of high-grade, primary vanadium resources, including the Mokopane greenfield deposit, with an established production facility.

Vanchem not only brings immediate scalable processing capacity, but on completion of the refurbishment programme, its three-kiln configuration will add important flexibility to the Company's production throughputs without compromising its cost efficiencies. The vanadium chemicals and high purity oxide capabilities will be particularly key as the Company grows its exposure to the emerging stationary energy storage industry through VRFBs.

Post year-end, the Company completed a preliminary desktop scoping study for a three-phase refurbishment programme to achieve a production run-rate in excess of 4,200 mtVp.a. by 2025 through the three-kiln configuration at Vanchem. The total capital expenditure for the refurbishment programme is estimated at approximately ZAR750 million (circa US$45 million), with the majority of the amount being Rand-denominated. The first phase focuses on critical refurbishment and regulatory capital expenditure and it is expected to require a capital expenditure of ZAR234 million (circa US$14 million). This phase will be carried out in 2020 and 2021 and production is estimated at approximately 1,100 mtVp.a. The second phase will increase production to 3,100 mtVp.a. after ramp-up, and it is expected to require capital expenditure of ZAR355 million (circa US$21 million). It will be conducted in 2021 and 2022. The third phase will raise production to more than 4,200 mtVp.a. after ramp-up. It is expected to require a capital expenditure of ZAR171 million (circa US$10 million) and be carried out in 2023 and 2024. The capital expenditure and production plan are dependent on more definitive feasibility study work. These estimates are dependent upon the ongoing review in the context of the impact of Covid-19 on our business. The Company will, prioritise spend depending on market conditions.

As part of the first phase, the Group has allocated a total of approximately ZAR85 million (circa US$5 million) as critical capital spend in 2020 to enable Vanchem to continue to operate sustainably at current production levels of approximately 1,000 mtV. Most of the spending will be incurred during the second half of 2020.

With the acquisition of Vanchem, Bushveld Minerals is on a clear path to enhance its competitive position in the vanadium market over the coming years.

Mokopane

Mokopane is a key part of Bushveld's vanadium strategy. The project comprises one of the world's largest primary vanadium resources, with high in-whole rock grades of vanadium oxide. On 29 January 2020, the Department of Mineral Resources and Energy executed a 30-year mining right, giving the Company legal permission to proceed with physical mining activities.

The granting of a mining right was a significant milestone in the development of the project. It will support Bushveld's plans for Mokopane to become a primary supplier to Vanchem. The total capital expenditure for the Mokopane mine, including mine development and the beneficiation plant (crushing, screening and dry magnetic separation) and associated surface infrastructure, is estimated at ZAR370 million (circa US$22 million).

A definitive feasibility study ("DFS") to mine the Main Magnetite Layer, to provide a resources and reserves assessment with a focus on Mokopane as a primary feedstock supplier to Vanchem has been deferred by a year as part of the Group's cash preservation measures to manage near-term liquidity. When restarted, we estimate the study will take between nine to12 months to complete.

The Company retains the option of developing Mokopane into a standalone integrated mine and processing plant, producing 5,300 mtVp.a. of greater than 99 per cent purity V2O5 product.

Brits

Post year-end, we published a Maiden Resource Statement and JORC-compliant Competent Person's Report for our Brits project, showing an aggregate Inferred and Indicated Mineral Resource distributed across the three seams (the Lower, Intermediate, and Upper Seams) of 66.8 Mt at an average grade of 1.6 per cent V2O5 in-magnetite, which is among the highest grades in the world.

Brits provides the optionality for additional ore feed for the Vametco plant and, if required, concentrate feed for the Vanchem plant.

Bushveld Energy

In 2019, Bushveld Energy made significant progress across all its key areas of focus. We advanced the development of our electrolyte production facility, deployed our electrolyte rental model, advanced toward energy storage mandates and launched the VIP as part of our strategy of developing partnerships with VRFB companies.

During the year, the Company unveiled its strategy for partnering with Original Equipment Manufacturers ("OEMs") of VRFB technology to supply vanadium electrolyte. Furthermore, through the VIP, minority investments will be made into VRFB OEMs with attractive upside potential. We have already announced two transactions. The first was to fund a US$5 million convertible loan, which supported the merger of Canada-based Avalon Battery Corporation ("Avalon") with UK-based and AIM-listed redT energy plc ("redT") in April 2020. The enlarged group subsequently changed its name to Invinity Energy Systems plc ("Invinity"), in which our Company now holds an 8.71 per cent interest. The second transaction was the proposed purchase, as part of an investment consortium, of Enerox GmbH ("Enerox") from CellCube Energy Storage Systems Inc.

In all VIP ventures, Bushveld Energy will hold a minority interest without direct operational involvement beyond the supply of vanadium and electrolyte.

Importantly, under separate agreements between Bushveld and Avalon and redT respectively, Bushveld has acquired the right of first refusal to supply vanadium products to its invested companies on the same material terms as any other supplier. This provides a future hedge for Bushveld against volatility in the vanadium price, as the VRFB market continues to develop.

Bushveld entered into a Joint Venture agreement with redT on 9 March 2020 to form a Vanadium Financing Partnership to supply vanadium electrolyte to be used in third-party owned VRFB projects developed by redT in Europe over the next two years. The Joint Venture agreement was transferred to Invinity. The partnership will be a special-purpose vehicle structured to hold physical vanadium. The projects will help demonstrate proof of concept for this financial model on a larger scale and build on the smaller contract executed in 2019 in the US with Avalon.

The rental model Bushveld is pioneering will reduce upfront purchase costs, taking advantage of the re-usability and significant residual value of vanadium electrolyte. The agreement could be expanded to include other VRFB companies or vanadium suppliers in the future.

Post year-end we approved the construction of the vanadium electrolyte plant in East London South Africa, in partnership with the Industrial Development Corporation ("IDC"). The approved investment commitment from Bushveld is up to ZAR68 million (circa US$4 million) through to 2022, and includes capital expenditure, working capital and ramp-up support. The IDC also approved the investment for its share of equity and all the debt funding for the project.

Furthermore, the Company is working with energy policymakers on initiatives to reverse the downward trajectory of South Africa's power system. At the same time, the Company is reinforcing its own resilience, in case the power system continues to deteriorate. This includes completing grid connections and geotechnical studies and launching a procurement process for a solar-plus-energy-storage mini-grid at the Vametco mine. The project, which will use a VRFB to provide long duration energy storage, can be expanded in the future to reduce the mine's dependence on the electric power grid.

Corporate Social Responsibility

Our commitment to corporate social responsibility is a component of our strategy that stems from our deep conviction that our responsibility to our employees, communities and the environment extends far more broadly than the creation of jobs or payment of dividends. We recently embarked on this journey and our work is only starting. We acknowledge that achieving sustainability is a long-term goal.

Our starting point is that we intend to generate value in a safe and sustainable way for all stakeholders throughout the vanadium value chain. Oversight of the implementation of the sustainability pillars across the Group rests with the executive and operations leadership teams, supported by the Board and its subcommittees.

Our commitment to sustainability is evident not only in the way we manage our operations, but in our belief that our product, vanadium, contributes positively towards creating a greener and more sustainable economy.

Capital allocation

Bushveld Minerals continues to implement the capital allocation policy that the Board of Directors and management established last year. The capital allocation framework imposes consistent discipline, while enabling us to fund capital expenditure items through changing market conditions and price volatility.

In order of priority, the Group's capital will be allocated towards:

· Ensuring maintenance of stable production across all our operations and prioritisation of critical and regulatory capital;

· Supporting a strong balance sheet that is resilient through the vanadium price cycle;

· Investing in the Group's growth projects, either through organic growth or brownfield acquisitions, to achieve a production rate of more than 8,400 mtVp.a and downstream integration in the medium-term; and

· Returning cash to shareholders.

With the acquisition of Vanchem we now have the processing facility to achieve our medium-term production target of more than 8,400 mtVp.a. Increased production from Vametco and Vanchem underscores our growth trajectory. However, we will ensure that we continue to be conservative in how we invest capital and ensure that any production increase is profitable, especially in the current price environment. We will continue to appropriately prioritise capital expenditure to maintain safe and stable operations.

Johannesburg Stock Exchange listing

The Company continues to monitor market conditions and engage with South African institutional investors. Timing of the Johannesburg Stock Exchange listing has been impacted by the Covid-19 pandemic. Bushveld Minerals' growth strategy will benefit South Africa by using the country's natural strengths to become a leader in our industry.

The rationale for our proposed listing on the JSE is based on the following considerations:

§ our resources are located on the world-renowned Bushveld Complex in South Africa, the world's largest primary vanadium resource base;

§ our vertical integration aligns with the country's push for increased local beneficiation of its mineral resources;

§ our downstream energy storage proposition aligns with the government's stated goals of downstream mineral beneficiation and adopting stationary energy storage; and

§ a listing will allow us to access a significant pool of local investors who have an affinity with our story.

Growth targets

The Company continues to adhere to its capital allocation policy which imposes capital discipline, while prioritising maintenance, critical and regulatory capital funding requirements. Despite the announced capital deferments that have been necessitated by the Covid-19 pandemic, the Company remains committed to its five-year growth strategy that will ultimately lead to a production platform with capacity in excess of 8,400 mtVp.a. and see Bushveld Energy become a leading energy storage player. Internally generated cash flow will always be the priority source of funding. Over the five-year period, the Company will explore a variety of forms of funding, and prioritise spend, depending on market conditions, ensuring an optimal capital structure and the best returns for shareholders in the long-term.

Vametco

· In 2020, the Company expects to spend around ZAR4 million (circa US$240,000) as it carries out the PFS for Phase 3 of the expansion for Vametco. On its completion, the planned Phase 3 expansion will enable Vametco to achieve steady state production run rate of 4,200 mtVp.a, which is estimated to be attained by 2025. The preliminary total capital expenditure for Phase 3 is estimated at approximately ZAR430 million (circa US$26 million), with most of the cost being Rand-denominated. The capital expenditure and ramp-up profile will be finalised after feasibility studies are completed and are subject to ongoing review in the context of the Covid-19 implications. The Company will, over the period, prioritise spend on this expansion depending on market conditions.

Vanchem

· Following the acquisition of Vanchem, the Company completed a preliminary desktop scoping study on the refurbishment programme for the entire plant to achieve a steady state production rate in excess of 4,200 mtVp.a. by 2025.

· The total preliminary refurbishment capital expenditure is estimated at approximately ZAR760 million (circa US$45 million) with the majority of the capital being Rand-denominated. The refurbishment programme will be conducted in three phases, namely:

- Phase 1: critical refurbishment and regulatory capital expenditure. This phase is expected to require a capital expenditure of ZAR234 million (circa US$14 million) and be carried out in 2020 and 2021. Phase 1 will allow Vanchem to sustainably produce at approximately 1,100 mtV p.a.

§ The 2020 critical refurbishment of ZAR85 million (circa US$5 million) will focus on extending the calcine dump and commence the upgrade of the electrical reticulation system and the storm water treatment.

- Phase 2: includes the refurbishment of the first idle kiln and the construction of a new ammonium metavanadate plant. This phase will result in the plant achieving a production of 3,100 mtVp.a. after ramp-up. This phase is expected to require a capital expenditure of ZAR355 million (circa US$21 million) and to be carried out in 2021 and 2022; and

- Phase 3: includes the refurbishment of the second idle, the vanadium trioxide plant, the vanadium pentoxide plant and other associated infrastructure. This phase will increase production to more than 4,200 mtVp.a. after ramp-up. This phase is expected to require a capital expenditure of ZAR171 million (circa US$10 million) and be carried out in 2023 and 2024.

· The capital expenditure, ramp-up profile, and timing to achieve a production in excess of 4,200 mtVp.a. will be finalised after prefeasibility and feasibility studies are concluded. These estimates are subject to ongoing review in the context of the Covid-19 implications. The Company will, over the period, prioritise spend depending on market conditions.

Mokopane

· Mokopane is intended to be a primary source of feedstock for Vanchem from its large mineral reserve, and Vanchem will expedite the development of this project. The preliminary capital expenditure requirements associated with developing Mokopane including mine development, and the development of beneficiation plant (crushing, screening and dry magnetic separation) and associated surface infrastructure, is estimated at ZAR370 million (circa US$22 million).

· A definitive feasibility study ("DFS") to mine the Main Magnetite Layer, to provide a resources and reserves assessment with a focus on Mokopane as a primary feedstock supplier to Vanchem has been deferred by a year as part of the Group's cash preservation measures to manage near-term liquidity. When restarted, we estimate the study will take between nine to12 months to complete.

Bushveld Energy

· Post year-end, an investment decision was made by both the Industrial Development Corporation ("IDC") and Bushveld on the vanadium electrolyte plant. The investment commitment from Bushveld is up to ZAR68 million (circa US$4 million) through to 2022, which includes capital expenditure, working capital and ramp-up support.

Johannesburg Stock Exchange listing

The Company continues to monitor market conditions and engage with South African institutional investors. Timing of the Johannesburg Stock Exchange listing has been impacted by the Covid-19 pandemic. Bushveld Minerals' growth strategy will benefit South Africa by using the country's natural strengths to become a leader in our industry.

The rationale for our proposed listing on the JSE is based on the following considerations:

§ our resources are located on the world-renowned Bushveld Complex in South Africa, the world's largest primary vanadium resource base;

§ our vertical integration aligns with the country's push for increased local beneficiation of its mineral resources;

§ our downstream energy storage proposition aligns with the government's stated goals of downstream mineral beneficiation and adopting stationary energy storage; and

§ a listing will allow us to access a significant pool of local investors who have an affinity with our story.

2020 Capital Expenditure

As the near-term impact of Covid-19 on operating conditions remains uncertain, we have taken cash preservation measures to manage near-term liquidity, while preserving the long-term sustainability of the assets and still positioning the Company to increase its share of the vanadium market. These include reviewing operational expenditure, prioritisation of critical and regulatory capital, as well as deferring some growth-associated (non-critical) capital expenditure across the mining, processing and energy businesses. Furthermore, to enhance our liquidity position and financial flexibility, we drew down on the remaining RCF of ZAR125 million at the end of March 2020.

For 2020 we expect annual capital expenditure to be approximately ZAR135 million (circa US$8 million). The funds will be allocated as follows: ZAR85 million (circa US$5 million) for the Vanchem critical refurbishment programme to sustain current production levels of approximately 1,000 mtV, ZAR11 million (circa US$660,000) million for sustaining capital expenditure at Vametco, ZAR35 million (circa US$2 million) for the completion of the kiln off-gas project at Vametco and ZAR4 million (circa US$240,000) for the Vametco Phase 3 PFS. We will continue to monitor global macroeconomic developments and inform the market of any adjustments to these capital expenditure plans. 

Our capital allocation discipline drives competition for capital across our projects. Only those that offer the highest return options while balancing risk and reward are considered for development. As a result, each project in the mining and energy business will work towards minimising costs, while maximising production and productivity, so as to offer the best return.

Outlook

While the 35-day nationwide lockdown has resulted in a not-insignificant loss of production, the Company has taken the view that there is scope to still meet guidance. It has decided to keep guidance at Vametco and Vanchem unchanged, however this is subject to no further Covid-19 related stoppages. Production will be weighted towards the second half of 2020, given the days lost during the lockdown in the first half. On a site-specific basis, Vametco is expected to produce between 3,000 mtV and 3,200 mtV, at a production cash cost of between ZAR257/kgV and ZAR265/kgV (US$17.20/kgV and US$17.70/kgV). Vanchem is expected to produce between 960 mtV and 1,100 mtV, at a production cash cost of between ZAR245/kgV and ZAR260/kgV (US$16.30/kgV and US$17.30/kgV).

We are closely monitoring the evolving impacts of the Covid-19 outbreak, which in recent weeks has affected a number of other mining operations in the country that had newly restarted. We have implemented all measures necessary to minimise any impact on our employees and the business, while adhering to the directives provided by the South African government. The protocols we have developed are robust and are designed to ensure that in the event of a positive case we will be able to manage it with minimal disruption to our operations.

Despite the 2020 global outbreak of Covid-19, we retain a positive outlook on the vanadium market, characterised by a growing intensity of use of vanadium in steel supported by enforcement of rebar regulations in China, with the country continuing to be a net vanadium importer. We expect countries across the world to increase infrastructure spending in order to revive and support economies following the impact of the Covid-19 pandemic, as well as continuation of the energy transition, which will see more renewable and energy storage deployments in which VRFBs are expected to capture a significant market share. We retain the view that supply remains constrained and concentrated. All these factors benefit primary vanadium producers such as Bushveld Minerals.

We will continue to ensure that Vametco and Vanchem maintain their competitive edge by optimising and improving operating margins, increasing production through debottlenecking activities and prudently investing for the future. We anticipate synergies will accrue from both Vanchem and Vametco as we bring the businesses together, which will allow us to build a business with a diversified product range that continues to be resilient throughout the commodity cycle and ready to capture the benefits of a price recovery.

By doing so, we aim to increase our share of the vanadium market while moving further down the vanadium production cost curve. This will allow us to withstand short-term price weakness, make decisions with the longer term in mind, and provide a stable environment for the development of new downstream demand sources, such as energy storage.

At Bushveld Energy we have earmarked a few priorities as we continue to make progress. These priorities are to advance the vanadium electrolyte plant; implement additional, large electrolyte rental contracts; complete the acquisition of Enerox as part of a consortium; progress the VIP; prove the business case for VRFB deployments, including delivery of the Vametco mini-grid as a funded independent power producer; and submit bids for battery energy storage system opportunities as part of South Africa's Integrated Resource Plan.

Notwithstanding the short-term capital deferments that have been necessitated by the Covid-19 pandemic, the Company remains committed to its five-year growth strategy that will ultimately lead to a production platform in excess of 8,400 mtVp.a. and see Bushveld Energy become a leading energy storage player. While internally generated cash flow would always be the priority source of funding for this growth programme, the Company will, over the five-year period, investigate a variety of forms of funding, and prioritise spend depending on market conditions, ensuring an optimal capital structure and the best returns for shareholders in the long-term.

Although 2020 is expected to be another transitional year in our efforts to create a leading vertically-integrated primary vanadium business, the Covid-19 global pandemic requires that we adapt to an extremely fluid situation.

I would like to take this opportunity to thank everyone that has played a crucial role during another transformative year for Bushveld Minerals.

Fortune Mojapelo

Chief Executive Officer

Finance Director's statement

The 2019 financial year delivered solid operational and financial performance for the business. A major feature of the Group's performance was the 15 per cent year on year increase in production, primarily from Vametco, to 2,833 mtV, building on the operational foundation established in 2018. We achieved sales of 2,392 mtV resulting in a carry-over of stock which will unwind in 2020.

From a market perspective, the year can be considered in two halves. In the first half, the business continued to benefit from high vanadium prices (average London Metal Bulletin ("LMB") price H1 2019: US$56/kgV). The second half of the year, however, saw a significant decline in prices (average LMB price H2 2019: US$27/kgV). Pleasingly, cost of sales was generally well contained during the year and decreased by 20 percent. The Group generated Earnings Before, Tax, Depreciation and Amortization ("EBITDA") of US$32.6 million (2018: US$101.2 million) representing a decrease of 68 percent from the prior year, primarily due to the decline in the vanadium price. Net cash from operating activities also decreased by 50 percent to US$22.3 million due to the decline in price. Earnings per share was 5.51c (2018: 2.9c), due to the impact of the bargain purchase gain recognised in the year. The full details are outlined in note 12 of the financial statements.

Bushveld Minerals completed the acquisition of Vanchem on 7 November 2019 and assumed control of the business from this date. The results of Vanchem have been fully consolidated in the Bushveld Minerals financial statements for two months in the 2019 financial year. The accounting treatment of this acquisition is discussed below.

During the year, Bushveld Minerals secured ZAR375 million in debt facilities, through its subsidiary Bushveld Vametco Alloys Proprietary Limited, with Nedbank Limited (acting through its Nedbank Corporate and Investment Banking division), a South African based financial institution, providing liquidity for the Group. Measures were taken during the year to install more financial discipline, reduce costs and follow a clear framework for allocating capital. We will continue to prioritize these measures.

Vanchem acquisition

On 7 November 2019, Bushveld Minerals acquired 100 per cent of the Vanchem Plant from Vanchem Vanadium Products (Pty) Limited and South African Japan Vanadium Proprietary Limited, and 100 per cent of the issued shares in Ivanti Resources (Pty) Limited for a fair value consideration of US$55.8 million funded through a cash payment of US$30.7 million, a convertible loan of US$23.0 million and an additional US$2.0 million deferred consideration. The US$2.0 million deferred consideration represents the present value of US$500,000 payable as part of the original agreement and a top-up for stock and working capital. The full details are outlined in note 8 of the financial statements.

The acquisition is consistent with the Group's long-term strategy of acquiring existing, low-cost, scalable brownfield operating assets to expedite the development of its significant and high-grade resource base. The acquisition expands and diversifies Bushveld Minerals' business with the addition of another operating, low-cost, expandable production processing facility, while providing product diversification.

In accounting for the acquisition of Vanchem as a business combination, we assessed whether Vanchem met the IFRS 3 definition of "a business". IFRS 3 states that "a business consists of inputs and processes applied to those inputs that have the ability to create outputs" and we have concluded that, at the date of acquisition, Vanchem had inputs (inventories and plant and equipment with installed capacity), processes (methodology, manufacturing ability, intellectual property and a skilled workforce) and the ability to produce outputs in the form of vanadium products.

IFRS 3 requires an acquirer to measure the cost of the acquisition at the fair value of the consideration paid, and measure acquired identifiable assets and liabilities at their fair values, with any excess of acquired assets and liabilities over the consideration paid (a 'bargain purchase') recognised in profit or loss immediately. As detailed in note 8, we engaged an independent valuation expert to value the assets acquired using the cost approach, which we consider to be the most appropriate fair value measurement technique given the nature of the assets acquired and the circumstances of the acquisition.

Where a business combination results in a bargain purchase, IFRS 3 requires the acquiror to reassess whether it has correctly identified all of the assets and liabilities acquired and to review the procedures used to measure the fair values recognised at the acquisition date. We have completed this assessment and concluded that the recognition of a bargain purchase is appropriate. In coming to this conclusion we have considered the circumstances of the sale as Vanchem was in business rescue and therefore not an open market transaction, and the advantages of Vanchem which fit into the Group's diversity and growth strategy, the advantages of which are disclosed in note 8.

As guided by IFRS 3, the table below summarises the financial treatment of the acquisition:

For further detail, refer to Note 8 of the financial statements.

Analysis of Results

Income statement summary as adjusted from "statutory" primary statement presentation

The operating profit for 2019 was U$$22.3 million compared with the prior year profit of US$95.2 million, the reduction was mainly due to the decrease in the commodity price during the year. EBITDA for 2019 were US$32.6 million, a decrease of US$68.6 million on 2018, mainly driven by weaker commodity prices and inflationary increases on the relevant cost items. There were also once-off costs incurred for transformational agents at Vametco as well as the acquisition expenses which could not be capitalised. Profit before tax was US$83.2 million (2018: US$86.6 million), as a result of the gain on bargain purchase (US$60.6 million) on the Vanchem acquisition which was completed at a lower price than the recognised fair value.

Revenue

Revenue for the Group amounted to US$116.5 million (2018:US$192.1 million). The Vametco sales volume in 2019 was 2,392mtV at an average price of US$49/kgV with an average exchange rate of ZAR14.4 to the United States dollar (2018: 2,573mtV, average price US$74/kgV, average exchange rate ZAR13.2/USD). Vametco sold 50 per cent of its product to the United States, 20 per cent to Europe, 10 per cent to China and 20 per cent to the rest of the World. Vametco average delivery period to the final customer is eight to 12 weeks. The timing of deliveries that occur on or around half-year and year-end impacts the timing and quantum of revenue recognised for commodity sales in each financial period.

Other revenue was generated from Vanchem: US$89,000 (2018: nil) and Bushveld Energy: US$71,000 (2018: nil). As Vanchem was only acquired in November 2019, with a start-up of the plant mid-November, sales were minimal with additional material held in stock.

Cost of sales

Cost of sales for the period amounted to US$56.2 million (2018: US$65.3 million). The reduction is primarily attributable to the reduction in sales volumes at Vametco for the year to 2,392mtV (2018: 2,573 mtV).

A planned maintenance programme of 22 days in 2019 was completed as part of Vametco's improvements in equipment efficiency, reduced downtime, and operational stability. This has allowed the business to reduce the down-time planned for 2020.

Operations at Vanchem were started mid-November as production had temporarily stopped prior to our acquisition on 7 November 2019. A total of 98 mtV, in the form of ferrovanadium and vanadium chemicals, was produced during the first period under Bushveld Minerals' control.

Operations were affected by the power rationing at the municipal level during fourth quarter of 2019 at Vanchem, however, it did not materially impact production. The Vametco operations were not affected by the power rationing as the operation have a direct line from the grid and are not connected through the municipal line. The Group is working on securing a dedicated power line for the Vanchem operation.

The Group continues to refine its plans for Vanchem, as operations are stabilised and the synergies between the various intercompany resources are unpacked.

Other operating and administration costs

Other mine operating costs included community, social and labour plan costs at Vametco. Idle plant costs mainly reflected the 22-day planned maintenance shutdown implemented in the third quarter of 2019. Administrative expenses included staff salaries of US$9.6 million (2018:US$7.1 million) for head office, Bushveld Energy and Lemur and professional fees of US$7.6 million (2018: US$1.9 million) mainly attributable to transformational agent costs which amounted to US$3.5 million, Johannesburg Stock Exchange listing preparation costs US$1 million, and other regulatory and governance fees of US$1 million. Other costs incurred related to security, travel and accommodation, rental, conference marketing cost as well as provision for historical debtors of US$3 million with the key amount attributable to the take-on debtors on the acquisition of Strategic Mineral Resources ("SMC") of US$1.9 million.

The below EBITDA reconciliation illustrates the impact of the decline in the vanadium price from the prior year. The operating costs also declined with the mineral royalty payable relative to sales. The royalties are paid by Vametco on the Unrefined Rate of 0.5 + { EBIT / (Gross sales x 9) } x100 with a maximum Royalty percentage payable for Unrefined minerals at 7%

Taxation amounted to US$14.0 million for 2019 (2018: US$37.6 million), mainly driven by the decline in taxable income at Vametco as a result of the decline in the commodity price. The tax was offset by the tax refund of US$5.0 million received as a result of the conversion of SMC to a limited liability company. This also meant that the deferred tax asset at SMC had to be reversed. The gain on bargain purchase is treated as a permanent difference for tax purposes and will not attract corporate income tax.

Balance sheet

Assets

Non-current assets increased during the year in line with the growth strategy of the business. The most significant increase came from the Vanchem acquisition, as noted above. There was also an increase in the investments in other businesses, namely Avalon Battery Corporation ("Avalon") and Enerox GmbH ("Enerox") as the Group matures its footprint in the energy storage market.

Current assets decreased due to the decline in commodity price and its effect on the quantum of accounts receivable. The cash and cash equivalents decreased due to the cash payment of the Vanchem acquisition, offset by the drawdown of the debt raised in the year. Stock levels also increased because sales volumes were lower than production both at Vametco and Vanchem.

Equity and liabilities

On 30 October 2019, the Group secured ZAR375 million in debt facilities from Nedbank, comprised of a ZAR125 million revolving credit facility ("RCF") and a ZAR250 million term loan which was drawn down at the time. The Group drew down the remaining RCF of ZAR125 million at the end of March 2020 to enhance liquidity and provide financial flexibility at the onset of the Covid-19 nationwide lockdown. Overall, Bushveld's gross cash and cash equivalent position as at 31 December 2019 was US$34.0 million. The full details are outlined in note 23 of the financial statements.

With the acquisition of Vanchem, there was an increase in the environmental liability. The liabilities further increased by the convertible loan instrument payable as mentioned in the acquisition note above. Other liabilities included the adoption of IFRS 16 relating to the initial recognition and measurement of the lease liability.

Cash flows

Net cash flows from operating activities for the year were US$28.5 million, a decrease of US$16.5 million compared with 2018, driven by reduced profitability. Capital expenditure and investing activities for the year were US$49.7 million, an increase of US$21.5 million over 2018, mainly due to the acquisition of Vanchem as well as investments in Avalon and Enerox.

Subsequent to the year end, at the end March 2020, Bushveld drew down on its RCF of ZAR125 million to enhance liquidity and provide financial flexibility during the uncertainty arising from the Covid-19 pandemic and the South African 35-day nationwide lockdown. Bushveld Minerals' unaudited gross cash and cash equivalent position at 31 March 2020 was US$34.4 million, which includes the ZAR375 million facilities.

Cash Generation

The table below summarises the main components of the cash flow during the year.

1. Sustaining capital is defined as the capital expenditure required for maintaining and sustaining existing production assets. This includes the replacement of plant and machinery and capital expenditure related to safety, health, and the environment.

Operating activities:

The majority of the cash generated from operating activities was from Vametco, offset by head office activities, as disclosed in the income statement section of the report. Other working capital changes included an increase in the finished goods and work in progress items, offset by a reduction in accounts receivable, mainly driven by the reduction in sales prices due to the lower commodity price. This is evident in accounts payable, which have also reduced, mainly due to the lower amount payable for commissions because of the price reduction. Taxes paid are net of a refund of US$5 million on the conversion of SMC into a limited liability company.

Investing activities:

Investing activities included US$30.7 million cash paid for the Vanchem purchase, US$4.4 million investments in Avalon and Enerox as well as the cash repayment of US$3.6 million for the deferred consideration payable to Yellow Dragon Holdings. This was offset by interest generated on bank deposits amounting to US$3.6 million.

Financing activities:

Dividends paid as a result of upstreaming cash from Vametco to the holding company resulted in a leakage of US$4.5 million which was paid to the 26 per cent minorities of Vametco.

Financial risk management

The main financial risks faced by the Group relate to the availability of funds to meet business needs (liquidity risk), the risk of default by counterparties to financial transactions (credit risk), fluctuations in interest and foreign exchange rates and commodity prices. These factors are more fully outlined in the notes to the accounts. They are important aspects to consider when addressing the going concern status, particularly in the context of the Covid-19 pandemic. We are proactively managing the risks within our control. There are, however, factors which are outside the control of management, specifically volatility in the ZAR:USD exchange rate as well as the vanadium price, which we do not currently hedge and which can have a significant impact on the business.

Going concern

The Group manages liquidity risk by ensuring that it has sufficient funds to facilitate all ongoing operations. The Group's philosophy is to maintain a low level of financial gearing given its exposure to the vanadium price and exchange rate fluctuations.

As part of the annual budgeting and long-term planning process, the Group's budget and cashflow forecasting is reviewed and approved by the Board. The cashflow forecast is amended in line with any material changes identified during the year. Equally, where funding requirements are identified from the cashflow forecast, appropriate measures are taken to ensure these requirements can be satisfied. In particular, a capital allocation framework is applied which prioritises maintenance, critical and regulatory capital funding requirements. During the year, the Group secured ZAR375 million in debt facilities, comprised of a term loan of ZAR250 million and an RCF of ZAR125 million which was subsequently drawn down in March 2020 to enhance liquidity and provide financial flexibility in light of the uncertainty arising from the Covid-19 pandemic and lockdown. At 31 December 2019, the Group held substantial cash balances of circa US$34.0 million, placing it in a strong position.

The Group also closely monitors its liquidity risk. It regularly produces cash forecasts and analyses sensitivities for different scenarios, including, but not limited to, changes in commodity prices and different production profiles from the Group's producing assets. The impact of Covid-19 has been assessed by the Group and, although the operations are producing again following the 35-day lockdown period, near-term operating conditions remain uncertain. Management has run various scenarios and sensitivities to provide the Board with various possible outcomes to direct strategy in the best interests of the business and its shareholders. Consequently, the Group will continue to take a prudent and proactive approach towards managing liquidity and taking cash preservation measures necessary to navigate this uncertain and unprecedented period. Based on the current status of the Group's finances, having considered cashflow forecasts and all reasonable possible investments and downside scenarios, as well as the Group's debt facilities and terms, the Group's forecasts indicate it will have sufficient liquidity headroom to meet its obligations in the ordinary course of business for the 12 months following the date of approval of the financial statements.

2020 outlook and Covid-19 impact

The Group will continue to prioritise operational performance, cost efficiencies and synergies across Vametco and Vanchem, and will maintain a disciplined approach towards managing capital expenditure and optimising operating margins. Our operations began to ramp-up to pre-lockdown levels in early May 2020. Vametco restarted operations in mid-April 2020 when it was grated a permit to ramp-up to 50 per cent capacity, in line with the Amended Disaster Regulations announced by the South African Government on 16 April 2020. Vanchem restarted operations in early May when the country transitioned to Level 4, in accordance with the Government's risk-adjusted strategy for economic activity. We have for now, maintained the 2020 production guidance for both Vametco and Vanchem. We will however continue to monitor the situation in light of the Covid-19 virus driven risks and their potential resultant impact on our operations.

As a precaution we have taken cash preservation measures to manage near-term liquidity while preserving the long-term sustainability of the assets. Steps to conserve cash resources include limiting operational expenditure where necessary. We are applying a capital prioritisation framework which involves reducing as well as deferring growth associated (non-critical) near term capital expenditure whilst prioritising regulatory capital across the business. In line with the Group's capital and cash preservation measures we anticipate ZAR11 million (circa US$660,000) of sustaining capital at Vametco, ZAR120 million (circa US$7.2 million) of critical refurbishment and regulatory capital expenditure at Vametco and Vanchem and ZAR4 million (circa US$240,000) as growth for the Vametco Phase 3 pre-feasibility study.

From a supply chain perspective, the Group has ensured security of supply and put in place sufficient contingency plans. Bushveld continues to work with its customers to fulfil orders and meet their requirements while still complying with Government directives. The supply chain is open and customer orders remain robust. The Company has not had to declare force majeure. Management will continue to focus on taking the necessary steps to protect its staff and communities, and the financial stability of the business to secure its longer-term sustainability.

Full details of Bushveld's response to this pandemic can be found in the Principal Risks section of the report.

Tanya Chikanza

Finance Director

Consolidated Statement of Profit or Loss and Other Comprehensive Income

Consolidated Statement of Changes in Equity

1. CORPORATE INFORMATION AND PRINCIPAL ACTIVITIES

Bushveld Minerals Limited ("Bushveld") was incorporated and domiciled in Guernsey on 5 January 2012 and admitted to the AIM market in London on 26 March 2012.

The address of the Company's registered office is 18-20 Le Pollet, St Peter Port, Guernsey. The consolidated financial statements of the Company as at and for the year ended 31 December comprise of the Company and its subsidiaries (The "Group") and the Group's interest in equity accounted investments.

Bushveld Resources Limited ("BRL") is an investment holding company formed to invest in resource-based vanadium mining and exploration companies in South Africa. The South African subsidiaries of BRL are Bushveld Vanchem (Proprietary) Limited ("Vanchem"), Pamish Investments No. 39 (Proprietary) Limited ("Pamish 39"), Amaraka Investments No. 85 (Proprietary) Limited ("Amaraka 85"), Bushveld Minerals SA (Proprietary) Limited, Great 1 Line Investment (Proprietary) Limited, Gemsbok Magnetite (Proprietary) Limited, Caber Trade and Invest 1 (Proprietary), Bushveld Vametco Alloys (Proprietary) Limited, Bushveld Vametco Holdings (Proprietary) Limited, Bushveld Vametco Properties (Proprietary) Limited, Bushveld Vanadium 1 (Proprietary) Limited and Bushveld Vanadium 2 (Proprietary) Limited.

The Lemur subsidiaries are integrated coal and power project development companies. The Lemur subsidiaries are the holder of 11 concession blocks in South West Madagascar covering the Imaloto Coal Basin.

As at 31 December 2019, the Bushveld Group comprised of:

Enerox Holdings Limited 4 50% Guernsey Holding company

1 Held directly by Bushveld Minerals Limited 2 Held by Bushveld Resources Limited

3 Held by Lemur Holdings Limited 4 Held by Bushveld Energy Limited

5 Held by Lemur Investments Limited 6 Held by Imaloto Power Limited

7 Held by Bushveld Vametco Limited

8 Held by Strategic Minerals Connecticut LLC

9 Held by Bushveld Vametco Holdings (Pty) Limited 10 Held by Vametco Alloys (Pty) Limited

11 Held by Bushveld Vanadium 1 (Pty) Limited

12 Held by Bushveld Energy Company (Pty) Limited 13 Held By Bushveld Vanadium 2( Pty) Limited

2. ADOPTION OF NEW AND REVISED STANDARDS ACCOUNTING STANDARDS AND INTEPRETATIONS APPLIED

IFRS 16 Leases

The new standard recognises a right of use asset and a lease liability for almost all leases and requires them to be accounted for in a consistent manner. This introduces a single lessee accounting model and eliminates the previous distinction between an operating lease and a finance lease.

ACCOUNTING STANDARDS AND INTERPRETATIONS NOT APPLIED

Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group:

IFRS 17 Insurance Contracts

The new standard requires insurance liabilities to be measured at a current fulfilment value and provides a more uniform measurement and presentation approach for all insurance contracts. These requirements are designed to achieve the goal of a consistent, principle-based accounting for insurance contracts.

IFRS 9 Prepayment Features with Negative Compensation - (Amendments to IFRS 9)

Under IFRS 9, a debit instrument can be measured at amortised cost or at fair value through other comprehensive income, provided that the contractual cash flows are 'solely payments of principal and interest on the principal amount outstanding' (the SPPI) criterion) and the instrument is held within the appropriate business model for that classification. The amendments to IFRS 9 clarify that a financial asset passes the SPPI criterion regardless of the event or circumstance that causes the early termination of the contract and irrespective of which party pays or receives reasonable compensation for the early termination of the contract.

IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture - (Amendments to IFRS 10 and IAS 28)

The amendments address the conflict between IFRS 10 and IAS 28 in dealing with the loss of control of a subsidiary that is sold or contributed to an associate or joint venture.

IFRS 3, Definition of a Business - (Amendments to IFRS 3)

The IASB issued amendments to the definition of a business in IFRS 3 Business Combinations to help entities determine whether an acquired set of activities and assets is a business or not. They clarify the minimum requirements for a business, remove the assessment of whether market participants are capable of replacing any missing elements, add guidance to help entities assess whether an acquired process is substantive, narrow the definitions of a business and of outputs, and introduce an optional fair value concentration test. New illustrative examples were provided along with the amendments.

IAS 1 and IAS 8 - Definition of Material - (Amendments to IAS 1 and IAS 8)

In October 2018, the IASB issued amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to align the definition of 'material' across the standards and to clarify certain aspects of the definition. The new definition states that, 'Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting

entity'.

AIP IFRS 11 Joint Arrangements: Previously held interests in a joint operation

The amendment clarifies that if a party participates in, but does not have joint control of, a joint operation and subsequently obtains joint control of the joint operation (which constitutes a business as defined in IFRS 3) that, in such cases, previously held interests in the joint operation are not remeasured.

AIP IAS 12 Income Taxes: Income tax consequenses of payments on financial instruments classified as equity

The amendment specifies that the income tax consequences on dividends are recognised in profit or loss, other comprehensive income or equity according to where the entity originally recognised the events or transactions which generated the distributable reserves.

AIP IAS 23 Borrowing Costs: The amendment specifies that when determining the weighted average borrowing rate for purposes of Borrowing costs eligible for capitalisation

The amendment specifies that when determining the weighted average borrowing rate for purposes of capitalising borrowing costs, the calculation excludes borrowings which have been made specifically for the purposes of obtaining a qualifying asset, but only until substantially all the activities necessary to prepare the asset for its intended use or sale are complete.

The Directors anticipate that the adoption of these Standards and Interpretations, which become effective for annual periods beginning on or after 1 January 2020, in future periods will have no material impact on the financial statements of the Group.

3. SIGNIFICANT ACCOUNTING POLICIES Basis of preparation

In accordance with Section 244 of The Companies (Guernsey) Law 2008, the Group confirms that the financial information for the year ended 31 December 2019 is derived from the Group's audited financial statements and that this preliminary announcement does not include the statutory accounts and, as such, does not contain all information required to be disclosed in the financial statements prepared in accordance with International Financial Reporting Standards ("IFRS").

The statutory accounts for the year ended 31 December 2019 have been audited and approved, but have not yet been filed. The Group's audited financial statements for the year ended 31 December 2019 received an unqualified audit opinion and the auditor's report contained no statement under section 263(2) or 263(3) of The Companies (Guernsey) Law 2008. The financial information contained within this preliminary statement was approved and authorised for issue by the Board on 22 June 2020.

The financial year covers the 12 months to 31 December 2019. The comparative period covered the 12 month period to 31 December 2018.

The consolidated financial statements have been prepared under the historical cost basis, except for the revaluation of certain financial instruments and investment properties to fair value. Historical cost is generally based on the fair value of the consideration given in exchange for the assets. The principal accounting policies are set out below.

Going concern

The group closely monitors and manages its liquidity risk, cash forecasts are regularly produced and sensitivities run for different scenarios including, but not limited to, changes in commodity prices and different production profiles from the group's producing assets. The Group will continue to prioritise operational performance, cost efficiencies and synergies across Vametco and Vanchem, and will maintain a disciplined approach towards managing capital expenditure and optimising operating margins. Our operations resumed in early May following a 35-day national Covid-19 lockdown, in South Africa during which Vanchem was non operational and Vametco was classified as essential services and had limited production. Based on the current status of the group's finances, having considered going concern forecasts and reasonably possible investments, downside and Covid-19 scenarios, the group's forecasts demonstrate it will have sufficient liquidity headroom to meet its obligations in the ordinary course of business for the next 12 months from the date of approval of the financial statements.

Accordingly the directors are satisfied that the group continues to adopt the going concern basis of accounting in preparation of the 31 December 2019 financial statements.

The reporting segments are identified by the directors of the group (who are considered to be the chief operating decision makers) by the way that group's operations are organised. As at 31 December 2019 the group operated within four operating segments, mineral exploration activities for iron ore and vanadium, vanadium mining and production, coal exploration and energy. Activities take place in South Africa (iron ore, vanadium and energy) and Madagascar (coal).

4. SEGMENT REVENUE AND RESULTS

The following is an analysis of the group's revenue and results by reportable segment.

During the year there were no costs incurred for the exploration of vanadium and iron ore as well as the coal segment. Costs attributable to both segment were of a capital nature.

The reconciliation of segmental profit to the group's profit before tax is as follows:

Unallocated costs relate primarily to corporate costs and parent company overheads not attributable to a specific segment.

Unallocated assets and liabilities relate to corporate and parent company assets and liabilities not attributable to a specific segment.

5. REVENUE

Revenue with contract customers is generated from sale of goods and is recognised upon delivery of the goods to the customer, at a point in time and comprises the invoiced amount of goods to customers, net of value added tax.

6. ADMINISTRATIVE EXPENSES BY NATURE

7. STAFF COSTS

Details of directors' remuneration are included in note 35 (related party transactions) and the Remuneration Report.

8. ACQUISITIONS

8.1 Acquisition of Bushveld Vanchem Business

On 7 November 2019, the Bushveld group completed the acquisition of 100% of the Vanchem Plant as well as 100 per cent of Ivanti Propriety Limited from Duferco Investments ("Duferco").

A viable business case for Vanchem Vanadium Products "VVP" was formulated with key focus on ore feedstock from within the Group (Mokopane) and a refurbishment programme, and presented to the Board of Directors ("BoD") in June 2018. The BoD approved that Bushveld reopened negotiations with Duferco, including revised commercial terms and an extended exclusivity period. An approach to Duferco was made and an initial agreement was reached with Duferco which resulted in the execution of the term sheet on 5 December 2018. The agreement was for a Transaction consideration of US$68 million. The US$68million was made up of deposit of US$6.8 million payable when the definitive agreements had been executed (01 May 2019) with the balance of US$61.2million payable on then-envisaged Transaction closing dates of 30 June 2019 or 30 September 2019 (long stop date). The final executed purchase price of US$53.5million plus a working capital adjustment for the acquisition was renegotiated in September 2019, the fair value of the consideration price is reflected in section C below.

Acquisition rationale remained clear:

Ÿ Would significantly contribute toward Bushveld's Vanadium production growth strategy of 8 400 tVpa in the next five years;

Ÿ Brownfields expansion (total acquisition and refurbishment capex was estimated to be around US$140 million for circa 4 200 tVpa capacity including Mokopane mine development, this compared favourably against the then estimated US$350 million capital requirement to develop and build 5 400tV facility at Mokopane);

Ÿ Would facilitate the expeditious development of Mokopane, preserving the tenure of the project and ensuring the option for an end-to-end production facility would be crystalised;

Ÿ Would provide geographic diversification with Bushveld production now in two geographic locations;

Ÿ Would provide production diversification - moving from a one kiln company to a four-kiln group;

Ÿ Would provide product diversification - moving from a single product offering to a wider range of products comprised of Nitrovan, FeV, V2O5 and specialized chemical products;

Ÿ Significant NPV at long-term FeV price estimates at a conservative long-term FeV price;

Ÿ Increased footprint reduces Group overhead cost structure;

Ÿ Improved IP and market presence adds value with long-term off-take agreements;

Ÿ Assist and expedites the development of Bushveld's own marketing channel; and

Ÿ In a benign vanadium price environment of 2018, Vanchem's 6 months annual financial statements to 31 March 2019 presented net profit amount in excess of R200million operating at less than 20% of capacity.

This acquisition of Vanchem demonstrates the value in the Company's growth strategy of targeting brownfields processing infrastructure which can be acquired at a lower price compared to the cost of building a greenfield operation, providing a lower risk and a quicker path to production. This has been reflected in Bushveld agreeing and paying an amount far less than the fair value of the assets and liabilities assumed. The Mokopane resource will also enable Bushveld to create a fully integrated vanadium production facility within the Group.

The group has agreed to pay the selling shareholder a deferred payment of US$0.5 million, payable in cash 2 years post completion of the acquisition.

II. Working Capital Adjustment

The working capital adjustment was the difference between the original working capital included in the agreement versus the final balances transferred to Bushveld. The amount is payable in cash after 2 years post completion of the acquisition and disclosed as deferred consideration.

III. Convertible loan

A payment of US$23.0 million satisfied through the issue of Bushveld Minerals unsecured convertible loan notes ("Loan Notes") with the following repayment, redemption and conversion terms (in addition to customary covenants, warranties and acceleration provisions):

Ÿ Interest at a coupon of 5% per annum payable annually in arrears or on conversion or redemption;

Ÿ Repayable in cash after the second anniversary of Transaction Closure, plus any accrued interest;

Ÿ Convertible at the holder's option in two tranches of up to US$11.5 million each, after the first and second anniversary of Transaction Closure respectively, at a 5% discount to the prevailing 10-day volume weighted average Bushveld Minerals share price leading up to conversion;

Ÿ Early redemption of the Loan Notes at the election of Bushveld Minerals, subject to the condition that the holder will have an option of converting up to 50% of the early redemption amounts into Bushveld Minerals shares on the same terms set out above;

Ÿ Scope for acceleration of redemption of up to US$5 million of the Loan Notes 12 months after Transaction Closure if an average ferrovanadium price of US$40/kgV is realised during any nine-month period during the12 month period after Transaction Closure;

Ÿ Obligation to repay an amount equal to 40% of any cash received on a new share issue which raises more than US$30m, provided no more than 50% of the Loan Notes have already been paid, redeemed or converted;

Ÿ Obligation to repay an amount equal to 50% of any debt raised over US$15 million, provided no more than 50% of the Loan Notes have been repaid, redeemed or converted;

Ÿ Obligation to repay on a substantial sale of assets or change of control;

Ÿ The holder will not be able to divest any Bushveld Minerals shares received for six months following conversion and be subject to an orderly market arrangement for the following six months.

5. Acquisition related costs

The group incurred acquisition-related costs of US$1,519,969. These costs have been included in the calculation of the bargain purchase below.

6. B. Identifiable assets and liabilities acquired

The following table summarises the recognised amounts of assets acquired, and liabilities assumed at the date of acquisition:

An independent valuer was appointed to determine the fair value of the property plant and equipment. The fair values of other assets and liabilities were estimated by the directors.

Property, plant and equipment

Marsh (Propriety) Limited was appointed for the valuation.

Marsh has been in the industry in South Africa since 1984. Marsh's global experience coupled with professionals, who maintain the highest certifications and advanced professional accreditations, enable them to deliver accurate and timely valuations.

Marsh adheres to the International Valuation Standards, strict ethical code of conduct and best practice prescribed by the South African Council for the Property Valuers Profession, South African Institute of Valuers, American Society of Appraisers and the Royal Institution of Chartered Surveyors.

The determination of Fair Market Value (FMV) was based on the estimate cost of acquiring and installing a new or similar equivalent to the current asset at hand. Marsh then determined the remaining life of the asset and therefore calculated the difference obtained from the new replacement value similar or to the next model in the market determining the effective age or life span and minus the remaining life. This determines the economic life of the asset which in turn is the condition rating percentage.

The cost of erecting the building, together with the cost of ancillary site works, was estimated. This cost included relevant professional fees and other associated expenses directly related to the construction of the building and ancillary site works but excluded any finance charges. The cost is then depreciated according to physical, functional and economic conditions to give the Depreciated Replacement Cost of the buildings.

The Market Value of the land, as if vacant, has been determined by the comparison of recent sales of similar properties in the area and similar areas. The sum of these values reflect the Depreciated Replacement Value of the property.

Key procedures conducted:

7. Plant, Machinery & Equipment (Movable Assets)

Ÿ A Fair Market valuation was performed.

Ÿ A physical on-site survey was performed to inspect and value all the assets on a per asset basis.

Ÿ Production asset per location was assessed for Useful lifes, Remaining Lives and Condition rating.

Ÿ Assets were recorded per location and department.

Ÿ Sufficient detail and specifications was collected in order to value the assets according to the Fair Market

8. Buildings (Fixed Assets)

Ÿ A Fair Market valuation was performed

Ÿ Each building was individually assessed for Useful lifes, Remaining Lives and Condition rating.

Ÿ Building costs in the area was used to establish a Rate/m2

Ÿ Professional fees, escalations, demolition, and debris removal costs were included.

Ÿ Land Values for the plant and waste site were included.

9. Valuation Process

The valuation process took place over four core components. These components are designed to ensure the highest degree of valuation accuracy while ensuring limited interruption to the operations of our clients.

An overview of the four main components is as follows:

10. Initial Project Research and Preparation

This phase of the valuation program involved research, information gathering and preparation by Marsh Valuation Services to ensure a preliminary understanding of Bushveld Minerals SA (PTY) LTD operations, locations and accounting principles.

This is a crucial stage in the valuation process ensuring reduced time spent at each location as part of the physical inspection.

11. Physical Inspection and Information Gathering

The aim of this step of the process was information gathering and data collection while ensuring minimal impact on the operations. The valuation process, whilst on site, was generally undertaken via the following process:

12. Research, Analysis and Reporting

This phase of the valuation process involves utilising the information gained during the inspection process, our internal databases of information, external sources of data, recent and planned capital expenditure details, information from suppliers and international research to undertake the valuation calculations. The analysis and calculations were then extrapolated and input into a detailed valuation report.

13. Delivery and Findings

After the valuation research and reporting was completed, a valuation report was provided including the list of assets identified as well as the fair market values of those assets with remaining useful lives.

IFRS 3 requires an acquirer to measure the cost of the acquisition at the fair value of the consideration paid, and measure acquired identifiable assets and liabilities at their fair values, with any excess of acquired assets and liabilities over the consideration paid (a 'bargain purchase') recognised in profit or loss immediately. The group engaged an independent valuation expert to value the assets acquired using the cost approach, which we consider to be the most appropriate fair value measurement technique given the nature of the assets acquired and the circumstances of the acquisition.

Where a business combination results in a bargain purchase, IFRS 3 requires the acquiror to reassess whether it has correctly identified all of the assets and liabilities acquired and to review the procedures used to measure the fair values recognised at the acquisition date.

We have completed this assessment and concluded that the recognition of a bargain purchase is appropriate. In coming to this conclusion we have considered the circumstances of the sale as Vanchem was in business rescue and therefore not an open market transaction, and the advantages of Vanchem which fit into the Group's diversity and growth strategy, advantages of which are disclosed above.

8.2 ACQUISITION OF SOJITZ INTEREST IN STRATEGIC MINERALS CORPORATION

On 13 September 2018, the group completed the acquisition of a 21.22 per cent interest in Strategic Minerals Corporation, an intermediate holding company of Vametco Alloys Proprietary Limited, from Sojitz Noble Alloys Corporation for a total cash consideration of US$17,500,000 ("the transaction"). On completion of the transaction, the Bushveld group increased its indirect beneficial interest in Vametco Alloys Proprietary Limited from 59.1 per cent to 75 per cent.

TRANSACTION SUMMARY

The group acquired all of Sojitz Noble Alloys Corporation's shareholding interest and accompanying rights in Strategic Minerals Corporation, the 75 per cent owner of Vametco Alloys Proprietary Limited, for a total consideration of US$20,000,000 (twenty million US dollars)

The US$20,000,000 consideration payable comprised:

· US$17,500,000 in cash (seventeen million five hundred thousand US dollars) for the sale shares

· US$2,500,000 in cash (two million five hundred thousand US dollars) in full and final settlement of accrued but unpaid dividends on the sale shares

The Sojitz Noble Alloys Corporation shareholding in Strategic Minerals Corporation was acquired free from all claims, liens, equities, charges, encumbrances and adverse rights of any description, and together with all rights attaching thereto, accrued or contingent.

Following completion of the transaction Bushveld, through wholly owned Bushveld Vametco Limited, owned 100 per cent of Strategic Minerals Corporation and therefore had an indirect beneficial interest of 75 per cent in Vametco Alloys Proprietary Limited (subsequently reduced to 74 per cent).

The group used existing cash resources to complete the transaction.

9. FINANCE INCOME

Management believe that any unrecognised deferred tax assets relating to the accumulated losses in the subsidiary undertakings of the group, would be immaterial to these financial statements.

USA - current tax charge comprises irrecoverable withholding tax of US$3,039,619 on dividends received and the reversal of a tax liability pertaining to the conversion of a subsidiary from a corporation into a limited liability company in the USA, which resulted in an upfront prepayment of US$5,000,000 being payable to Internal Revenue Service (IRS) in 2018. In 2019 this amount was subsequently refunded once the final tax calculation was completed. Due to the conversion all tax credits including deferred tax assets recognised previously would be neutralised.

12. EARNINGS PER SHARE FROM CONTINUING OPERATIONS Basic earnings per share

The calculation of a basic earnings per share of 5.51 cents (December 2018: 2.9 cents), is calculated using the total profit

for the year attributable to the owners of the company of US$61,968,301 (December 2018: Profit of US$30,215,509) and 1,125,562,148 shares (2018:1,043,907,922) being the weighted average number of share in issue during the year.

Diluted earnings per share

The calculation of diluted earnings per share of 5.45 cents (December 2018: 2.9 cents), is based on diluted earnings of

US$62,141,589 (2018:US$30,215,509) and 1,139,216,582 shares (2018:1,043,907,922) being the diluted weighted average number of share in issue during the year.

13. INTANGIBLE ASSETS - EXPLORATION AND EVALUATION

Reconciliation of intangible assets - exploration and evaluation - 2019

Reconciliation of intangible assets - exploration and evaluation - 2018

Vanadium and Iron Ore

The Company's subsidiary, Bushveld Resources Limited has a 64% interest in Pamish Investment No 39 (Proprietary) Limited ("Pamish") which holds an interest in Prospecting right 95 ("Pamish 39"). Bushveld Resources Limited also has a 68.5% interest in Amaraka Investment No 85 (Proprietary) Limited ("Amaraka") which holds an interest in Prospecting right 438 ("Amaraka 85").

The Department of Mineral Resources and Energy ("DMRE") granted a mining right to Pamish Investments No. 39 (Pty) Ltd ("Pamish"), in respect of the five farms Vliegekraal 783 LR, Vogelstruisfontein 765 LR, Vriesland 781 LR, Schoonoord 786 LR and Bellevue 808 LR situated in the District of Mogalakwena, Limpopo, which make up the Mokopane Project.

Mokopane is one of the world's largest primary vanadium resources, with a 298 Mt JORC compliant resource and a weighted average V2 O5 grade of 1.75 per cent in magnetite (1.41 per cent in-situ). The Mokopane deposit is a layered orebody along a 5.5 km north-south strike at a dip of between 18 degrees and 22 degrees west. The project comprises three adjacent and parallel magnetite layers namely the Main Magnetite Layer ("MML"), the MML Hanging Wall ("MML- HW") layer and the AB Zone. 298 Mt (JORC) resources and reserves run across three parallel overlying magnetite layers with grades ranging from 1.6 per cent to over 2 per cent V2O5 as follows:

- MML: 52 Mt @ 1.48 per cent V2O5 (1.75 per cent V2O5 in magnetite);

- MML-HW & Parting: 233 Mt @ 0.8 per cent V2O5 (1.5-1.6 per cent V2O5 in magnetite); and

- AB Zone: 12 Mt @ 0.7 per cent V2O5 (greater than 2 per cent V2O5 in magnetite).

The mining right allows for the extraction of several other minerals over the entire Mokopane project resource area, including, titanium, phosphate, platinum group metals, gold, cobalt, copper, nickel and chrome.

Brits Vanadium Project

Bushveld Minerals Limited has been granted Section 11 of the Mineral and Petroleum Resources Development Act (MPRDA) for acquiring control of Sable Platinum Mining Pty Ltd for NW 30/5/1/1/2/11124 PR, held through Great Line 1 Invest (Pty) Ltd. The company has also applied for Section 102 of the Mineral and Petroleum Resources Development Act (MPRDA) and waiting for approval to incorporate NW 30/5/1/1/2/11069 PR into NW 30/5/1/1/2/11124 PR.

Bushveld Minerals Limited has applied for prospecting which has been accepted and environmental authorisation has been granted under GP 30/5/1/1/2/10576 PR held by Gemsbok Magnetite (Pty) Ltd

Coal

Coal Exploration licences have been issued to Coal Mining Madagascar SARL a 99% subsidiary of Lemur Investments Limited.

The exploration is in South West Madagascar covering 11 concession blocks in the Imaloto Coal basin known as the Imaloto Coal Project and Extension.

Notes to the Consolidated Financial Statements