Bushveld Minerals
Written by
Bushveld Minerals |
Conditional deal eyes producing mine and plant |
Transaction |
Metals & mining |
18 May 2016 |
Share price performance
Business description
Next events
Analysts
Bushveld Minerals is a research client of Edison Investment Research Limited |
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The planned acquisition of the Vametco vanadium mine from Evraz could, on completion, be a major transformational event for Bushveld (BMN). It would move BMN closer to being a fully vertically integrated vanadium explorer-producer-seller. The sale of vanadium in the currently oversupplied market will be greatly supported by BMN’s move into the vanadium redox flow-battery space. Advanced discussions are underway relating to a placing of shares and/or co investment to fund the deal.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
02/14 |
0.0 |
(1.4) |
(0.4) |
0.0 |
N/A |
N/A |
02/15 |
0.0 |
(3.2) |
(0.6) |
0.0 |
N/A |
N/A |
02/16e |
0.0 |
(2.1) |
(0.3) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Deal brings vanadium production and reserves
The Vametco operation can currently produce 2,750t of Nitrovan (vanadium nitride), Evraz’s proprietary steel hardening ingredient, and also vanadium oxide. Evraz produced 2,419t during 2015. Bushveld states capacity could increase to 3,340t through de-bottlenecking certain plant aspects. The deal also brings 24 years’ worth of compliant reserves (27Mt at 2.55% V2O5 in magnetite), which sit within 135Mt of resource. Vanadium production is currently used in the steel industry, though Bushveld intends to re-configure the plant towards production of vanadium electrolyte used in the vanadium redox flow-battery energy storage market. Bushveld’s move into the energy storage market has gathered pace recently, as it signed an MoU with US company UniEnergy Technologies (UET), announced April 2016, for the development and promotion of redox flow-battery technology.
Further financing needed
The acquisition of Vametco will be executed via a share purchase agreement for all of the 78.8% economic interest held by Evraz in Strategic Minerals Corporation, which owns the producing Vametco Mine in South Africa. The Vametco deal is contingent on financing being secured. We understand that Bushveld has already paid US$1.0m of the US$4.7m required for Tranche 1, with the remaining US$3.7m and US$12.5m for Tranche 2 to be financed via equity and possibly debt.
Valuation: More information needed, but on its way
The Vametco operation produces Nitrovan, which sells at a premium price to standard V2O5 flakes. For ease of comparison and to better understand Bushveld’s best estimate of Vametco’s costs, we convert the Nitrovan US$17.33/kg cost of production into V2O5 terms. This results in US$2.20/lb versus a V2O5 price of US$3.45/lb and demonstrates that the operation is profitable on a vanadium pentoxide-equivalent price basis. Bushveld intends to publish details of the Vametco operation in the coming weeks, on which basis we will provide a detailed note on the potential value of the Vametco deal and, by extension, Bushveld’s renewable energy-focused business strategy.
Financials
We have updated our financial model for Bushveld’s FY15 and H116 results released 26 August and 30 November 2015, respectively. Bushveld’s H116 corporate G&A was £0.95m, or £1.91m annualised, which would point to a significant year-on-year reduction of 40% (FY15: £3.2m).
Based on H116 capital expenditure of £1.4m, we estimate end FY16 (year-end 28 February) capex to have been £2.6m, resulting in a material 71% reduction in our previous FY16e capex assumption from £9.7m to £2.8m. At end August 2015 the balance sheet had cash of £6.1m which, on the above expenditures, we forecast will have reduced to £2.1m by end FY16.
The material reductions in our forecast G&A and capex figures, in our view, reflect management’s prudent reaction to a falling vanadium price and a subsequent re-focusing of the company’s activities, including the launch of its Bushveld Energy platform in April 2016 and the Vametco deal, announced 9 May 2016.
Mokopane – no news expected
The Mokopane vanadium PFS states a US$7.7m requirement to complete further technical studies (ie a BFS). Bushveld states the BFS would require strategic partner involvement to complete. With the Vametco announcement we consider that the Mokopane BFS is effectively on hold as strategic partner involvement in the current market does not appear forthcoming.
Exhibit 1: Financial summary
£000s |
2013 |
2014 |
2015 |
2016e |
||
Year end 28 February |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
0 |
0 |
0 |
0 |
Cost of Sales |
0 |
0 |
0 |
0 |
||
Gross Profit |
0 |
0 |
0 |
0 |
||
EBITDA |
|
|
(2,359) |
(1,322) |
(3,206) |
(1,909) |
Operating Profit (before GW and except.) |
(2,359) |
(1,376) |
(3,206) |
(2,050) |
||
Intangible Amortisation |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
960 |
317 |
180 |
||
Other |
0 |
0 |
0 |
0 |
||
Operating Profit |
(2,359) |
(417) |
(2,889) |
(1,869) |
||
Net Interest |
105 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
(2,254) |
(1,376) |
(3,206) |
(2,050) |
Profit Before Tax (FRS 3) |
|
|
(2,254) |
(417) |
(2,889) |
(1,869) |
Tax |
0 |
0 |
0 |
0 |
||
Profit After Tax (norm) |
(2,254) |
(1,376) |
(3,206) |
(2,050) |
||
Profit After Tax (FRS 3) |
(2,254) |
(417) |
(2,889) |
(1,869) |
||
Average Number of Shares Outstanding (m) |
235.9 |
330.4 |
446.8 |
486.2 |
||
EPS - normalised (p) |
|
|
(1.0) |
(0.4) |
(0.6) |
(0.3) |
EPS - FRS 3 (p) |
|
|
(1.0) |
(0.1) |
(0.6) |
(0.2) |
Dividend per share (p) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross Margin (%) |
N/A |
N/A |
N/A |
N/A |
||
EBITDA Margin (%) |
N/A |
N/A |
N/A |
N/A |
||
Operating Margin (before GW and except.) (%) |
N/A |
N/A |
N/A |
N/A |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
53,637 |
54,207 |
55,852 |
60,026 |
Intangible Assets |
53,314 |
53,981 |
55,771 |
55,771 |
||
Tangible Assets |
74 |
225 |
80 |
4,254 |
||
Investments |
249 |
0 |
0 |
0 |
||
Current Assets |
|
|
1,355 |
9,318 |
7,742 |
2,272 |
Stocks |
0 |
0 |
0 |
0 |
||
Debtors |
50 |
141 |
147 |
147 |
||
Cash |
1,305 |
9,177 |
7,596 |
2,125 |
||
Current Liabilities |
|
|
(199) |
(344) |
(464) |
(909) |
Creditors |
(199) |
(344) |
(464) |
(909) |
||
Short term borrowings |
0 |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
0 |
0 |
0 |
0 |
Long term borrowings |
0 |
0 |
0 |
0 |
||
Other long term liabilities |
0 |
0 |
0 |
0 |
||
Net Assets |
|
|
54,793 |
63,180 |
63,130 |
61,389 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
(1,958) |
(1,188) |
(2,943) |
(1,316) |
Net Interest |
105 |
0 |
0 |
0 |
||
Tax |
0 |
0 |
0 |
0 |
||
Capex |
(2,059) |
(1,065) |
(1,330) |
(2,628) |
||
Acquisitions/disposals |
(120) |
8,325 |
0 |
(1,508) |
||
Financing |
5,317 |
1,797 |
2,597 |
(19) |
||
Dividends |
0 |
0 |
0 |
0 |
||
Net Cash Flow |
1,286 |
7,869 |
(1,676) |
(5,471) |
||
Opening net debt/(cash) |
|
|
1,555 |
(1,305) |
(9,177) |
(7,596) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
||
Other |
1,574 |
3 |
95 |
0 |
||
Closing net debt/(cash) |
|
|
(1,305) |
(9,177) |
(7,596) |
(2,125) |
Source: Bushveld Minerals accounts, Edison Investment Research
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