BMN Deal Making on Another Level

Updated: Apr 28, 2021

On further analysis, the deal announced today by Bushveld Minerals with Mustang, when coupled with their Invinity Systems deal is starting to look like an enormously clever piece of business indeed.

When considering everything from this point forwards, one must appreciate that we have two main entities here.

Enerox Holding Ltd (EHL) owns 100% of Enerox. EHL is an investment vehicle formed by a consortium of investors, including Bushveld Energy Limited.

VRFB Holdings Limited ("VRFB-H") is majority-owned by BMN (Bushveld Energy) at 50.5% ownership and as a company holds a 50 per cent interest in EHL.

It's important to be clear on the key difference as we now delve deeper into the detail.

First, let us start with the terms for the purchase of Enerox. Here's the exert from the RNS dated 3rd August 2020.

BMN and their investment consortium (EHL) invested a total of 6.3m euros (+ nominal fee) for a 90% stake in Enerox with the seller retaining 10%. By the close of 2020, BMN was reporting that Enerox Holdings Ltd (EHL) owned 100% of Enerox. Logic says that the further 10% ownership was acquired by a party outside of BMN control because its purchase was not reported at the time.

3.7m euros of the said cost was designated as being a "shareholder loan facility" and it was,

"designed to provide working capital and funds for capital expenditure to enable Enerox to reach sustainable commercial production."

Terms at the time (3rd August 2020) stated,

"Should EHL not have funded Enerox an aggregate of €3.7 million by 31 December 2021."

To be clear, that's the end of this year not last year when the transaction took place.

So in reality the consortium acquired 90% in Enerox for c. 2.6m euros ($3.2m) because the 3.7m euro ($4.5m) element forms part of the total $30m investment announced by BMN on 1st April 2021.

From that same 1st April 2021 RNS,

"Bushveld Energy has an indirect interest in Enerox of 25.25 per cent, through VRFB Holdings Limited ("VRFB H"), which owns 50 per cent interest in EHL."

"Bushveld will contribute its share of the investment, being US$7.5 million comprising US$5 million paid on 31 March 2021 and US$2.5 million payable during April 2021."

NOTE - The above-quoted $7.5m figure was adjusted to a final $7.7m in the RNS. Presumably due to their share being 50.5%.

So $5m came out of BMN's own pocket (more on that later) with $2.5m still to come in April.

Now, let us jump forward to 27th April and the deal with Mustang. They are now acquiring a 22.10% share in VRFB H, which gives them an 11.05% share in EHL, which owns 100% of Enerox. Nice and straightforward as usual.

That 22.10% share values VRFB H at c. $34m. Meaning that Bushveld Energy's share at 50.5% ownership is currently valued at c. $17m.

A reminder. EHL acquired 90% of Enerox for c. $3.2m in August 2020 and Bushveld Energy and their VRFB H partners just sold 11.05% for $7.5m, valuing Enerox as a whole at c. $68m. It should be noted that this valuation includes the $30m of capital that EHL (inclusive of VRFB H) are investing in the business.

By securing this funding, the founders of VRFB H have secured a little over half of their total committed investment capital for Enerox ($15.2m) and more than delivered on the contracted 3.7m euros ($4.2m) set out in that 3rd August 2020 RNS.

All of which led to the following statement by BMN in today's (27th April 2021) RNS,

" The Company also announces the completion of the investment by VRFB-H into the 100 per cent holding company for Enerox, Enerox Holdings Limited ("EHL")."

28.04.2021 Update

When I wrote this piece yesterday I did not pay enough attention to the Mustang Energy 'temporary suspension' RNS because I assumed it would have nothing new in it.

The reality is that their RNS explains the investment they are making much better than BMN and I made a mistake by not reading it thoroughly first. A lesson in always ensuring that all available stones are turned over before reaching conclusions.

As can be seen from the excerpt below the $7.5m that they are paying for 22.10% of VRFB H (11.05% EHL) is being paid directly towards the total $30m that EHL is attempting to raise. Therefore, Bushveld Energy is committed to paying their revised $7.7m themselves.

To this, we must add their share of the initial 2.6m euros that was paid to Enerox to secure the first 24.9% of Enerox. Why? because as we've established already, the further 65.1% was mainly about future investment in the business which is now more than covered by this combined $15.2m Mustang deal.

EHL is split 50/50 so VRFB H's share of said 2.6m euros should be 1.3m euros maximum ($1.6m) plus any transaction-related costs. Of this BMN hold 50.5% of VRFB H and so their share should be c. $800,000.

Add this to the above $7.7m and we have BMN total Enerox transaction costs running at c. $8.5m + transaction costs.

Invinity Systems Transaction

Now let's bring in Invinity.

In the same 1st April 2021 RNS, BMN had this to say,

"Bushveld Energy has monetised a portion of its Invinity holding and received approximately US$8.8 million. As at the last practicable date, being 31 March 2021, Bushveld Energy's Invinity holding was less than three per cent."

To enable Avalon and RedT Energy to merge, BMN effectively lent the 2 companies $5m, which was later transferred into Invinity shares.

Rather conveniently (not planned I assure you), BMN's total $8.8m of sales (again transaction costs noted) in Invinity shares pretty much matches the above total financial commitment that they have made to Enerox. Having now revisited this exercise more thoroughly that total sale value makes a great deal of sense.

Bushveld Minerals Invinity Shareholding Analysis

I have included the following detailed analysis of BMN's Invinity shareholding, to back up my findings on their remaining ownership. I find this better than simply stating a figure with no proof to support it. The key point is the last small paragraph at the end.

The holdings RNS from BMN dated 1st April 2021 was the last update on their holding in Invinity, so their exact remaining share is difficult to pin down.

Here are their IES holdings updates,

  1. 4th Jan 2021 7.15% reduced to 6.93% - Threshold crossed 23rd December.

  2. 11th Jan 2021 6.93% reduced to 5.71% - Threshold crossed 8th January

  3. 25th Mar 2021 5.66% reduced to 4.59% - Threshold crossed 24th March

  4. 30th Mar 2021 4.59% reduced to 3.92% - Threshold crossed 29th March

  5. 1st Apr 2021 3.92% reduced to below 3% - Threshold crossed 31st March

Here now is Invinity Systems own 6-month share price chart with volume traded.

As I say it is not easy to pin down the exact time periods but some of the transaction periods are so close together that a picture can begin to be built up.

Transaction 2 at 1.22% (1.059m shares) sold took place between c. 24th December 2020 and 8th January. We know this because of the threshold date for transaction 1.

At c. ave. 210p a share during that period BMN achieved c. $3.1m (at $1.40 per pound exchange rate). That then left a minimum of 2.94% to be sold for BMN to hold below 3% (2.99%). That equates to 2.55m shares.

Transaction 3 places a backstop on transaction 4 and 5 dates. Those 2 transactions saw a minimum of 1.6% (1.39m shares) of Invinity shares sold by BMN between 25th March and 31st March 2021.

The average share price in that period was c. £1.40 a share. That equates to c. $2.6m (at a slightly lower dollar exchange rate of $1.35 per pound).

Meaning that in total, BMN sold 2.82% of their full 7.15% holding for $5.7m. If we then deduct the above 1.39m shares from our remaining total of 2.55m shares, we would have c. 1.16m remaining to be sold.

Value-wise we have $3.1m still to find ($8.8m - $5.7m). At $1.35 exchange once more that equates to an average sale price of £1.98 a share.

The majority of the remaining sales (c. 970,000 shares) were sold between 8th January and 24th March this year. The first 6 weeks of that period saw a share price of over £2 a share. However, for this exercise, I will take the lowest possible price of c. £1.40 a share, which was witnessed in March.

At that price, BMN would have to have sold c. 1.64m more shares to have reached their $3.1m remaining goals. If so, then this would be c. 480,000 more shares than the above 1.16m minimum to be sold. That equates to around 0.55% more of their holding.

Therefore, realistically the lowest holding that BMN could have had left in Invinity on 1st April 2021 is c. 2.5%. At today's prices, that 2.5% is worth around $4m.


What does all that complicated but hopefully well-explained calculation deliver?

BMN started with an original $5m investment in the Avalon/Redt Energy merger.

Whilst it's a rough figure, it is clear that BMN has c. $4m of remaining equity either still sitting in Invinity or their bank account.

They have also sold $8.8m in shares in Invinity. Therefore, the total initial $5m has delivered the business around $7.8m in profit to date. Give or take a few dollars.

The total costs of securing Enerox and investing in its future has likely cost Bushveld Energy (BMN) also around $8.5m. This has been covered by the sales in Invinity Systems since late 2020.

By my calculations Bushveld Energy's remaining 2.5% holding in Invinity, if also now sold down, was worth c. $4m. Meaning that their whole journey to owning 25.25% of Enerox and delivering $7.7m of their own funding has cost them c. $1m.

Of course, it may well be that Bushveld Energy still holds approximately 2.5% in Invinity. If so then that $1m 'loss' could well be turned into a future profit.

The reason I believe this is because in the 8th February Q4 and FY2020 Operational Update BMN stated that,

"Bushveld Energy, including BELCO, ZAR152 million (circa US$9.5 million), which will be principally funded by Bushveld Energy's partial asset sales."

At $8.8m in total sales, Bushveld Energy has arguably reached their "principally funded" level with said "partial asset sales." Keyword being 'partial'.

If so then what that means is that their 25.25% ownership in a fully-funded Enerox that has plans to expand to 30MW within the next 18 months or so, was effectively free. That any remaining ownership from their investment in Invinity (if still held), has the ability to generate them a future profit too.

Whilst achieving all of that, BMN's (so not Bushveld Energy) support has also secured them a guaranteed first refusal right on any vanadium/electrolyte that these two companies may demand. Yes, the deal with Invinity runs out next year but with a vanadium rental partnership (VERL) now in its place, their access to Invinity projects remains fully intact.

Despite my error, the combination of the two transactions is clearly a wonderful piece of business and yet another showcase for the hard work and talent that this management team brings to the table.

Two significant VRFB manufacturers delivered back to the market with off-take deals in place, substantial ownership retained and further outside investment achieved without the need to dilute their ownership stake more.

As can be witnessed by my own journey on this particular deal, it's not always easy to follow Bushveld Minerals business structure. No doubt I have still lost one or two along the way as well, despite my attempts to simplify matters further. None of that, however, can detract from the sheer quality of these deals or the effects they will bring to the business in time.

An After Thought

One last note I would like to add here relates to the last quote in yesterday's BMN RNS

"We are also pleased to welcome Mustang as a shareholder in VRFB-H. Its listing on the London Stock Exchange and consequent access to public equity capital markets combined with its strategy to invest in the stationary energy storage value chain and renewable energy projects, make them an especially attractive partner for VRFB-H."

Given that this is Mustang's first-ever investment and they are effectively a shell company, I find BMN's enthusiasm for this partnership very interesting. This is particularly true when I read "stationary energy storage value chain and renewable energy projects."

For BMN to be so enthused by such an opportunity from someone with no experience, those projects must be being driven by parties associated with BMN and have VRFB battery storage attached to them.

As is always the case with BMN management, they don't make these statements on a whim. They are nearly always backed up by a knowledge that we shareholders haven't got our hands-on yet. So this Mustang partnership in Enerox looks to be just the tip of the iceberg.

I trust this update was worth it and my apologies for any confusion caused yesterday. Such information has to be corrected if it's wrong, or we have no chance of succeeding with our endeavours.

Note - This article represents the opinion and research of the author only and the author currently holds a position in one or more of the stocks mentioned. Nothing shared in this article is to be deemed financial advice. Where possible all facts have been checked and references provided, however, it is the responsibility of the reader to check all details for themselves before making any financial decisions. Please also refer to the disclaimer policy


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