Bushveld Minerals - Q2 Update Review
The Bushveld Minerals Q2 update is out and there are definite signs of stability returning which is a great base for building further trust.
In my FY 2020 blog part 1, I wrote about an average production cost of $26.50 per kg for the year when producing the minimum 3,400 mtV from their two plants.
H1 2021 tells us that with a total production of 1,574 mtV, the two plants are YTD averaging $27.25 per kg. That's to be expected given that the $26.50 per kg figure is calculated against 3,400 mtV and H1 delivered less than half of the total.
However, with the ZAR exchange coming in slightly better than the forecast (14.55 vs 14.25 planned) the cost is also slightly lower than currently planned for. What that means is that H1 total cost when employing the 2020 'overhead' fig of $10,000 per mtV, comes in at c. $37,250 per mtV.
Taking the average London Metal Bulletin ("LMB") Ferrovanadium prices provided by BMN in both their Q1 and Q2 updates, we see an average price of $33.50 per kg for H1.
That would therefore have the mining element of the business (rough calculations only) making a small loss over the period. However, I do think that this average sales price needs to be taken with a pinch of salt given the strong uplift in prices especially in Q2 and particularly the strong surge (import taxes noted) in China.
We also mustn't forget that the Invinity sales profits will need to be factored into this and despite aggrievances towards this it was actually a significant profit driver during the period. So all in all steady as she goes.
However, this is all about the future and what this update begins to deliver is security and more confidence that BMN can deliver what they say it can.
Vanchem is rock solid at a consistent 293mtV so its midpoint guidance (1,150mtV) looks very trustworthy at this stage.
Over at Vametco there were clearly extended problems during April which have skewed the numbers for the quarter. A quick calculation demonstrates that April was only able to contribute 54 mtV due to the post maintenance ramp up and the strike.
What is key though is that May (278mtV) and June (261mtV) have delivered above and beyond the revised guidance (240mtV) demonstrating that the plant is capable of delivering its 2,800mtV run rate once maintenance returns to a more regular pattern. A position that should come in 2022.
What it also indicates is that H2 is capable of delivering 6 months of 240mtV which would see Vametco coming slightly above its top-end forecast of 2,400mtV. That we like that.
With Vanchem capable of delivering c. 1,150mtV (currently running at 1,172mtV average), that would place production towards the top end of guidance. All of which goes towards lowering the cost to produce and sets BMN up for a far better H2 2021.
Let's now place that in some sort of context. The top-end guidance of 3,600mtV states that the average production cost across the two plants would now be $25.60 per kg when delivered against the current c. ZAR 14.50 exchange rate. This is a reduction of c. $1 per kg against my last review.
Where we currently have a discrepancy is with the sales which rather interestingly haven't been boosted by inventory this quarter. This may be in part to the disruptions caused by international logistics or may have been a tactical decision as BMN expect higher prices in H2 and into next year.
However, taken as read we are running at 1,608mtV against my 3,842mtV (2020 outcome) total sales. A solid attack on the upper guidance of 3,600mtV makes the need for inventory sales less of a factor but given BMN's financial commitments these will surely come through in H2 especially if vanadium prices kick on from here.
Any uplift in the sale of inventory in said stronger H2 pricing environment will only add to that downward pressure on the overall cost.
So right now if we reach at least 3,842mtV sales for 2021, which this update certainly now supports then I have the following,
FY all-in costs of around $35.50 per kg and H2 all-in costs of c. $34 per kg based on ZAR 14.50. Meaning a hold of vanadium prices above c. $37.50 per kg takes BMN into profit on the mining side in 2021.
BMN is reporting current prices of over $40 per kg meaning H2 is on a solid footing with the prospect of further vanadium price rises to come.
Finally, I see it as a real positive that the new director of operations Francois Naude has been invited onto the call today. It says a lot about the recognition of previous failings and a desire to be open about how things are going at the plants. I look forward to hearing what he has to say.
All in all a solid update that helps build back some confidence after what has been a difficult period for shareholders. More of the same moving forward please Bushveld.
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