Bushveld Minerals - Some Key Thinking.

Updated: Apr 9, 2021

Having delivered such great success in what was a clear spike in the vanadium market back in 2018, it’s easy to question whether Bushveld Minerals remains a strong investment today.

Stripped of its love but not its popularity, the Bushveld Minerals share price has seemingly seen nothing but depression these last 2 years or so. However, the momentum of its achievements has been steadily building and demonstrating a future outcome that surely belies such negative share price responses.

Some longer term investors in BMN bemoan this performance and point to the many share sales driven by 'investors' that BMN brought on board in order to deliver the many deals that have come to pass. Such periods have certainly tested even the most committed shareholders, but despite the fact that time periods have certainly been stretched, there remains much to admire about the BMN that is rising out of the Covid pandemic ashes.

If all Bushveld Minerals did or ever would do is mine vanadium, then whilst I may take a position based on shorter term attractive share price rises, I wouldn't be placing the company up on such a pedestal given the competition out there in the mining market. What makes BMN so special in my view, is its assault on the energy storage market through the wider take up of VRFBs.

Before I go there, I would like to highlight something that I believe to be critical to this whole journey that investors in Bushveld Minerals find themselves on.

The hardest part in all of this journey was securing the two processing facilities and the funding needed to begin to refurbish and expand them. Without that, the grander plans that BMN management are implementing, don't have solid enough foundations from which to rise from.

It’s important not to forget that Vanchem was only secured in November 2019. Meaning BMN management had barely had chance to bring it under their wing before Covid struck and the majority of most companies’ plans were thrown up in the air. 2020, whether investors across the AIM spectrum like it or not, was a time of defensive action. Survival. Rebuilding. Preparation. To expect that the same plans and their pace should simply drive on under such risk and unknowns is simply not realistic.

Where BMN management succeeded is in a) staying afloat b) minimising the losses/impact and most importantly c) securing finance through Orion. Whilst we would all dearly like to see things move more quickly, the reality is that a plan to expand production from 2018's 2,560 mtV to the current plan of 8,400 mtV, takes time, but more importantly, must come with a certain amount of pain.

This is currently demonstrating itself through the extended maintenance periods planned for 2021, but more critically, the significantly increased production costs, which are potentially denying BMN of greater respect in a recovering vanadium pricing environment.

However, it’s a temporary state that has the ability to develop and change the current perceptions towards BMN as 2021 develops. This is because the production cost is set as a yearly average and not as an outcome of said refurbishment works.

Hence why BMN stated in their Q4 FY2020 report,

"The increase in cost is due to higher maintenance, labour and raw material costs associated with the refurbishment and commissioning of kiln-3, which is expected to be commissioned in H2 2021. The full production benefit of kiln-3 will be realised in 2022."

That's the pain right there. A necessary uplift in costs to achieve a stronger production cost profile down the line. As the year develops, if BMN management demonstrates that their efforts are paying off, then market respect will surely start to build. All of which enables the company to remain committed to its energy storage plans, which are themselves placing pressure on a refurbishment programme that potentially has more stretched timelines than the companies/plans it intends to feed into.

Now many investors still aren't able to or won't see that the BMN energy storage strategy is real. If they did, then the company would surely be trading at much higher valuations and I understand why not. It stills require a certain leap of faith, be it that the gap needed to jump across has in my view now narrowed substantially.

Where I believe many are failing to appreciate the opportunity, is in the fact that BMN management are setting up their own VRFB world. Their own VRFB value chain, such that whilst overall market take up is certainly one angle for the company, it isn't absolutely necessary.

Instead, it is take up driven by their own #BushveldEnergy business, their own electrolyte plant (currently planned for operation in 2022) and their own partnered VRFB companies (Invinity and Enerox). In addition, they are implementing their own direct offerings, which are clearly centred around their mini grid at Vametco and the power problems being created by Eskom in S.A, which whilst potentially damaging to a business that operates there, also act as a catalyst for a local VRFB market serving businesses with the same frustrations.

In addition to this internal set of business development goals, are the wider opportunities that exist in a more global push for VRFB uptake, led by China and the likes of VRB Energy, whose recent announcement alone has the ability to completely destabilize the whole vanadium pricing market. Is that a good thing? No, I don't believe it is because many of the industry's VRFB players still aren't ready to thrive during elevated vanadium price periods. In my view, what we need to see are far more vanadium rental contracts in play, and an acceptance that it is the norm. That change, that realisation, can go a long way to bolster VRFBs standing on the wider green transition stage because it removes the vanadium price volatility question.

However, back in the VRFB world of BMN, such a project has already been agreed. Through the special purpose company (VERL) partnership set up with Invinity, they have agreed a deal with Pivot Power - part of EDF Renewables UK - for a project in Oxford. This further link to Pivot Power's project pipeline map, gives an insight into the scale of the opportunity that Invinity has before it, once its initial Oxford battery is proven, and its Bushveld Minerals guaranteeing and supplying the vanadium that goes in it.

The successful roll out and development of that deal has nothing to do with overall VRFB success, and if it continues down the vanadium rental route, has added protection from any global surges in vanadium pricing. This potentially makes that BMN led VRFB world all the more possible. However, it cannot truly reach its full potential without the front-end pain of expanding the two brownfield processors. That in turn will ensure that the vanadium is there in the sorts of quantities that will be needed, if such partnerships are to develop and realise their full potential. This years planned c. 4,250 mtV production, whilst significant, still won't be able to cope if and when VRFB projects that BMN are involved in begin to deliver larger scale projects.

For every 10MW project won, BMN has to supply nearly 5% of its total 2021 production. Hence why the refurbishment plan must be implemented ahead of the expected demand, and why the pain must be felt today in order to enjoy the true rewards of tomorrow.

Front end, until these developments begin to show they are real and the wider market is perhaps able to measure their impact more realistically, the share price will highly likely remain about how much is being produced, at what cost and where the vanadium price is.

However, I feel a little more foresight should tell investors that the expansion of the processing facilities isn't just about producing more vanadium, it’s about preparing for an expanded future that will be driven by those energy storage opportunities BMN are themselves taking charge of.

Their integrated offering brings together the strengths of the technology and backs it with guaranteed vanadium supply and pricing. That combination is more than capable of carving out market share against lithium-ion, in a market where the overall energy storage opportunity is already accepted and expanding exponentially.

“the defining moment in all of this, is the moment that Bushveld Minerals prove themselves to be a fully integrated vanadium miner, able to deliver substantial recurring revenues, through their green transition offerings. Then we can start to talk about real value."

In a world where Bushveld Minerals is able to expand its vanadium supply, by feeding off substantial energy storage led opportunities, a great deal of potential is ready to be unleashed.

BMN owns the largest high grade vanadium resources in the world. Two of just four pure play processing facilities in the world, and a fully permitted greenfield mine in the form of Mokopone, with a soon to be completed DFS. All they need to unleash it all is the demand that they are busy building upon and that has the VRFB at its heart.

I have only touched upon one element of their energy storage led plan, that combined, can give BMN the confidence and a demand to expand into, that is well beyond what we know and see today. Quality resource is certainly not a problem for this company.

To the above can be added the pending Eskom contracts, and indeed the recent news on Enerox, where BMN have confirmed a substantial 25.25% interest and a push to 30MW in production capacity in 2022. A move that could well deliver BMN c. 600 mtV in vanadium/electrolyte demand.

All of this is why I remain so genuinely excited by Bushveld Minerals, despite the elongated execution and the added trials and tribulations of doing business in S.A. They have so many avenues before them, and were carving them out long before the likes of Largo Resources quite rightly decided to join them at the energy storage/battery development table.

The opportunity is real but so is the front-end pain necessary to see the plans through, but personally, I am more than happy to take my medicine and wait as patiently as I can.

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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