Bushveld Minerals — Update 18 May 2016

Bushveld Minerals — Update 18 May 2016

Bushveld Minerals

Analyst avatar placeholder

Written by

Bushveld Minerals

Conditional deal eyes producing mine and plant

Transaction

Metals & mining

18 May 2016

Price

2.45p

Market cap

£12m

US$/£:1.44

Net cash (£m) at end August 2015

6.1

Shares in issue

486.3m

Free float

50%

Code

BMN

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

0.0

(4.9)

(30.5)

Rel (local)

2.4

(7.4)

(22.5)

52-week high/low

4.40p

2.13p

Business description

Bushveld Minerals is an AIM-listed junior diversified commodity explorer in the mineral-rich Bushveld Complex in South Africa. Other than the Vametco deal, its projects include an iron-titanium-vanadium deposit on the Bushveld complex’s northern limb (Mokopane). It also has coal and tin interests acquired via takeover of Lemur Resources completed in 2015.

Next events

Tranche 1 completion

17 June 2016

Tranche 2 completion

17 June 2017

Deal financing

TBC

Analysts

Tom Hayes

+44 (0)20 3077 5725

Charles Gibson

+44 (0)20 3077 5724

Bushveld Minerals is a research client of Edison Investment Research Limited

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*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

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

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Bushveld Minerals and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Research: TMT

TXT e-solutions — Update 18 May 2016

TXT e-solutions

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free