MiFID II exempt information – *SP Angel act as Nomad & Broker to Bushveld Minerals

see disclaimer below

Blushveld Minerals* (BMN LN) 38.25p, Mkt cap £456m – Q4 Operating results report US$107m EBITDA

STRONG BUY (from BUY) - Target Price 87p

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(Bushveld Minerals now hold 74% of Vametco and 84% of Bushveld Energy it’s vanadium redox battery unit)

  • Bushveld report Q4 sales and EBITDA margins today.
  • Sales were 167% higher in Q4 yoy at US$60m.
  • FY sales were 143% higher yoy at US$192m.
  • EBITDA rose 320% to US$39.6m in Q4
  • FY EBITDA rose 349% to US$107m for the full year.
  • Forecasts:
  • Our EBITDA forecast of US$109m for 2018 is remarkably close to the company’s actual US$107.5m indicating that our financial model works relatively well.
  • Our sales forecast US$204m is also relatively close to the US$193m (ZAR2,545m) reported by the company.
  • These forecasts are remarkably close to reality considering the volatility of vanadium prices, the lag in sales vs production and the disruption caused by stoppages, holidays and plant maintenance.
  • Vametco produced 657mtV of Nitrovan and ferro-vanadium in Q4 to bring full year production to 2,560mtV for the year. While Q4 production was 22% higher than Q3, the year was 3.4% down on CY 2017.
  • Ferro-vanadium sales fared slightly worse down 8% yoy at 586kgV in Q4 and down 3.4% yoy to 2,573mtV which was just 27mtV lower than the 2,600mtV used in our forecast.
  • Vametco lost an estimated 230mtV from 37.5 days of stoppages. Community unrest accounted for 22.5 days of this.
  • We hope these issues are now resolved and there should be no more stoppages this year due to labour grievances.
  • 2019 production forecast: we await news on the company forecast but we expect Vametco to produce substantially more vanadium through 2019 than was produced last year.
  • Phase 2 of the expansion was completed in June taking Vametco capacity to 3,750mtV pa but the plant is not likely to run over 3,400mtV for the year due to grade, kiln availability and silica liberation issues.
  • Costs: examination of the full year results indicates a significant improvement on our assumed costs which compensates for slightly lower than anticipated sales.
  • While costs rose by 19% yoy due to inflation and higher raw material costs the result was still better than we had anticipated.
  • Vametco has embarked on a transformation programme to sustainably increase production cost efficiencies reduce costs though unit costs should improve due to the expansion in capacity going forward.
  • Exploration at the Vametco mine shows a variety of grades above and below 2% V2O5. We have cautiously reduced our assumed grade for the year to 1.82% V2O5 from 2.01% previously assumed.
  • Ultimately we see Nitrovan and ferro-vanadium production rising to around 10,000mtVpa as Bushveld continue to expand their current and potential new facilities.
  • Price forecasts: we see ferro-vanadium prices remaining relatively high at US$75/mtV this year and next before falling back to US$45/mtV thereafter
  • Ferro-vanadium prices have picked up since the new year rising to $77-78.75/kgV for 78% material in Western Europe and to $70-72/kgV in China (Fastmarkets MB).
  • We expect the Chinese authorities to determinedly crackdown on non-compliance for strengthening steel rebar.
  • The effect should be for steel producers to move to buy more vanadium in, what looks like, a relatively tight market environment.
  • Chinese rebar prices hit a 12-month high last week but have since settled back at $545-551/t.

Conclusion: Vametco has produced a solid set of figures despite some challenges through the year. The Vametco and Bushveld management team has learnt much since Bushveld acquired control of the Vametco plant and we expect a smoother ride from now on. The Phase 2 expansion is already in place indicating a very significant increase in cash flow to come.

We retain our Buy recommendation and 87 pence per share target price

100% Vametco

 

2017

2018

2019

2020

2021

2022

2023

Price V2O5

$/lb

6.4

19.2

17.7

17.7

12.8

10.3

10.3

Ferro Vanadium

US$/kg

32.6

81.2

75.0

75.0

55.0

45.0

45.0

Vanadium sales

kg

2721

2573

3400

4370

5000

7500

10000

Sales

US$m

75.6

178.0

235.6

302.8

254.1

311.9

415.8

Operating costs

US$m

57.9

70.5

81.5

98.1

103.2

143.5

187.6

Operating costs

US$/kg

21.3

27.4

24.0

22.4

20.6

19.1

18.8

Operating profit

US$m

17.7

107.5

154.1

204.8

150.9

168.3

228.2

Pre-tax profit

US$m

17.5

106.5

152.8

202.8

145.1

158.8

218.6

tax

US$m

5.0

30.4

43.5

57.8

41.3

45.2

62.3

Post-tax profit

US$m

12.5

76.2

109.2

145.0

103.7

113.5

156.3

EPS

US$c/s

1.1

6.9

9.8

13.1

9.3

10.2

14.1

PE

x

44.7

7.3

5.1

3.9

5.4

4.9

3.6

EV/EBITDA

x

31.5

5.2

3.6

2.7

3.7

3.3

2.4

EBITDA

US$m

17.7

107.5

154.1

204.8

150.9

168.3

228.2

Free Cash Flow

US$m

17.5

94.5

144.5

191.6

87.7

105.1

215.0

Attrib. Cash Flow 74% BMN

US$m

12.9

69.9

106.9

141.7

64.9

77.8

159.1

SP Angel forecasts: Figures based on 100% of Vametco plant. Bushveld now hold an effective 59.1% of the Vametco plant

*An SP Angel mining analyst and nomad have visited the Vametco in South Africa.

 

 

 

Analysts

John Meyer – 0203 470 0490

Simon Beardsmore – 0203 470 0484

Sergey Raevskiy – 0203 470 0474

Phil Smith (Technology) – 0203 470 0475

Zac Phillips (Oil & Gas) – 0203 470 0481

 

Sales

Richard Parlons – 0203 470 0472

Jonathan Williams – 0203 470 0471

 

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