Thread by @MylesMcNulty

Two weeks from entry into @BushveldMin_Ltd, and the SP (and vanadium market!) is really heating up.

Russia accounts for almost 20% of global V production. With sanctions potentially about to bite, panic buying is evidently already occurring.

The #BMN investment case ⬇️

1/25

https://twitter.com/MylesMcNulty/status/1494653872610152449

@BushveldMin_Ltd controls one of the largest and highest grade vanadium resource bases globally, at 549 million tonnes.

It controls:

- 3 major, high-grade deposits, one of which is a working open-pit mine;

- 2 processing plants;

- an electrolyte plant (in construction).

2/25

#BMN's operations are located on the Bushveld Complex in the North of South Africa.

Prior to 2017, the Co was a pre-revenue mineral explorer. Its flagship asset was the Mokopane vanadium deposit.

A 2016 prefeasibility study suggested a 30-year mine-life, producing...

3/25

...9,525 tonnes of vanadium pentoxide ('V2O5') per annum. It calculated a pre-tax NPV of $418m, on capex of $298m.

Key points to note:

1) The 30-year life of mine was only based on 9.7% of Mokopane's 298 million tonne resource.

2) V2O5 price used was $7.50/lb, which...

4/25

...is 35% lower than the current V2O5 price of $11.50/lb.

In 2016, however, V2O5 pricing was at 13-year lows. The development of Mokopane was an impossibility.

#BMN's mgmt thought outside the box. Through innovative financing, it acquired a stake in Vametco from @evraz.

5/25

Vametco is an operating mine with a processing plant onsite.

#BMN's initial equity stake of 26.6% was acquired in April 2017, for $16.5m.

In Dec. '17, it increased its stake to 59.1% for an eventual total consideration of $25.8m;

And in Sept. '18, it increased its...

6/25

...stake again - to 75% - for $20m.

The acquisition was perfectly timed -as the V2O5 price chart above shows.

From a mkt cap as low as £8.7m in Nov. '16, #BMN went on to generate an EBITDA of $101m on revs of $192m in FY 2018 (and $33m on $117m, in FY 2019).

7/25

But #BMN did not stop there. In Nov. 2019, it completed the acquisition of a standalone processing plant - Vanchem - within 100km of Vametco.

The 100% stake was acquired from Duferco for $53.5m.

Unfortunately this second deal was not quite so well timed: originally...

8/25

..announced in May 2019, the price of V dropped by an alarming 50%+ - in just 6 months - by the time the deal completed in November. Prices remained depressed throughout 2020 and much of 2021.

Coupled with operating issue at both plants, #BMN was lossmaking in '20 and '21.

9/25

Nevertheless, the acquisitions left #BMN in control of two of only four primary vanadium processing plants worldwide.

Ore from the Vametco mine currently feeds the two plants. In the longer term, Mokopane will feed Vanchem (it's located closer), and Brits (BMN's third..

10/25

...mine, which lie adjacent to Vametco), could also feed the Vametco plant.

At current nameplate, #BMN's two plants have a combined output of various ferrovanadium ('FeV') products totaling 3,600 tonnes per annum (Vametco @ 2.5 ktpa; Vanchem @ 1.1 ktpa).

11/25

However, mgmt plans to have stabilized Vametco production at 2.8 ktpa by end 2022;

And ongoing expansion at Vanchem will increase output to 2.6 ktpa by end 2022.

At a runrate of 5.4 ktpa going into 2023, #BMN will control 6%+ of global production (113,000 t in 2020).

12/25

#BMN is also carrying out feasibility studies to increase production beyond the current ongoing expansion works at both sites.

These studies target an increase in production by a further ~25% "in the medium term" (going into 2024?).

Mgmt's longer term target is 8.4 ktpa.

13/25

A very detailed intro into vanadium is provided on #BMN's website ⬇️

Over 90% of vanadium demand comes from steel production (specifically, in reinforced steel rebar).

A rapidly growing source of demand, however, is vanadium redox flow batteries.

bushveldminerals.com/about-vanadium/

14/25

The 'VRFB' has numerous advantages over Li-ion batteries in large-scale, stationary energy storage (explained on BMN's website ⬆️).

Whilst global commercialization is at a nascent stage, it is growing rapidly.

To keep it short, re: the #BMN investment case, mgmt has...

15/25

...created an innovative financing solution to catalyze growth of the VRFB industry:

Because V does not degrade, it can be recycled from the battery at the end of its life (20 years+). As such, #BMN is able to lease the metal to customers. This both saves upfront capex...

16/25

...for the customer (V constitutes a major cost of manufacture of a VRFB), and provides #BMN with a annuity-esque rev stream.

= premium valuation rating over other miners.

But that's long term stuff. Most reading this are here for the currently exploding V price.

17/25

So, what's going on? Prices have exploded upward by 20% in the past week.

Why? Panic buying from traders and industry players, most likely, in the face of sanctions to Russian output.

18/25

vanadiumprice.com

metalbulletin.com/non-ferrous/or…

argusmedia.com/metals-platfor…

China does not import Russia's vanadium slag for use in its own steel production (as it produces its own vanadium slag, as a co-product of steel production!).

So we have almost 20% of global production, that may not find a home outside Russia.

The only other major...

19/25

...producers outside China and Russia are South Africa and Brazil.

Between those two countries, there are only three major operators:

- @Glencore (a single operation, near to #BMN's Vametco mine and plant);

- Largo Resources (TSE-listed, single operation in Brazil);

20/25

- #BMN.

Given that the global market is extremely inelastic (as explained on BMN's website ⬆️), controlling two of only four primary processing plants in the world is highly significant.

BMN's basic numbers for 2022, extrapolated from market forecasts.

21/25

To reiterate a previous post:

For those saying, "FeV is only at $53/kg - why are you suggesting impossibly high average realized prices for #BMN of $70/kg and $80/kg?!"

I would answer: "FeV was at $41/kg at the start of 2018. It reach a high of $128/kg in Q4 2018....

22/25

Throughout the calendar year, #BMN achieved an average realized price of $81/kg."

FeV is up 60% since the start of 2022. It is up 20%+ in a few days.

History has demonstrated just how quickly V can move.

Given the extraordinary geopolitical events, FeV at over...

23/25

...$100/kg this year seems entirely reasonable.

There is so much more to say on the @BushveldMin_Ltd story - but the short term thesis:

At current prices, BMN turns net cash positive by end 2022. If V continues its move ⬆️⬆️, #BMN becomes a cash elephant.

24/25

Given its market positioning (immense resource, 2 of 4 processing plants worldwide), its electrolyte plant, and its planned VRFB annuity-rev stream... I think #BMN deserves a v. punchy EV/EBITDA multiple.

As ever, plenty of risks to consider.

Always do your own research.

25/25