Market Fundamentals: The vanadium price has risen by over 700% from the lows of US$13.50/kgV in December 2015 to a high of US$127/kgV in November 2018. Despite recent softening in the price, driven by largely temporary factors, vanadium remains a commodity with compelling fundamentals. The vanadium market remains in significant structural deficit, driven by robust and growing demand, while supply remains concentrated and constrained, with limited new production on the horizon.
New rebar standards, introduced in China in November 2018, to limit and eventually eliminate the use of inferior steels are expected, when fully enforced, to increase China’s vanadium demand by over 30%, the equivalent of 10 to 15% of global demand. The enforcement of the new standard is expected to accelerate during 2019. The resulting increasing vanadium intensity of use in steel is expected to see a Compound Annual Growth Rate of demand for vanadium from the steel industry of 2.5% until 2027.
However, demand “upside” from the energy storage applications of vanadium may increase the CAGR of vanadium demand from 2.5% to 8.4% over the same period.
Meanwhile, the supply response has been slow, with production shrinking by as much as 6% between 2015 and 2018. Supply from co-production pig-iron/steel plants, which accounted for 70% of vanadium feedstock in 2018, driven by steel market dynamics that have been constrained. The majority of projects that have been announced or are under development are high capex plants designed to produce vanadium as a co-product from pig iron/steel plants or hydrometallurgical iron vanadium and titanium plants. These projects will have to overcome a number of constraints, such as high capital intensity, funding availability and the fact that other commodities primarily drive their economics.
Quality Vanadium Assets
Bushveld Minerals’ primary vanadium resources consist of large, high-grade opencast deposits, with grades of 1.5 – 2.02% V2O5 in magnetite, which are among the highest grades in the world. The Company’s 540 Mt combined primary resource is among the largest in the world and is complemented by low-cost, scalable processing capacity that is positioned in the lowest quartile of the cost curve.
Upon completion of Vanchem and Vametco’s expansion initiatives the Group’s production platform will be in excess of 8,400 mtVp.a, increasing Bushveld Minerals market share of the vanadium market.
Brownfield Based Growth Strategy
Bushveld Minerals’ strategy for growing low cost production capacity targets the unique access to existing brownfield processing infrastructure in relatively close proximity of its high-grade primary vanadium deposits. This allows the Company to develop production and thus cash generation capacity at a fraction of the cost and time it would take to develop on a greenfield basis. Following the refurbishment programme at Vanchem and expansion programme underway at Vametco, the Company will have created a portfolio of processing assets supplying approximately 10% of the global vanadium market at a cost of less than 40% of their replacement costs of >US$500 million while leveraging cash generated by the same assets for as much as 50% (~US$100 million) of the cost of creating that capacity.
Bushveld Minerals’ vertical integration, anchored in a high-quality, low-cost production base, enables the Company to play a critical role in the burgeoning, multi-billion-dollar energy storage industry. Vertical integration is key not only to strengthen the vanadium demand profile, but it also unlocks significant economic opportunities for the Company along the vanadium value chain. Bushveld Minerals’ vertical integration strategy provides a natural hedge against volatility in the vanadium price.
Bushveld Minerals’ highly-experienced leadership team pools a range of skills and depth of experience that will help to achieve its goals and growth targets. The team has the necessary vanadium mining and processing experience to ensure operations remain in the lowest cost quartile globally and achieve targets. The team has a proven track record of value-creating transactions that have generated strong returns for shareholders. Board composition is constantly reviewed to ensure strong corporate governance.
We are dedicated to maintaining sustainable mining and processing practises across all our operations and projects. This includes ensuring our employees enjoy a healthy and safe working environment, operating in an environmentally and socially responsible manner, and adding value to all stakeholders we work with. The Company considers corporate social responsibility to be a fundamental part of Bushveld Minerals’ business and seeks meaningful and deep partnerships with its multiple stakeholders.
Bushveld Minerals is committed to delivering attractive returns to its shareholders. The Board is supportive for Bushveld Minerals to adopt a consistent and disciplined approach to capital allocation to manage the Group’s growth initiatives. Furthermore, the Board has approved a dividend policy based on a free cash flow pay-out ratio, reflecting Bushveld Mineral’s commitment to return cash to shareholders in a sustainable manner while prioritising its stated growth strategy.