Bushveld Minerals Project Philosophy
4 Principles, Critical to Success
Bushveld Minerals’ approach to project development rests on four principles, all of which are critical to the Company’s success. The approach recognises the need for commodities with a sound economic outlook, scalable low cost, high quality projects with a clear path to production and cash flow generation. This philosophy is core to the Company’s strategy in developing projects and creating attractive returns for our shareholders.
1. The Right Commodity
We adopt a rigorous approach in analysing market dynamics for each of our chosen commodities to understand industry structure, current and future supply/demand balance and implications for the underlying price. Vanadium is in a structural deficit, with limited supply and a growing demand. The vanadium supply deficit has resulted in an average price increase of approximately 77 per cent relative to the prior year. The growing deficit presents itself as an opportunity for existing primary vanadium producers who are able to increase production.
2. Low Cost Curve Position
A low cost curve position acts as a natural hedge against commodity price fluctuation, ensuring healthy average margins and protection against price downswings. The Company’s vanadium assets are either positioned in the first quartile or show the potential for first or second quartile cost positioning. Vametco, the Company’s flagship asset is one of the lowest cost primary producers while enjoying some of the highest grades. The Company’s strategy is for the assets to be in a position of generating cash in every phase of the commodity cycle.
3. A Clear Path to Achieving Production
The path to production is, in part, a function of project capital requirements and complexity of development.
We look to develop projects where we have visibility to production and cash flow generation. We therefore target brownfield processing assets that can be acquired at a fraction of their replacement cost or develop greenfield projects that have a low up-front capital expenditure and are scalable. A clear example of this was the acquisition of Vametco which was acquired for significantly less than its new replacement cost, which is in excess of US$200 million.
We have the opportunities to debottleneck and optimise our long-life assets to grow production with a minimum capital expenditure spend. Vametco is currently undergoing an expansion project that will increase its production capacity to 5,000 mtV by 2019. In addition, the Company has expressed its intentions of growing its production platform to more than 10,000 mtV in the medium term.
“Bushveld Minerals is one of only three operational primary vanadium producers, and one of only two vanadium focused pure-play companies in the world.”
Attractive commodity market fundamentals
- By far the best performing commodity price since 2016, the vanadium price has seen cumulative increases in excess of 350 per cent over the period as a consequence of a significant structural deficit, driven by robust and growing demand in the context of a concentrated and constrained supply with limited new production in the horizon;
- Vanadium demand is anchored in the steel sector, which continues to underwrite vanadium demand as vanadium consumption in steel grows globally, while applications in energy storage sector provide step change upside;
- Supply response has been slow, with production reductions of as much as 10 per cent between 2014 and 2016. The majority of projects under development are coproduction pig-iron/steel plants designed to produce vanadium as a co-product. They have significant grade and capital expenditure constraints to overcome.
- The management in place in the Company’s subsidiaries are highly experienced operators in the commodities they are focused on. Vametco’s team, for example, combines more than 100 years’ experience in vanadium mining and processing.
Quality Vanadium Assets
- The Company’s asset portfolio comprises large, high grade open cast deposits, combined with low cost, scalable processing capacity to give it a low cost production profile and first quartile cost curve positioning.
- Primary vanadium grades of 1.75 per cent – 2.0 per cent V2O5 are among the highest in the world.
- Current life of mine production profile accounts for less than five per cent of the Company’s resource base with extensive exploration upside.
- Bushveld is committed to high standards of corporate governance and social responsibility.
- The Company continuously reviews its governance policies and is committed to improving its practices over time.
- The Company considers corporate social responsibility a fundamental part of Bushveld’s business imperatives and seek meaningful and deep partnerships with its multiple stakeholders.
- The Company’s deposits exist in close proximity to brownfield processing and logistics infrastructure creating scope for low capex and quick scale-up of production capacity.
- The acquisition consideration of Vametco, at US$16.5 million, represented less than 10% of replacement value and allowed Bushveld immediate access to production capacity.
- Bushveld is committed to delivering attractive returns to its shareholders. During the second half of 2018, the Company will define a capital allocation framework, which will outline the Company’s approach towards shareholder returns, including a dividend policy designed to encourage capital efficiency, to support the Company’s growth initiatives while simultaneously rewarding investors.
- Bushveld’s deep vertical integration, anchored in a high quality low cost production base allows the Company to play a key enabling role in the multibillion dollar energy storage industry.
- This strategy is key to not only strengthening the vanadium demand profile, it also unlocks significant economic opportunities for the Company along the vanadium value chain.