Bushveld Minerals - Further Positive Developments


It has been just over a month since I last covered Bushveld Minerals (LSE:BMN), the South African multi-commodity mining company. In the initial review I attached a Buy tag at 3.38p, a move that has paid off with the shares reaching highs well over 7p. However, at 7.23p I decided to move it from Buy to No Rating for several reasons that I will outline in the technical analysis section. Consequently, a 114.2% profit was locked in, the second largest review return, and within just a couple of months. In the update in which I moved it to No Rating, I noted that 'the share price could ease back' and 'if it does so considerably, I may look to re-enter'. It's fair to say that the predicted scenario has played out, with the shares having retraced to 5.45p currently. Now the market cap stands at circa £21.3m with there being ~390m shares currently in issue. A number of noteworthy announcements have been made since, and it is worth taking a look at those. The magnitude of those announcements combined with the price retrace means I am re-attaching a Buy tag on Bushveld.

This article is a follow-on from the below posts. For full context and information, read these articles first:

As shown above, the shares rose significantly to over 7p, although they currently now stand at 5.45p. This move was made on the back of large volumes indicating that there was significant shareholder interest over the period. On the pullback, the RSI has adjusted back to a level where there is more upside headroom. The smaller graph that is inside the longer term graph, shows how the shares have been trading in a steep downtrend for a couple of weeks. However, for the first time in days, there has been a strong upward movement to as high as 5.7p. The shares have retreated slightly since, but this shows that buying pressure does exist. Any breakout from that channel targets 6p as a first target. The shares have strong support at 5p, and a pattern of higher lows could be confirmed on the 15-day chart. The drop has been fuelled by concern over the exercise of warrants, offloading of shares by institutions (who had accumulated during the sharp drop), and a substantial portion of profit taking.

The market cap for Bushveld is currently £21.27m. There are some adjustments to factor in though. This figure includes 850,000 of the 36.76m warrants issued during the placing. These warrants carry a release price of 5p. Seeing as the 5p level has been surpassed, some of these warrants are starting to become exercised. As at the end of November, Bushveld had a cash pile of £1.184m. This first exercise will boost that figure by £42,500 although you would have expected depletion by a similar amount. What's more important is that a further 8m warrants have been exercised, but not yet released into the market. Realistically the sales of those could depress the share price a little, but Bushveld will have access to a further £400,000 in cash. Seeing as the warrants are there to be exercised, let's assume all the warrants are put into the market. That means there will be a further 35.9m shares. The total shares in issue therefore rises to around 426.28m, which at 5.45p equates to a market cap of £23.23m, of which ~£2.984m is cash based on the figures given by the company.

The decrease in cash for H1 2013 amounted to £1.19m, so if the warrants are exercised in full, you would imagine that they should have sufficient cash at least until H2 2014. However, there is a loan note on the latest balance sheet reading. The loan note amounts to £324,400 and was provided by the largest shareholder, Mineral Wealth. It accrues interest at 8% per annum, so they should look to pay that down as soon as the finances allow. The loan note is convertible though, so the best scenario may be if Mineral Wealth convert it into shares as it gives greater financial flexibility. Bushveld have commented that 'Further dilution is not anticipated" and the required CAPEX is planned to be covered through the introduction of strategic partners to their major assets.

The below table is from the previous review, but with a couple of columns added:

Previously I had noted that a fair value would have been £0.12 per contained tonne. The JORC update that was supposedly meant to upgrade the resource to 1 billion tonnes has not yet been released, so both scenarios are still shown. Having released a very positive RNS (will outline later), I am tempted to narrow the discount between Bushveld and Baobab by moving the value up to £0.135 per contained tonne. This gives a new current value of £22.4m for just the iron project (although some of this value probably needs to be converted due to the shift of focus at the 52Mt Main Magnetite Layer (MML) deposit, to vanadium from iron. Iron credits could be factored in nonetheless).

I'll start by looking at Bushveld's change of focus at the MML from iron to vanadium. Bushveld announced this change in late November, and the share price reacted positively. It is important to recognise that the MML deposit is independent of the P-Q deposit, so there is no impact upon the plans for the majority of the large iron resource. "The new platform, which is to be called Bushveld Vanadium, will focus on accelerating the development of a potentially world-class vanadium resource in the MML with the possibility of becoming one of the world's largest vanadium producers. The Board of Bushveld believes this merits its own development path given the potential world-class nature of the deposit." On the surface some investment commentators noted that this was simply a change of name, however what it has done is draw investors attention to the Vanadium, and that is not something I had considered in the initial reviews. Having researched the vanadium content, it is now clear that it could be potentially very lucrative, and those making the statements have not quite caught onto the magnitude of the announcement. Additional assays from two additional sections (the MML hanging wall and AB zone) have been incorporated and that is what has confirmed the change of focus to vanadium.

Reinforced steel bars - image from freedigitalphotos.net
Firstly it's important to know what exactly vanadium is. After all it is not a commonly mined resource and there are relatively few listed companies involved with it. Vanadium is a high value metal ($14,000 - $35,000/t dependent on type and quality). The metal has an excellent strength/weight ratio with 2 pounds of Vanadium doubling the strength of 1 tonne of steel. The price of vanadium has been resilient in recent years, having established a price floor of $5 per lb, and that has been driven by increasing demand. In 2012, both production and consumption of Vanadium hit record highs with 2012 production estimated at between 64,000t to 67,000t. The formation of vanadium requires certain geological formations, and that has meant that China, South Africa and Russia account for the vast majority of global reserves. In South Africa, pretty much the entire vanadium resource is found within the Bushveld complex where Bushveld operate. The future demand for vanadium is expected to be higher than today's levels.

There are a few points contributing to this. Firstly, new construction codes in China have restricted the use of lower-strength steel bars leading to increased the demand for strengthening metals such as vanadium. Another reason is that vanadium is being increasingly used for redox storage batteries and lithium vanadium batteries for electric vehicles. Demand for vanadium for redox batteries alone is expected to rise from 1,100 tonnes per year in 2012 to 8,500 tonnes per year in 2017, although of course, that is an estimate. Expansion of Chinese steel mills is expected to lead to a further 20,000 tonnes being demanded per year by 2016. Lastly, vanadium inventories that have been built up between 2005-2009 are now close to being depleted. Admittedly, a significant proportion of this demand will be met by projects coming onstream, but it remains the case that the vanadium price is likely to have capped downside (barring any sudden exogenous changes). In South Africa specifically, an established producer, Evraz Highveld Steel, saw a massive increase in the price of vanadium slag (from $2/kg to $9/kg) year-on-year in 2013 with other products such as ferrovanadium and modified vanadium oxide also having price increases in excess of 10% Y.O.Y.

Bushveld's vanadium resource has been described by the company as 'World-Class'. Whilst it's too early to confirm that completely, the initial comparisons are very impressive. A (comparison) resource table outlining the current and potential scenarios is shown below.

There certainly aren't many vanadium projects in the hands of listed small or mid cap companies, but these examples give a feel for what else is on the stock market, and the value that is being attributed to each. For the MML deposit, the 1.48% in-situ grade is among the best, although the separate hanging wall and AB zones have lower grades. The MML-HW is perhaps less economical than the MML and AB zones due to the lower titanium, vanadium and iron grades. The MML resource is JORC compliant, although the MML-HW and AB zones are not. Nonetheless, the AB zone shows good potential as iron and titanium credits should be obtainable. More importantly though, is not the in-situ grade, but the concentrate grade (i.e. the grade after processing). Bushveld's concentrate grades for the MML and AB zone both exceeded 2% whilst the MML-HW stood at 1.5%-1.7% (estimated) for the test sample. These are in line with typical South African concentrate grades (2%) and are higher than typical Australian concentrate grades. The high concentrate does make the resource a very interesting proposition, and it should definitely carry a substantial amount of value, although the scale of the value remains to be made clear.

Given that the 52Mt figure is only based on the MML zone, the additional 200+Mt possible is encouraging especially since the grades of the test assays are said to be fairly representative of the wider MML-HW and AB zones. The shallow ore body of the deposit means it could be open to low cost exploitation. To progress the vanadium asset, Bushveld are planning to conduct a scoping study and pre-feasibility study during 2014. The scoping study will investigate the economics of 5,000t per year and 10,000t per year production scenarios. These studies will require sampling and assaying all the drilling boreholes along the MML-HW in order to define a JORC compliant estimate and drilling and getting a resource estimate for the AB zone. Metallurgy and pyro-metallurgy studies will follow. As I noted, the vanadium focus seems to drastically enhance the value of the MML section compared to the iron scenario. The successful development of vanadium elsewhere in the complex also gives a sample development template which it can analyse and base decisions off.

CEO Fortune Mojapelo said: "I am delighted to present the Bushveld Vanadium project, which we look forward to developing alongside the equally exciting P-Q Deposit project. The vanadium potential of the MML has been known to us from inception and is the reason we have sought in our past project announcements, to distinguish between the P-Q Deposit and the MML Deposit even though the two deposits are about 2 km apart and run along parallel strikes. What has not been as clear before is the scale of the vanadium deposit, the vanadium proposition of the disseminated magnetite zones and thus the massive potential of the project. The thick outcropping zones will ensure that the mining operation is a low cost one with very low stripping ratios."

The second encouraging announcement concerned the P-Q iron ore project. However, it was not the JORC resource statement. Instead it was the announcement of an Memorandum of Understanding (MOU) with China Railway No.10 Company (CREC 10), a subsidiary of Fortune 500, China Railway Group. Last year, China Railway Group was placed 112th. To get a company of this calibre interested is testament to the quality of the iron resource, but also the management's capability. Ultimately, if the resource was not encouraging, CREC 10 would not have been interested at all, but it's important to bear in mind that the MOU is only an early stage option at the moment. Upon asking Fortune Mojapelo how this changes the dynamic, he commented:

"CREC is a large consumer of steel and has standing relationships with many steel mills in China. Their involvement with us is meant to assist open up a) off-take opportunities and b) potential investment partnerships. Their participation is through a shared detailed metallurgical test work programme in China utilising CREC's own metallurgical consultants. The programme will be run jointly [and will be funded equally] by Bushveld and CREC's metallurgy consultants. The expected outcome of this programme would be a clear flow sheet for the processing of the Bushveld P-Q deposit and a definition of the expected specs of the products based on which off-take discussions with various steel mill customers can be held."

Under the terms of the MOU, CREC 10 are granted first choice with regards to development. If CREC 10 do get involved, then that credibility can be used to attract other high calibre partners. The programme will commence in January 2014 with results likely to be received in either late H1, or H2 2014. The partnership alleviates some of the initial funding required. Nicolas Song, Deputy General Manager for CREC 10 commented: "We are delighted to have signed the MoU with Bushveld Minerals. This is an important first step in what we hope is a long term relationship. We look forward to working with the Bushveld management." The market reaction to this news was surprisingly dull, and that may be down to the news being released both intra-day, and during the midst of a downtrend. What it does mean is that there is an attractive entry opportunity at this level for those taking a medium term outlook.

Given that those are the two main pieces of news that I wanted to cover, I'll only briefly add to the other sections of the Bushveld puzzle. With regards to Lemur, Anthony Viljoen has now been appointed CEO and there are plans to realise the value of dormant exploration equipment such as drill rigs. I continue to attribute little value to the Imaloto project until meaningful leaps are made. None of Lemur's cash has been spent but the group is targeting either near production or greenfield exploration assets that have the potential for 'significant resource definition'. Given the downturn in the mining industry, their purchasing power is increased. Whilst I would like them to stick to a geographically sensible area (Southern Africa), Sula Iron and Gold is an example of a prospective greenfield project (although it operates in Sierra Leone, so there are few operational synergies). Sula (LSE:SULA) is valued currently at £2.3m. It is targeting a 500mt iron resource and is located in a prospective region next to African Minerals' huge multi-billion tonne iron asset. The lack of a JORC resource means that it's difficult to value. Sula is just an example of the sort of value that can be obtained and where there could be good risk-reward opportunities. In a separate discussion, Fortune noted that the company is mindful of the risks of over-diversification and will ensure that there is sufficient operational capability to operate any acquired projects.

Back to Imaloto - negotiations with the Malagasy government are underway for the grant of an IPP licence. The project remains low CAPEX, with only $11.9m needed for an initial 0.5Mtpa production rate, but existing funds are probably better directed at purchasing other assets. A partner for the coal assets will be sought during 2014, and given the low CAPEX, the majority of the Lemur costs should be coverable by an external partner. A continued deterioration in the coal market could inhibit progress though, so any tangible progress at Imaloto would be good news.

"The tin project is currently in a resource definition and metallurgical studies stage with a scoping study expected to complete in Q4 2013, after which a strategic partner will be sought for funding the project to completion of a PFS". The JORC update should also be forthcoming and has been described as 'imminent' despite being overdue. That does not concern me though as there is nothing to suggest anything untoward. Although the 1 billion tonne target is likely to be met due to the sheet extension of the strike, even if it is not met, it's unlikely to be by much. Seeing as I see the company as still being undervalued, that also does not concern me.

Having previously moved Bushveld off a Buy tag, the magnitude of the announcements since, coupled with the share price retrace now present another good opportunity. The fundamental situation has only improved since the initial reviews, and the current market cap once again looks undemanding - in particular, the vanadium resource looks very good. After all, some companies only have one large vanadium resource whereas Bushveld has a major iron, potentially major vanadium and decent sized tin assets. The added stake in Lemur also gives access to a coal asset, and significant cash pile. The management have delivered some impressive announcements, but they will need to continue to deliver in order to maintain investor interest. Strong newsflow potential exists over both the rest of the year, and during the course of H1 2014. That should be sufficient to help Bushveld continue its re-rating back towards a more sensible level. For those reasons, I am placing Bushveld back on a Buy tag at 5.45p.

UPDATE (18/02/14) - Following a drift in the share price towards major 4p support, I have doubled up the site's stake in Bushveld to £10,000. This is shown on the review results page as the Buy (x2). The portfolio average has consequently dropped to 4.78p


  1. Thanks for yet another superb analysis, el1te. You're a star!

  2. Yep cracking report thanks for that.I can see a close at the end of this week on 7p DYOR

  3. Subscribed el1te. Excellent stuff keep em' coming

  4. Good timing on the second initiation


  5. As usual great, thorough and more important unbiased. Keen reader. One question - I thought Ironveld also had Valadium and they had big SP rise today. Geographically close - do you still rate Bushveld significantly better?

    1. Hi John,

      Yes, Ironveld's MML section is also very prospective (as you would expect) with similar titanium and vanadium levels. Their MML and FW reading from July came up with a 80Mt potential resource with very good readings: 39.8% Fe, 11.2% titanium and 0.88% vanadium pentoxide.

      Those figures back up Bushveld's resources. However, Ironveld is currently valued much higher than Bushveld. There's a case to be made that IRON is overvalued whilst BMN is undervalued. The net contained iron resource at BMN (the most tangible part) is multiples greater than IRON's. The vanadium at both is good although the economics of each vanadium deposit need to be worked out first through the scoping study

      Chuck in a 50%+ stake in Lemur, some tin assets and a MOU with a Chinese infrastructure major and there is only one reasonable conclusion in my opinion