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Bushveld Minerals Limited provided an operational update with respect to Vametco Alloys (Proprietary) Limited (“Vametco”), the South African vanadium mining operation jointly acquired by the Company and Yellow Dragon Holdings Limited (“Yellow Dragon”) from Evraz Group S.A. in April 2017.
Bushveld Vametco Limited (“Bushveld Vametco”) has a 78.8% shareholding in Strategic Minerals Corporation (“SMC), which is the ultimate holding company of Vametco. Bushveld Vametco is 45% owned by the Company and 55% by Yellow Dragon.
Bushveld’s share of the above financials is approximately 27%, and will be accounted for using the equity method.
Vametco has a current annual plant capacity of approximately 3,000 metric tons of vanadium (“MTV”) in the form of Nitrovan®, a trademark vanadium product used in the steel industry and modified vanadium oxide (“MVO” or “V2O3”). Vametco produced 2,419 MTV of Nitrovan® and MVO from its own magnetite concentrate production for the financial year ended 31 December 2015. In 2016 production grew by 16% to 2,804 MTV, reflecting a 3.7% share of global production. The half-year to 30 June 2017 saw production levels similar to 2016 with 1,441 MTV produced. Under the oversight of Bushveld and Yellow Dragon, Vametco has commenced a multi-phased expansion project to increase annual production to more than 5,000 MTV over the next 3 years.
Reported revenue in the current period has improved markedly since the 2015-16 period, largely due to improved vanadium prices. The challenging market conditions characterised by sustained depressed vanadium prices during 2015-16 adversely impacted financial performance across the industry. Vanadium prices have, however, improved materially, rising from a low of US$14.41/kgV* in January 2016 to US$23.23/kgV* in December 2016. This price improvement has continued into the first half of 2017, resulting in increased revenues. This increase has been tempered by a strengthening exchange rate at Vametco, with the South African Rand strengthening from ZAR 14.71 to the US dollar in 2016 to ZAR 13.22 in the first half of 2017.
Supply shortages are expected to continue to drive vanadium prices higher. By the end of July 2017, prices of above US$45/kgV were being reported by the recognised industry platform, Metalbulletin, in Europe, with Chinese prices in excess of US$50/kgV.
Vametco’s cash production costs of US$14.50/kgV (equivalent US$3.55/lb V2O5) during the year ended 31 December 2016 were among the lowest in the world, partly driven by the 16% increase in production volumes, placing Vametco in the bottom quartile of the international vanadium production cost curve. During the first half of 2017, cash production costs have increased by 7% above reported 2016-year amounts. This is a testimony to management initiatives focussing on tight cost controls over all major components of the production value chain.
Earnings before interest, depreciation and tax (EBITDA) for the year 2016 was ZAR 47.5 million (US$ 3.2 million), in large part due to the low average vanadium prices realised, reflecting a 203% improvement from ZAR15.7 million (US$ 1.2 million) in 2015. During the first half of 2017, EBITDA has grown to ZAR85.5 million (US$ 6.5 million), an 80% increase (260% on an annualised basis).
Fortune Mojapelo, CEO of Bushveld Minerals Limited, commented, “Vametco is a significant Vanadium producer, with extremely competitive production costs, that is now undergoing an expansion initiative to deliver increasing volumes into a structurally deficit supply market. We are extremely pleased to have concluded the Vametco joint-acquisition at the time we did. With more than 100 years of combined industry experience within the Vametco senior leadership team, we are very excited about the future prospects of this investment. We look forward to continuing to work with management in further driving down operating costs, plus delivering on its expansion initiatives.”
Bushveld Minerals is an AIM diversified mineral development company with a portfolio of vanadium, titanium, iron ore, tin and coal assets in Southern Africa.