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Bushveld Minerals Limited

Bushveld Minerals Achieves record monthly production

Bushveld Minerals Limited (LON: BMN), the AIM quoted, integrated primary vanadium producer, with ownership of high grade vanadium assets, has provided an operational update for the three months ending 30th September 2019 (“Q3 2019”), in respect of Bushveld Vanadium, Bushveld Energy and Lemur Holdings, as well as other corporate activities.

Key Highlights

Bushveld Vanadium

· Today, Bushveld Minerals announced the successful completion of the Vanchem acquisition for a total consideration of US$53.5 million, reduced from the initially agreed US$68 million.

· Vametco’s production for Q3 2019 was 561 mtV in the form of NitrovanTM from magnetite concentrate, a 24 per cent decrease relative to Q2 2019 (Q2 2019: 742 mtV) due to a planned maintenance programme, as previously announced.

· The maintenance programme was completed in 22 days, two days ahead of schedule. No further shutdowns are planned for the current financial year.

· Subsequent to the successful implementation of the maintenance programme and in line with the Transformational Programme, Vametco has completed the initiatives required to:

  • increase crusher and mill availability, and throughput rates;
  • increase kiln availability and hourly feed rate;
  • increase recoveries; and
  • improve leach plant recoveries.

· As a result of the improved operational performance and stability, Vametco achieved record monthly production of circa 310 mtV during September, this is the first time that this has been attained from the processing of only magnetite concentrate at Vametco.

· Vametco’s production for the nine months ended 30 September 2019 was 1,953 mtV a three per cent increase from the prior corresponding period (9M 2018: 1,897mtV).

· Vametco is on track to meet its production guidance of 2,800 mtV to 2,900 mtV for the 2019 financial year, underpinned by its improved operational performance.

· Unit production cost of US$18.90/KgV to US$19.50/KgV for the 2019 financial remains on track.

· On 21 October 2019, the Company announced that the Department of Mineral Resources and Energy approved its mining right application in respect of the Mokopane Vanadium Project. The Company is currently finalising the required documentations in order to execute the mining right.

Bushveld Energy

Manufacturing – VRFB Investment Platform

· On 1 November 2019, the Company announced its intention to establish a VRFB Investment Platform (“VIP”) to lead investments in VRFB original equipment manufacturers (“OEMs”) with attractive upside potential. The VIP is one of multiple avenues of partnering with OEMs.

· The Company and its initial investment will play a catalyst role and mobilise additional capital from third party funders to establish an investment capital pool to support VRFB OEM growth.

· These partnerships support Bushveld Energy’s business model, that includes electrolyte, VRFB manufacturing and deployments.

· As part of the VIP, Bushveld announced that it had agreed to support the merger of Avalon Battery Corporation and redT energy plc with interim funding of US$5 million which will give Bushveld the opportunity to acquire a strategic interest in the merged energy storage company.

Electrolyte Plant

· On 3 September 2019, Bushveld Energy received environmental authorisation, following the submission of the Environmental Impact Assessment, from the Environmental and Social Advisory Services of the Eastern Cape of South Africa, for the development of the Electrolyte Plant Facility in the East London Industrial Development Zone. The approval successfully passed the 20-day appeal period.

· The tender for Engineering Procurement and Construction services for the Plant has since been announced and is currently underway.

Fortune Mojapelo, CEO of Bushveld Minerals Limited, commented:

“At the core of our strategy to build a leading integrated vanadium platform is a low cost, scalable primary production base, of which Vametco is the flagship. Along with the newly acquired Vanchem business, these assets provide Bushveld Minerals with a sound base to implement our growth strategy.

In this context, I am delighted to report on the great work done to improve Vametco’s processing and production levels as a result of the initiatives that were identified as part of the Transformation Programme, which Vametco has now successfully implemented.

Thanks to the recent efforts from our team on the ground, the maintenance programme was successfully implemented ahead of schedule. Following this work, Vametco was soon running at improved levels, achieving record production of more than 300 mtV from magnetite concentrate during the month of September. These sustainable operational achievements keep us on track to achieve our stated guidance for the year at both the cost and production levels.

We are also excited to have secured operational control of Vanchem, with Bushveld now owning two of the four operating primary processing facilities globally. Alongside the Mokopane mining right application granted recently, the completion of the Vanchem acquisition, gives us a scalable platform that will allow us to grow our production base towards the 8,400 mtV per annum target we have communicated.

In addition, as announced recently, the restructuring of the purchase price for Vanchem and the recent bank facilities secured from Nedbank will enhance the Company’s financial position as it implements its growth strategy.

Looking at our energy division, our recently revealed intention to establish a VRFB Investment Platform to lead investments in this space adds another important piece to our energy storage strategy. The platform will allow us to mobilise additional third party financing to support VRFB manufacturers’ efforts to scale up their manufacturing capacity. The proposed merger of two proven VRFB suppliers, Avalon and redT Energy is an exciting first investment opportunity for the platform. The interim funding provided by Bushveld will help advance their merger and the eventual creation of a stronger VRFB company.

The investment platform comes at an apt time, as developments in South Africa’s energy sector point to a large local stationary energy storage market. These include the recently announced Eskom 1,400 MWh battery tender and the South African Integrated Resource Plan (“IRP”) which include a dedicated allocation for new energy storage deployments of over 2,000 MW over the next 10 years. We believe that these developments will position South Africa as one of the largest markets for energy storage in the world.

In conclusion, we have laid the key building blocks to achieve our production target of 8,400mtVp.a while advancing Bushveld Energy’s competitive position within the energy storage market.”

Bushveld Vanadium

Bushveld has one of the largest, high-grade primary vanadium resource bases in the world. The Company’s vanadium resource base currently consists of three mineral assets, Vametco, Brits and Mokopane. Bushveld’s processing facilities consist of Vametco and Vanchem. The Company’s mineral resources and processing facilities are situated within the Bushveld Complex in South Africa.

Vametco

Table 1: Operational highlights for Vametco (on a 100% basis)1

DescriptionUnit Q3 CY 199MCY19Q3 CY19 vs
Q2 CY19 
Q3 CY19 vs
Q3 CY18
9MCY19
vs
9MCY18
Vanadium (NitrovanTM plus FeV) producedmtV25611,953-24.4%+4.5%+3.0%
Vanadium soldmtV26041,719-0.6%+3.4%-13.5%
Average LMB vanadium price3US$/KgV30.747.8-21.9%-64.2%-33.8%
Underlying production costs4US$/kgV19.119.2+4.9%-5.7%-3.1%
  1. Based on provisional, unaudited estimates. Bushveld’s net attributable interest of the above figures is approximately 74%.
  2. mtV = metric tonnes of vanadium.
  3. The vanadium price is based on the FeV mid average price for the period, published by Metal Bulletin. Vametco realised price is based on the prior month’s average price.
  4. Excludes depreciation, royalties, selling, general, & administrative expenses.

· Vametco’s planned maintenance shutdown which commenced in July 2019 was successfully completed in 22 days, two days ahead of schedule.

· The maintenance programme was undertaken to increase kiln availability, hourly feed rate and improve leach plant recoveries.

· Subsequent to the successful implementation of the maintenance programme, Vametco has seen a significant improvement in operational performance and stability, achieving, for the first time, circa 310 mtV per month production from only magnetite concentrate in September.

· The Company’s ongoing implementation of initiatives identified in the diagnostic review will support Vametco in achieving a steady state production run rate of 3,400 mtVp.a. during the course of 2020 and run rate of 4,200 mtVp.a during the course of 2022.

· Successfully completed the wages and benefits negotiations with the Association of Mineworkers and Construction Union (“AMCU”) for the three-year period from 1 July 2019 to 30 June 2022.

· A JORC compliant Competent Persons Report (“CPR”) for the updated Mineral Reserve and Resource Estimate for Vametco will be published along with the Q4 operational update.

· Ferrovanadium price averaged US$30.7/kgV in Q3 2019 (Q3 2018: US$85.8/kgV).

  • October LMB mid average price of US$24/kgV.

Other projects underway at Vametco

· A kiln off-gas project has been initiated to comply with environmental regulatory requirements and further increase kiln feed throughput. Commissioning is planned to be completed during H1 2020.

Brits

· A JORC compliant CPR for Brits Vanadium Project’s Maiden Mineral Resource will be published along with the Q4 operational update.

Vanchem

· Today, the Company announced the completion of the Vanchem acquisition for a total consideration of US$53.5 million, reduced from the previously announced consideration of US$68 million.

· The US$53.5 million consists of: US$30 million paid in cash; US$23 million issued as Bushveld Minerals unsecured convertible loan notes; and a further US$0.5 million plus an amount equal to the working capital adjustment of Vanchem in cash after two years.

· The revised terms enhances the Group’s cash position and ensures that the Company is in a solid position to achieve its long-term production target of more than 8,400 mtVp.a. and to build a leading downstream vanadium-based energy storage platform.

· With full operational control of Vanchem, the Company will proceed with a detailed assessment of the assets acquired and refine the refurbishment plans for the ramp-up programme to more than 4,200 mtVp.a.

Mokopane Vanadium Project

· On 21 October 2019, the Company announced that the DMRE had granted a mining right to Pamish, in respect of the five farms which make up the Mokopane Project: Vliegekraal 783 LR, Vogelstruisfontein 765 LR, Vriesland 781 LR, Schoonoord 786 LR and Bellevue 808 LR.

· A definitive feasibility study (“DFS”) to mine the Main Magnetite Layer and provide a resources and reserves assessment has commenced and will be focussed on Mokopane as the primary feedstock supplier to Vanchem. The DFS is expected to be completed during the second half of 2020.

Bushveld Energy

Manufacturing

On 1 November 2019, the Company announced its intention to establish a VIP to lead investments in VRFB OEMs with attractive upside potential. The VIP is one of multiple avenues of partnering with OEMs. As part of the VIP investment, the Company announced that it had agreed to support the merger of Avalon and redT with interim funding of US$5 million which will give Bushveld the opportunity to acquire a strategic interest in the merged energy storage company.

The investment is in line with the Company’s strategy of building a leading downstream vanadium-based energy storage platform, by:

· Increasing Bushveld’s exposure to the massive potential of the stationary energy storage market, for the first time directly with a manufacturer of VRFB technology;

· Partnering with selective VRFB companies with attractive upside potential, including the establishment of a VRFB Investment Platform; and

· Demonstrating upstream support from the vanadium industry for the development of the VRFB sector and encouraging additional investment into the combined company.

Electrolyte Plant

· Bushveld Energy received environmental authorisation, following the submission of the EIA, from the Environmental and Social Advisory Services of the Eastern Cape of South Africa, for the development of the Electrolyte Plant Facility in the ELIDZ.

· Receipt of the Environmental Authorisation allows the Company to commence construction of the facility, designed to have an initial capacity to produce 200MWh of vanadium electrolyte per annum (used in VRFBs) as well for easy scalability in future.

· The capital expenditure required to build the electrolyte plant is approximately US$10 million, which will be financed with a combination of debt and equity by Bushveld and South Africa’s Industrial Development Corporation (“IDC”). The facility is being co-developed by Bushveld Energy and the IDC.

· Upcoming milestones include tendering for and selection of the Engineering, Procurement and Construction (“EPC”) contract for the manufacturing plant, erection of the physical building to house the plant by the ELIDZ and construction and commissioning of the plant.

Vanadium electrolyte rental model

· On 10 June 2019, the Company announced the successful deployment of a rental contract with Avalon and its customer, Sandbar, in the United States.

Vametco based Solar Mini-Grid Project

· Completed a grid connection and geotechnical studies.

· Commenced procurement for the project.

Energy storage market updates

The recently approved Integrated Resource Plan (“IRP”) 2019 for South Africa, includes a dedicated allocation for Energy Storage, promising to accelerate energy storage growth in South Africa while showcasing how storage can decrease the cost of electricity provided.

· The IRP allocates 2088 MW of new energy storage over two tranches:

            * 513 MW in 2022; and

            * 1,575 MW in 2029.

· Energy storage became a lowest cost option after costs were updated to reflect current market pricing, coupled with the “longer gas infrastructure lead time” and the “extent of the wind and solar Photovoltaics (“PV”) option in the IRP.

· The actual upside for storage within the IRP could be quite higher, with three sources of potentially additional storage co-located with:

       *    Solar PV - which is expected to add a further 6800 MW in generation through 2030;

       * Wind - which is expected to add nearly a further 16000 MW in generation through 2030;

       * Embedded generation, totalling 500 MW p.a.

Lemur

· Preliminary findings of the coal mine optimisation study, which looked at incorporating the underground portion earlier than previously planned, show a favourable outcome. The DFS will progress on this basis. Lemur is in the process of inviting technical advisors to submit proposals to conduct the DFS.

· Negotiations for the construction of the power station with Sinohydro, a subsidiary of state-owned PowerChina, are at an advanced stage and are expected to be concluded by the end of the year.

· In July 2019, Lemur conducted the route site survey for the transmission line together with potential bidders for the EPC contract for the transmission line in Madagascar. Final EPC bid documents for the transmission line were submitted in September 2019. Lemur will select the preferred bidder during Q4 2019.

· The Social and Environmental Impact Assessment fieldwork is ongoing. Lemur is currently conducting the drilling programme for the specialist studies for the SEIA. Submission to the Ministry of Energy is still expected in Q4 2019.

· Engagement with potential lenders for project finance is still ongoing with the objective of achieving financial close during the second half of 2020.

· Bushveld Minerals is exploring various options for Lemur Holdings to operate as a standalone coal and energy focused platform.

Corporate activities

· The Group secured R375 million (approximately US$25 million) in debt facilities through its subsidiary, Bushveld Vametco Alloys Proprietary Limited, with Nedbank Limited in the form of a R250 million loan and a R125 million revolving credit facility.

· The R375 million is carved out from the Group’s obligation, according to the terms of the Vanchem transaction, to repay an amount equal to 50 per cent of any debt raised over US$15 million, provided no more than 50 per cent of the Loan Notes have been repaid, redeemed or converted