Bushveld Minerals Limited (BMN) Earnings Call Transcript & Summary

Thank you very much. Good morning to everybody, and thank you very much for joining us for this webcast for our financial year 2019 annual results. I'm going to be presenting assisted by Tanya Chikanza, who is our Group Finance Director. The way we're going to run this webcast is we've got about 30 minutes to present the results. Following which, we will take questions and answers. Can I ask the operator that we just put the disclaimers and get the disclaimers out of the way, thank you. Okay. And now if we may just start on Slide #4, which just provides -- present the highlights for the financial year 2019. We present here group financial highlights, strategic highlights and also just a summary of the guidance for the year 2020. Group production of vanadium, 2,931 metric tons of vanadium, a significant increase on 2018 numbers of 2,560 metric tons of vanadium. We also saw an average realized vanadium price of USD 48.9 per kilogram V, so a significant drop compared to 2018 which understandably impacted our revenues, which reflected at $116.5 million, down from $192 million the year before. Our EBITDA numbers, very pleased that even though there was such a significant reduction in the vanadium prices, we're still able to record a solid EBITDA performance of $32.6 million, which is a significant drop from $101 million of the year before. But a good outcome all in all, when you consider the significant drop in the vanadium price. We acquired Vanchem during the course of 2019 and realized a back-end purchase of $60 million for that acquisition, which reflects in our financial results. After tax profit -- taking the after-tax profit to $69.2 million, which is an increase on 2018, and that was largely on the back of that realized back-end purchase. Cash and cash equivalents of $34 million, a slight decrease from $42 million a year before to give us those earnings per share numbers of $0.0551 and underlying earnings ratio of $0.0012. Strategically, key points to highlight for the 2019 year, the acquisition of Vanchem, of course, was the most notable one, which essentially complements the Vametco operation that we completed acquiring the previous year. We also secured ZAR 375 million in debt facilities from Nedbank in the form of a ZAR 250 million term loan and a revolving credit facility of ZAR 125 million. Very pleased also that we wish early settlement with Yellow Dragon Holdings to essentially clean out that residual earnout, which they had in Vametco which is payable under that acquisition agreement. During the 2019 year, we also implemented a transformation program at Vametco, which was really focused on ensuring that we enhance the operational efficiencies of the operation and the results of that to speak for themselves as we will reflect a little later on. Of course, with the advent of COVID at the beginning of 2020, as a company, we have implemented a host of cost-cutting measures, and that's post year-end to ensure that we protect our liquidity and financial flexibility. Push for Energy also continues to make good progress in the implementation of its strategy, which we will talk to. And then finally, just want to highlight on the guidance front. We present here a guidance of 3,000 to 3,200 for Vametco and between 960 and 1,100 metric tons for Vanchem. I'm delighted to say that we're still retaining the guidance that we provided at the start of the year for 2020, notwithstanding the 35-day COVID lockdown that we saw at the beginning of this year. Capital expenditure significantly reduced to about $8 million in line with the cost-cutting measures that I just mentioned a moment earlier. If we could go to the next slide, please. Just to remind everybody on the call about what the investment proposition of Bushveld really is. I think at the core, it's a vanadium focus, a commodity, which we think has got a compelling fundamentals to it, which we will discuss. But essentially, which as summarized, as we've often said, a robust and growing demand profile in the context of concentrated and constrained supply, which results in what we think -- what we see as a structural deficit in the medium to long term. It's a thesis we still hold on to even in the context of COVID, as we will discuss later. With the completion of Vanchem, we now have 2 of the world's 4 operating primary vanadium processing facilities. And that actually puts us in a really strong position as a company, given our view that the real future of vanadium production is going to be driven, in our view, by primary vanadium producers. And with the two of this, we have, with significant headroom for organic growth in terms of the production of these assets, we are in a really solid position. We can grow our production capacity on this plant on the back of a large resource base, certainly the largest primary vanadium resource base of anybody with fantastic grades, 1.6% to 2.0% V2O5. As I indicated, organic growth opportunities, we see us almost tripling our current production to more than 8,400 metric tons vanadium per annum. With Vanchem acquired, we have one of the broadest product suite in the vanadium world, which gives us diversified revenue stream from steel, also from chemicals and from the energy storage markets. Our work in the Bushveld Energy, which you're all familiar with, is -- will indeed position us as one of the leading players in the VRFB industry and the value chain there and we've made a lot of significant progress in that respect, which we will talk to in this webcast. And the one point I also just want to highlight is that we do see vanadium is one of the biggest contributors to the secular economy, largely on a counterfeit impact in the steel sector with used to reinforce steel, which is largely used in infrastructure. The fact that when you add 0.2% of vanadium to steel, you double its tensile strength, means that the carbon footprint for vanadium-reinforced steel is significantly less. Add to that, the contribution of vanadium in the energy storage market where it is -- it can be used many times over and can be converted after a long life cycle of the battery, all of which contributes to a really significant contribution to the secular economy. The vertical integration strategy, also positions us very, very well with the natural hedge against the historic vanadium price volatility that we have seen. As a company, I think you can look -- if you look at our last few years, you can see that the company that does deliver good returns and add that with a disciplined capital allocation strategy, we have shown ourselves to be very disciplined in that respect. We haven't run to the market at every opportunity to raise money. We have worked with the resources we have, and in the process, also acquired a significant growth-oriented assets. If we could go to the next slide, please. This chart really just gives a timeline of the transformative journey that we've been on during 2019. I'm not going to go into all the points, so to just highlight some of them. And in terms of our resource base, strengthening that with the resource out with Vametco, the commissioning of a VRFB in South Africa, most notably the completion of the Vanchem transaction, which is quite transformational. And also the -- we've made a lot of progress in terms of the Mokopane project, where we got that mining right granted in October 2019. We successfully implemented a transformation program at Vametco which has seen very good improvement in terms of the operational metrics of the plant, which positions it really well for growth going forward. In December, we announced the acquisition of an interest in Invinity were then through an investment in Avalon, which since merged with redT and is doing incredibly well on the AIM market, where we've seen a really significant growth in the value of our investment there. We also announced an investment into Enerox as part of a consortium. The transaction updates are still coming, and it's still very much on track. So it's been a busy year, a very productive year. And I think about to caption that slide, it would be that we're very well on course with our strategy to build the primary, vertically integrated vanadium producer of substance. I want to just talk very quickly about health and safety with our transformation from an exploration company into a producing company. Health and safety is something that is a priority for us, for our employees. What's important to note here is that we already had a fairly good safety record in 2018. We've continued to improve on that with a 19% improvement in total recordable injury frequency rate and very happy with the fact that we have not had any fatalities during the year, and it's a record that we are very keen to maintain going forward. Now just to comment very, very briefly around COVID. It is a pandemic that affects every operation. We have provided an update to the market in the past around everything that we've been doing to ensure that our workers are safe, to ensure that there is minimal disruption to our operation, that work continues as a cross-functional team that we have set up, which works -- which is continuing to ensure that we are ready. I'm very pleased to report that to date, we have not seen a single positive case at our operations. That's not to say it will not happen. I must say that if it does happen, that we see any positive cases on our operations, we are very well positioned to respond with minimal disruption to our operations. Now let me just talk very quickly about operational results. And if we can go, please, to Slide #11, which starts with Vametco, which is our flagship, a record annual production of 2,833, reflects 11% increase relative to 2018, which has got a significant improvement. Production cash costs, also a decrease of 5% to $18.11 per kilogram vanadium. The EBITDA numbers, as I mentioned earlier on, and we've achieved this despite a 34% reduction in the average vanadium price received. In terms of guidance, we've maintained guidance that we provided earlier on. We are of the view that we can still miss that guidance in respect of production, 3,000 to 3,200 and as well as cost $17.20 to $17.70 per kilogram of vanadium. So overall, good progress on all fronts operationally. I must mention, however, that in these guidance numbers, we are -- this is entirely contingent on there being no further COVID-related stoppages. While we can control as much as we can at our operations, if there is a new wave and there is another lockdown, it's something that we would have to contend with. So we're hoping that we don't go there as a country. In respect of Vanchem, we completed the acquisition in November of $55 million -- $55.8 million. We started operations in mid-November. I'm very pleased that in 2019 already, we produced about 98 metric tons of vanadium in the form of ferrovanadium and vanadium chemicals. Our 2020 guidance remains as we have provided in the past, 960 to 1,100 metric tons of vanadium with a cash cost of between $16.30 and $17.30, which underscores the point we've always said that brownfield assets, not only do they get us produced much quicker, but they're also a low-cost way for us to get into production and Vanchem as all the plant as it is, is operating really well in terms of its cost position. And as we refurbish this plant and increase throughput, we think it's going to do even better. Then finally, on Bushveld Energy, from an operational point of view, I'm very pleased with the execution of our investment in Invinity, which we have seen the share price go up as much as 150% since November 2019. We also, as per the consortium, are an owner of 24.9% in Enerox, an Austrian VRFB original equipment manufacturer. While we have that interest, you'll recall that the transaction, as we announced it, was for the acquisition of the entire shareholding of Enerox together with consortium. So the balance of that acquisition is still underway. Implemented our first rental contract, which is going to be quite important for the adoption of VFRBs in the market going forward. And also our electrolyte plant project received environmental authorization. Construction was approved in partnership with Industrial Development Corporation, and we're very delighted that, that project is moving forward and is on track. Of course, the installation of our first VFRB in South Africa is but importantly and positions us very well for what we see as a substantial amount of opportunities in battery storage in South Africa. So that's the operational update. I want to dispose here and hand over to Tanya, our Group FD, to take us through the financial results. Tanya, over to you.

Thank you, Fortune. Good morning, ladies and gentlemen. I'm pleased to give an overview of the company's financial results for 2019. Since '19 was a solid year, both operationally and financially for Bushveld. From a market perspective, the year can be considered in 2 halves. Pricing was strong in the first half of the year, still benefiting from the high vanadium prices that were prevalent in 2018. At that time, the average London Metal bulletin price in H1 was $56 per kgV. That strong price environment was not sustained into the second half, however, with second half average pricing recording a 61.8% decline to $27 per kgV. As Fortune has highlighted, Vametco achieved an 11% year-on-year increase in production to 2,833 MTV. And sales were a little bit below that in 2,392 MTV, slightly down compared to 2018, which are 2,573, but the benefit of that is it less value of additional stock as we went into 2020. On a group basis, production was 2,931 MTV. The contribution from Vanchem was relatively small as we had only had it under our ownership for a couple of months. Revenue for the year at $116.5 million was down from $192 million in 2018, as has already been highlighted by Fortune. The blended average realized price for the group was $49 per kgV compared to $74 in 2018. The lower sales volume meant a reduction in the cost of sales. Net of depreciation cost of sales was $48 million compared to $60 million and inclusive of depreciation as reflected in the statement of cost and loss. Cost of sales were USD 56 million compared to USD 65 million in the previous year. The operating profit for 2019 was $22 million compared with the prior year of $95 million, mainly due to the decrease in the commodity price during the year that we've all been talking about. The highlights of the organization, as Fortune also alluded to was, Bushveld Minerals completing the acquisition of Vanchem in November 2019, and we assumed control of the business from that time. The results of Vanchem has been fully consolidated in the Bushveld Minerals financial statements for the 2 months in 2019. And in terms of the accounting treatment of the acquisition, if I can just dwell on that a little bit. The fair value of Vanchem consideration was $55.8 million, with additional acquisition-related costs of $1.5 million. The acquisition has been treated under IFRS 3. We engaged an independent valuation experts to value the assets that we bought using the cost approach, which we consider to be the most appropriate fair value measurement technique, given the nature of the assets acquired and the circumstances of the acquisition. These assets were valued at a fair value of around $118 million, which resulted in a gain on bargain purchase of $60.6 million, an amount that has been recognized in the income statement. It must also be noted that the basic earnings per share number of $0.0551 includes this gain on bargain purchase, with underlying earnings reported at $0.0012 per share. EBITDA for 2019 was $32.6 million, a decrease of $68 million from 2018, mainly driven by the weaker commodity prices and inflationary increases on vanadium costs. However, this was slightly negated by a containment on costs within the group. From a geographic perspective, sales mix has stood at 50% of Vametco products being sold into the United States, 20% into Europe, 10% into China and 20% to the rest of the world. We expect this mix to shift over time as the addition of Vanchem offers the group diversification of product and income stream, whilst maintaining a relatively low-cost production profile across the group. Turning to the next slide, EBITDA waterfall. Vametco remains the flagship main operating asset for the year. Once the company achieved this production guidance, it was severely impacted by the slump in commodity prices in the second half of the year. And we thought that this slide actually really would illustrate just the impact that the commodity prices had and the 2 distinct halves for the organization. This has led us to really focus on our cost containment efforts as we go into 2020. Turning to the balance sheet. I just wanted to focus on the balance sheet on the following position of 41.8 million on this slide. This is mainly comprised of 2 items: A term loan of ZAR 250 million and a ZAR 23 million convertible loan. The noncurrent nature of the borrowings provides the group with sufficient working capital headroom to manage short-term cash requirements over the next 12 months. Specifically on the ZAR 375 million that we got from Nedbank, on 30 October 2019, we were pleased to secure debt facilities with Nedbank, comprised of ZAR 125 million revolving credit facility and a ZAR 250 million term loan, which was drawn down at the time and as such, is reflected in the 31 December 2019, results. This current exchange rate, the Nedbank facility is approximately $22 million. Partners under these facilities are mainly profit and loss. They include a cumulative debt service ratio cover, which must exceed 1.4x; an interest cover ratio, which should exceed 4x; a net debt-to-EBITDA ratio which should not exceed 2x. Embedded within the 41.8 million borrowing position is the ZAR 23 million convertible loan note which was issued as part of the consideration for the Vanchem acquisition. In November 2020, as the first anniversary of the transaction, half of this amount is convertible at the holders' option into Bushveld's shares. We now bear a coupon rate of 5% payable annually in arrears or on conversion or redemption. Overall, Bushveld's gross cash and cash equivalent position as of 31 December 2019, was ZAR 34 million, and this included the Nedbank term loan of ZAR 250 million. Turning to our cash flows. Net cash flow from operating activities for the year was $28.5 million, a 37% decrease compared with 2018 driven by the reduced profitability. Our net cost sustaining capital expenditure was $3.7 million in the year. Cash used in other investing activities was $46 million, an increase of $29 million over 2018, mainly due to the acquisition of Vanchem as well as investments in Avalon and Enerox added to Bushveld Energy umbrella, and this amounted to 4.4 million post year and an additional $1 million was paid to Avalon, bringing the total investment to 5 million post year end. As Fortune mentioned, notably, this 5 million investment, which resulted in the creation of Invinity Energy Systems is now worth more than double that amount based on last night's closing price. We have also simplified our corporate structure with the repayment of the Yellow Dragon deferred consideration relating to the original Vametco acquisition. Subsequent to the year-end, at the end of March 2020, Bushveld drew down its RCF of ZAR 125 million to enhance liquidity and provide financial flexibility during the uncertainty arising from the COVID pandemic and the South African nationwide lockdown. Bushveld Minerals unaudited gross cash and cash equivalent position at that time March 31 was $34.4 million. And by this time, it now included the full 375 million debt facilities. I think it's fair to say that COVID-19 and the economic effects of the virus are adding to the global uncertainty, and we are mindful of that. We are behaving prudently and have taken steps to conserve cash resources in the near term. This includes reviewing and limiting operational expenditure where necessary, deferring some growth associated noncritical capital expenditures and prioritizing sustaining critical and regulatory capital expenditure. We have established a capital prioritization framework to ensure as we found the best footing for future growth when the time comes. As a result, we are limiting our group CapEx for the year to $8 million, which is around ZAR 135 million. We will continue to prioritize operational performance, cost efficiency and identifying synergies across the group, particularly between Vametco and Vanchem as we integrate these operations to optimize the operating margin and grow production in a cost-efficient manner. Many thanks for listening, and I'll now hand back to Fortune.

Thank you very much, Tanya, for that overview on our financial performance. I will now move on to talk about the vanadium market very briefly. If you would go please to Slide #20. 2019 was particularly noteworthy in terms of the performance of vanadium price. After a stellar increase in 2018, vanadium price dropped 75% from about $90.85 in December 2018 to $22.60, December 2019. The significant drop was driven by factors that you may all be familiar with by now: A slower-than-anticipated implementation; the new rebar standards in China; substitution of ferrovanadium with ferroniobium when the vanadium prices were significantly higher as far -- as much as 2 to 3x higher than ferroniobium; opportunistic production increases from stone coal producers, which typically come on when vanadium prices are significantly north of $40, $50 per kilogram vanadium. Also worth noting that in 2019, we saw a significant increase in steel production in China. This increase of about 7%, combined with a high season iron ore price, which averaged over $90 per ton during this year, so a significant increase in slag production in China. During the second half, however, we saw the vanadium price softening, leading to reduced substitution of ferroniobium, a reduced incentive for stone coal production. In fact, we've seen stone coal production drop as well as demand growth in China, which is in China actually become structurally a net importer of vanadium going forward. I think the chart on the right tell the story pretty well. If you compare the ferrovanadium price versus the ferroniobium price, we are now at a point where we're operating with ferrovanadium prices that have been at ferroniobium prices. Consider the fact that even at higher than ferroniobium prices, within advent, ferrovanadium is still very much a preferred alloy and element in stone making. This is one of the reasons why we started to see significant reverse substitution from ferroniobium back to ferrovanadium over that period. I think the key question really to ask is around what we see in the medium- to long-term fundamentals of vanadium, which we summarized in the next slide. And this is important because we are a company that has positioned itself to grow its production base almost 3x over the next 5 years. The question has to be asked whether the fundamentals of the commodity remain as solid and also taking into account what has happened with COVID, which I'll talk to you in a moment. A key points -- a few points to highlight. One, is that lower vanadium prices as indicated, this incentivizes new greenfield production, due to funding challenges, high cost and low grades associated with stone coal. Coal producers are already operating at near-full capacity. So even if they wanted to produce more, they are unable because of capacity constraints. These constraints will also, in our view, be further exacerbated as the steel industry increasingly moves to bring in more iron ore imports, particularly as iron ore prices eventually drop which they expect it to. Environmental restrictions on stone makers, coal product and stone coal vanadium producers will continue to be significant constraints. And as you know, China still has that ban on vanadium's slag imports. In terms of where this goes in the future, demand in steelmaking alone is expected to grow at about 2.2% through to 2029, which is quite significant. The story of vanadium is really around the supply. There, when you look at supply forecast, just based on existing production, announced capacity expansion, what you actually see is a market that is in quite a significant deficit, which is shown on the top right-hand corner there. If, however, you take all the projects that have been announced and stick a percentage of them and assume that they do come into production, which is what Roskill has done, this is a market that could see a surplus of up to about 6,000 tons. The challenge, however, is the following: If you look at all greenfield new projects that are under development, by far, the majority of them are coal production-type plants, which require substantial CapEx, which require higher vanadium prices than we currently have seen and certainly much lower volatility in the vanadium price than we have seen. So our view is that a better view on the market balance of vanadium is provided by looking at really the existing producers, primary producers who can scale up their production. If you take all the announced capacity expansions and if you include restarts of plants such as Windimurra in Australia, what we still see is a market that is in a significant deficit. And what's particularly noteworthy about this chart is that Roskill is notoriously conservative when it comes to the energy storage applications of VRFBs. When you take into account even a modest growth of VFRB deployments, the deficit or the structural deficit story, such that it looks even more real. Near-term drivers that have a positive impact on vanadium prices that I just want to highlight quickly. Prevailing vanadium prices, as I said, they support substitution reversal towards ferrovanadium away from ferroniobium, and they also will support increased VFRB adoption. Chinese enforcement of rebar standard implementation will continue, and we will continue to drive towards higher intensity of use of steel. Indeed, what you will see in our annual report is we've commented quite a bit on this. We've seen a significant improvement in the intensity of use of vanadium in China already. While in 2019, the global economy is expected to slow down by 3% approximately leading to some short-term slowdown in steel production and steel related vanadium consumption, what we do see, however, is implementation of fiscal stimulus programs and most of which are directed in infrastructure builds and also being directed increasingly at accelerating the energy transition, which we think will support the global deployment of energy storage systems. Supply drivers, as I said, near full capacity operation of vanadium for producers will not be able to add significantly more to the market. And also, we see the input of falling iron ore prices returning the incentive to use seaborne iron ore, resulting in even reduced production, and the lower prevailing vanadium prices, we'll see less stone coal production going forward. There is something I do have to highlight, however, in terms of the potential growth in secondary processing as a result of new IMO standards that are being implemented in the world over, particularly within the oil refinery industry. This might see some increases in secondary processing capacity also issuing secondary production of vanadium, the extent to which -- of which is not yet fully calculated and understood. Just in terms of the outlook for 2020, I'll spend the last 2 minutes just talking to this very quickly. Our target to continue growing our group production. In 2020, we expect a 35% to 47% increase in volumes to 3,960 and 4,300 -- to 4,300 metric tons of vanadium. And what's particularly interesting to note is that this is not even -- this is even taking into account the significant deferment in capital expenditures that Tanya referred to earlier on. We intend to maintain a strong balance sheet throughout the commodity cycle and volatile markets by building on our cash reserves, prioritizing critical sustaining and regulatory capital. And also, we'll continue to review a couple of projects to identify potential additional savings. Of course, we have to continue monitoring the global economy and developments therein and will adjust our capital expenditure accordingly. If we go to Slide #25, we have announced that in terms of Vametco, we still see in the medium to long term, the opportunity and scope to grow our production to 4,200 metric tons of vanadium per annum. This will be on the back of a Phase 3 expansion plan. We are only committed to just doing the prefeasibility study thereof this year. And over the next 5 years, we believe that there will be opportunity for us to continue growing our production base to that 4,200 base that we've spoken about. Vanchem. Following the acquisition of Vanchem, we also announced that we envisage the refurbishment program to increase production to about 4,200, again, over the next 5-year horizon. In terms of this particular project, this year, we committed mainly to the critical refurbishment. And then in Phase 2, we will look to bring in the second kiln online. And then Phase 3, we'll look at bringing the third kiln to bring all 3 kilns into production. We're also working to develop the Mokopane mine, which will be an important source of ore for Vanchem. And the CapEx base is estimated at about $22 million. The capital expenditure to achieve this growth is not insignificant. I should acknowledge that. But again, we have been fairly clear that over the 4-, 5-year horizon we're looking at, we will be looking to our own cash resources, cash generated from our operations, and we'll also be very prudent in our approach to capital markets in terms of access to various instruments for funding this growth. We believe that the business case for doing this is solid and that we need to get our operations ready for the upturn, which we believe will come. The guidance I indicated at the start of this presentation, so I'm not going to go back to the specific numbers as I've talked to them in terms of production and the production cash posted from Vametco and at Vanchem significantly, we are looking to improve our cost position even more. If I may just go to the final Slide #29, which is just reiterating our strategy. We are on track to delivering a substantial low-cost vertically integrated primary vanadium platform, and we like to look at our progress across each of these verticals. On the left-hand side, our core vanadium production assets; and on the left-hand side, our electrolyte production. So we have made tremendous progress across each of these, and we will continue to do that as we -- that was land in a very disciplined way execute the strategies that we have vetted back in 2014 and that every year, we'd like to reiterate because we believe that it is a winning strategy and it will see us really establish Bushveld Minerals as a significant vanadium player in the global market. I'm going to stop there and hand over back to the operator and ask for -- if there are any people with any questions, then we will respond as best possible. Thank you very much for your time.

[Operator Instructions] We'll now take the first question from Nick Chalmers from Alternative Resource Capital.

A couple of questions from me. Firstly, on the forecast CapEx spend for the remainder of this year, both Vametco and Vanchem. Could you give us an idea of what production capabilities that will take you to on exiting this year? Will it see an increase on the guided rates for this year? Or is it more in essence to maintain those rates going into next year? And secondly, on cash balances, could you give us, Tanya, just a quick idea of how much cash is -- portion of those cash balances are held in U.S. dollars and what proportion is in Rand?

The question you asked is around the planned capital expenditure for 2020 and its impact on our production profile. Look, at Vametco, after the first phase and second phase of the expansion work that we did, we focused 2019 very much on implementing what we called transformation program to maximize the production of Vametco with its existing setup, right? And it is on the back of that, that we expects to produce 3,000 to 3,200 tons of vanadium this year, 2020. And the -- that doesn't require any more spending other than the sustaining CapEx that we spend in the operations. When it comes to Vanchem, we acquired it already in some limited production. As I indicated earlier on, in -- since we completed the acquisition in November, in 2019, it produced just under 100 metric tons of vanadium. Our expectation this year is to continue operating it on that basis with a single kiln and that guidance of 1,000 to 1,100 metric tons of vanadium is based on that. So all the refurbishment capital, other than the critical spending that we have we have spelled out, is targeted at growing the production rate towards 4,200. So we're comfortable that the guidance numbers we've given and the 34-plus percent increase in our production that we're targeting this year, we have the asset base to achieve that within the confines of the capital expenditure that we have outlined.

So would it be fair -- could I ask...

Sorry, go ahead.

Sorry. Would it be fair to say that the kiln-off gas project that you're going to complete in H2, would the completion of that give you a good chance at sustainably hitting the sort of upper end of the guidance for this year of 3,200 going forward?

You're absolutely right, Nick. The objective of the kiln-off gas is twofold. One is to meet the emission standards, which have been revised and came on stream in 2020. So there's an environmental obligation associated with that. But secondly, it will allow us to manage greater levels of throughput through the kiln in a sustainable way. So on the back of the kiln-off gas project, we expect to see, on a consistent basis, higher through the kiln. Of course, as you increase production -- as increased throughput on the upstream parts of the plant, you create bottlenecks further downstream. And some of those bottlenecks are as a subject of the Phase 3 expansion. And this is looking at things, for example, like our salt recovery plant, which essentially recover salt from the parent solution to ensure that we do not fill our barren dam excessively beyond the limits of our licensed requirements. So yes, I think in short, you can get this put on that the kiln-off gas project will allow us in a much more sustained way to hit the higher sort of levels of production employed in our guidance. Tanya, can I ask you to comment on the question around the cash holding of the company and how much is in U.S. dollar terms?

Yes, sure. Nick, at year end, about 55% of that was in U.S. dollars. So I mean, I think whenever we can, we will try and sort of do a 50-60. Obviously, our sales are U.S. dollar denominated, but we're a South African operating company. So we've called Rand on the balance sheet. And I think going forward, we've got the debt facilities in Vametco are obviously in Rands. So I think it would be fair to assume that going forward, we'll likely to be more about 80%-20%, with 80% being in ZAR and 20% in dollars.

We will now take the next question from Alexander Pearce from Bank of Montreal.

So my question is just on Vanchem. So given you've deferred the -- well, some of the projects there, including the Mokopane DFS, I was just wondering whether you could provide an update on the kind of current status and potential for the Vametco mine to provide an alternative source of ore whilst you're undertaking those studies next year? And do you already assume in your production profile for Vanchem that some of the ore next year is indeed from Vametco?