Bushveld Minerals Limited (BMN) Earnings Call Transcript & Summary

[Audio Gap] At this time, I would like to turn the conference over to Fortune Mojapelo, CEO. Please go ahead.

Thank you very much, Seggae. And it's a good afternoon to everyone, and very pleased to be presenting the full year results presentation today. So thank you very much for joining, Tanya and myself. I would like to ask that we go on to the disclaimers, and if we can just spend with those legalities. Thank you. If we can go to Slide #4, and I'll just start with some opening remarks. Well, this slide summarizes a story of Bushveld Minerals that you, I hope, are familiar with that of a low-cost and vertically integrated primary vanadium producer with integration done into the energy storage space. The story remains a focus of this business, and I'm pleased with the progress that we continue to make as we execute that strategy. The world is still feeling the effects of COVID-19 well over a year since its global spread was announced. And while the vaccine rollout is well underway globally, it's uneven delivery means that there's still some regions that are experiencing new waves of heartbreak. While we continue to face certain challenges in this regard, Bushveld has and will continue to meet its obligations to our employees, our customers as well as our local communities. Like all companies in South Africa, we were affected by the production halt imposed by the government's lockdown in the first half of 2020, and the addition of COVID-19 prevention measures that were taken at our sites post year-end. This includes social distancing and modified shift patterns, completion of the Kiln-Off Gas Project was also delayed due to COVID-related issues at the suppliers facility, but I'm pleased that this project was completed during 2020 and will play an important role as we develop Vametco going forward. We estimate that without the nationwide lockdown, we would have been able to produce an additional 380 metric tons of vanadium, 300 MTV at Vametco and 80 metric tons vanadium at Vanchem in the year. The second half provided a more stable working environment, and we were able to complete our Kiln-Off Gas Project during the period. In the end, production from Vametco and Vanchem totaled 3,631 MTV, which reflects a 24% increase on the prior year. Another important milestone worth noting in the period was our $65 million transaction with Orion, which went a long way in settling some short-term debt commitments, while also funding our medium-term growth plans, which we will discuss a little later. Now if we can move on to the next slide with a summary of the 2020 results. You will see on this slide, the effect of the transaction that I just mentioned on our cash and our debt position. And while our net debt position has increased year-on-year, we did pay down shorter-term liabilities. It is worth highlighting here that as a company, we have been very prudent in the manner in which we approach the capital markets and have ensured that we build this platform that we have today comprising 2 operating assets. And we've done that leveraging cash flows that we generated from the business, some limited equity capital financing. You may recall that the last time Bushveld was in the markets raising capital was March 2018. And we've also raised significant debt to fund our growth. And while we did report record production and sales in the year as well as a reduction in unit cost, it wasn't enough to mitigate the effects of vanadium price that averaged over half of what it did in 2019. And this left us with a negative EBITDA by year-end. In 2021, we have been focusing on, and we'll continue to focus on increased cash flow and debt reduction. The vanadium prices improved materially so far, and this will help increase margins for the rest of the year, where we expect higher and more stable production rates from our operations. We will not only rely on higher prices to carry us through, however, we have implemented also a cost savings program that will see us cut costs between $2.5 million to $4 million, starting from 2022. And Tanya will talk to this a little bit later. We have also put a strong focus on improving stability and reliability at our facilities to ensure that the growth that we have planned is of a strong and efficient production base. You will note that we appointed a new Operations Director with effect from the first of January of this year, Francois Naude, who comes with a lot of experience and expertise in running large and complex operations. He and his team have already made great strides in this regard since he joined. Unfortunately, this work as well as delays in bringing kiln 3 online at Vanchem has resulted in us having to revise production guidance downwards for the year to between 3,400 and 3,600 MTV for the year 2021. If we can move to the next slide, please, and I will comment on our health and safety performance. Before we move down to the health and safety statistics, I'd like to just emphasize that the wellbeing of our employees is a priority. And as a result, we recognized the gravity of the COVID-19 pandemic early and moved quickly to take all necessary measures to create awareness, to minimize transition risks and intervention protocols for potential cases. Since we resumed production post the lockdown in 2020 April, we have conducted a rigorous scanning regime for all employees and contractors. All the health and safety protocols, including social distancing, sanitizing and wearing of personal protective equipment, including face masks, remain in place at our operations. In total, we have had 110 cases of COVID -- positive cases of COVID since the start of 2020, up until the end of May this year. And I'm sad to report that we also had 2 fatalities earlier in 2021. From a safety perspective, at our operations, the group had no operational fatalities over the 12-month period, and the group recorded another 36% improvement in total injury frequency rate, which is quite laudable. Now I want to move to talk to the group operational highlights, if we're going to move to the next slide, please. As mentioned previously, we achieved group production of 3,631 MTV, a gain of 24% on 2019 production. And this is primarily the result of the inclusion of Vanchem for the full year in 2020, following the completion of that acquisition in November 2019. In total, 380 MTV of production was lost due to the South Africa's nationwide lockdown, something we have reported on previously. Our sales were strong, growing by 61%, thanks to a much better second half. And China contributed 23% of total volumes sold compared with 9% in 2019. Another number to highlight is the lower group cost of $29 per kilogram V, which includes sustaining capital, and this compares with $37 per kilogram V in 2019. This improvement is largely as a result of the dilution of fixed costs and increased production levels, thanks to Vanchem. And as we grow our production going forward, as our throughput increases, we can expect to continue to see improvements in our unit cost of production. As you see on the right-hand side chart, we have revised our 2021 guidance lower, and I will get into a bit more detail why that is in a later slide. Continuing on the operational highlights theme, if you can move to the next slide, please. The 1 month of loss production from the first half of 2020 is clearly reflected in the production numbers for both Vametco and Vanchem, where 300 MTV and 80 MTV were lost, respectively. At Vametco production in the form of Nitrovan and Ferrovanadium was 2,654 MTV for the full year, slightly below our 2020 guidance of 2,700 to 2,850 MTV. And this was due to lower production volumes than expected in Q4 2020. In spite of the impact of the nationwide lockdown and the resulting changes in work arrangements, Vametco production was just 6% lower than the 12 months 2019 production. We were pleased with the first year of operations at Vanchem and our ownership and see some exciting opportunities going forward. In total, the production of 990 metric tons of vanadium was reported from the facility in line with guidance that was provided. I'd like to now spend the next few minutes just talking about our Bushveld Energy platform. If we could move to the next slide. We are excited to see the growing momentum in the movement away from the reliance on hydrocarbons and fossil fuels towards clean energy, renewable energy and energy storage. The net-zero target and the commitment of countries to drastically reduce their carbon footprint means that the role of electricity and stationary storage will only continue to grow. Importantly, we see growing -- the growing role of long duration energy storage, which we have indicated below favors vanadium redox flow battery as well. We launched Bushveld Energy in 2016. So these growing trends and developments have served to validate our strategy as we work to progress the 3 key areas of focus for Bushveld Energy. This being electrolyte manufacturing, sales and rentals, the use of the VRFBs in Africa, where we're pursuing deployment opportunities there and also investments in VRFB manufacturing. Over the course of 2020, Bushveld Energy established an operating entity for the electrolyte business in the form of Bushveld Electrolyte Company, BELCO, and completed the engineering phase of the manufacturing plant, which is being constructed in East London, South Africa. Our investment in AIM-quoted Invinity Energy Systems, whose creation we facilitated in 2020 and in which Bushveld held an 8.71% stake delivered immediate benefits. Invinity has won several important contracts and its share price has risen by more than 300% in 2020. Through a joint venture with Invinity, Bushveld is developing and deploying vanadium electrolyte rentals to Invinity's customers. We also played a key role in partnering with other investors to acquire Cellcube, which we now have an effective interest of 25.25%. Cellcube is the holding company for Enerox GmbH, an Austrian-based leading VRFB manufacturer with a solid track record in manufacturing grid scale energy storage systems. Cellcube has been selected to supply 4-megawatt hour VRFB for the mini grid project at Vametco. The solar PV and storage project will save nearly 114,000 tonnes of CO2 over its 20-year lifespan. As importantly, this mini grid project is going to demonstrate the business case for renewable energy and VRFB storage-based self-generation solutions, supplying power to our operations on a sustainable basis and at a cost that is comparable, if not lower than what we are currently paying our local utility. In both of these companies Invinity and Cellcube, Bushveld has a right of first refusal to supply vanadium, creating offtake potential of vanadium electrolyte products as the VRFB market develops. Post year-end 2020, Bushveld has monetized the company's holding in Invinity, receiving $13 million from an original investment of $5 million, a return of approximately 160%. Importantly, the funds from the sale will go towards key projects in 2021, including the investment in Cellcube as part of the $30 million investment by its shareholders to scale capacity up to 30 megawatts, 120 to 240 megawatt hours per annum. I'd like at this stage to pass on to Tanya, who will now talk us through the financials. Thank you, Tanya.

Thank you, Fortune. Good afternoon, everybody. I'm pleased to give you an overview of the company's 2020 full year results and outlook for the year ahead. Just turning to the next slide. As you can see from the table and the EBITDA waterfall on this slide, 2020 was a challenging year for the company, given the weakness in underlying vanadium prices primarily. As Fortune has mentioned, production was up 24% at 3,631 MTV of our 2019 results. However, that increase was not enough to mitigate the prices and so revenue was severely impacted and down, which ultimately led to negative EBITDA for 2020 of $14.9 million. I'd just like to unpack a little bit the waterfall in terms of some of those movements that from an operating cost perspective, we see the increase in cost of sales there from $47 million to $73.4 million. It reflects Vanchem being the first 12 months of Vanchem's operation compared to 2019. And in addition to that, we saw an increase in the maintenance cost and energy costs at Vametco. If I look at our operating costs and admin costs, we see that they actually fell from $36 million to $31.5 million. And just unpacking that, when you talk about operating costs, we include selling and distribution costs and other mining costs as well as idle plant costs. The idle plant costs went up because due to COVID, we had to put Vanchem on -- it was not able to operate for quite some time when South Africa was in the COVID lockdown stage. And so idle plant costs went up from $2.9 million in 2019 to $4.2 million in 2020. The other mine operating costs also went up to $4.7 million from $3.9 million. But again, it includes some of the COVID costs we incurred, including medical costs for our staff. The selling and distribution costs, however, went down from $7.6 million to $4.8 million. And if you just think about if some of those costs actually include commissions based on the value of the sales. And so that is really in line with the reduction in the prices of vanadium that we saw. From an admin cost perspective, our admin cost fell by $4.9 million year-on-year. We contained our staffing costs, which actually came down from -- down to $8 million. And that's partly because some of those costs are actually legacy contracts that we had at Vametco that we had inherited, which we finally unwound. Our provisional fees also fell from $7.6 million to $6 million, and contained an amount of other, includes the setup costs that we incurred in setting up Vanchem and integrating it into the group. If I move onto the next slide. I have already talked about the cost of sales in my -- just now. So I think what I would just like to touch on here is the benefits that we're actually seeing, which are coming through as a result of adding Vanchem to our stable. But actually, on a cost basis, once you look at it and it looks like on a totality, it has gone up for the reasons that I've explained. If you look at it from a unit cost basis, we actually recorded an improvement because the group costs were now at $29 per KGV, down from $37 per KGV in 2019, really illustrating that the production coming from Vanchem is supporting the fixed cost of the group and diluting those fixed costs and this is something that we expect to see -- to continue to see as we progress. Move on to the next slide, just touching on to the balance sheet. Over the course of 2020, the group put in place several measures to conserve cash and protect the balance sheet in light of the uncertainty that we saw in the operating environment. We scaled back on our planned capital expenditure and optimized our capital allocation processes to preserve cash. In addition, we work to strengthen our balance sheet through the retirement of existing short-term debt facilities and securing further capital. As Fortune has already mentioned, we raised $30 million from Orion Mine Finance as a production financing agreement and separately arranged a convertible of $35 million, a 3-year convertible of $35 million. And all these funds we received prior the end of the 2020 year. In December 2020, we repaid Duferco who were the previous of Vanchem, a partial payment of $11.5 million from the $23 million convertible that we had entered into at the time, we acquired Vanchem. And we settled $5 million as cash as well as $1.28 million interest on top of that as well as converted $6.5 million worth of shares of the convertible into Bushveld ordinary shares, which were about 37 million. We were also able to retire $17 million worth of the net bank term loan as at that year-end. So the company ended 2020 in a solid position in terms of cash and cash equivalents with $50 million in comparison to $34 million in 2019. The outlook for 2021 includes something that we're quite -- we're proactively engaged in as far as our net bank relationship is concerned, just in light of the fact that Vametco had the challenges that it saw with the 35-day maintenance and the unanticipated unpredicted industrial strike. We realized that the covenants for June year-end could be challenged, and we have renegotiated those pleasingly. As I said, we've received a waiver of those covenants for the June 2021 period of testing as well as the relaxation of the December 2021 group net debt-to-EBITDA ratio that has been relaxed from 2.5x to 4x. In addition to that, we will start to amortize about ZAR 125 million RCF from August 2021, paying ZAR 5 million per month for the next 12 months and ZAR 50 million bullet payment on the 6th of November 2022, which is the date of maturity. In addition, since the year and we have renegotiated the Duferco convertible balance sheet, convertible balance of $11.5 million. And we're quite confident that the positive results that we have seen and would expect that $5 million of it will be repayable in November 2021 and the remaining $6.5 million will be converted into Bushveld shares. From a cost perspective, we continue to focus on cost containment. Even as we integrated the 2 operations, we expect to realize synergies in areas such as the shared procurement platform we established as we progress. And so we -- this is something we will be looking forward to doing going forward. Now turning to the next slide, cash and capital expenditure. Net cash flows from operating activities for the year were USD 17.1 million, a decrease of $46 million compared with 2019, driven by the reduced profitability on the back of the low sustained vanadium prices, that's what Fortune and I have alluded to. Capital expenditure and investing activities for the year were at $18.3 million, again, a decrease of some $36 million from 2019, mainly again due to the cash preservation measures implemented during the year. As already mentioned, the company entered 2020 in a solid position in terms of cash and cash equivalents with $50 million in comparison to $34 million in 2019. And just to provide some color as to where we are at the moment, the cash balance as at 27th June 2021 was $31 million. Just looking out for 2021, the total CapEx spend for 2021 financial year is expected to be approximately $26.8 million, of which we have already spent $8.6 million as at 31 May 2021, with most of the costs being rand denominated. The capital expenditure includes Vametco expenditure around sustaining an environmental capital as well as an element of Phase 3 of Vametco PFS and that amounts to $6 million in total. We also have included in the Vanchem's cost for the kiln 3 refurbishment, which is approximately $11.3 million, included also in that is an element for the Bushveld Energy Electrolyte Company, BELCO of some $4 million. To ensure that Bushveld Mineral remains competitive at a lower vanadium price and reaps the benefit of what we are seeing as a higher commodity price beginning to emerge, we have introduced a cost savings program because the program is aimed at ensuring continued competitiveness throughout the commodity cycle while enhancing the offering to markets across all the industries. Really -- the plan really to make sure that we continue to be able to sustainably conduce in a low and a high pricing environment. And therefore, we can then basically bake the gains to the bottom line. We are targeting cost save initiatives across the group, but we've started with procurement and our focus is really going to be in that initially. And our objective from our earlier analysis of the work we've done to date is that we expect to cut costs by approximately $2.5 million to $4 million per year, and we'll start to bake that in from 2022. I think if you look at the range of guidance that we've now set for 2021 that would see us baking an improvement of anything up to $1 per KGV. We will continue to prioritize efficiency on operational performance across Vametco and Vanchem, whilst also ensuring capital is spent efficiently and on projects that yield the best returns. I will now hand back to Fortune to talk through the vanadium market and the company outlook for 2021.

Thank you, Tanya. Just a few comments on the vanadium market conditions. In a year in which the COVID-19 pandemic affected all major economies, global steel production fell, but by less than 1% to about 1.864 billion metric tons. China, however, was a different story with production growing a robust 5.2% in 2020 compared to 2019 with a production of 1.053 billion metric tons. And this accounted for around 56% of global steel production. Significant for vanadium because China is one of those markets, where we've seen growing intensity of use of vanadium on the back of the implementation of standards for better quality steel. And this, in turn, has seen good support to vanadium demand from this market. To such an effect that we have seen China become a net for vanadium importer in the months of June, July, August, October and November 2020. I should highlight also that as different economies respond to the global pandemic by different fiscal programs, we expect to see a number of infrastructure programs announced. And also, we expect to see economies take advantage of these fiscal programs to drive greater energy transition, which, in turn, we expect will be supportive for vanadium demand, both from a steel applications perspective as well as applications in the vanadium redox flow battery energy storage space. The end of 2020, going into 2021, saw vanadium prices rise across all key markets and sustaining this during the first half of 2021, where we started to see vanadium prices exceeding the $40 mark per kilogram V. Iron ore prices are also reaching the $200 mark as Chinese and Russian core producers are nearing full production capacity. We have met the point before that as core producers operated near full capacity and relying exclusively on the feedstock magnetite ore supply, we see them unable to respond to the growing vanadium demand as they maxed out in their production. And we think that, that is positive as it will support a vanadium market deficit thesis which is supportive to vanadium price improvements going forward. The current rand to U.S. dollar exchange rate is ZAR 14.22 compared to a rate of ZAR 16.50 to the U.S. dollar experienced during 2020. If we can move to the next slide, and we can talk a little bit more around the demand drivers for vanadium. The same demand drivers that we've spoken about before, which is applications and steel as well as the applications in the VRFB space. I think important to highlight here is that China is expected to reach its steel production picked by the middle of the decade. Output may hit another all-time high in 2021, driven by infrastructure and domestic consumption. This is certainly very positive for vanadium demand. Roskill forecasted 2% year-on-year increase in 2021 with a gradual recovery in steel production in the rest of the world. Demand from steel market is expected to grow at a CAGR of about 2.7% through to 2013. The upside from applications in the energy storage for vanadium redox flow batteries is gaining momentum as governments accelerate the energy transition to a low-carbon energy future. What that looks like is the future where electricity plays an increasing role and not only that, it's a future where increasingly renewable energy will play -- will take a significant share of that generation capacity. And with it, we expect to see a growing energy storage applications and particularly long duration energy storage, which is suitable for vanadium redox flow batteries. Consequently, the demand from VRFBs is expected to grow at a CAGR of 56.7% through to 2030 according to Roskill. Co-producers operating at full capacity with no hematite-blending incentives implies limited or no capacity to increase supply in the short term, as I indicated a bit earlier. And this, in turn, we think, will support vanadium prices going forward. The high seaborne iron ore prices, I think it's fair to say that most people did not expect to see iron ore prices reach the highs of $200 per ton. These high prices driven by Chinese strong demand as well as constrained global supply. And as a result, Chinese steel mills use more domestic vanadium to taniferous magnetite ore this year than before. The low vanadium price environment of 2019 implies limited price incentive for greenfield vanadium project, and this is why we reiterate the opportunity for existing primary producers of vanadium, who are able to leverage cash flows to grow the vanadium production on a brownfield basis. Now I want to spend the next few minutes talking about the outlook and 2021 guidance. We have mentioned before that we're looking to prioritize operational stability at our operations. Following the acquisition of Vametco and the acquisition of Vanchem, it is quite important that we ensure that our plants are operating at an optimal level and that, that provides a solid base on which we can grow our production. What that looks like at Vametco is a steady-state production of about 2,800 metric tons of vanadium, and at Vanchem, 2,600 metric tons of vanadium. And this is following the completion of the refurbishment program Phase 1 at Vanchem, which will introduce a kiln of similar dimensions to Vametco. We're also looking to implement synergies across our operations. And with this stable operating base, going forward, we believe that will give us a solid platform to pursue continuing growth. The technical study is currently underway at Vametco and Vanchem to determine the most capital-efficient production sequencing across our operations. At the same time, we look to identify and continue to implement cost reduction initiatives. We have provided a revised guidance at Vametco of 2,300 to 2,400 metric tons and production cash cost of between $23.70 and $24.20. The upper sim project at Vametco will be a significant ore feedstock source for Vanchem going forward, and we -- this is going to derisk our growth at Vanchem significantly, particularly as we come to the end of the ore feedstock that we secured from Mapbox when we acquired the plant. Guidance at Vanchem has been revised to 1,100 to 1,200 with the C1 and production and cash cost of $30 to $31.10 per kilogram V. This guidance has been necessitated by delays experienced in securing steel supplies for the refurbishment of kiln 3 which is expected to be completed still during the course of 2021 towards the end of the year. The bridge project will continue to be developed for future ore feedstock to Vametco and Vanchem. And at Mokopane, we have groundwater, 7 aero surveys that are underway while we're also submitting water use license. Mokopane remains an important ore source for Vanchem going forward, but I'm pleased that with the development of our upper sim project at Vametco, we have significant optionality within our asset base to ensure a sustained supplier of ore to Vanchem. What you see on the right-hand side of that chart then is the trajectory of our production growth with 3,400 to 3,600 ton production expected this year and also positioned to grow that to 5,000, 5,400 tons per annum on the back of the refurbishment program that is being completed at Vanchem. What this means effectively is that before we consider additional capital growth, we are on our way to growing our production base to 5,000 to 5,400. In the medium term as we implement the growth -- the further phases of capital expansion at Vametco, at Vanchem, we expect to grow our production to 6,400 to 6,800 and in longer term to 8,400. Our commitment to that growth remains intact. If we can move to the next slide, please. In respect of Bushveld Energy, we will continue to participate in the energy storage space, focusing mainly on scaling up the vanadium electrolyte rental product with new contracts, supporting and funding the growth of Cellcube together with other shareholders. Attending financial close and commencing construction of the Vametco hybrid mini grid, which is quite significant and important to us, as explained earlier on. In a country that is encouraging companies to move to self-generation, lifting the cap for self-generation from 1 megawatt to 100 megawatts, we believe that this mini grid is going to prove a very important business case for these significant opportunities. Participating in large upcoming budget energy storage tenders in South Africa is something we continue to look at as well as developing self-generation options for all Bushveld's existing and future electricity needs. We have proven ourselves to lead in this regard, and we plan to stay ahead of the path. If we can move to the next slide and summarize our near-term objectives. I won't go through all of the points here, but just to summarize some of the targets we've set ourselves for the year going forward. From a financial point of view, we will continue to strengthen the balance sheet, increase cash flow through margin expansion and debt reduction, while our cost savings initiative is targeting cost reductions of between $2.5 million and $4 million starting from 2022. From a production perspective, we will aim to grow vanadium to a production run rate of between 5,000 and 5,400 MTV per annum by the end of 2022. And the technical studies that are underway to increase production to between 6,400 and 6,800 MTV in the next phase of growth and further on to 8,400 in the longer term. In energy, we are constructing the electrolyte plant in East London with an initial capacity of 200-megawatt hours of electrolyte. And just to remind you, when commissioned in 2022, it will be the biggest announced plant of such nature outside of China. If we can move to the next slide, please, in conclusion. We've come a long way since acquiring Vametco several years ago, and we're now the owner of 2 of 4 primary vanadium processing facilities globally, with a resource base to feed them. Importantly, the studies over the coming months will guide our growth plans ensuring that the next cheapest kilogram of vanadium is the one that is brought on stream next. The technical studies in the coming months will guide us on this growth path. The stability Vametco has shown since the completion of that maintenance shutdown is promising, and we have been conservative to ensure that the strong base of production -- to ensure that we have a strong base of production from which to grow. This, coupled with strong signals from the traditional vanadium demand sectors as well as the acceleration of the green agenda and adoption of energy storage means we are well positioned for the years ahead. Finally, I want to just reflect on the journey we have been since 2016 when we announced our strategy to grow into a producing company on the back of a brownfield acquisition strategy. The successful acquisition of Vametco and Vanchem are important pillars in that brownfield's growth strategy. With the combined acquisition cost for the 2 plants of approximately $120 million and a growth capital expenditure of approximately $30 million to give us a platform that will produce steady-state production run rate of between 5,000 and 5,400 metric tons of vanadium per annum. From projects that are currently being executed with further growth ahead as more CapEx is spent. As importantly, we have funded this growth since 2016 with limited equity financing through equity placing, convertible and warrant instruments of approximately $60 million cumulatively, while the balance came from cash flows generated by our operations and debt funding. That's what we mean when we talk about our brownfield strategy, delivering a production platform cheaper and quicker than it would cost to do on a greenfield basis. Our task now is to match the capital efficiency we have demonstrated in growing our asset base with operational efficiency, realizing the full production capacity and competitive cost position that these plants are capable of. We are up to that task and certainly look forward to providing updates as we continue on this journey. I'm going to stop here and thank you all for your attention and take questions now. Thank you.

[Operator Instructions] Our first question comes from Nick Chalmers from Alternative Resource Capital.

Can I just ask you about a statement that's in the growing concern section of the results released this morning, which you expect Vanchem to make EBITDA level losses for the rest of the year. And what vanadium price assumption is in that budget? Because I mean, it would seem to me with FeV prices north of $40 and production level, cash cost guidance for Vanchem, around about $30, $31. There should be reasonable margin there, even allowing for sales and marketing costs and then G&A on top of that production cash cost?

Nick, I got only half of your question, unfortunately. Can I just ask you just to -- ask your question again. Apologies.

Sure. It's just in relation to -- there's a paragraph in the results this morning that talks about Vanchem expecting EBITDA losses for the remainder of the year. I was just wondering what vanadium crisis assumption is behind that, given that production cash cost guidance for Vanchem, it's low 30s, and we're currently sitting with a FeV prices north $40?

Yes. Maybe, Fortune, I can take that. Thanks, Nick. It is in the growing concern. So I think the way to look at Vanchem is to say, well, first of all, obviously, we -- from a modeling -- internal modeling perspective, we're not baking in the daily prices that we're seeing -- that we are beginning to see today. Vanchem reached but obviously, from a management perspective, we would not bake that in. Secondly, if you think about how Vanchem is ramping up, we -- it's going to ramp up pretty quickly with the completion of the CapEx. But what you will see, first of all, is you will see an increase in cost as we capacity build it to be able to produce those tons that we're talking about. As a result, in 2021, it would not be profitable. It would be a loss-making at this stage of the game. And so from a growing concern perspective, we looked at it that way. It's important that we looked at it that way as a Board and I assume that will be the case, even though we're seeing an upturn in prices.

Okay. So in that case, would it be fair to say that if vanadium prices hold current spot levels for the remainder of the year then there would be a margin there in the second half?

I mean, that's a real possibility that if these prices hold because as you can see, you've seen that we have revised Vanchem down -- we've revised it downwards again on account of the slow -- of the challenges we've had in bringing on board the refurbishment. So the upturn of Vanchem is very much predicated around those refurbishments. But as it is in current state, if the prices were to, obviously, going to the mid-, high 30s sustainably early fortunes then you can see that the losses that it has already incurred being washed out.

Yes. And one more question, if I may. Looking at the near-term production guidance, well, near-term beyond 2021 and you're talking about 5,000 to 5,400 tons per annum by the end of 2022. Beyond the CapEx that you've got budgeted for this year, which -- much of which is refurbishing kiln 3 at Vanchem. Is there anything else that was required to be invested to get to that 5,000, 5,400 tons per annum level? Or are we essentially -- so we essentially have that capacity available by the end of this year and next year, it will be a case of ramping up towards that number?