Bushveld Minerals Limited (BMN) Earnings Call Transcript & Summary

Good day, and welcome to the Bushveld Minerals Quarterly Update Conference. At this time, I'd like to turn the conference over to Fortune Mojapelo. Please go ahead, sir.

Thank you very much, and it's a good morning to everyone, and thank you for joining us today for the Q2 and H1 operations update. I am joined today by Tanya Chikanza, our Finance Director; as well as Francois Naude, our Director of Operations. Just to start off, I'd like to once again emphasize our current priority in respect of our workers' safety despite the COVID-19 pandemic. In spite of very rigorous mitigation measures that we have in place at our operations, third wave of the pandemic in South Africa has seen an increase in infection rates test amongst our employees. It's 54 active cases currently. We hope each employee achieves a steady recovery. And moreover, we are pleased to have commenced the vaccination program for both the Vametco and Vanchem employees, including Impala Platinum kindly agreeing to collaborate with us in using their vaccination center for employees at Vametco. As this vaccination program continues, we trust and expect that it will certainly assist in managing the pandemic and the effects on our employees. Now talking to our production numbers. I am pleased to report this production numbers so soon after our full year results, allowing us to elaborate based on the post year-end events that we alluded to in that announcement, including the focus on production stability at Vametco. As you can see from today's announcement, we have seen a solid 2 months of production from Vametco post the maintenance shutdown in March, with 278 metric tonnes of vanadium and 261 metric tonnes of vanadium in May and June, respectively. Vanchem's first half production of 900 -- sorry, Vametco's first half production of 988 metric tonnes of vanadium was 19% lower than the prior year and this is due to poor plant performance in the first quarter and the unprotected industrial action in April 2021, as we reported earlier. This was subsequently followed, however, by improved plant performance and stability in Q2 2021. More than the production volume improvement, it is positive to see improved operational stability at Vametco as a result of not only the extended 35-day maintenance shutdown, but also several operational improvements that we have implemented, which include a greater discipline in our proactive maintenance practices, process control from the technical team as well as people development strategy. We continue to expect Vametco to achieve the previously mentioned monthly production run rate forecast rest of the year for approximately 240 metric tonnes of vanadium, includes allowances for any short-term work as part of the plants that will be required to maintain operational stability. At Vanchem, production for the second quarter was in line with Q1 at 293 metric tonnes of vanadium with good operational stability from this asset as well. All in all, group quarterly production totaled 886 metric tonnes of vanadium, 29% improvement in Q1, underpinned by that improved operational stability in the final 2 months at Vametco. Sales were also higher at 820 metric tonnes of vanadium, supported by the higher production volumes at Vametco. Vanchem is expected to maintain its current monthly production levels of approximately between 90 and 100 mtVs through the support of feedstock from the upper seam project at Vametco expected to come online at the end of Q3 2021. This means that we are on track to achieve the reverse production guidance stated at the time of the full year results of 3,400 to 3,600 metric tonnes of vanadium. In terms of unit cost for the quarter, the higher volumes at Vametco contributed to a reduction there, but a stronger rand was main contributor to small increase in costs at Vanchem. The recent unrest in South Africa did not affect production at our operations. However, the group did experience some logistics delays in getting final products to the port. This delay has since been resolved. However, general international seaborne logistics pressures due to the COVID-19 pandemic do remain. We continue to monitor the international logistics situation closely, and we expect to maintain export volumes during Q3 of 2021. Turning to the market. We saw Ferrovanadium price averaged 17% higher than the previous quarter. And currently, the London Metal Bulletin price sits at about $40 per kilogram V, which is very welcome. Vanadium market is expected to strengthen for the remainder of the year, according to Roskill, driven by higher demand as well as tighter supply, as Chinese steel slag producers are operating at close to capacity with very limited capacity to increase production. Finally, I would like to just touch on our growth plans. We continue to progress our studies at Vametco and Vanchem in this regard. We intend to complete the now expanded prefeasibility study at Vametco together with the technical studies currently underway at Vanchem in the fourth quarter. The results from this will determine the optimal path for growing our production in the most capital-efficient manner. We reiterate our commitment to grow production to 8,400 metric tonnes of vanadium in the longer term, and the pathway towards that will be confirmed as a consequence of these technical studies. And with that, I would like to stop and open up to questions. Thank you very much.

[Operator Instructions] We will now take our first question from Tim Huff from Peel Hunt.

I was just wondering, the second quarter showed pretty good recovery on the first quarter. But at Vametco, in particular, you noted how well you did in May and June. And then you've gone on to give some guidance for -- monthly guidance for the second half of the year, which is helpful. But the one question I had was just about that guidance. The -- it's a little bit lower at 240 per month. I was just wondering if you could give some color around that rate versus May, June, whether it is more of an average that you're expecting or if it's something -- or if it's a baseline level that you'd like to at least hit. And then the second question was sort of as a follow on to that, do you expect if the production rate is a little bit lower, but consistent in the second half, are you expecting cost to be incrementally higher at Vametco?

Thanks, Tim, for that question. I'll give first part answer, and then I'll let Francois comment more. One of the things that we observed and we sought to change with respect to how we operate at Vametco, I think we made the comment when we released the annual results, but we tended to set aspirations and have aspirational guidance. And what then happens is that if you have any challenge, then you spend the rest of the period trying to make up for what you've lost, right? There's a shift in philosophy that says we need to set our guidance based on what the plant has demonstrated it can produce. And we looked at the histogram of Vametco's production, going back 5-plus years. And based on that, we benchmarked what this plant today. Now that's not to say that, that's what it will always produce in the future. Of course, we have programs in place to improve production at Vametco. But you don't bank those improvements until you have achieved them on a sustainable basis. And it's on that basis that we set at 240 metric tonnes of vanadium as a monthly production base, a level that we are comfortable and confident that this plant has demonstrated it can do and overlay that with a very disciplined proactive maintenance strategy, interventions in the plant in terms of process control. We monitor this plant on a daily basis across the chain at a very granular level. Only when we can bank those improvements on a sustained period can they feature in any forward-looking statements of production. So yes, 270 tonnes of production in May, 261 production tonnes in June are very, very good results, but they don't give us -- they're not a sufficient basis for us to now change our monthly production, our target that we have set for ourselves. Francois, can I ask you first to just add a bit more color?

Yes. Thank you, Fortune. I think important to understand after the 35-day planned shutdown, I mean there was a lot of maintenance done in that period. So generally, even if you look at the historical performance, that the first month or 2 is producing good results, mainly because you don't have to take off the remainder of the plants for its planned maintenance, what happened then in the past was that the plant then was run down until the next annual shutdown. The philosophy change to say but how can we maintain the plant throughout the year, so we've got part of this 240 of the baseline have got planned showdown, smaller shutdowns in different portions of the plant, so that you've got sustainability that comes through. That obviously helps with recovery, and it obviously helps with process control as well. We saw the results in the following years that these annual shuts that we normally have as long shuts can be reduced to the standard of around 20, 21-day shutdowns or about 6 days ramp-up. So it's really around our planned maintenance philosophy that impacts the baseline that you operate at. And then Fortune also more the comments this year made in terms of our improvement initiatives. If it demonstrates for a consistent period that those improvements are realizing the value, then we can bolt that into our forward-looking production volumes.