Bushveld Minerals Limited (BMN) Earnings Call Transcript & Summary

Hello, and welcome to the Bushveld Minerals Quarter 2 Update Call. My name is Judy, and I'll be the coordinator for today's event. Please note that the conference is being recorded. [Operator Instructions] I will now hand you over to your host, Tanya Chikanza, Chief Financial Officer, to begin today's conference. Thank you.

Thank you. Good afternoon, everybody. First of all, my apologies for keeping you waiting for this long. We've been having some technical challenges associated with load shedding, which is actually the reflection of some of the things that we will talk about today. Nevertheless, welcome to our June quarterly and half year 2022 update call. Thank you for dialing in. And due to those challenges, Fortune is unable to speak to you just as yet, but he will continue to try, and I'll take you through these results leading up to Q&A. I am pleased to report on the company to have the overall solid first half of 2022. Group production was 1,641 mtV, 4% up relative to the first half of 2021. The numbers reflect the work we have put in to achieve sustained consistent operational performance and stability, particularly at Vametco. It has been a challenging quarter for Vanchem, marking the transition between the kilns as Kiln 1 came to the end of its useful life and Kiln 3 commissioning was remade and is currently experiencing a slower-than-anticipated ramp up. This, coupled with unstable power supply due to the national electricity load shedding that has been experienced in South Africa. The ramp up is progressing well, and the group remains on course to meet the annualized steady-state production run rate of 5,000 to 5,400 mtV per annum by the end of 2022. Now let's talk operational numbers for the June quarter and for the half year or first half of 2022. As mentioned in today's announcement, Q2 saw a group production of 668 mtV for the quarter 2, 31% down from the previous quarter at 972 mtV. However, the H1 2022 figure of 1,641 mtV was up 4% in than the previous year owing to the company's focus on stable operational performance with Vametco. With those said, onto the individual operations. I will begin with Vametco. The June quarter saw a 26-day plant maintenance shutdown in Vametco, which brought Q2 production down 20% from 593 in Q2 2021 mtV to 477. It is important to note that in 2021, the maintenance -- similar maintenance was conducted in Q1 2021. The half year figures, however, are stronger than that of last year, owing to that stable operational performance. With this steady performance in mind and following the successful maintenance in the plants, with volumes now back at Q1 levels of production or similar mtV, we anticipate meeting the upper end of our 2022 production guidance of between 2,450 and 2,550 mtV and achieving steady-state production run rate of 2,800 mtV per annum by the end of the year. As a result of the weaker rand to dollar exchange rate, the production cash cost, what we call C1, for this quarter at 24.4 KgV was 5% lower relative to that of the previous quarter, and these numbers are in dollars. Increased production volumes had set a [ bearing implement ] a decrease in cash flows for the half year, with H1 2022 at $23.5 per KgV compared to that of $25.9 per KgV last year. We therefore feel that Bushveld is on track to meet production cash cost prices of between USD 22.7 per kgV and $23.5 per kgV for the year at Vametco. If I can move on now to Vanchem. This quarter saw lower production volumes of 191 mtV, which was 35% lower than that of Q2 last year, which produced 293, and this is owing to the electricity load shedding and the slower-than-anticipated commissioning and ramp-up of Kiln 3, which I've mentioned before. In addition to the reasons just mentioned in H1 2022, Kiln 1 was coming to the end of its useful life, which impacted recoveries during the period. With H1 2022 production at 415 mtV, which was 20% (sic) [ 29% ] lower than that of 586 in H1 2021. This decrease in production volumes, therefore, meant that the H1 2022 production cash cost, C1, of 43.2 kgV, was 46% higher than it is to last year. In H1 2021, the cash costs were $29.5 per kgV. Q2 production cash costs were $48.5 per kgV, 73% higher than Q2 2021, which recorded $28.1 per kgV. Due to lower production volumes in Q1 2022 impacted by lower recoveries as the result of Kiln 1's refractory reaching the end of its useful life, a slower-than-expected production ramp-up for the commissioning of Kiln 3 and expected increased electricity load shedding challenges in the short term, production guidance of between 1,750 and 1,850, and the production cash cost guidance of $27.7 to $28.4 is under review. We will provide an update as part of the H1 2022 interims announcement. Despite the initial delay in ramp up, Kiln 3 is now making good progress, it's ramping up well, and we assume that Vanchem is on track to achieve the steady-state production of 2,600 mtV per annum by the end of the year. This is -- that's a run rate, the 2,600. Our planned maintenance at Vametco and the commissioning of Kiln 3 is one of the group's strategy to invest in maintenance and infrastructure. To this end, and following the positive performance at Vametco, we expect to achieve the planned production guidance of 4,200 and 4,400 mtV, but we expect this to be towards the lower end of that particular range. From a sales perspective, flooding in KwaZulu-Natal in April created logistical challenges for Bushveld, with shipping initially delayed by between 14 and 21 days. This resulted in diversion of exports through alternative South African ports including that of Cape Town in order to meet our client obligations. These delays have now been resolved, but we will continue to monitor international shipping availability. Group sales for H1 2022 were 1,644 mtV and these are up 2.2% compared to last year. I would like to spend the next few minutes touching on the announcement made by President Ramaphosa addressing the electricity crisis in South Africa and its impact on our operations. While it was refreshing to see South Africa's government send a strong message on how it plans to overcome the country's energy crisis, it is unfortunate that in the short term, Vanchem's ability to operate smoothly will be affected by the ongoing electricity load shedding like many other industrial plants in the country. We are hopeful that with the increased maintenance efforts of the country power station and the end of the winter season, we will see reduced incidences of load shedding. Both Vametco and Vanchem are adversely impacted by load shedding. For Vametco, this means curtailment of power usage. However, this does not affect Vametco's operational performance and production. For Vanchem, however, it is on the municipal power grid and this means a complete loss of power and reliance on standby diesel generators. Despite the electricity disruption, Vanchem's ramp-up has stabilized in recent weeks, while Vametco has also returned to Q1 production levels since the maintenance shutdown. As a result, we remain confident that Bushveld Minerals will achieve a production run rate of 5,000 to 5,400 mtV per annum by the end of this financial year. We look forward to reporting our progress to the market in the coming months. Thank you for your time, and I will now stop and take questions that you may have.

[Operator Instructions] The first question comes from the line of [ Paul Clapham ].

Thanks, Tanya, for running through the Q2 results. That was really helpful. The only question I had really was around the disparity between some of the prices that are being currently realized in the market, particularly between the U.S. prices, which I think you quoted as from CIU is $54. And I think Fastmarkets are reporting the same compared to London metal prices and Asian markets, which are close to $35.

Can you hear me okay?

Yes.

There is a disparity actually between the U.S. market and the other markets. And we have seen that, that disconnect [indiscernible] for the good part of the year now. Although I think these averages is beginning to close somewhat, but it is correct that there is that element. And I think for us, it's fair to say that when you think about our sales, 45% of our sales are in the U.S. So we -- that sort of contributes towards our blended realized price in the long term. .

Okay. And so in terms of demand from the U.S., I mean, how is that market looking for you at the moment?

It's a good market because for us -- sorry, carry on.

Yes. I was just wondering because I guess, presumably, it makes more sense to sell more products to the U.S. as opposed to other markets where you can achieve a higher price?

So a good chunk of our products are sold into the U.S. We have sales contracts in particular, vana, in the U.S. So we d,o, do that. The balancing act, I guess, is that we are selling into the U.S. As we do, we make sure we get a bit of flexibility to be able to sell to the other markets because times can change, what we're really seeing is quite peculiar. But it's also fair to say that in looking at which markets we are going to sort of sell to, we also think about the logistical challenges that are currently eventually at the moment that we are seeing. So yes, a good chunk of our product, as I said, in this first half alone, 45% our sales were in the U.S. with the rest of the world and Asia really coming in at about 18%. So we are taking advantage of that.

[Operator Instructions] There are no further questions in the queue at this moment. [Operator Instructions] The next question is coming from the line of William Harley.

Thanks for your update. As a private investor, I'd just like to know what's the time scale before -- how long do you think it will be before you start returning dividends to the shareholders?