Bushveld Minerals Limited (BMN) Earnings Call Transcript & Summary

Good day, and welcome to the Bushveld Minerals Q3 2022 Operational Update Conference Call. At this time, I would like to turn the conference over to Fortune Mojapelo, CEO. Please go ahead.

Thank you, Marianne. Good afternoon, everyone. Thank you for joining us for this quarterly operations update for Q3 2022 as well as for the 9 months to our end of September 2022. I am joined on this call by Tanyaradzwa Chikanza, our Group CFO, as well as Chika Edeh, our Investor Relations Head. As you will have seen from the RNS, we have held a solid rate of production for the quarter, with group production of 1,016 mtV for Q3 and 2,657 metric tons of an item for the 9 months of 2022. It is fully testament to the work we have put in prioritizing stability in operations at Vametco and the ramp-up of the third Q at October 3 at Vanchem. Despite ongoing power problems from the national supply Eskom, the ramp-up at kiln 3 has seen monthly production more than doubled from the production levels seen in July. I'm pleased to report that as a result of Q3, total production at Vanchem has now increased 83% compared to the previous quarter. That being said, I must make the point that load shedding continues to be an issue that we contend with. In Q3 alone, load shedding accounted for as much as 218 hours of curtailed production. And obviously, this has an impact on our production levels. The September load shedding numbers, particularly being the worst recorded on a monthly basis in the past 5 years of records. Vametco's operational performance was not affected by this period of load curtailment as much as Vanchem and there is no impact on the plant production performance. And the reason for this, as we've explained before, is that Vametco is linked directly to the National Utility Eskom and in terms of load shedding, the request is typically to just reduce consumption rather than a complete cutoff of electricity supply. Vanchem, on the other hand, purchases is powered through the local electricity distributor, the Emalahleni municipality and in terms of load shedding, Vanchem them is affected pretty much like residential households as well through a complete loss of power during those moments of long shedding. In order to lessen the impact of the lack of grid-sourced energy at Vanchem, we have implemented diesel generators to try and bridge the shortfalls. Worth noting, however, that the generators cannot completely replace the total power requirements of Vanchem. And this will always have an impact on our production levels. There are efforts underway with the local municipality at Vanchem to explore ways to migrate to a policy this regime similar to what we have at Vametco which would see us having to just cater or reduce our power consumption during periods of load shedding. There is no certainty that these efforts will necessarily be successful, but we are hopeful, and we will continue to push as hard as we can. In the medium to longer term, health generation solutions remain at the center of our solution. We think that ultimately, with the regulatory regime changes that have been introduced generating power, combining solar storage -- solar and battery storage will ultimately give us the most sustainable power security solution for our operations. In this respect, I'm particularly pleased that we have commenced construction of our mini grid at Vametco which is 3.5 megawatts of PV solar and a 4-megawatt hour PRC battery. This project is particularly important in demonstrating the business case and the variability of these self-generation solutions, which we are certainly quite keen to scale up to cover the remainder of our power requirements, both at Vametco and at Vanchem. Having said that, given that we still use diesel generators, the increased use of diesel will be reflected in the group weighted average production cash cost for the quarter which has averaged about $29.30 per kgV compared to the weighted average production cash cost of $28.90 per kgV for the 9 months. We maintained our group guidance of between 3,900 mtV and 4,100 mtV and remain on track to reach our targeted steady-state production run rate of between 5,000 mtV and 5,400 mtV by the end of the year. Production cash cost guidance at this asset is maintained as we expect costs at both operations to normalize through the rest of the year and also as we continue to focus on cost containment initiatives. I must also highlight here, however, that significant inflationary pressures, which are not unique to us but are common to the entire industry and the desert the rest of the economy are a risk that we have to contend with, and we continue to contain going forward. To drill down into the detail of our individual operations, I will begin with the Vametco. Production for Q3 was 666 metric tons of vanadium, 40% higher than the last quarter, which was 477 mtV. And the production for the 9 months was 8% higher than the 2021 comparable period at 1,892 metric tons of vanadium compared to 1,753 mtV last year for the same period. Vametco remains on track to meet our full year production guidance of between 2,550 mtV and 2,650 mtV supported by continued operational stability. You will not remember that this guidance. We increased it at our last -- when we released our interim, increasing it from 2,450 mtV to 2,750 mtV up to 2,550 mtV to 2,650 mtV. So I'm pleased to see that we are on track to meet the revised upward guidance. The first 9 months of the year have seen a higher cash cost, however, at $24.80 per kgV over last year's $24.40. And here, the big factor has been inflationary pressures that has been experienced across the group, particularly felt within our raw materials which has resulted in a higher cost there as well as higher energy costs. This has been, however, partially offset by weaker so that we can run a U.S. dollar exchange rate which has helped somewhat mitigate these inflationary increases. This has also impacted the cost for Q3, which at $26.90 per kgV. However, as indicated earlier, we expect the cost to normalize through the rest of the year. With 2022 production cash cost's expected still to be within guidance of between $22.70 and $23.50 per kgV, noting again the inflation-related risks that we do hope do not materially worsen in the remaining months of the year. At Vametco the 9-month 2022 production of 765 mtV was lower than that of last year's 876 mtV. And this was owing, as mentioned, to increased load shedding as well as the prolonged ramp-up of Q3, which came online later than it had been originally anticipated. The production for the quarter at Vametco 350 mtV, 83% higher than the Q2 numbers backed by the improved performance of Q3 with an increase from 61 mtV in July, to 151 mtV in August and 138 mtV in September. And that September number needs to be read in conjunction with the severe load shedding experiences that I referred to earlier. Vanchem 's performance would have been much, much higher, much better if it had not been for the electricity load shedding impact but that is a point that I think I've made enough emphasis on. And not again that load shedding has been particularly bad in September. I indicated the highest frequency that we've seen this far. And so we just caution here that this may impact Vanchem's production guidance for the year, which is set at 1,350 mtV and 1,450 mtV. We are hopeful, however, that we will see improvement in terms of energy availability or power availability with less incidents of load shedding in the remaining months of the year. Vanchem has experienced higher costs for the 9 months with cash cost at $39 a ton per kgV over the last year's $28.70 per kgV. The increase in costs has largely been due to lower production volumes, higher raw material costs and costs associated with the ramp-up of kiln 3. And similar to Vametco, these indices are somewhat offset by a weaker South African exchange rate relative to the U.S. dollar in the same period. Q3 2022 production cash costs were $33.8 per kgV, 30% lower than Q2 2022 numbers of $48.50 per kgV. This reduction being supported by higher production volumes during the quarter, and this underscores why it's vitally important for us that we get that Q3 operating at the run rate that it is designed for. And hence, once we get to that level of 2,600 mtV the annum, we expect that the cash costs for Vanchem will improve even further going forward. And thus, we do expect that costs are going to normalize for the rest of the year, particularly as we see the production numbers at Vanchem with country performing better in the remaining months. Production cash costs for -- in terms of our guidance has been set at $34.90 to $35.50 and this guidance, we are maintaining it to the end of the year. Relative to Q2 2022, vanadium prices in the U.S. and Europe softened during Q3. 2022, while they strengthened somewhat in Asia. Sales volumes and markets have been flagged to maximize revenues by optimizing sales of natural vanadium into the higher-priced North American steel market and increasing premium vanadium chemical sales into the aerospace and the petroleum catalyst applications. Demand for Bushveld Minerals switch of vanadium products remains strong and the flexibility afforded by the diverse product mix and wide geographic presence is a significant strength when the current reduction in still capacity utilization is considered. And this allows emphasis on higher-value products' end markets. The expectation remains that sales volumes were equal production volumes. I am pleased with the progress that Bushveld has made over the quarter and over the course of this year, proud of the diligence we have untaken to ensure stability and consistency of operations is now being reflected in the numbers. While the effectors outside our control, such as the national power load shedding, we have smooth production and are on track both to metal production guidance and our anticipated run rate for the year. I look forward to updating Bushveld for shareholders and stakeholders on our progress at the end of the next quarter. I would just we like to remind investors that we will be having an investment company session which we will be hosting on the 8th of November, during which we will provide an update on the company's progress and take questions from the audience. I'd like to thank you at this point very much for your time, and we'll pause here in order to take questions. Thank you very much.

We will now take questions from investors and analysts. [Operator Instructions] We will take the first question from John Meyer from SPA.

Thank you for delivering those results and well done on increasing the third quarter production. Can you -- if I can just ask several questions all at once. Can you give us a view on where you see vanadium prices going particularly in the U.S. and China. I see Chinese prices are rising again, that have been rising for a few months. And I think given the great sensitivity of the group to vanadium prices, it would be useful for us to hear more of a view there. Could you also talk us through the recovery rates or at Vanchem and Vametco. I see Q2 recovery rates from the kiln were higher in Q2 than Q3. And I wonder is that a load shedding issue? And then can you give us just a little bit more of a view on are we -- are you going to continue for load shedding the low trading you've seen through September through the fourth quarter?

Thanks, John. I'm going to start with the vanadium price question. And it's -- we always say this right about vanadium prices that they are very difficult to predict. And my stock standard answer to questions around vanadium prices goes back again to what we are seeing in terms of vanadium demand versus vanadium supply. And in respect of demand, yes, obviously, with the global economy going through a lot of volatility, particularly in Europe. We know now that there has been a softening of the steel market. What I found a lot encouraging is that notwithstanding we haven't seen vanadium prices drop significantly. If anything, I think we've seen them relatively stable in that market. And in China, we have seen prices actually start to edge up, which is encouraging. And they have not reached $30. So to see them sort of, yes, in the first half of the $30s, but with some signs in China or prices nudging up that is quite encouraging. Now talking about China, what we have also observed is the announcement of quite large energy storage RFP project. I think some of the numbers we are seeing are already running into gigawatt hours' worth of projects. Certainly, when we look at the inquiries we are getting for vanadium for electrolyte purposes. The coverage that growing demand for vanadium from the energy storage space. I look at forecast not only from energy-focused analysts, but you look at the likes of well, Roskill isn't there anymore, but there are some analysts like Blue Vision. When you look at their focus, and these are analysts who have tended to be very, very conservative around the demand for vanadium in the energy storage space. I think for me, that is 1 very big encouraging sign in support of the vanadium demand going forward. And of course, this is all happening in an environment where we are not necessarily seeing significant increases in vanadium supply. And as a consequence of that, we think that, that balance will continue to be supportive, more of price upside than price downside for vanadium prices. The U.S. market has held on steady quite well in terms of prices, not of $40 close to more in the mid-40s, the kgV and that is also quite good because we are also seeing an acceleration of the energy transition and energy storage mandates in that market in addition to, I think, growing push for infrastructure spending there. And a consequence of all of which is that the demand in the U.S. remains fairly robust. Probably all of what I said with the geopolitics of the Russian/Ukraine conflict and how it affects the flows of vanadium material in Europe, China versus the rest of the world. I think that all of that taken together should be supportive of vanadium prices improving going forward rather than worsening. But again, it's something that we must continue to go to watch very, very closely. But so far, those factors that I've highlighted are supportive of vanadium prices. So that's the first point. And then I want to go to the third question you asked about load shedding. But I think it's fair to assess that we're going to have no shedding in South Africa for quite an extended period of time. Our hope is that is twofold. One is that we're not talking about large chain as we handle the levels that we have seen in September but that we see reduced load shedding. But I think if you listen to Eskom COO, he is basically saying that we need to brace ourselves for as much as 18 months of regular load shedding going forward. That is why, in the short term, we think that the solution really lies in moving to a similar power supply arrangement just for Vametco. I mean it's interesting that through all of the significant load shedding we're talking about, Vametco production hasn't been badly affected, and that's because of the curtailment arrangement that is there. So if we can move to that arrangement at Vanchem, we think that, that will mitigate this load shedding in a huge way. Then, of course, in the medium to longer term, on self-generation solutions should come into play here. I think I'm comfortable that between those 2, we have the kind of solution that we require to safeguard our production going forward. And then the third question was the question about recoveries at Vanchem. I think the point I'd just make there is that firstly, you note that we did indicate that during the commissioning of this focus is availability, is making sure that you don't have the mechanical problems and we dealt with those quite successfully the levels of availability when there is power that we see with the kiln are very good now, then the next focus area becomes 1 of recoveries. And when you're talking about recoveries, it's a function of the all that you're fitting in, the mix of that ore. We fit are at Vanchem that comes from Vametco that also comes from an old stockpile we acquired from [indiscernible] as well as other sources. And it's important that we maintain a very steady blend of the ore, number one. But also number two, the reagent mix that we utilize, given the nuance differences between Vanchem and Vametco. And what I mean by that is that at Vametco, for example, at the end of the Q1, you have a 10-meter kiln section where you do your cooling. And as a consequence, after this, then you feed that through into your leaching circuit. In Vanchem, we discharge pretty much directly from the kiln straight into your leach pad. And therefore, it follows that the temperatures that which you do a roasting at Vametco and at Vanchem, you need to manage them carefully because it has an impact, and this is the key in here, it has an impact on the kind of recoveries that you can expect when you discharge into your leaching circuit. So that's all part and parcel of your commissioning and of your ramp-up. We are comfortable that we have now settled on the right level in terms of what the reagents that we're using at Vanchem which gives the right operational parameters to give it the kind of recoveries that we expect. So that explains the disturbance. Sorry, that is a bit technical. But I think the takeaway from it is that it's all part and parcel of the commissioning process, and we are comfortable now that with the kind of levels of recoveries that we are seeing in Vanchem and an answer to that has to do with the reagent mixes that we use and the quenching that we do post Q1 into our leach pad. I'm going to stop it there before I get all the more -- too technical and confuse everybody.

We will now take the next question from Mark Ryan from Tower Capital.