Bushveld Minerals Limited (BMN) Earnings Call Transcript & Summary

Good day, and welcome to the Bushveld Minerals 2023 Interim Results Presentation. I'd now like to hand the call over to your host, Craig Coltman, Chief Executive Officer. Please go ahead, sir.

Thank you, George, and good afternoon, and welcome to the presentation covering our interim results for the 6 months ended to June 2023. I'll soon hand over to our Finance Director, Tanya Chikanza, to talk through the period under review. But first, a few words on where we are with some of our initiatives we spoke about on the recent quarterly call. First of all, the improvement measures implemented at Vanchem early in my tenure are starting to bear fruit, evidenced by the increasing monthly production numbers. Since the implementation of these initiatives, Vanchem performance has improved. Producing 160 mtV in July and then a further 10% on top of that for August achieving 175 mtV. The average for July and August production represents a 63% improvement over the monthly average for the first 6 months of the year. August is also the highest production month since Bushveld Minerals took over the asset in 2019. Importantly, these measures were implemented safely without injuries. Now we want to see these initiatives be maintained sustainably over a longer period and for Vanchem to achieve the monthly rate of 180 mtV by the end of 2023. We maintain our revised production guidance of between 3.7 to 3.8 mtV, supported by improved operational performance at Vanchem. On the financing side of things, we continue to target the closing of the Orion transaction by December 2023, while the Southern Point Resources deal will put as much strong financial position, for us going forward. On that note, we have received in the order of $8 million in working capital funds, which forms part of that transaction. I'm happy to answer questions on these and any other matters at the end of the call. But first, I'd like to hand over to Tanya to run us through the first half year results. Tanya?

Thank you, Craig, and good afternoon, everyone. For the half year to end June, we produced 1,784 mtV of Vanadium. Which was 9% higher than a year earlier. We also continued to sell down inventories, resulting in 2,096 mtV being sold in the period. Cost per unit sold was $33.4 per kgV. This represented a 12% decrease relative to the prior year, primarily as a result of higher sales volumes and a weaker Rand to the U.S. dollar exchange rate. Adjusted EBITDA profit was down 34% to $10.3 million due to a lower realized price, an increase in cost of sales and other operating costs. This had an effect on operating cash flows, which were negative $0.9 million. Taxes paid, as a result of the negative operating cash flow, the group ended the period with negative free cash flow of $2.7 million. We ended the first half of the year with $3.7 million in cash and cash equivalents. We are making progress on both the restructuring of the Oral convertible loan note and the Southern Point Resources transaction that Craig has just mentioned. Completion of these transactions will help strengthen the company's balance sheet and contribute towards the reduction of debt. Craig has already covered most of the points outlined in this slide. I will, however, weakly touch on the key ones. Given the ongoing improved operational performance in Vanchem and stability in Vametco, we have maintained our group production and cash flow guidance. Furthermore, the decision has been made to bring forward 8 days of maintenance for the Vanchem kiln in order to improve the Kiln's performance. As a result of the shutdown, we anticipate production of circa 130 mtV for the month of September. Moving on to Vametco. July's production of 132 mtV was affected by unexpected high rainfall levels which necessitated the plant stoppage due to constraints in the Barren Dam and the Sulphate Recovery Plant. Since then, production has been ramping up and during the month of August, Vametco produced 215 mtV. While progress has been made on the SRP performance in Barren Dam levels, Vametco has experienced reliability challenges at the leach plant. We are making progress in resolving the issues, however due to this event, Vametco is expected to produce 180 mtV in September. But from October, production is expected to return to the 200 mtV monthly run rate. Lastly, our efforts to maximize capital inefficiencies, reduce costs and simplify our business, we have reassessed the merits of pursuing the mining right application associated with Brits project. And concluded that we should not be pursuing it. With the Vametco's life of mine conservatively estimated in excess of 30 years, the company wants to focus its efforts on what we only have as secured assets. Turning to the income statement. The waterfall chart on this slide refers to those factors that impacted adjusted EBITDA in the period. The positive contribution from the increase in sales volumes was offset by the impact of lower Vanadium prices and increase in overall cost, resulting in the $5.3 million decrease in adjusted EBITDA to $10.3 million. I will go into more detail on the costs on the next slide. While an operating profit of $2.1 million was reported, this was $4 million lower than the prior year due to the lower realized sales prices, offset to some extent by high sales volumes. As you can see, other big contributors to the $12.5 million net loss were the increased finance costs of $7.1 million, primarily due to the interest on the Orion Production Finance agreement and Orion convertible loan notes. The $3.4 million in other losses related to the fair value loss recognized on the Mustang convertible loan notes and the additional funding provided to [sell ]. So jumping into the cost side of this. The group cost per unit sold for the half year including sustaining capital expenditure was $33.4 per kgV. This represented 12% improvement relative to the prior year as a result of the higher sales volumes of 2,096 mtV, which I mentioned earlier. Fueled by the inventory sales and a weaker exchange rate and partially offset by the increase in cost of sales and other operating costs. Cost of sales increased due to several factors, including an increase in volumes sold, increases in use in prices of raw materials, higher maintenance costs at both Vametco and Vanchem, due to plant breakdowns during the period. And higher energy costs due to the increased prices as well as an increase in diesel usage, due to the unscheduled power disruptions at Vanchem. Other operating costs increased by $2.2 million due to items such as higher distribution costs on account of the higher sales, an increase idle plant costs and the write-down of work-in-progress inventory in Vanchem of around $1.3 million. Looking at the cash flow and capital expenditure. In the 6-month period, the group had a cash outflow from the operating activities of $0.9 million, compared with operating cash inflow of $8.7 million a year ago. This outflow, along with capital expenditure incurred of $4.3 million, the $2.2 million payment of finance costs on the Orion production finance, were the main factors behind the decrease in overall cash and cash equivalents to the $3.7 million. Capital expenditures was almost half of the prior year period as in 2022, we marked the end of a substantive capital investment phase, during which we had to do extensive refurbishment and optimization of Vametco and Vanchem and constructed the BELCO electrolyte plant. Turning to debt. Total debt, excluding lease liabilities of $87.9 million increased by $4.8 million compared to the previous year, primarily due to the capitalization of interest of $6.3 million. Proceeds received an additional funding from Nesa and the IDC of $1.3 million. All of this was partially offset by the repayment of finance cost to the Orion PSA of $2.2 million. Net debt increased by $11.1 million compared to the prior year, primarily due to the factors I just mentioned and the decrease in the cash and cash equivalent balance of $3.7 million to $3.7 million. The funding from the Southern Point Resources transaction will provide the opportunity to regear the balance sheet by retiring either entirely or partially certain existing financing instruments. In [indiscernible] on the proposed investment by SPR, we briefly here just summarized the recently announced funding of Southern Point Resources that I just referred to. This transaction proposes the injection of fresh capital into the business, which will provide the necessary near-term working capital assist in reducing overall debt and support the business in meeting its short- to longer-term capital expenditure and optimization requirements. While there are several components to the proposed investment, I'll briefly summarize the main ones. First, our new partner, Southern Point Resources have provided us with an interim working capital facility of ZAR 150 million, around $8.1 million, direct towards -- directed towards the Vanchem plant and alleviating Bushveld short-term cash flow constraints. Second, Southern Point Resources will purchase 50% of the subsidiary that owns Vanchem. As well as 64% stake of Mokopane Greenfield project combined for $25 million. Thirdly, Southern Point Resources have agreed to provide $12.5 million as an investment in an [Indiscernible] Topco. And for the new marketing arrangements, including a $25 million to $30 million trade finance facility and our Southern Point Resources will carry out all the marketing and sales of products for Bushveld. This is expected to occur over 5 to 17-month period as and when the existing arrangements with our current partners expire. We also have the opportunity as part of this partnership with SPR to evaluate the business case to recommission Vanchem Kiln 1. From a Going Concern perspective for the group, the group's ability to continue the Going Concern is dependent on its ability to complete the refinance of the Orion convertible loan notes and completion of the remaining transaction aspects with SPR. The current cash flow forecast indicates that the group require additional liquidity to fund the complications and activities during the next 12 months. We have identified and are proactively exercised levers within our control which will provide the group's liquidity. Importantly, the transactions with SPR will result in a significant injection of cash into the group and will represent a major step towards resolving this issue. Thank you. I'll now pass back to Craig.

Thank you, Tanya. I'll briefly provide some color on the priorities for the second half and then we can open for questions. We've announced two significant financial transactions in recent months with both Orion and now Southern Point Resources. We have a deadline of December for Orion, and we hope to make significant progress on some of the Southern Point Resources transactions by that time. As Tanya mentioned, we are today maintaining our production guidance of 3,700 to 3,900 mtV for the year. And moving forward, we want Vanchem to get to a sustainable rate of 180 mtV per month and for Vametco to operate at the Circuit 200 mtV level for the rest of the year. In order to improve the group's profitability, I will be focusing on various cost contained initiatives in parallel to the two initiatives above. I'll now pause and open the line for questions.

[Operator Instructions] First question today is coming from Marina Calero calling from RBC Capital Markets.

I just have a quick question about operational performance. You have improved materially in the third quarter. With the knowledge you have now on the progress that we've made today, what would you say are the steady-state production levels for Vametco and Vanchem?

Sure. The line is really bad on this side. I tell you what I heard and maybe, George, you can assist us. It was around operational performance. And I think the question was around what do we think the steady state of operation is for Vanchem and Vametco. Did I hear the question correctly?

Yes, that's correct.

So the immediate steady state for us for Vanchem is 180 mtV. That was the target for our turnaround initiatives. It was sad for us in August that we did 175 mtV and not 180 mtV because we lost 2 days due to power outages. Had that not been the case, we would have got to 180 mtV. I would be pleased if we could sustainably do 180 mtV for the last 3 months of the year. We are looking at other initiatives as well, potentially different all synergies with the [high sell steel], that's the new owners of -- by SPR. When those synergies start to bear fruit, we'll be looking at numbers north of that. But until we implement those additional initiatives, steady state in the short term between now and the new will be 180 mtV for Vanchem. Over Vametco, we've just finished some of the work on the temporary arrangement with the SPR and freeing up some more headroom of the Barren Dam and a few other initiatives there, which again, steady state for that would be between now and the end of the year, 200 mtV. We will, in parallel to that, run an exercise on a pre-feasibility study to determine what needs to be done to take it up to the next level. But only once we've done that investment appraisal analysis to determine if it's worth spending additional CapEx to get numbers north of that, will we change our steady state. So in the short term, 200 mtV for Vametco. I hope that answers your question.

We'll now go to Nick Chalmers from ARC.

Question on the convertible loan note refinancing. What are the key remaining hurdles that need to be overcome before that restructuring closes? And given that the -- at least the equity component of that 7-point transaction is, to some degree, contingent on that CLN refinancing closing. Can we conclude that you're targeting completing the first parts of that transaction by the end of this year? Or is there a risk that, that moves into next year.

Tanya do you want to take that, please?

Nick, all hands, Nick, are on deck to complete this transaction this side of Christmas. The Orion transaction is due end of December this year. So it's important and just that [ tweaking ] that we have shown there. I mean I think a couple of points, obviously, a Going Concern that we talk about is really around Orion. So it's important that we do complete that beside. And I think that's something that the market is quite aware of. And then the [teeming] of the pricing that SPR will come in with a $12.5 million at the same price as Orion, any way, links those two. Orion is an important partner to our business. And therefore, even as we do the SPR transaction, it's important that we are walking alongside each other. So the thing that we're really focusing now is documentation with both Orion and with SPR as far as the second aspect, the 50% disposal to Orion and then the equity component.

Okay. sorry, as far as the SPR transaction goes then, is it -- do you envisage the equity component of that, the $12.5 million and the sale of 50% of your interest in Vanchem, are they sort of going to happen concurrently?

They're all happening in the same side of this year, yes. We're working on everything at the same time. I can't give you specific around the exact date to say this one is happening today. The next one, tomorrow [indiscernible]. It's being worked at the same time, Yes.

It's absolutely correct. We're working on everything simultaneously. But in terms of the sequencing of those events, what we like to see is the sale of Vanchem happen first, and that's absolutely aligned with SPR, followed thereafter with the Orion deal and shortly thereafter the SPR deal for obvious reasons because of the alignment of the share price. So we are working simultaneously but there's no reason why the Vanchem sale can't happen in advance of the Orion deal and the SPR deal. The last two need to happen very close together, but there's no reason why the other one can't happen sooner. And that's what we'll be pushing with the SPR guys. Thank you, Nick.

[Operator Instructions] We'll now move to Thomas Martin calling from BNP Paribas.

First of all, just a quick clarification. What's the Orion maturity date originally in November? And has it been moved back a month? And so -- any reasons around that?

Tanya, do you want to clarify that? It's actually December.