Bushveld Minerals Limited (BMN) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the Bushveld Minerals Limited Interim Results Investor Presentation. [Operator Instructions]. Given the attendance on today's call, the company may not be in a position to answer every question received in the meeting itself, however the company can review your questions submitted today, and we'll publish those responses on the Investor Meet Company platform. Before we begin, we'd like to submit the following poll. And if you could expect your kind attention, I'm sure that the company would be most grateful. I'd now like to hand over to CEO, Craig Coltman. Good morning.

And good morning to all, and welcome to the presentation covering our interim results for the 6 months ended June 2023. Let me begin on Slide #3. A few words on where we are with some of the initiatives we spoke about at a recent quarterly call. Firstly, the improvement measures implemented at Vanchem early in my tenure or starting to bear fruit. Vanchem produced 160 metric ton volume in July and very pleasing 175 in August 2023. It was a bit a sweet moment because our initiative was to do 180 that we lost 2 days due to a power dip with the Eskom. Nevertheless, this represents a 63% improvement in production over the monthly average for the first 6 months of the year with August, making it the highest production month since Bushveld Minerals took over this asset in 2019. And of course, very 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 this monthly rate of at least 180 mtV by the end of 2023. We maintain our revised production guidance of between 3,700 and 3,900 mtV, supported by the improved operational performance at Vanchem. In regard to financing, we continue to target the closing of the Orion transaction by December 2023. Concurrently, the Southern Point Resources deal we are working towards will put us in a much stronger financial position going forward. On that front, we have now received the approximate $8 million in working capital funds, which forms part of that transaction. The 2023, first half results for the period, we produced 1.784 metric volume tonne. That's 9% higher than a year ago. We also continued to sell down inventories, resulting in just over 2,000 metric per tonnes sold during that period. The cost per unit sold was in the order of $33 per kilogram representing 12% decrease relative to the prior year, primarily as a result of higher sales volume and a weaker grand dollar exchange rate. The adjusted EBITDA profit was down 34. [Technical Difficulty]

Okay. Please do bear with me just one while I reconnect the company. Just bear with me for one moment. Craig, can you hear me, okay? We lost you for a moment and say, yes, we lost you, but you're now back if you would mind.

I don't have the screen in front of us, but I've got a laptop. So...

Just continue and just tell me when to change the slides. I ensure investors are on the right page. We're currently on Slide 3, H1 2023 Performance. Craig, can you hear me there? Gentlemen, just bear with me, just one second. Just give me one second there, please. Thank you. Let me just request control, and I can bring you back in. Thank you very much indeed. I can hear you, Craig, yes. If we do lose your again, Craig, I have sent [indiscernible] the dial-in details just as a backup, if you fail again. But we're on Slide 3, H1 '23 Performance and '22 -- '23 update. If I could ask you to carry on and you take it from here, I'll change the slides if you can't see them in front of you.

Very good. We should be good. We just picked over the generators on things like that as there was scheduled load shedding. I was saying earlier, it's the only country I know we're here in South Africa, we share electricity. So thank you for being -- bearing with us. I was saying that the adjusted EBITDA was down 34% in the order of $10 million due to a lower realized price and increased cost of sales and other operating costs. In regard to cash and cash equivalents, we ended the first half of the year with $3.7 million. As mentioned, we are continuing to make progress on both the Orion restructuring and the Southern Point transaction. We plan to complete this by the end of the year, which is the due date completion of these transactions will really help strengthen the company's balance sheet, reduce debt and allow us to continue with focusing on the business. If I move on to Slide 4, the group production performance. I spoke about the really good results with Vanchem. We did shut down the Vanchem kiln for 8 days in September for some much needed maintenance. When I last spoke to you, the plan was to do production in July and August and have a shutdown in September. We took a calculated risk and we continue to [ sweap ] the asset but we had a hotspot on the kiln, and it was wise to shut it down, and we spent 8 days on realigning that section of the kiln. We are waiting a full report on that, but the view from the production guys is -- this will enable us now to continue to Q1 2024. So we originally had a shutdown of about 3 weeks in the latter part of this year. That appears not to be necessary so we can claw back some of that time there. We definitely need that to demonstrate ongoing credibility of sustainable production, particularly at Vanchem, we're going to be doing in the order of 120, 130 mtV, Vanchem for the month of September. But as I said when I spoke to you previously, we were going to do a shutdown in October. That's no longer necessary. We believe, given what's been done at the Kiln-1, we can push through to Q1 2024. At Vanchem, July's production was 132 mtV. This was due to various things, unexpected high rainfalls, et cetera. We had stoppages in the plant, particularly problems around the sulfatic recovery plant. We had some Barren Dam issues. These have been addressed largely. We did a 215 mtV in August against a target of 200. Whilst we've made good progress with the sulfur recovery plant performance of Barren Dam, we have experienced some reliability issues with the leach processing in early September. We'll do 180 mtV for September and then back on to the target of 200 mtV monthly run rate going forward. And then lastly, our efforts to maximize capital allocation efficiencies, reduce costs and continue on this journey of trying to simplify our business. The company has reassessed the merits of pursuing the mining right application associated with the Brits project, and we've concluded that it's no longer going to be pursued. I mean with Vametco having a conservative light of mine estimate in excess of 30 years, the company wants to focus on its efforts on assets we are really secured. Moving on to Slide 5 on the income statement. I think the waterfall chart does a good job refers to the factors that have impacted the adjusted EBITDA for the period. You can see that the big contributors to the $12 million net loss with the increased financing costs of around about $7 million. This was primarily due to the Orion production financing agreement in the Orion convertible low net and of course, 300-- just over $3 million of other losses which relate to some fair value adjustments we need to recognize as a result of the unfortunate must save convertible loan notes. Slide 6 talks about the group's total costs, where the unit per sold for the half year represents in the order of [ $33 million ] is a 12% improvement relative to the prior year. Looking at Slide 7, cash flow. You'll see in 6 months period, the group had a cash outflow from operating activities of $0.9 million compared to $8.7 million in the prior year. You notice the capital expenditure was almost half of that in the period of 2022. I'll get on to that a bit later at the end around the risks around decreased expenditure and the impact that could have on planned maintenance going forward. Slide 8, the total net debt. Our total debt of on the order of $94 million increased by $4 million compared to the previous year, primarily due to the capitalization of the interest on the Orion convertible alone. This again reinforces the importance of the continued efforts of the Southern Point Resources transaction, the funding from which will provide much-needed opportunity to degear our balance sheet by retiring either part or the entire financing instruments, we're still working on what is the best scenario for that. Looking at Slide 9 and looking at the future of the second half before I take some questions. We've announced 2 significant financial transactions in recent months, both the Orion and the Southern Point Resources. We have a deadline in December for Orion and we are confident we will make significant progress on the Southern Point Resources transaction. On that note, we don't have to wait for the sale of the Vanchem, the $20-odd million until then, both Southern Resources and ourselves are keen to get that done asap. They keen to come in and be a partner in Vanchem and start enjoying some of the fruits of that initiative. So that's first up in the sequencing of events. I mentioned that we're maintaining our production guidance of 3,700 to 3,900 for the year. Moving forward, we had to get Vanchem to the sustainable rate of 180 mtV that I referred to earlier and for the Vametco to operate at the order of 200 mtV for at least the rest of the year. In order to improve the group's profitability, in addition to running these initiatives and resolving the financing issues, I'm going to be focusing on various cost containment initiatives in parallel to the initiatives I've already explained. I'll now pause to take questions.

That's great. Great. Thank you very much indeed for updating investors this morning. [Operator Instructions], but just while we review those questions. I'd like to remind you that a recording this presentation along with a copy of the slides and the Q&A can be accessed via your investor meet company dashboard. Craig, we did receive a number of presubmitted questions from investors. So firstly, thank you to everybody for your engagement and for those submitting them as we speak. But Craig, if I could the Q&A off maybe with a few of those that were presubmitted. Is it time for more changes to the staff and board members?

I cannot comment on the board. But what I can say is that my engagement with the Board, they are really very committed to turning this business around and making sure that we have a self-sustainable company that is future fit, I mentioned the cost saving initiatives earlier. We will be doing an organizational redesign. We're in the early stages of kicking that off. We'll be addressing some of the low-hanging fruit and we'll identify what this organization needs in terms of an org structure to be future fit to ensure we have a self-standing business going forward.

That's great. Let's turn to the next question. We were told in 2018 that Vametco has successfully implemented its Phase II expansion project to achieve 3,750 mtV can -- why can't the plant now achieve this?

I can't comment on targets and decisions that were made by previous management. But what I can say is that Vametco, we are targeting for now a monthly steady stage production of 200 mtV and 180 mtV for Vanchem. I'll continue to focus on achieving efficiency and making sure that any production increases we achieved are sustainable and profitable. I'm very keen to grow this business and grow production throughput. But we can't just grow for the sake of growing. We've got to do it in a manner that's sustainable and profitable. Thank you.

Okay. Let's turn to the third question here. What are the chances of any of the VRFB companies signing offtake agreements with BELCO? And what is the forecasted production volumes for 2024?

As mentioned in the interims, we've been sending batches of electrolyte to a few international customers in an effort to qualify BELCO as an approved supply. That only happened a week or so ago more than half a dozen to start of it. The first batch actually arrives in Singapore tomorrow. So we're on line with what was previously shared. The qualification process involves exchanging initial samples in the order of 5 liters with corresponding analysis that can take 1 or 2 months. Some customers may qualify us immediately. Some may, after the process, request further volumes between 5,000 and 10,000 liters to ensure that our electrolyte meets the appropriate standard. This will take a further 2 to 3 months in the qualification process. This is because there's no global electrolyte stand. Every VRFB manufacturer as the Vanadium specification and thus, BELCO needs to qualify and meet with each of them. Production will be dependent next year on contracts that have still been secured. As I said previously, this could take us to early December before we've got a good sense of how good our product is and whether we've got some really good customers out there. So we're on track with what I shared previously, be able to give more reassurance in either way, whether we have to scratch to have a BELCO that can provide the needs of customers in 2024. Thank you.

Question here around the former CEO. Why is the former CEO still allowed to benefit by renting office space to us. It was notable in the results that he had increased the rent last year while shareholders suffered losses.

Yes, it's a fair question. I mean I think the observation that the rental was over the top is a correct assumption. All I can do is make sure that I have a market-related agreement in terms of rental, whether it's owned by whoever. What I can tell you that with effect from August, the first of August, we signed a new agreement which is 1/3 less than the rental we were paying in July. It's closer to the 2018 numbers. And in South Africa, we run at 7.5%, 8% inflation. So the rental agreement, 1 August, I can assure you is 1/3 less than what we were paying previously, with no increase in 2024. And for me, that's a good enough arms length agreement that's in the benefit of Bushveld Minerals.

Okay. Next question. South Africa is a member of the BRICS Nations. Does Craig see future opportunities for Bushveld Minerals in this massive market?

I mean we would consider most markets, any market, as long as it makes economic sense and that we can achieve the highest premium for our products. There's no secret why we sell 50% of our products in the U.S. today because we get a 5% premium to other countries. So as long as it makes, you know, economic sense, we'll certainly look at that market. Thank you.

Are there any more bad financial surprises to come in the next year? I don't know what you can stay within respect to forecast and stuff, but if there's any color on that, that would be great.

Yes. Before I address that question head on and tell you what could be coming down the line. I think it's important to understand the we did release our H1 '23 financial report and provided some update on the 6 months and an outlook for the rest of the year. Our key priorities for the year is meeting production, cost targets and is doing the factors that are in our control are managed effectively as possible. I don't want to labor the point around Vanchem 180, Vametco 200, we've got to keep ensuring that, that's a sustainable deliverable for our own confidence and credibility within various stakeholders. We've spoken about the recovery part in the Barren Dam. That's starting to bed down, and I'm much more comfortable with that. Don't underestimate the importance of the Orion and SPR transactions, which are very aligned in terms of timing other than the sale of Vanchem, which I said earlier could happen much sooner. But whether it's the second half of this year or next year, there's no obvious cash losses that I'm concerned about, but there's a very likelihood of an impairment in the order of $50 million for the Mokopane mine. The value that sits in our accounting books in terms of its accounting carrying value versus what it will be sold as very different. And that's in the order of $50 million. Now we can only do the impairment once the sale materialize. I think the sales in the order of $3.5 million for the -- for our 64% share of Mokopane. Whilst the sale of Vanchem itself is a lot simpler, the sale of Mokopane has a couple of other little nuances. They are minority interests, and there is some right of first refusal, et cetera, et cetera. So there are a few issues that need to be resolved, not big money in the bigger scheme of the sale. But when that sale gets concluded, and the SPR guys are dealing with those with the loyalty shareholders as we speak. We've had 1 or 2 issues with them, and we're resolving a couple of them -- issues that are not insurmountable. But when that sale happens, whether it's this year or next year, we've got to recognize a $50 million impairment. It's not a cash issue, but I'm just raising it. It is an accounting issue. So hope that answers the question as direct as I can.

That's great. Thank you, Craig. Please you tell investors why no one wants to be RFPs in SA in South Africa despite the energy challenges and the favorable conditions allowed by government regarding self-generation?

Yes. I wouldn't say that nobody wants it. There's a very low uptake and very low demand. I think one could understand that the RFPs customers are generally large commercial businesses. That's the customers. They don't play in the small than private space. And we've had severe load shedding in South Africa many years. So the majority of your private large commercial business have already got their energy solutions with lithium batteries and solar panels. They've had to survive. The mining industry is a little different, and there is potential demand in the mining space for these batteries, the VRFB batteries. But the mining industry, I think they're still weighing up options. I think the position at -- with the solar at a mini grid at Vametco gives an example of where it does, and we do to become fully operational by the end of the year on that set up. Can we still with them? Good. When that gets completed with that 10% of Vametco electricity will come from there. So there are examples, but they're small pockets of examples. It's also worthwhile noting that the CellCube is the entity that has the opportunity to sell into whatever market it is including South Africa. But we don't have a controlling interest CellCube. Garnet do. And as a matter of fact, Garnet were out here last week, in South Africa looking at opportunities. So let's watch this space..

That's great. Let's turn to the next question, Craig. Sorry to keep firing these in that year, we did receive a number of questions. So the next one is as follows. Does Craig see Bushveld exceeding the previous reduced production guidance?

Yes. I mean I think it's realistic, we are reliant on Vanchem delivering the 180 mtV. We've done 130-ish this month, but I spoke about the fact we don't do the -- what -- it's unlikely we're going to do the shutdown in October so we can call back a bit there. I think the guidance is as realistic today as it was when I first shared that guidance because the plan to deliver on those guidance are starting to bear fruit. So it's as realistic as can be.

How will Craig use the recent SRP investment? What key areas will that be focused on?

Yes. As we've already disclosed the market, when we concluded the proposed package will provide interim working capital. We've got that already. It's an opportunity to retire some part of certain existing financing arrangements. And we're prioritizing that as we speak, including the -- replacing the existing groups working capital arrangement with Wogan. And of course, there's also an opportunity to evaluate the business case to recommission Vanchem's Kiln-1 as part of our capital prioritization initiative. But I've got to emphasize it presents an opportunity to evaluate the business case. I'm not saying we're going to do Kiln-1. I think there are some quarters that want to do it anyway. I don't support that approach to investment. We need to do the proper investment appraisal first. But now I can initiate the pre-feasibility study on Kiln-1. So that when we all done and dusted, we got the funds in, we are further down the track in terms of understanding the business opportunities for Kiln-1, that's one of the expansion projects that may or may not materialize when some convinced or otherwise, that is certain appropriate investment. Thank you.

Turning to the next question, if I may. Has Craig got an update on when he will be purchasing Bushveld shares?

I'd love to purchase asap. But I'm an insider, I mean it appears I can't buy share is very frustrating for me for obvious reasons. We've got to conclude the Orion deal at a certain share price. I mean, to be direct, if I could use my entire proceeds of my salary that I've got since I've been the CEO since the first of July, I used it all up, but I can't do so right now, very frustrating.

Okay. Let's turn to the next one. Do we have an update on Mustang Energy's position in Enerox?

I mean we can't comment on Mustang's position. Mustang have to provide their updates as they see fit. The latest news is that as a result of Mustang not being readmitted to the trading by the deadline of 31 July this year. Garnet exercised its option to increase its shareholding in CellCube 60% and committed to investing a further $3.25 million to support the company in the short term due to these events, alternative options are being considered by Bushveld Energy, the decision is imminent, and an announcement will be made in this regard in due course.