Bushveld Minerals Limited (BMN) Earnings Call Transcript & Summary

Good day, and welcome to the Bushveld Minerals Third Quarter Operational Update. This meeting is being recorded. At this time, I would like to turn the conference over to Chief Executive Officer, Craig Coltman. Please go ahead, sir.

Thank you. Good afternoon, and welcome to the Bushveld Minerals Q3 and 9 months operational update, and thank you for joining. This has been a strong quarter for the company and I'm pleased with the progress we have made in improving stability, production efficiency and resulting costs. We will continue to prioritize this operational performance in order to deliver our target guidance providing a firm foundation from which we can build future growth. To get started with the production numbers. Group production for the quarter was up 19% relative to the previous quarter at 1,000 mtV. The group's production for the 9 months is up on that of last year at 2,784 mtV over the 2,657 mtV for the 9 months in 2022. While we have seen some constraints at Vametco in the sulfur recovery plant and challenges in the leach plant, we've also carried out some much-needed maintenance and look forward to seeing this increased reliability and monthly production of around 200 mtV for Vametco for the coming quarter. At Vanchem, we were pleased to see production increase by 100 mtV to 455 mtV for this quarter, owing to improved operational efficiency following the Vanchem turnaround project. The improved operational performance has continued into Q4 with Vametco producing 209 mtV and Vanchem produced 178 mtV during the month of October. This performance for Vanchem is a new record, but now the highest output production that Vanchem has achieved since Bushveld Minerals acquired the operation in 2019. Free cash costs for both the quarter and the 9 months are down to $26.50 per kilogram vanadium and $26.40 respectively. The improved cost position is underpinned by higher production volumes at Vanchem. Sales were down for the quarter, mostly because of the timing interval between product dispatch and arrival. However, sales are up on the 9-month mark over the same period last year at 2,945 mtV over the 2,678 mtV for the 9-month period in 2022. We maintain our guidance for 2023, and we are on track to meet production of between 3,700 mtV and 3,900 mtV and also on track to meet cost guidance. On September 11, 2023, the company announced a binding term sheet with Southern Point Resources for a cumulative investment of around $70 million to $77 million. Bushveld has subsequently since that announcement received its approximate $8 million interim working capital funds as part of this transaction, and the company is in the process of completing the other aspects of the overall transaction. I would also like to note that Bushveld has seen significant decrease in total recordable injury frequency rate of 5.69 over the 9-month period. This is more than a 50% reduction on that over the same period last year. I think these results are a testament to the increased control, health and safety measures now put into practice. We continue to progress the various work streams to complete the Orion convertible loan note restructuring before the deadline date of 21st of December 2023. Completion of these transactions will strengthen the company's balance sheet and ensure that Bushveld is in a sustainable position to take the business into the long term. Post period end, we've also completed the acquisition of 26% minority interest in Vametco held by Black Economic Empowerment Consortium, in return for circa 233 million shares in Bushveld, representing 13% of their large share capital. This transaction resulting in 100% ownership of the Vametco means that Bushveld will have full operational management and financial control of Vametco, an immediate value accretion action for the Bushveld shareholders. I'm going to pause now and take any questions.

[Operator Instructions] I will now take our first question from Marina Calero from RBC Capital Markets.

I have a question about your sales volumes for the year. It looks like there were low production numbers. When do you expect to sell this inventory [data]?

Somebody relay that question. It came to really poorly to the audio.

Is line now better?

Let's go again. Try gain, came through really, really soft the first time.

I was just asking about your sales volumes during the period. It looks like they came in below production numbers. I was wondering if you could give us more color about when you expect that inventory to result?

Yes. So -- it depends which quarter you're looking at. So the sales for the quarter were down, mainly that was just a timing difference between the interval between production and dispatch on arrival. So that's just a timing issue that will come into -- come into Q4 mostly. But of course, sales for the 9-month period was above budget. And sorry, budget, yes, but more so, it was better than what the 9-month period was for 2022. So there's a small timing difference for the quarter that will flow into the next period. Nothing that concerns me.

The next question comes from Thomas Martin from BNP Paribas Exane.

Hopefully, you can hear me okay. Firstly, just on production and guidance numbers. I think if we add up the sort of 9-month performance for your fourth quarter guidance. We're getting perhaps towards the top end of your guidance range, if the math correctly. So is there anything particularly concerned you keep looking into Q4 here? Who -- before they shut down to complete a Vanchem and I suppose that's always a risk until it's done. But is there anything else that we should be aware about when thinking about 4Q numbers?

Advance in less so, I mean, we have extended that film to plot shut down. It's supposed to have an annual shutdown every 12 months. That would have been July. So we're pushing that asset and sweating it a lot. The report suggests that we are okay to go to Q1 next year, but there's an element of risk. I mean we had the 9-day shutdown previous month. We weren't expecting this shutdown of 4 days now. But we -- I'm cautiously optimistic that from Vanchem perspective, we will deliver on the market guidance. I see my Chief Operating Officer is not on stage here. So I'm not too concerned about that. So we could quite easily get to the top end of the market guidance for Vanchem. Having said that, we don't have the plant maintenance systems in place that we want to get to by H1 next year. But as I say, okay, I don't have [ achieved], it's nice to have Vanchem achieving the market guidance. For Vametco, the actual kill, the leaching process right up front of the crushes, that's all okay. We've got to improve the plant maintenance, but that doesn't concern you at all. The biggest risk we got at Vametco is the Barren Dam, where we had fairly high levels. And if we get a significant amount of rain, that's a constraint for production for Vametco. We've only got 2 months ago. So we're looking okay. If we get average rainfalls, we'll get to the market guidance for Vametco. We'll keep stockpiling at the other end of the [indiscernible] and the leach process and we'll always catch up. But the biggest risk for me is lots of rain at Vametco and the Barren Dam when it gets to those high thresholds. We've got to find a way to keep the rail off. I mean we naturally evacuate by about centimeter a month. But if we could find a way to sum up, just keep the rain or another avenue to manage excessive rains. They will run, the home and drive, we'll get to the top end of Vametco's guidance as well. I'm actually going to the mine on Wednesday, and I'm going to spend a significant portion of that time looking at opportunities around some scenarios for the Barren Dam. That's a long answer. But we're pretty good, we should be pretty good to do the medium or top end of market guidance. But production guidance, the single biggest risk is the Barren Dam and the levels there. But based on previous trends, we're okay, and I am partially optimistic that we'll get to those market guidance we've shared in July and where we currently are pegging our output. That's a long way down, but I hope that answers your question.

Very clear and helpful. And I've got a couple of others if that's all right. On the -- just on that the time maintenance and the untimed maintenance you have, the 9 days and the 4 days, I guess, simplistically, time '25, 9 plus 4 is 13. So have you shifted a block of maintenance into next year? And I guess is there any reason to think the next year's maintenance program perhaps also related to the comments you made on preventive maintenance, is there any reason to think next year's maintenance programs might actually be longer than 25 days or something across the year?

So yes, the planned maintenance period for both the operations is longer than you would typically have. It's going to cost a little bit -- it's going to cost more. But in addition to that, we are looking at budget numbers and cash flow then. If there aren't any constraints, we'd like to put a lot more effort into getting the planned maintenance up to more -- to levels that will give us more confidence and that will take us for H1. The whole of H1 is a plan -- in addition to the planned shutdown is to do various improved maintenance across the operations. So we can get to a position where we can have more relies on consistent throughput. We don't have that at the moment. You can see that in the numbers. We lose a day, 2 or 3 years the leach process here, and we do maintenance where we can. But we want to get into a position where we can spend additional days for shutdowns. But then in addition to that, spend more time, effort and cash on planned maintenance during H1 of '24. As a matter of fact, when we've been looking at some of our production throughput numbers, looking at the maximum capacity we can do on some of these, on Vametco in particular. We've taken -- it's the first part. We've got to scrub these numbers. But we've gone for the higher end of production number for Vametco, but only for H2 next year, giving us an opportunity in H1 of next year to spend that much needed maintenance to get these -- the asset utilization up to more respectable levels of 75%, 80% on the kiln. So it's a staggered approach. We -- that doesn't mean to say we're going to be where we want to be with our planned maintenance program by December 2024, but we'll have a significant focused improvement on getting the plant and various assets up to a level of reliability, which is better than we are now. I hope that answers your question, if it doesn't please expand on anything further.

No, that's great. You've come out, I think, on the potentially maintained. So I think that would be -- if you can achieve what you're laying out here, I think it would be really excellent to be able to reduce Vanchem's downtime. Actually one, final one on pricing, actually. I guess, prices look like they follow maybe another sort of [indiscernible] [ that wasn't there ] since the Q3. You noted strong demand from your customers in your update. I guess I was wondering, I mean, -- is there any -- do you see any evidence of destocking from your customers? I was wondering if that was perhaps impacting the near-term pricing. But because you noted strong demand, I'm wondering if that's the real destocking? Do you think there's anything going on there? And I guess in the context of strong demand from the customers, prices are still falling. Do you have any insight as to how to square those two data points?

We don't have any evidence of destocking. I mean all the stock we're producing, we can sell. I mean, they are actually making us to produce a bit more because they can sell. We're doing everything we can from Vanchem where possible, we -- when it gets to an AMB stage, we've send it through Vametco to do additional [indiscernible] volume because that goes to the U.S. market. We get a premium on that. So no, I mean, we had quite an increase in production that will all be sold. There's a huge demand. We just got to get the volume to the levels where we can make a few newer dollars. And we're doing everything we can with various mixes and things. So it's all good from a demand perspective. Before that -- to go back to your previous point about preventative maintenance. So we had that mine day shut down the Kiln in -- for [maintenance], it was unplanned. We took a calculated risk to say we're going to run to keep sweating the asset. And when we finished that 9 day, and we heated it up it was about 6 meters of refabrication in the fuel. And this is an external service provider to -- that there's an 80% probability that we'll go through to Q1 next year. Well, it was probably about just sort of a month later. Just adjacent to where they refabricated the full last time with the 9 days, we had a hotspot again. So we took it up before days. It's up and running again. It had been up and running since Saturday. So this is the challenge when you're not doing preventative maintenance. But -- look, we're aware of it and it's a huge focus for us next year. And we've got to look at the numbers and the cash and all the other constraints we have got with prices that are depressed and things. But the plan is to spend a lot of time particularly in H1, getting the maintenance to improve to a position where we can get at least 5% more on this asset reliability. But that's a good example of the consequences of not doing preventive maintenance. So -- but we're aware that we got a plan and our production numbers next year are going to take cognizant of the fact that the first 6 months we'll do equal or better than we currently doing, but we've got to spend time, even money on getting the maintenance up to more acceptable levels. Because the size of the prize is huge. If you get 10% more production. That is a massive positive cash flow on the bottom, right. So -- we're aware of it. It's not ideal where we are now with these short unplanned shutdowns and refabricating the kiln. But we've got a plan. So I'm comfortable. Thank you.

Perfect. Sorry, can I just follow one -- very quick one on the back of that. Just to be absolutely clear, the 4 day shutdown, which in the release said is scheduled for November, that has now been completed, and it's all back up and running. Is that what I understood from you said?