Bushveld Minerals Limited (BMN) Earnings Call Transcript & Summary

All right. I'm reading the questions on my screen now. So I read the questions out first. All right. Thank you. A change in process, forgive me. First question, are you going to continue to erode shareholders' value through the issuance of new shares? Or are you planning in the near future a share buyback? The equity raise is a much needed cash injection for Bushveld. The company first flagged its need for additional funding in the 2022 full year results and subsequently in the 2023 interim accounts. We were very mindful of wanting to mitigate the effect of dilution to shareholders and managed to raise the funding at a 33% premium to the share price. In terms of priorities, we are going to focus on the core assets of the business, which are Vametco and Vanchem; de-gear the balance sheet and implement sustainable cost-saving initiatives like the head-office restructuring, which we announced this morning. Buybacks will only be considered once the above priorities have been successfully executed and the business is at a steady state. And of course, it will be a function of the vanadium price, which you all probably know is very cyclical. The next question is, please provide an update on Lemur. Lemur is a noncore asset for us, and we're looking at ways to exit Lemur while creating value for our shareholders, as we announced with some of our other assets recently. We've been working at this, and we'll continue to work hard at it. I'm hoping to be able to provide an update in the coming months. Third question is, on the Investors Meeting on the 29th of September, craig said, "I would love to buy shares ASAP," and he's very frustrated he cannot due to inside information. He said he would use his entire salary to buy if he could. This was widely seen as a strong vote of confidence. And whilst a purchase is a personal decision, does Craig have a comment on why his allowed purchase in the placing was so small? And what message does that send given earlier comment? That's a very fair question. Thank you for raising it. I did say that I was committed to use the entire proceeds. It was about October last year when I said I'll use the net proceeds of the first 4-month salary to purchase shares, and I'm still committed to making those further purchases. My current uptake that I've subscribed to in the order of 833,000 equates to a little bit more than 60% of my total commitment. I remain committed to that comment I made on the 29th of September. Next question. When these various deals and placings were done, what assurance do investors have that at this level of dilution, there will be no more placings in the next 12 to 18 months at least? Firstly, as a company, we want to minimize and avoid unnecessary dilution for all shareholders. With the funding raised and the various initiatives we are implementing to reduce cost increase the company's production and profitability, I'm aiming for the company not to require any substantial funding for at least the next 24 months. Hopefully, we'll see a recovery in the vanadium price during 2024. Fifth question, one of the significant investment choices discussed earlier was the need to build a new Barren Dam. How long, assuming all packages are approved, will this take? And when could the bottleneck, if possible, be removed such to increase throughput? The Barren Dam will be executed through a phased approach, which will take approximately 2 years to build a full Barren Dam. However, the increased output that will be unconstrained will start to show in 2025 after the completion of the first phase. Question six, do you have a figure and timeframe in mind for the sales of essentially CellCube given the long-term high level of sunk cost? Should we expect to get more for our share of CellCube than we put in terms of the investment? As previously mentioned, we're exploring alternative options for Bushveld Energy. We, of course, would like to dispose of CellCube as soon as possible. However, we need to make sure we do so in a manner that creates the maximum value for our shareholders. We have engaged our brokers to kickstart the process, and they're in the process of rounding up potential buyers. An update on the process and sale price will be provided at the appropriate time. Next, is any relationship with Mustang now over? Bushveld holds in the order of 15% of Mustang issued share capital. Furthermore, as a result of this decision to undertake a broader sale process of Bushveld's interest in CellCube, we advised that we will not be signing a revised share exchange agreement with Mustang. I think that makes a very clear statement. Next, assuming samples are approved by customers, what percentage premium might we expect from the sale of electrolyte compared to current sale of vanadium byproducts? As mentioned in the Q3 operational update, a batch of electrolyte was produced to fulfill a small order and samples. These samples were distributed to 9 international customers in an attempt to qualify BELCO and its electrolyte with battery companies. We'll provide more information on BELCO's sale profile once suitable offtakes of the product are secured. What I can tell you is that of the 9 batches we sent out, 3 have come back and have approved BELCO as the preferred supplier of electrolyte, no orders forthcoming it. And 2 of the larger companies asked for additional volumes of electrolyte samples, 5,000 liters, which will be dispatched, and they will pay for that. I wouldn't classify that as an offtake, but that's where we are. So 5 in -- 3 in total have approved, another 2 have asked for more, bigger quantities of samples. The total premium percentage would depend significantly on the vanadium price and the individual sales contracts. Next, what are the company's projections regarding how continued global VRFB uptake will affect vanadium prices in the short, medium and long term? We rely on projections provided by independent research houses, most of which seem to have a positive outlook on VRFB. The proposed dilution in December is without knowing if the Orion deal is final and done, why should we vote for it without knowing the final picture? The final picture of the Orion restructuring was announced on 27th of November, and I'll try to do that by demonstrating what it looks like on Slide 8. We do not expect any changes to the terms and structure that we announced previously. As mentioned during the presentation, the restructuring of the Orion convertible loan is conditional, amongst other things, of the completion of the BE minority transaction and reserve bank approval as well as shareholder approval. Hence, neither the Orion restructuring nor the equity placing can close without shareholders approving these transactions. We encourage all shareholders to vote in favor of all resolutions. We've assessed all possible outcomes, various funding options and believe this is the best way to put the company on a strong footing going forward. Next question, what is the lowest all sustaining cost the company can achieve? We provided 2024 C1 production cash cost guidance of $26 to $27 range. We expect production cash guidance to decrease as we increase production over time. We currently do not provide all sustaining cost guidance. Previously, Craig stated that he would be working closely with former CEO, Fortune, on aspects outside the mining side. How is that going? Is Craig still working with Fortune? And if so, in what capacity? Is Fortune still on the payroll? I did make that statement. I didn't work closely with him for very long because given our stated intention to sell our interest in CellCube, we are no longer working with Fortune on any aspects of the business. There are no further payments to Fortune at this stage. Next question. We have been informed in the results of the book building RNS that sustaining CapEx next year is rising to $24 million at Vanchem and Vametco from just $7 million that we were guided in 2023. Is this due to a failure of previous management? And will this sort of be a once-off or an exception? I've discussed the expected capital spend on Slide 4 of the presentation and in prior answers. What is worth noting that what appears on Slide 4 is a 2-year window. But it's a good observation. It is about $12 million per annum, which is significantly higher than what we've done in the past. If you look at the average spend of Vametco over the last 4 years in the order of $3.5 million, and you take the average spend in 2023 for Vanchem, you will get to a number of about $6 million, $5.5 million to $6 million is what we've been spending on average on SIB. That is not sustainable. The bow wave is coming. But if you look at the projected CapEx over a period of 5 years and beyond, and when we start to normalize and those once-off bow wave SIB have got themselves through the system, the steady state would be for both operations in the order of $8 million, which is still 33% thereabout more than what we're currently spending or $2 million more than the average in recent years. But the $12 million we're spending in the next 2 years per annum is still, what's it, 50% up on what the steady end state would be. So the point is it's not in 1 year, it's over 2 years, but it's a good observation. It's very, very high. I can provide some color in terms of where the focus is, if necessary, but it's very, very necessary to do that to play catch up. The bow wave, I think I must have said it in the previous session, the bow wave was always going to come. We're now in a position to quantify the magnitude. Why are you expecting cash cost to remain relatively flat next year compared to this year when production is guided to be 10% or 15% higher? Spot on. It's the right question. Cash cost is expected to remain relatively flat next year due to, first of all, inflationary price increases. We're still scrubbing down some of the assumptions, but they're in the order of 9%, 10% inflation on various expensive critical spares, raw materials that are needed for the operation. Obviously, there's the relative increase in variable costs. But there's additional maintenance cost in order to ensure reliability of the plants. I can tell you, at Vametco that the maintenance budget, which is still to be approved, we're having a couple of iterations, is sitting at 30% more than it was in 2023. After you've dialed out inflation, it's still in excess of 20% more in real terms. But very, very necessary to get the assets up to an acceptable level of reliability and get the plant efficiency up to at least 80%. I must add, that's not planned forever. It's to address the bow wave of under investing in maintenance in prior years, and that will never taper back to where it was in 2023 or 2022, but to numbers at least half of what the increase we see in 2024. Question 15. With the tens of millions being spent on Vametco and Vanchem in 2024, what you envisage production will be for both assets in 2025? Will the cash cost reduce following these works? The use of proceeds outlined on Slide 4 is over a 2-year period. I mentioned that before. We provided group production and cash guidance for 2024. We've not yet provided guidance for 2025, but we expect production for 2025 to be significantly higher than 2024. And therefore, your 2025 unit cost will be noticeably lower than 2024 as well. When we've got that first phase of the Barren Dam constraint sorted, it's a 9-month window to do the first phase, we are planning to get the scope of work out there, inquiry, award the tenders and get going by very early Q2 2024 with a view of finishing it up by the end of 2024 and then have an unconstrained production environment in 2025. And having spent the necessary increase on maintenance in H1 2024 to get those assets up to an acceptable level of reliability, we have a year in 2025 which is completely unconstrained. And that we expect to achieve these improvements through the implementation of various initiatives and of course, the improved operational performance driven by those factors I've just mentioned and constraining our operation. That is all the questions that were pre-submitted. So the first question, I'm reading from a distance here. Apart from the reduction in headcount, what are the potential benefits of simplification of the group structure? What are the potential benefits? Yes, it's difficult to quantify when I haven't gone into the detail of the operations. But in my life, there's no doubt, complexity comes at additional cost, simplicity comes at reduced efficiencies. Whether it's the support services, the support services spend an immense amount of time, unnecessary amount of time on the energy business. It's going to take time to unwind. But when that's all done, I see a business that is focusing on the knitting. Just on our 2 operations, part of the restructuring of our business is moving away from what was typically, traditionally a centralized model to a decentralized model, where the operations, where as many people as you've got actually work and limit the operations, significantly easier to make people accountable and reward them if they do well, and just cleaning up that whole complexity around who is actually accountable between the operations and the corporate center will no doubt bring simpler, faster, more effective decision-making and stop some of the inertia that we face to make decisions and get on with the business. What I don't know yet is the size of the opportunity at the operations. I deliberately excluded the operations when we were looking at the corporate head-office in terms of opportunity. And I think it worked well because the focus has delivered good results, 40% reduction in positions that are no longer necessary. We will -- when the time is right, when we've got some stability, if the operations go through a similar exercise, to see what can be done to simplify things there and see what benefit. Maybe the last example I would mention around simplification. We've got 10x more supplies than we should have. We don't have half the suppliers we should on contract, and that brings complexity. Because end users run off and start buying their own goods and services at a premium. It comes late. You can't manage the expediting of goods. When you've got a sound contract in place with a preferred supplier, you've got service level agreements where goods and services arrive on time. If they don't, they're in default. That's another area of opportunity of further simplification that I think is going to bring benefit in terms of expediting spares timely, but also benefit of reducing our total spend on creditors. I hope that answers the question. What is happening to BE? Yes, well, as I said, the exercise for VRFB. Actually, we're looking for a buyer in that space. And part of the restructuring of the corporate center is the entire Bushveld Energy will no longer form part of the makeup of the corporate center. We want to do it in a responsible way. Other than what's in VRFB, actually, there's not a huge value accretion opportunity in the other side of deployment and things like that. But we're going to cut the umbilical. We're -- those part of the restructuring, there's no resources or activity going to be left in the energy side of this business. We'll do that over a period of time in the next -- in the first quarter of 2024. All the staff have been notified. It is what it is. We've got to stay myopic on the mining business. So energy won't be part of Bushveld's structure going forward. When will the mini-grid be operational? Yes. So the mini-grid is complete. The CellCube battery is up and running. All the panels are up there. We're running it at a small capacity. We could run it tomorrow at full capacity, which would generate 10% of Vametco's energy requirements. What we're waiting for, and it's the legal requirement, is for one of Eskom's outsourced service providers to provide us with a compliance certificate. We absolutely believe it's a matter of when rather than if. It's not a complicated issue. It's just trying to get this outsourced service provider of Eskom to come out, to do the test, give us the compliance certificate and we can get on with life. So for all intents and purposes, it's ready to operate and provide Vametco with the full 10% of the energy, which is always part of the original design. Just scroll, keep on scrolling. What's happening to BELCO? Sorry, I missed that one, okay. So BELCO, I said we went up to 9 international companies. Three have come back and have approved us. Not a great time to get approval, December, when the year is looming about commitments on potential offtake agreements. Two big organizations have asked us to send those additional liters. We wait for feedback. We haven't got any firm order commitments yet. And if nothing is forthcoming by the end of Q1, we're not going to fund this business' working capital forever, then we'd have to look at an alternative for BELCO as well. But everybody is shutting down at the moment. So we'll pick this up in the new year. We would all be delighted if we could get meaningful offtake agreements in place for serious quantum of electrolyte so we can celebrate success, but time will tell. So what is it? Just 5 of 9, about 50% of the companies we reached out to, have come back and responded to us. The others, not interested. So time will tell were those 3 that we've been given the nod formally and the other 2 that we've provided with significant quantums of electrolyte, assuming they approve us, whether there's any real orders in the making, time will tell. Just keep scrolling, please. Okay, stop there. What is an appropriate level of gearing or debt equity for the business following the restructuring of its capital base? A lot lower than it is now. Look, I mean, I think in the mining industry, which is so cyclical, you want to get into a position where your gearing is less than 50%. I've seen organizations. You can't time the cycle. That's the problem. If you're at the peak of the cycle, I think you can live with 80%. If you're at the bottom of the cycle, like we are now, you can't. And that's the challenge we find ourselves. I think to play it, I wouldn't say conservatively, but play it prudently, you want to have your debt-to-gearing ratio below 50%. That will go a long way to weather the storm when we get these cycles. Where does Craig see Bushveld Minerals in 5 years' time? Question from a long-term investor. We get out my crystal ball. So if you believe in the cycle that we've experienced before, we should be closer to $40 a kilogram. We're currently at about $30. So what's that? That's 25% up on where we are now. Based on our draft business plan, for every 10% improvement in the revenue, whether it's exchange rate or price, you add $20 million on to EBITDA, $20 million. So if we had $40 per kilogram versus $30, it adds, what's that, $50 million on to the bottom line. We will be printing money. I've said this before. This is a top line business. It's so, so sensitive to the revenue. And I've also said this. It's very difficult to make respectable levels of profitability at the current dollar per sales price. So I think that's the first assumption. If you're going to get that -- I mean, when I got here in sort of July, August, we're running at $35, $36, not inconceivable to get back to that in 5 years' time. So that's the first caveat. If we get on that journey to the projectile of $40, okay, we will be printing money to start with. But it would be irresponsible to merely rely on our current capacity because we're missing out on a huge opportunity. And I'd like to see us at volumes that are significantly higher than where we will be even in 2025, when we got an unconstrained view of unconstrained plan. I'm not -- and it would be irresponsible of me to say what that production outlook will look like. We've got Kiln 1 at Vanchem, which I'm told in its heyday was doing about 100 to 120 mtV per month. We have already kickstarted, you might have seen in Slide 8. I think there's $100,000 been earmarked for growth. That's for the pre-feasibility study on Kiln 1. Everybody tells me this is a dripping rose. This is going to be the best thing since sliced bread. But I'm never convinced until I see the bankable, feasible document. So that's a long way around of saying I see a Bushveld that's still focusing only on the mining business. So we don't take eye off a ball that has got revenue that is significantly more north of where we are now aided by the demand in vanadium. I see an environment where we have got significantly more capacity than we've got now. I want to qualify that again after we've done the pre-feasibility bankable document. And to me -- so that's the easy part. The challenge is to make sure that our base that we're developing for '23 and '24, let's call it '24 is got to be the new norm where we've got a much leaner CHQ and after we've got all the rightsizing and operational efficiencies in the operation, that becomes the new norm. You keep that. You be disciplined with that new norm. You see a business that's doing exceptionally well. Why is the kiln at Vanchem failing so soon after refurbishment? I'm not sure what refurbishment you're talking about and then how far back it was when we talk -- how many years back refurbishment has been referred to? What I can tell you is that the kiln needs to be realigned every year. And they use refabricated bricks, which is a high intensity heat brick. It needs to be done every 12 months, and it was slightly overdue in June of this year. And that's what we should have done. We didn't have any funds for it. But even if we did have funds for it, I wouldn't have supported it because we didn't have any credibility. We had to take the calculated risk of pushing it out and pushing it out and sweating the assets. It worked very well until the end of October, when we got to the 180 circa mtV, but we've had a few hotspots that are materializing too frequently. It's just run out of its useful period for realigning that kiln. We are limping along us, to be honest with you, but what we are doing now is bringing forward. I mean, when we did that relining in, I think it was done in November, can't remember, actually, I think. Yes. Anyway, it was 10 days, we had a shutdown unplanned, but very necessary shutdown to fix up a section of the -- the report we got from the preferred supplier is that there's a strong likelihood you can go through to Q1 -- to Q2 2024. And that's what we got in the business plan. That's not going to work. We're going to have to bring that forward. As soon as the contractors come back in January, second week of January, we're going to bring that entire shutdown forward and do it early. We've gone 7, 8 months beyond the designed period for relining. But I'm not sure if I'm answering your question properly because I'm not sure what period of refurbishment you're referring to. I'm only aware of what has happened since I've been here. Craig's response to the last question, still working with Fortune seems to have been disrupted. There was a pause for a few seconds and the presentation stream refreshed, and I didn't get to hear his entire response. Yes. So thank you for asking that question again. My response to the question on Fortune was, given that we've stated our intention to sell our interest in CellCube, I have not been working with Fortune on any aspects of the business for quite some time. And the other part was, is he on the payroll? And what I can absolutely confirm that there are no further payments to Fortune. What plans are there for due listing? No, it's not even on my radar. I mean it's on my radar at a 1,000 mile. But it's not -- I've got too many other things to focus on. Really, I've just got to focus on sustaining the business, getting the operational efficiencies. I mean I wouldn't even attempt to do that where we are right now. We haven't got the level of credibility yet. We've got to have more sustained performance and demonstrate that we're not out of the woods yet. So we're working very hard at it, and there are some really good stories to suggest that we're getting back to winning ways, but we're not there yet. And it's not something that I'm going to even consider until I can put my hand on heart and say absolutely, we've delivered and we've arrived, and we deserve a due listing. But until then, no. Any update on why Tanya left so abruptly? Well, she didn't leave, I suspended her because of a failure to declare a material conflict of interest. And the disciplinary hearing was supposed to happen at the latter part of December. She lives in London. It's important that she be here in person. She couldn't get here. So we're looking for a date as soon as possible in mid January where an independent an chairperson, which we are in the process of identifying through a professional service, will chair the meeting. That's about as much as I can say on the subject at this point in time. Will the sale proceeds of Bushveld Energy and CellCube go directly to -- go towards debt reduction? Yes. I mean we've got more than sufficient cash to do creditors, to do the payment of Orion in 2024 and 2025. So there's just additional funds that will come in. We'll use it for what -- when it materializes, we'll decide what is best for it to be used for. There's no burning need to get inflow from the sale of Bushveld Energy business to fund any debt. That's already been covered from positive EBITDA in 2024 and 2025. We know vanadium price is in the gutter. What is the current cash outflow per quarter? And how long can Bushveld survive with such prices before the vanadium price inevitably rises? So we've modeled our prices for 2024 on a value that's midpoint between what we saw in the October and November. So we've taken a, based on our intel, a fairly conservative view. Based on -- it's the midpoint between what we received actually for sales in between November and October, November being lower than October, which are -- and that's average for the whole year. It's slightly lower in the first quarter, and it gradually works up and gets to an average of a number that's very close to what we achieved between October and November. And even at that price, we've got noticeable positive EBITDA at the production numbers I shared with you earlier, 4,300 mtV. So as long as the numbers don't get significantly worse than that, we'll be able to have a positive outlook from an EBITDA perspective and cash flow. It's not enough, I must add, to fund the entire capital for next year, but certainly enough to keep us well above water, including all the payments to Orion in 2024 and 2025 and some in 2026. But by 2026, one would, if the trend is your friend, believe that, that price is going to be more reflective of where it was when I joined the company in July, $35, $36 north of that, then we'll be okay. The next question is, will the sale proceeds of Bushveld Energy and CellCube go towards debt reduction? I think I have answered. It's the same question as previously. Okay, we're done. Very good.

Yes. Perfect. Craig, thank you for that. I think we addressed all those questions from investors. And of course, the company will review all the questions submitted today and will probably save responses on the Investor Meet Company platform. But just before redirecting investors to provide you their feedback, which you know is particularly important for the company, Craig, can I just ask you for a few closing comments?

Yes, certainly. So I really hope that the presentation that I shared with you today demonstrates Bushveld's clear vision and solid operational framework. As we look ahead, we're confident in our ability to navigate the evolving market landscape and deliver long-term value. I'd like to thank all the shareholders that have supported us and continue to support the company. I hope this presentation provides you with all the information needed to support the resolutions placed forward at the general meeting coming up on the 27th of December. I thank you very much. Bye now.

Perfect. Craig, thank you once again for updating investors today. Could I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This can take a few moments to complete, but I'm sure it will be greatly valued by the company. On behalf of the management team, Bushveld Minerals Limited, we'd like to thank you for attending today's presentation, and good afternoon to you all.