Bushveld Minerals – Vanadium price crashing, I’m out! #BMN

Bushveld Minerals – Vanadium price crashing, I’m out! #BMN

On Friday I took the difficult decision to sell my entire BMN holding at about 30 pence. Having just bought some more shares at 39p a couple of weeks ago, it was hardly ideal timing. I looked at the Vanadium price on Thursday and it has dropped by 33% in a couple of weeks:

European prices for FerroVanadium (USD/KgV)

(Source: vanadiumprice.com)

Profitability reduced – my projections

Last year Bushveld generated revenues of $192.2 million selling at an average vanadium price of $81.2KgV. Underlying production costs were $19.7.

Bushveld has yet to provide market guidance on production for 2019. Assuming sales are maintained at the same level of 2573mtV, at a price of $50KgV:

  • Revenue = 50/80 = 0.625 * 192.2 million = $120 million in revenue
  • Production costs = $19.7 * 2573 mtV = $50 million
  • EBITDA = $120 million – $70 million
  • EBITDA into GBP = £53 million
Chart – cause for concern

(Source: TradingView)

I’ve highlighted two events on the chart.

Firstly, back in late March, you could buy Bushveld shares for sub 31 pence (intraday) and you can see from the volume that the shares were heavily bought into.

More recently, you can see that shares have been more heavily sold and that (so far) there has not been the same appetite to buy the shares. Were the shares to break below 30p, I suspect that they may drop significantly further as the fundamentals of Bushveld are completely different versus when Vanadium was over $100KgV.

Existing shareholders may view my projections as pessimistic about Vametco’s operation performance and the vanadium price. I’m also perhaps unfairly not ascribing any value to Bushveld Energy or the fact that Bushveld has world class vanadium resources.

At 31p (ask), Bushveld’s market cap is £347 million which means that on my projections Bushveld trades on about 7 times EBITDA. Assuming investment into Vametco and Bushveld Energy, my estimate is that Bushveld is currently on a P/E of about 10.

Given that I view South Africa as one of the worst possible investment destinations in the world, a 10x rating is too expensive for me. Bushveld is due to announce its dividend policy which is eagerly awaited by the market but given today’s cash generation I’m less enthused. However, I will continue to follow Bushveld closely and do hope to own the shares again in the future. I would look to purchase on, say, a 5x multiple whether due to a falling share price or an increase in the vanadium price.

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