Vanadium wars with the price at multi-year lows #BMN #LGO

Vanadium wars with the price at multi-year lows #BMN #LGO

The author has long positions in shares discussed below.

Vanadium is a metal primarily used to strengthen steel. After a volatile couple of years, its price has plunged to multi-year lows.

Last week, I bought back into Bushveld Minerals which is an AIM-listed vanadium producer on the hope/expectation that vanadium prices were finally turning. Another investor pointed me towards Largo Resources. 

After doing some spreadsheet calculations it appeared that I could buy triple the production at Largo for only a 20% premium – bargain! Unfortunately, I failed to take into account the difference between VO25 and Ferro-vanadium – the pricing for each differs (as helpfully pointed out to me on Twitter).

This morning, I have attempted to do a proper comparison.

Note the below are purely my own calculations and thoughts – they’re not approved by either company and they could be riddled with errors!

One of the main reasons I’m interested in vanadium producers at depressed vanadium prices is to capture the upside if/when the vanadium price moves north.

I’ve therefore attempted to model what EBITDA could look like at increased vanadium prices:

Share price performance

Bushveld Minerals

(source: google)

Largo Resources

(source: google)

Bushveld hit a high at 48.4 pence on 16th November 2018 whereas Largo hit CAD$4.49 (both based on Google’s charts).

Bushveld’s share price has come down by about 55% whereas Largo’s is down by about 78%. Over the past five years if you’d bought the lows in either company you’d be up multiples but so far Bushveld has generated the best return for shareholders.

Crux interviews

Crux investors is fast becoming my favourite resource for company interviews and both companies have been interviewed:

Bushveld Minerals

Largo Resources

If and when the vanadium price turns, I believe both companies will offer material upside for investors. And while I generally prefer to buy companies based on their FCF, Bushveld’s asset base and VFRB exposure is highly compelling.

That being said, I’m happy to admit that I don’t know everything about the vanadium space and would welcome any comments below.

 

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  • comment-avatar

    Joel, good to see the sector receiving some attention and as an energy transition element and also an incredibly versatile element, it is a sector that is certainly worth researching further, Cheers.

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    Both are excellent companies with lower quartile production costs. Bushveld may make progress share price wise with or without increasing Vanadium prices owing to the VRFB exposure whereas the Largo share price will struggle if Vanadium prices remain suppressed. Both will rise on a Vanadium price rise but I suspect that Largo would outperform in that scenario as it is a purer play.

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    You fail to a knowledge that Bushveld is a whole lot more than just a miner and processor of vanadium 
    They own two processing facilities, they have the worlds largest high grade resources 
    They have an 84% subsidiary, Bushveld Energy who are spearheading the roll out of vanadium redox flow batteries, not only in their own right but through equity investment in perhaps the two leading VRFB developers/manufacturers being the Avalon RedT merger and Enerox.
    They are building an electrolyte manufacturing facility (trebling the value of vanadium), they have developed a flexible electrolyte leasing model, which is available to the whole market and they have off take agreements for electrolyte potentially in excess of current production.
    Production is targeted to increase three fold in the near to medium term and lastly they have created an investment platform to capitalise on further invest opportunities in the energy storage markets.

    MULTI FACETED AND A HEDGE AGAINST FALLING VANADIUM PRICES, EVERYTHING THAT LARGO ARENT!!

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