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