From Iron to Vametco

Alfacomp

10 May 2017

For those only recently of, or who consider joining, this parish there may be some questions as to what happens now ? Now that Bushveld has bought a Vanadium plant and transitioned from being just an explorer to a junior miner (Mar 2017 – Mining weekly article)

But perhaps first a little history about Bushveld Minerals (BMN)…

Mokopane Iron Deposits in the Bushveld Igneous Complex

The bushveld igneous complex (BIC – Wikipedia) is a very large igneous outcrop north of Johannesburg, SA that contains some of the richest ore deposits on Earth. It  has a shape like a bowl that emerges at the surface in a number of places as part of a ring some 300 km in diameter around pretoria.

Back in 2012 our Mokopane license areas in the northern limb of the BIC (Map of BIC) were identified by the BM directors Fortune Mojapelo and Anthony Viljoen as a potential world class Iron ore(magnetitie) resource containing over 600 Million Tonnes of magnetitie (iron at 33% concentration). (Feb 2012 – Presentation)

They were guided to this remarkable site by Professors Richard and Morris Viljoen (well known geologists and editors of Africa’s Top geological Sites) who remain as key technical advisors to BMN to this day.

In 2012, when the iron ore price was 140 USD per tonne it was planned that production might begin on an iron mine at this site in 2015.  In early 2013 the Iron Ore resource estimate was increased to more than 800 Million Tonnes, together with significant Titanium and Vanadium ores being identified (Feb 2013 – Presentation at Indaba)

However in mid 2013 the iron ore price started dropping and subsequently fell from 140 USD per tonne to only 40 USD (just 28% of the value) at the start of 2016.

Iron Ore 2012-2017 – Price in USD per Tonne

Mokopane Vanadium and Phosphate Deposits Identified

This fall in commodity prices would have completely stymied most Iron explorers, but the incredibly rich nature of the Bushveld Complex meant that BMN were able to consider both Vanadium and Titanium as alternative outputs from the Mokopane sites.

In November 2013 Bushveld Minerals unveiled the additional strategy for the extraction of Vanadium at Mokopane, now that the Vanadium deposits there had been established as being of world-class quality – two rich layers in excess of 1.2% purity which combined with the lower purity ‘hanging wall’ layer gave potentially the world’s second large Vanadium resource (Nov 2013 – Presentation)

At the same time in late 2013 it became clear that BMN was also the majority shareholder in Lemur resources, a listed (Australian ASX) company founded by Fortune and Anthony, which had, and still has, its flagship project as the Imaloto thermal coal Mine in Madagascar, and at the time also had approximately AUD17 million cash in the bank. Lemur will reenter the story later on but as we shall see not for its coal.

In Mid 2014 (Jul 2014 – Presentation) the estimated Mokopane Iron ore deposits were again increased, now to 939 Million Tonnes of magnetitie, contains 33% Iron and 11% Titanium dioxide. Plus a new layer of potentially up to 440 Million Tonnes of Phosphate (P2O5) at 3.6% concentration.  In the same field Vanadium was confirmed in a number of layers at concentrations of up to 1.5%, making it the highest purtiy grade anywhere in the world – just this layer (MML) could yield more than 50 Million tonnes of ore at 1.5% V2O5, plus the lower quality ‘Hanging-Wall’ layer could yield 250 Million Tonnes at approx 0.35% purity.

At this point it was estimated that a 1 Million tonne (ore) per annum mine could yield 10,350 tonnes of pure V2O5 flakes per year. The estimates showed that it would cost just under USD 6,000 per tonne to produce, but could sell for more than USD 15,000 per tonne. To make the 90 million dollars per year estimated profit would require investment to build the mine of some USD 260 Million, so even at this stage the Vanadium project certainly seemed cost-effective.

What to do in a commodity downturn – buy your competitors !

The trouble was that 2014 was right in the middle of a commodity price downturn (‘ Commodities prices sink to five-year low’ – 2014 – FT article). So BMN had a choice – they could hang around waiting for the commodity cycle to kick back up, or they could take the initiative. They clearly took the latter course of action by increasing the company’s stake in Lemur, and launching a share buyback, as at that point the share price of Lemur did not reflect the company’s cash holding. At this point it may not have been clear what the long term strategy was for Lemur.

In May 2015 Bushveld announced a takeover offer for Lemur, which was extended in July and then completed in August that year. Was Bushveld only keen to acquire Lemur because its cash pile was greater than its cost (the Imaloto coal project basically came for free) or were there other more strategic reasons?

Indeed there were smart reasons behind the acquisition of Lemur, which became apparent also in August 2015, when it was announced that Lemur (now effectively fully owned by Bushveld Minerals) had agreed to buy a Vanadium Project ‘in close proximity to the Vametco operations owned by Evraz Group’ near the town of Brits , close to Pretoria and on the Eastern Limb of the BIC. Evidently BMN and Lemur had been working on this for some time, having loaned the previous owners of the Brits project, Sable Metals, some ZAR 2.0 million in March that year, whilst due diligence was undertaken. (A highly strategic initial investment which came to fruition when the Brits project was finally bought from Sable in November 2015.)

The Vametco Vanadium Mine (strip at top) and Processing Plant, the large diamond structure is the spoil heap

Evraz’s Vanadium Mine and Processing Plant – Vametco

This is the first time that Vametco enters the BMN story – then owned by Evraz (of Roman Abramovich fame) it had its own mine and processing plant specifically for Vanadium and the more valuable patented Nitrovan (V2N), used in steel strengthening, and could produce approximately 2400 tonnes of Vanadium equivalent a year at a gross profit of some USD 36.5 Million. In South Africa Evraz also owned the large Evraz Highveld Steel plant which they had been losing money on and had tried to sell in 2013  – but that sale fell through (Jul 2013 – Business Insider Article). Evraz Highveld could not be rescued and shut in February 2016 (Feb 2016 – SAB News Article) – so Evraz decided to quit SA completely.

However Vametco was and is highly profitable which is why it is the very last element of Evraz’s assets to be sold off – but why sell it off at all if it makes money ?

Answer – The Brits project is not just ‘in close proximity’ to Vametco, it is right next door – a continuation of the very same strike that Vametco currently mines itself. As the Vametco mine is of limited life Evraz needed some way to increase the lifespan of the Vametco operation – they had even tried to buy the Sable Metals Brits project. Fortunately for BMN we bought Sable first. With nobody else able to establish a viable source of ore to take Vametco forward Evraz basically had no choice but to sell to BMN.

Thus by remarkable foresight by the Board of Directors BMN has been able to leapfrog from being an explorer direct to being a major producer of a high value, and in fact patented (Nitrovan) commodity, together with a distribution network (Wogen announced march 2017) all for a tiny fraction of the cost involved in building a mine from scratch.

This article only conveys the personal opinion of the author. Whilst every effort is made to ensure the content is accurate, we cannot guarantee the accuracy of the data shown. This article does not constitute professional, financial or investment advice and must not be used as a basis for making investment decisions.

Site content is not authorised by the FCA and you are not safeguarded by the Investor Protection measures of the Financial Services and Markets Act 2000. See our full disclaimer