Full Year Results for the Period Ended 31 December 2020 & 2021 Guidance Update

Bushveld Minerals Limited (AIM: BMN), the AIM quoted, integrated primary vanadium producer and energy storage provider, with ownership of high-grade assets in South Africa, is pleased to announce its full year results for the year ended 31 December 2020 and an update on 2021 guidance.

Annual Report

The Annual Report for the year ended 31 December 2020 will be available on the Company’s website today at the following link: http://www.bushveldminerals.com/financial-reports/ . Physical copies of the Annual Report will be posted to shareholders who have elected to receive them, during the week commencing the 12th of July 2021. A further announcement will be made by the Company once hard copies of the Annual Report have been despatched to shareholders.

FY2020 Operational and Financial Highlights

• An improved safety record achieving a Total Injury Frequency Rate (“TIFR”) at Vametco of 18.21, an improvement of 22 per cent (2019: 23.49), and a TIFR of 5.26 at Vanchem.
• Record Group production of 3,631 mtV (2019: 2,931 mtV), primarily as a result of the inclusion of Vanchem for a full year.
• Record Group sales of 3,842 mtV (2019: 2,392 mtV), as a result of the full year contribution of sales volumes from Vanchem.
• Revenue of US$90.0 million, a 23 per cent reduction relative to 2019 (2019: US$116.5 million) as a result of a 52 per cent decline in the average realised price, partly offset by an increase in sales volumes.
• Group cost per unit sold of US$29/kgV (2019: US$37/kgV), reduction is supported by the dilution of fixed costs through the acquisition of Vanchem and increase in its production.
• EBITDA loss of US$14.9 million, (2019: US$32.6 million) largely due to a decline in vanadium prices, and partly offset by a reduction in other operating and administrative costs.
• Entered into a transaction with Orion Mine Finance under which we successfully secured US$65 million in funding. The financing provides support to the Group to achieve a steady state production run rate of between 5,000 mtVp.a. and 5,400 mtVp.a. by the end of 2022.
• Ended the year with cash and cash equivalents of US$50.5 million held at 31 December 2020 (2019: US$34.0 million).
• Continued progress in implementing the Company’s strategy in the growing stationary energy storage sector through Bushveld Energy:
  • Successfully completed investments in Vanadium Redox Flow Batteries Original Equipment Manufacturers Invinity Energy Systems plc (“Invinity”) and Cellcube.
  • Signed an electrolyte rental contract between Pivot Power, part of EDF Renewables, and Vanadium Electrolyte Rental Limited, a joint venture established with Invinity.

Post period events

• Group Unaudited cash and cash equivalent of approximately US$31.0 million as 27 June 2021.
• Successfully renegotiated the covenant testing terms required under the ZAR125 million Revolving Credit Facility (“RCF”).
  • Nedbank has agreed to waive the covenants for the June 2021 period and relax the December 2021 Group net debt to EBITDA ratio from 2.50 times to 4.0 times. A condition of the waiver is that the RCF is amortised by ZAR5 million (approximately US$0.3 million) per month from 6 August 2021, with a bullet payment of ZAR50 million (approximately US$3.4 million) due on the maturity date of 6 November 2022.
• Positive renegotiations with Duferco Participations Holding S.A (“Duferco”) on the remaining balance US$11.5 million of convertible balance, to result in US$5 million being payable in November 2021 and the remaining US$6.5 million being converted into Bushveld shares.
• Commenced construction of the 200 MWh electrolyte plant in June 2021.
• Monetised investment in Invinity and realised approximately US$13 million.

2020 Summary

2021 Guidance

Bushveld Vanadium

• Group production guidance revised to between 3,400 mtV and 3,600 mtV.
  • As reported in the Q1 2021 operational update, Vametco’s performance was impacted by slower than expected ramp up post the successful completion of the 35-day planned maintenance shutdown. There were more unforeseen mechanical breakdowns after start-up, followed by six-days of unprotected industrial action in April 2021. Due to this:
    • Vametco’s 2021 guidance has been revised to between 2,300 mtV and 2,400 mtV, previously between 2,700 mtV and 2,850 mtV.
    • Production cash cost (C1) has been revised to between US$23.7/kgV and US$24.20/kgV (ZAR339/kgV and ZAR345/kgV), previously US$20.0/kgV and US$21.30/kgV (ZAR320/kgV and ZAR340/kg).
• Due to delays in securing steel supplies for the Kiln 3 refurbishment schedule, Vanchem’s 2021 guidance has been revised to 1,100 mtV and 1,200 mtV, previously 1,400 mtV and 1,500 mtV.
• Production cash cost (C1) has been revised to between US$30.3/kgV and US$31.1/kgV (ZAR434/kgV and ZAR444/kgV) previously, between US$26.20/kgV and US$26.70/kgV (ZAR419/kgV and ZAR427/kg).
• Vamchem’s capital expenditure for the year associated with the refurbishment programme has been revised to US$11.3 million, previously US$15.7 million with most of the cost being ZAR-denominated.
• The Company is to grow its vanadium production to a production run rate of between 5,000 mtVp.a. and 5,400 mtVp.a. by the end of 2022, following completion of the refurbishment and ramp up of Kiln 3 at Vanchem, which is of a similar scale and capacity to Vametco, and will see Vanchem produce at an annual steady state production run rate 2,600 mtV.
• Pre-feasibility studies are under way at Vametco and Vanchem to increase Group production run rate to between 6,400 mtVp.a. and 6,800 mtVp.a. in the medium-term and to 8,400 mtVp.a. in the longer term. Completion of the studies in Q4 2021 will allow a capital efficient sequencing of the growth phases between Vametco and Vanchem.
• Implement the cost savings programme in order to achieve costs savings of approximately US$2.5 million to US$4 million per year, starting from 2022.

Bushveld Energy

• Progress construction of the electrolyte plant, with an initial 200 MWh capacity.
• Scale up the vanadium electrolyte rental product with new contracts.
• Support and fund the growth of Cellcube, together with the other shareholders.
• Attain financial close and commence construction of the Vametco hybrid mini-grid.

Group Capital Expenditure

• Capital expenditure expected for 2021 of approximately US$26.8 million, of which we have already spent US$8.6 million as at 31 May 2021, with most of the cost being Rand-denominated. The Capital expenditure includes the following
  • Vametco approximately US$6.0 million;
  • Vanchem approximately U$11.3 million; and
  • Bushveld Energy, approximately US$9.5 million, including the capital of Bushveld Electrolyte Company (“BELCO”), (principally funded by Bushveld Energy’s partial asset sales of its Invinity shares in H1 2021.)

Fortune Mojapelo, CEO of Bushveld Minerals Limited, commented:

“Following the completion of the Vanchem acquisition in November 2019, we began 2020 with a clear focus to integrate our operating assets, implement our new operating model designed to ensure adequate oversight over and extract the most synergies between our assets, even as we undertook the capital expansion projects to grow production at Vanchem and Vametco.

Yet early into the year the world found itself in the grip of a global COVID pandemic whose disruption of everything posed an existential threat to most businesses, ours included. Amidst the uncertainty and disruption that continues still, I am pleased to report that our comprehensive and agile response plan combined with the diligence and hard work of all Bushveld’s employees, helped us find the balance between keeping our employees safe and ensuring business continuity. Better still we were able to report record Group production thanks to the inclusion of Vanchem production for a full year..

While 2020 witnessed depressed vanadium prices, we believed, as we still do, that the market fundamentals for vanadium are robust and supportive of price upside. This market view underscored our conviction to complete the acquisition of Vanchem even in the midst of a declining price. I am especially grateful that our positive outlook for vanadium and primary producers is shared by Orion Mine Finance with whom we completed a US$65 million funding agreement at the end of 2020. The funding secures our near-term growth plans and strengthened our balance sheet as we were able to retire the Nedbank term loan and repay half of the Duferco Participations Holding S.A (“Duferco”) convertible loan note with cash and shares.

Notwithstanding the positive growth outlook for vanadium, operating conditions in 2020 were challenging as a consequence of not only a low price environment but also COVID-related disruptions to operations and global supply and logistics, significantly impacting production and costs. All of this contributed to a weak financial performance with a Group EBITDA loss of US$14.9 million. In this context, I am pleased that we have since successfully renegotiated the covenant testing terms required under the Nedbank ZAR125 million Revolving Credit Facility.

Our focus at an operational level is on attaining operational excellence at our assets. This is especially important at Vametco which has shown operational instability at the beginning of 2021. In this respect I am pleased to have welcomed Mr Francois Naude, who joined us at the start of 2021, as the Director of Operations. Supported by a sound technical team, Francois brings extensive operations turnaround experience and will play a key role in our quest to extract value from our operations.

Meanwhile, the need to prioritise operational stability at Vametco has necessitated a longer than usual 35 day maintenance shutdown in Q1 2021 and a downward revision of our targets for the plant’s operating metrics in line with historically observed performance metrics, resulting in an unfortunate downward revision of production guidance for 2021. This effort has also seen us launch a comprehensive Group-wide cost review exercise to drive improved unit cost performance.

Our commitment to organic production growth remains, not only for its revenue growth proposition but also for its contribution to lowering our unit costs. Yet, in a capital constrained environment we must sequence the multiple expansion initiatives in a way that prioritises the cheapest next vanadium unit in our expansion initiatives, while promoting stability at our operations. This is the subject of current pre-feasibility studies underway at both Vametco and Vanchem. We will provide details on the production path and expected capital expenditure once the studies are concluded, which we expect to complete in Q4 2021.

At Bushveld Energy, the Company made great strides in growing the awareness and commercial competitiveness of VRFBs as a viable energy storage alternative. Our strategy to invest in VRFB manufacturing, which is designed to be a catalyst for mobilising financing to build scale among VRFB Original Equipment Manufacturers, has also been fruitful. Our US$5 million investment in AIM-quoted Invinity, whose creation we facilitated in 2020, delivered immediate benefits. Invinity has won several important contracts and its share price rose by more than 300 per cent in 2020. We have since crystallised our position and realised a total of approximately US$13 million.

Despite the challenges of the Covid pandemic, progress continued on our mini-grid project at Vametco, where Cellcube has been selected to supply a 4 MWh VRFB for the project. The project will demonstrate the business case of self generation solutions using PVsolar and VRFB systems at a time when the South African government is creating a supportive regulatory environment for self-generation, including lifting the cap for such projects being developed without a generation licence to 100MW from 1MW a few years ago.

In 2020, we started a process of developing our sustainability strategy, which will focus on Environment, Social and Governance (“ESG”) principles. We will integrate material ESG considerations across the value chain into the business decision-making process; report on material ESG key performance indicators; and communicate a consistent message to stakeholders on key ESG commitments.

The successful acquisition of Vametco and Vanchem are important pillars in our brownfields growth strategy. With a combined acquisition cost for the two plants of approximately US$120 million and a growth capital expenditure of approximately US$30 million we now have the platform that will take the Group’s steady state production run rate to between 5,000 mtVp.a. and 5,400 mtVp.a, from the projects currently being executed, with further growth ahead as more capex is spent. As importantly, we have funded this growth since 2016 with limited equity financing (through equity placing, convertible and warrant instruments) (approximately US$60 million) while the balance came from cashflows generated by the operations and debt funding. Our task now is to match the capital efficiency we have demonstrated in growing our asset base with operational efficiency- realising their full production capacity and competitive cost position. We are up to the task.”