Earnings Transcript for BMN.L - Q4 Fiscal Year 2023

Operator: Before we begin, I'd like to submit the following poll. And I'd now like to hand you over to Craig Coltman, CEO. Good afternoon to you, sir.

Craig Coltman: Good afternoon, and thank you all for joining this webcast today to discuss our full year results to end December. Alongside me today is CFO, Robbie Taylor, who joined us in January and has provided great support during a tough period for the company. Looking at Slide 4, before we look at the financials, let me set the scene a bit. As you know, I joined midway through the financial year under review with the company heavily beset by confidence of financial, operational and broader challenges. While I've been at the helm for a year, we as a team have worked incredibly hard in a relatively short space of time to deal with many of these challenges. Within days of arriving at Bushveld, the uphill task ahead for all of us was quite clear. Beyond the long-term debt position with Orion that had become current, we also owed creditors large sums of money, the majority of which was long overdue. To remedy this, we had to bolster our cash position and improve our working capital situation quickly, to ensure our credit period days were reduced and suppliers were more confident that they would be paid timelessly on supply of goods, thereby resulting in more reliable production. As you can see from the summary on the right of your screen, we instigated a number of transactions and initiatives to streamline the business and focus on our core assets. Of course, prior to my joining, refocusing our business objectives had already started on some of the issues facing the business, both financially and operationally. At an operational level, the load curtailment solution between Vanchem and the Emalahleni Municipality was agreed early in the year, providing a far more stable, predictable power feed to the kiln. On the financial front, the investment committee approved the term sheet for the Orion loan restructuring, which was announced in May 2023, a deal that was finalized in February 2024. While we're not quite there yet with a few loose ends remaining, we have made massive strides in becoming a simpler, faster, more effective company described on the left of the screen and primed to benefit from higher vanadium prices in the future. On Slide 5, you will see on the right the current priorities and the outstanding items required to achieve our targets and ultimately achieve a sustainable production at Vametco of circa 2,700 mtV per annum. These include executing the outstanding conditions on the Vanchem sale and drawdown on additional funding from SPR and Orion. In addition to commencing with the project to buttress the slimes dam, increasing the capacity of the Barren Dam at Vametco remains an important debottlenecking project that needs to be resolved. In terms of our 2023 performance, the main numbers to highlight here are the impairment we took, which mostly relates to the Mokopane's carrying amount compared with that of the sales price agreed, and to a lesser extent, an impairment loss recognized for Vanchem. My final slide before I pass on to Robbie to talk through the financials. Firstly, I'd like to say I'm pleased that we met the revised production guidance we announced post my joining and I'd like to use the opportunity to commend our workforce for achieving the level of operational performance in H2 2023 in particular given the cash flow challenges we faced. Whilst most of the numbers here have been reported previously, I'd emphasize the fact that with the financing secured, Vametco, now our principal asset, should steadily improve production as the year goes on to reach that 240 mtV a month by Q4 2024. I’ll now pass on to Robbie to go through the financials before we take some questions.

Robbie Taylor: Thanks very much, Craig. The big challenge for the year was the average selling price drop of 18%. We managed to offset the impact of this by increased sales of 13%, but that still left us down on total revenue at $137.5 million, which is a reduction of 7% on last year. This resulted in an underlying EBITDA loss of $7.5 million, made up of a $10.9 million drop in revenue and an increase in $18.9 million in costs, which I'll unpack on the next slide. After the impairment of $6 million, the adjusted EBITDA loss was $66.1 million, and the net loss for the year was $106.8 million. If we look at Slide 8, as you can see, there were several factors putting pressure on costs in the financial year. They included increases in raw material and energy prices, as well as staff costs. Further to this, sales for the year exceeded production, meaning that we sold stock that was produced in 2022. Consequently, we realized the cost of sale of such stock, and this accounts for the increased overall cost of sale. These costs increase -- these cost increases were partially offset by a decrease in the rand dollar exchange rate. On Slide 9, you can see we generated free cash flow of negative $9.4 million and ended the year with a cash and cash equivalent balance of $1.3 million. At the beginning of 2024, we completed the refinancing of the unsecured convertible loan notes issued to Orion, and we have recently amended the agreements to secure additional funding of $10 million and a deferment of the capital and interest repayments until December 2025, providing much needed relief to the cash flow. On slide 10, while you can see that the net debt grew by the end of 2023, the post-year-end announcement of the Orion financing arrangements I've just mentioned, along with the interim working capital facility from SPR announced on 7th of May, have provided working capital to fund ongoing operations. I'll now hand back over to Craig.

Craig Coltman: Thanks Robbie. To conclude, I wanted to put these near term key priorities back on the screen to remind everyone on some of the milestones to look at for the remainder of the year. Our immediate focus for the remainder of 2024 is to build on the aforementioned achievements and progress towards being a fast, effective mining company. It's imperative that we do business in a simple, fast, effective way. We aim to ensure that Vametco achieves operational stability and achieves a sustainable monthly production of circa 240 mtV by Q4 in addition to monitoring the slimes dam. We will continue aiming to reduce debt and implement cost saving measures. The disposal of the Energy and Lemur assets which should be completed in 2024 will further enhance our financial position. I must also thank Orion, SPR and all other shareholders for their support through this very difficult time. As mentioned at the start, we have taken big strides in focusing this business on the efficient production of vanadium for global markets. Thank you. We can now move to the questions.

Operator: Perfect. Craig, Robbie, thank you very much for your presentation. We have received a number of questions, both pre-submitted and live from investors. I'll start the Q&A session with the pre-submitted questions and maybe I'll hand over to you for the live ones, Craig. The first pre-submitted question reads as follows. South Africa is a member of the BRICS nations, which is growing with new member nations. In addition, they are de-dollarizing and trading in their own currencies. The future of Bushveld Minerals is in the east, not west. What does Craig think?

Craig Coltman: Yeah, interesting observation. While the global demand for vanadium products is heavily influenced by China in the East, Bushveld has long standing relationship with reliable partners in the West. As a company, we always review opportunities for attractive pricing elsewhere. However, we focus on selling our products to markets with the highest sustainable premium, which is currently in the United States and secondary in Europe, ensuring that we target the opportunities which deliver the highest premium on our products, guaranteeing the best value add for our shareholders.

Operator: Thank you very much. The next question here. As CEO of Bushveld Minerals, Craig has to deal stress and pressure with all issues that come his way. How does Craig chill out and take time out?

Craig Coltman: Yeah, slightly different question, isn't it? But you can ask any questions you like. Thank you for the observation. Yeah, there's been a lot of stress and pressure that we faced in recent in recent times. We certainly had our fair share of headwinds in recent times. Some tailwinds would be most welcome. But to deal with the question specifically around pressure and stress, with a CEO job, it comes with the unique stresses and challenges. I'll always try and focus on areas that I can influence and control and focus on those areas where one can derive the most value, that is don't sweat the small stuff when you under huge pressure. Secondly, it's important to realize this is a team business and my team have taken huge stress as they've supported me over this very difficult period. It's very evident. Hopefully we'll all be able to take a little time out soon to re-energize. Thank you.

Operator: Thank you very much. The next question here asks, the recent Orion deal showed a maximum value of $10 million be paid to Bushveld. This is twice the SPR funding deal of $5 million, but stated as matched to this deal. Can you please let us know how the final $5 million of the Orion money can be released to Bushveld given it's a matched deal?

Craig Coltman: No, that's not true. I mean, Southern Point Resources have advanced, and will be a total of $10 million, and Orion are going to be matching that dollar for dollar. And Orion's $10 million will come in probably by the end of July, or as soon as the SARB approval is done and then the application for SARB approval has been done, it should take about three weeks. So it'll be dollar for dollar and Orion will bring in $10 million and SBR $10 million.

Operator: Thank you very much, Craig. Next question is really around operations and asks what operational changes were made to improve efficiency?

Craig Coltman: It was clear early on my tenure that while the Vametco was largely reliable, save for the Barren Dam constraints we identified in Q3, it was Vanchem which required further improvements and consistency in order to stand on its own two feet. Vanchem were doing on average 103 mtV for the first six months of last year. So we had a turnaround project and I probably [labored the] (ph) point because I've said this so many times, there were three fundamentals to that turnaround strategy. We changed the reagent mix in front of the kiln. That resulted in the stoppage of silica buildup. We had huge increases in yield of the kiln, allowing much more throughput. We deployed a team of Vametco sort of A-team to assist Vanchem in the knowledge sharing and the transfer of expertise. We also introduced the 24 shift managers to supervise, to ensure better and quicker decision making. All of that resulted in us doubling up production to north of 200 mtV. The good news is that we delivered on that turnaround and this allowed us to achieve a meaningful value for this asset when the agreement was reached to sell 100% of Vanchem post the financial year. Looking ahead, we committed to maximizing the potential of the company's operations with the Vametco on the path to becoming a consistent and sustainable business. And of course, a broader cost saving measures implemented during the course of 2023 and those further measures that are going to be implemented in 2024 will ensure cost effectiveness across the business. Thank you.

Operator: Thank you very much. What do you think will be the significant challenges and risks in the year ahead?

Craig Coltman: Don't think we've got enough time in the day for me to share. Let me share with you the big ticket items that keep me awake at night. There are external risks, the low vanadium price and the exchange rate. We've seen post-election in South Africa, the rand strengthened notably. But those are external factors. If I look at some of the internal risks, the current long outstanding creditors balance and the actions that creditors might take against us in the short term remain a risk until all the funds flow until the end of July, but the team are working very closely with these creditors and keeping them abreast of the developments, but it remains a risk. Secondly, convincing our preferred suppliers to be our supplier of choice after we've let them down so many times in recent times. Commitments are made for funding, the funding doesn't come through and we promised a repayment plan. We've stopped doing that now because we're losing credibility with key suppliers. It's critical to have preferred suppliers back in favor with us because it's needed to improve our asset reliability and our planned maintenance program. We have to do that to get to the 240 mtV by Q4. We're currently behind the curve on the planned maintenance program. There's just so much stuff to do and so much stuff we were supposed to do in the first half of this year. I'll use one example, the SRP. That's probably the asset that is the least reliable. And you know the SRP, we rely on to do evaporation assistance on the Barren Dam. We rely on it to regenerate salt. We also rely on it to generate ensol, which is a byproduct that gets fed back into the into the precipitation process in the value chain. Now we can buy that in, but it comes at a cost. We long overdue to place an order for large components, heat exchangers. There's a six-month lead time. Because of our poor track record with creditors, they want 80% of that upfront. That's $1 million for those heat exchangers. There's lots of maintenance that needs to be done on critical parts of the business and we need to get our preferred suppliers back on track and in any favor. They need to see us as a supplier of choice. Cost reductions. We know we have to reduce costs. We've got a plan. There's a plan for labor cost reduction. There's a plan for creditors cost reduction, for material, but we need to do it in such a manner that we don't break the fabric of this organization. So we've got a plan and that includes the corporate center as well, needs to be reflective of having a single asset. Keeping the staff energized and passionate about the vanadium business, not easy in current times, but we have a plan. And then I'd say lastly, staying close to the DMRE, other regulators as we address the environmental challenges in an orderly phased approach. We've been very successful with our engagements. The key is to stay engaged with these regulators and the DMRE to make sure that we're, we can keep the business in a sustainable manner. Those are the half a dozen areas that keep me awake at night in terms of the challenges in the medium and longer term.

Operator: Perfect. Thank you very much, Craig. We've got one final pre-submitted question before I hand over to you then -- to then go through the live questions. And it asks, what is Bushveld Minerals’ long-term vision?

Craig Coltman: Yeah, the company's strategy for Vametco will be focused on optimizing the operations by firstly rightsizing the organization to ensure that Vametco is a cash-generating asset. We'll do this by maximizing value through operational efficiency and strategic cost management, organic growth and exploring growth opportunities in the vanadium market. The company will streamline operations and enhance productivity through a focused capital expenditure and planned maintenance program while maintaining a strong focus of course on safety, environment and social responsibility.

Operator: Perfect. Thank you very much, Craig. That actually concludes the pre-submitted questions. As you can see, we have received questions throughout today's live presentation. I'd just like to thank all the investors for submitting those. Craig, if I could hand over to you at this point to read those questions where appropriate to do so, provide a response, I'll pick up from you at the end.

Craig Coltman: All right, no surprise. Here's the first question. Why should we accept SPR are a reliable partner given the constant delayed payments? This has in no small part affected investor confidence. Fair comment. I've reflected on this so many times. I've never seen anything like this happen in my life. I've done a lot of these deals, a lot. But it is what it is. I can only focus on the present and the future. And I can assure you that I've read them the [right act] (ph), we've got to move forward in a more positive environment to both stakeholders. We're in a much better position than we were early on in January when we were only reliant on SPR money. Now we're also reliant on Orion. And Orion have demonstrated incredible support of this organization. And if we see a repeat of SPR's behavior, we're not going to tolerate it. But let's put the past behind us and move forward. We are partners now, they're going to be 100% owner of Vanchem in due course. So let's give everybody the benefit of the doubt. And if they don't deliver, it's not going to be taken lightly. Moving on to the next question here from Bradley. With the sale of Vanchem, would it be more profitable to close down operations of this site until the new ownership has taken place to better our cash position? With the sale of Vanchem, would it be more profitable to close down operations of this site until new ownership has taken place? Well, first of all, from a Vanchem perspective, we couldn't do that. The SPR become the new owners when the Competition Commission approval is done, which is we're hoping three months time. It'll take three months to shut an operation down anyway, even if you put into care and maintenance. So that's not viable. If you think of Vametco, definitely not the right thing to do to shut it down or put into care and maintenance because the contribution it's making on its variable cost is significant. If you put something like that into care and maintenance, you're going to lose buckets of money. The only time you'd think about putting into care and maintenance, if you thought that the vanadium price was going to stay flat for many, many more years, then you would do that. But we don't believe that. So it's not a viable option. We've certainly looked at that care and maintenance option, and it certainly is not the most commercially viable thing to do. Moving down to David. Is there still money flowing into Vanchem in the period up to the completion of the sale? The answer is yes, but there are a few little nuances to that where we’re funding a little bit upfront and then getting some payback towards the end of the year. I'm going to ask Robbie, the CFO, to elaborate a little bit more detail around that financial construct for Vanchem between now and the sale and then the funds that flow back to us after the sale.

Robbie Taylor: Thanks, Craig. So there's two streams of funding. The operational funding is obviously the one source. The bank and the asset is still producing and it's still making sales and it's still getting revenue. So that's the one, is operating revenue doesn't, at this stage, the costs exceed the revenue because of the pricing of the vanadium. The second aspect of funding is debt funding or financing from SPR and Orion. We have an arrangement until the deal closes and gets competition approval that the funds that we receive into Bushveld will be apportioned to a certain percentage, to a certain amount actually, to Vanchem to fund ongoing operations at Vanchem. Upon closing, when competition approval is given, that money will be repaid back to us three months later. So the funding we're getting in right now, a portion of it goes to Vanchem to continue operations there and that money will be repaid to us by SPR.

Craig Coltman: Thank you, Robbie. The next question is, is Vanadium forecast to increase in price per kilogram in the near future? The answer is yes. If you define the near future within 12 months, we've heard from various reliable intel it could be anything from Q4 this year to Q1. It's a matter of when rather than if. What is Bushveld’s likelihood of survival to the end of 2024? Well, I mean, you would have seen in the accounts we've passed the going concern test and that's been signed off by the auditors. So all of that has been taken into account when doing the going concern test. But of course, that's if the assumptions we assume are realistic pan out. That the production levels are delivered according to the plan, that the vanadium price doesn't drop any further, but based on realistic assumptions and materiality, we passed the test for a going concern, which is up until June 2025, so it's a 12-month period. Next question, I can see near-term key priorities is to sell the electrolyte facility. Can we as shareholders assume this is BELCO site and also assume that there was no successful electrolyte agreements completed? The answer is yes to both of those questions. No successful electrolyte and we would want to get out of electrolyte, the battery, BELCO, ASAP. As a matter of fact, we're in discussions with the IDC to see what we can do to get out of that as well. We've tried to sell it, we've engaged through the brokers, what we thought would have been potential buyers that may have interest, there's absolutely zero appetite for that. So the answer is yes, no sales on the electrolyte side, one or two, but nothing of note. And we certainly want to get out of the BELCO business. When does the cash run out? After all, you issued an RNS last week that caused a mass sell-off, and suddenly SPR looked down the back of a sofa and found a few new quid.

Robbie Taylor: That's -- it's not really that simple because so first of all, when does the cash run out? Well, we've done a going concern test through to June 2025, 30th of June ‘25. So that's given certain assumptions, as Craig mentioned in the last question that he answered. So that's the timeline. But just to answer the second part, which is the RNS last week, I think what we were saying in the last week is if the agreements were not concluded on time, then we would have missed certain deadlines by the London Stock Exchange to publish our accounts. And if those agreements were not signed, funding would not have flowed, and our entire basis of presentation of those financial statements, i.e., going concern, would have been invalid because funding wouldn't have been agreed by SPR, Orion, and the company. So there were three parties to these agreements. They were fairly complicated. SPR had certain requirements that they needed to see in this. Orion had theirs, and we also had ours. And so once those all three parties were aligned, we could actually sign the agreements and then the funding flow, it wasn't really a matter of them looking back behind the sofa as it were -- it was complicated arrangements and they were delayed, we were very frustrated in the process.

Craig Coltman: Thank you, Robbie. The next question here comes from Paul. How much money does Vametco require to get it producing to 2,700 mtV per annum? And does Bushveld have that money? Well, the answer is yes. Certainly because we passed going concern test for 12 months. In terms of how much money does it require, so the ‘24 budget in the order of, Robbie, $70 million cost annualized was in the order of 2,400 tons, not significantly north of that for 2,700. So in the order of $75 million to $80 million dollars per annum is what we required for 2,700. But that's before we start targeting the cost reductions we're looking at, in terms of labor and aggressively focusing on longer-term contracts with our preferred suppliers. I was in a workshop earlier this morning, and we were looking at the cost reduction by putting more and more contracts in place for suppliers. And when we get to having 90% of our contracts in place, we believe that will add another $5 million reduction in our cost base by merely calling off orders with contracts. We spend a very, very small portion at the moment, unfortunately, of our spend via contracts. So a huge opportunity when we get our preferred suppliers and the non-preferred suppliers for that matter, on board and we put contracts in place. So the answer is yes, we do have sufficient funds because by the time we get to Q4, the model assumes in the order of 240 mtV, which is annualized about 270 mtV. And that's all being built into the model as a going concern up until June of 2025. Another question from Paul. Can we trust you, Craig, that you have the Bushveld shareholders best interest a lot? Absolutely categorically. I can tell you right now, I put my hand on the heart every single day and I do my absolute best to do what's in the best interest of all Bushveld shareholders. Just see if I can go up if I've missed anything. They're getting deleted as I'm going through the questions. Right, next question also from Ken. Is any of the insiders paying to buy shares to show confidence in the company? When you mean insiders, I presume you’re meaning directors. I can't speak on behalf of the other directors. I've always said that I would put in the additional top-up that would equate to four months of my net salary, I've joined the company, and I remain by that. This is a strange organization. We forever seem to be in a closed period, all insiders, and we can't trade. I mean, at [35p -- .35p on] (ph) Friday, it would be the wonderful opportunity to buy, isn’t it? But for obvious reasons, I can't do that. I can't speak on behalf of the directors. And when you say insiders, I presume that's what you're referring to. Next question is from David. If vanadium remains at or about the current dollar level, can we become a profitable business? The answer is no, we cannot have a sustainable business because it's not the EBITDA that's going to keep you going. You need the sustainable CapEx in the order of $4 million to $5 million. And that's, I say, that's normalized capital. Once you've caught up with the [indiscernible], we're probably going to be doing double that in this year because we're playing catch up with the buttressing of the slimes dam, we're going to catch up with the environmental issues around the dewatering system, we’re playing catch up with the Barren Dam, so that's nearly $10 million dollars. The answer is no, we don't have a sustainable business at the current price per kilogram. Matthew. Is there any update on the occasional subscription monies? Apologies if I've missed that. Can I ask -- I'm very fortunate to have our group head of legal in the room with us, and I'm going to steer to her to ask if she's going to give us a response on that? Viki?

Viki Rapelas: Good afternoon, everyone. The short answer is there was an agreement with Acacia to postpone the date for receipt of those funds to the end of December this year.

Craig Coltman: That's right. And that's still a 3p.

Viki Rapelas: That's correct.

Craig Coltman: Good. That's six months off. What positives do you see going forward and where can you see Bushveld in the next 12, 24, 36 months? So let's look at the things we can influence and control, that is the throughput and the cost reduction. And with the funds coming through now, including Orion, we've really got more than a fighting chance to address those creditors' issues, get the preferred suppliers on board, reducing cost, getting the planned maintenance in order, addressing the labor opportunities and positioning the business to get to that 240, which is an annualized number of 270 mtV. It's probably worthwhile just reflecting on a piece of work that I looked into fairly recently, where we extracted data from 2018 for the five-year period ending 2022. And the average we did per annum was 2,640. That was the average we did in the heyday, in the glory days of 2018 to 2022. I specifically excluded 2023 from that calculation because we had some real constraints in Q3 last year with the Barren Dams. So that was the average. And I must tell you, they were feeding slag into the business in those first three years, 2018, 2019, and 2020. But we want to do better than that. So that's the positive look forward to, to get back to the kind of nameplate of the glory days of an annualized number of 2700 mtV, with significant cost reduction at that, both here at the corporate center, further exercise in that part, and then also looking at streamlining labor efficiencies at Vametco. But then of course it's price. Thereafter it's price and none of us can predict where the price is going to be in 12 months, 24 months or 36 months. But if I look at that data, I know these numbers off by heart. I certainly know the 2019 numbers because 2019, the cost base in real terms really took a bad turn. It went up significantly. The headcount was over 500. We currently have 440 and then we’ll be below 400 when we finish this exercise. So we're going to be down over 100 less than the headcount in 2018. Look at those 2018 numbers, the costs were really, really rocketing. And we did $35 million of EBITDA in 2018. It's quite incredible at a $46 per kilogram. So I've said this before, it's a top line business and that was not a great year in terms of efficiency. I must also add, we sold less than 2,400 mtV in 2019. It wasn't a great year of performance. The cost base was high, but we still did $35 million positive EBITDA at a price of $46 a kilogram. We are absolutely focused on making it a lot more efficient than that year, but the rest is price. So, you can do the numbers yourself. The investors are smart people, you can work out what ever dollar will look like or what the range will look like at a dollar price of north of $40. Okay, let me move on here. Cameron [indiscernible], as V price turns as expected, Bushveld could be back to the glory days of 2018. Whereas now we have streamlined really core focus business? Correct. Absolutely spot on. Absolutely spot on. I'm just going to dig out a piece of paper here with this exercise I did. I reflected on 2019. Cameron talks about the glory days of 2018. I'll just reflect on what happened in 2018. In 2018, we did 2,560 mtV. We did ZAR1.4 billion worth of EBITDA. You can work out the dollars. ZAR1.4 billion of EBITDA at -- exchange at the time was ZAR13.23. But the key variable, the average sales price was $73 a kilogram. So it's all about price. You're absolutely correct, Cameron. Matthews. Interesting commentary with regards to contracts. What was the historic reason for procurement? The primary reason for moving to spot recruitment, and this was happening in the early days of 2023, well maybe even before that, was cash. When you don't pay your suppliers, they don't want to come and service you, whether it's providing services or goods. It's as simple as that. You can tell them a story for so long. I remember my first visit to Vametco in July, and I was asking the production people, what keeps them awake at night? What is the biggest distractor? What can I do to help them? And they said the biggest waste of their effort is rather than focusing on maintenance, they're getting in their cars, driving off to Pretoria an hour and a half away and buying non-generic pots from non-preferred suppliers at a premium. So they’re very inefficient. But the primary reason moving away from contracts was we weren't paying our supplies. It goes back a long way.

Craig Coltman: That, folks, is the end of all the live Q&As. Thank you. That was quite a list, but thank you for posing all those questions. I hope I gave you clarity to those questions. [indiscernible] over to you.

Operator: Perfect. Craig, Robbie, I'd just like to thank you for updating investors today. Could I please ask investors not to close the session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This is going to take a few minutes to complete. I'm sure it'll be greatly valued by the company. From the management team of Bushveld Minerals Limited, we'd like to thank you for attending today's presentation and good afternoon.