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Certain information contained in this announcement would have been deemed inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 until the release of this announcement

30 June 2022

Bushveld Minerals Limited

("Bushveld Minerals" "Bushveld" or the "Company")

Full Year Results for the 12-month Period Ended 31 December 2021

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 2021.

 

FY2021 Operational and Financial Highlights:

·    Group Revenue of US$106.9 million, a 18.8% increase over 2020 (2020: US$90.0 million), supported by improved average realised price of vanadium.

·    Group production of 3,592 mtV, at the upper end of 2021 revised guidance of between 3,400mtV and 3,600mtV.

§ H2 2021 Group production of 2,018 mtV, a 28.2% increase over H1 2021 (H1 2021: 1,574 mtV), supported by operational improvements implemented from Q2 2021.  

§ Operational stability has continued into H1 2022, resulting in 12 months of stable production levels.

·    Group Sales of 3,314 mtV, a 13.7% decrease over 2020 (2020: 3,842 mtV), as a result of international and domestic logistical challenges. 

·    Underlying Group EBITDA¹ loss of US$7.5 million an improvement of US$7.4 million relative to 2020 (2020: EBITDA loss US$14.9 million).

§ H2 2021 underlying EBITDA profit of US$3.3 million, supported by strong production levels,  higher realised prices and continuing to trade on an EBITDA positive basis in H1 2022.

§ The Group has been EBITDA positive for the past 12 months. 

·    Ended the year with cash and cash equivalents of US$15.4 million held at 31 December 2021 (2020: US$50.5 million). Gross Debt of US$82.1 million (2020: US$89.2 million).

§ Prioritised significant investments including: growth initiatives at Vanchem (US$4.2 million), construction of BELCO electrolyte plant (US$4.9 million), investment in CellCube (US$10 million) and debt repayments (US$3.9 million).

·    Successfully realised its investments in AIM-listed companies AfriTin Mining Limited and Invinity Energy Systems Plc for approximately US$3.5 million and US$12.7 million respectively.

·    Obtained an indirect shareholding of 25.25% into CellCube, a Vanadium Redox Flow Battery original equipment manufacturer. 

·    Group Total Injury Frequency Rate ("TIFR") was recorded at 7.78 in 2021 representing a 52 per cent improvement from 2020 (2020: 16.06).

 

1.     Adjusted EBITDA is EBITDA, excluding the Group's share of losses from joint ventures and the remeasurement of financial liabilities. Underlying EBITDA is Adjusted EBITDA excluding impairment charges.

2.     ZAR14.8:US$ 2020: ZAR16.5:US$

Post period events

·    Commissioning of Kiln 3 at Vanchem was completed in June 2022 within budget with a production run rate of 2,600 mtVp.a. anticipated in Q4 2022.

·    Secured the funding for the Engineering Procurement and Construction of the Vametco hybrid mini grid.

·    Staged growth plans announced to increase Group production to 8,000 mtVp.a., subject to:

§ The achievement of short-term performance objectives to deliver sustainable cash generation at the production rate of 5,000 - 5,400 mtVp.a.; and

§ Sufficient funding secured

·    Group unaudited cash and cash equivalents of US$12.7 million as at 31 March 2022.

 

Priorities and outlook

·    On track to meet 2022 Group production guidance of between 4,200 mtV and 4,400 mtV, (weighted towards the second half of the year).

·    Ramping up production to achieve an annualised steady state production run rate of between 5,000 mtVp.a. and 5,400 mtVp.a. by the end of 2022.

o  The volume increase will support further unit cost reduction and increase the Group's ability to generate positive margins throughout the vanadium price cycle.

·    Commencing in 2022, implement the Group cost savings programme in order to achieve costs savings of approximately US$2.5 million to US$4 million, over a 12 to 24 month period.

·    Intention to carve-out of Bushveld Energy as a standalone company focused on the VRFB value chain, Bushveld Minerals will maintain a strategic investment in the company. This will enable Bushveld Energy to have the Board and management team required for success, and it will be in a better position to attract the appropriate institutional investors and market valuation.

·    Progress construction of the BELCO electrolyte plant, anticipated completion in H1 2023.

·    Commence construction of the Vametco hybrid mini-grid, completion expected in H1 2023.

 

Group Capital Expenditure

Expected capital expenditure for 2022 of approximately US$22.1 million, of which we have already spent US$9.0 million as at 31 May 2022, with most of the cost being Rand-denominated. The capital expenditure includes the following:

·    Vametco US$5.5 million; 

·    Vanchem US$8.5 million;

·    Bushveld Energy (BELCO) US$8.1 million

 

Analyst conference call and presentation

 Bushveld Minerals Chief Executive Officer, Fortune Mojapelo and Finance Director, Tanya Chikanza will host a conference call and presentation at 11:00 BST (12:00 SAST) on Monday 4th July 2022 to discuss the 2021 full year results with analysts. Participants may join the call by dialling:

 

Tel:                  United Kingdom: +44 (0) 33 0551 0200; South Africa: +27 800 980 512

Pin:                  4157560

Alternatively, the presentation can be accessed as a webcast here:

https://webcasting.brrmedia.co.uk/broadcast/60d9897e0bb2806642d65b88https://stream.brrmedia.co.uk/broadcast/62a0bea519aa2a662fe17234

 

 

 

Annual Report

The Annual Report for the year ended 31 December 2021 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 11 July 2022. A further announcement will be made by the Company once hard copies of the Annual Reports have been dispatched to shareholders.

 

Fortune Mojapelo, CEO of Bushveld Minerals Limited, commented: 

"I'm pleased that we finished 2021 strongly, generating positive EBITDA in the second half of the year which has carried through into the first half of the 2022 year. This was a year of two halves, as we entered 2021 facing the ongoing challenges of the Covid-19 pandemic, which were compounded by some operational instabilities at Vametco in the first quarter. We adapted quickly to changing conditions and government mandates to instill normal and productive operating conditions and implemented several interventions which included increasing investments in maintenance and sustaining capital and implemented a rigorous and proactive maintenance programme. I am proud of Bushveld's resilience throughout the year.

 

This approach has seen the Company produce solid successive quarterly performances from the second quarter, enabling the Company to meet the upper end of our revised production guidance for the Group in 2021. Production in the second half of the year of 2,018 mtV was 28.2% higher than the first half, illustrating our success in embedding improvements across all operations. I am pleased to report that this has continued into the current year and am delighted to announce the commissioning of Kiln-3 at Vanchem in June 2022, which will deliver production growth and result in lower unit costs at Vanchem.

 

.As we continue to pursue incremental operational improvements and further embed our values and culture at Bushveld, we expect the effects will continue to reflect in our production and profitability, helping us realise a sustainable cash generating business. We have already seen an improvement in our safety record, although this is from a very strong baseline.

 

The Group ended the fiscal year with revenue of US$106.9 million and an underlying EBITDA loss of US$7.5 million (adjusted for a one-off impairment loss of US$2.4 million), an improvement of US$7.4 million over the 2020 EBITDA loss of US$14.9 million. During the course of the year, the strengthening of the South African rand had a substantial effect on expenses. This resulted in a net negative exchange impact of US$11.6 million on underlying EBITDA. Excluding the negative impact of the exchange rate, we would have achieved a positive underlying EBITDA profit of US$4.1 million for the year if the exchange rate had been comparable to 2020. In the second half of the year, the Group realised an underlying EBITDA profit of US$3.3 million due to strong production performance as well as a higher realised price. We are pleased that this profitable performance has continued into the first half of 2022.

 

Moving on to our energy platform, after incubating Bushveld Energy and establishing the critical mass necessary for its success, we intend to carve-out Bushveld Energy as a standalone company focused on the VRFB value chain. We believe that this will help to crystallise the value of Bushveld Energy and position it in the capital markets to attract the appropriate energy-market focused institutional investors with an appetite and understanding of the energy proposition, while retaining the vertical integration proposition of Bushveld Minerals through a substantial strategic shareholding in the stand-alone energy company.

 

Whilst still in its early stages, Bushveld Minerals has embarked on a journey to define and implement a comprehensive sustainability strategy. At the heart of this strategy is an overarching philosophy of going "Beyond Compliance", which requires an understanding and commitment to sustainability as core to our business and not a question of meeting regulatory requirements. The philosophy underpins our approach to environment management and engaging with social partners. Bushveld Minerals is well placed to make a meaningful contribution to global decarbonisation efforts through its alloying products that reduce the carbon footprint of steelmaking, and through our electrolyte products used in large-scale long-duration energy storage systems that will support the energy transition through, among others, supporting greater penetration of renewable energy to the global energy mix.

 

We have successfully transitioned from an exploration company into a sizeable, margin-positive primary vanadium producer with global distribution networks and significant growth potential, an accomplishment we are proud of, considering we began with a market capitalisation of US$20 million and we have amassed an asset base with a net asset value of US$150 million, since 2017. We accomplished this by investing more than US$185 million, which was funded with a relatively heavy reliance on debt markets and a minimal reliance on equity financing; since 2017, the Company has raised only approximately 25 percent of our capital through direct equity financing.

 

So, our transformation journey continues. With two of the world's four operating primary vanadium production facilities, a diverse product profile and significant growth upside, we are well placed in a market that will increasingly look to primary producers to meet its growing vanadium demand. Our immediate short-term focus is to ensure that the production base continues to be stable and sustainable, as we ramp up production towards the run rate of 5,000 - 5,400 mtVp.a.in the fourth quarter, following the commissioning of Kiln 3 in June 2022. This positions Bushveld as one of the largest and most significant primary vanadium producers with a low cost production base and supplying approximately five per cent of the global market.

 

We recently announced the key findings of the feasibility and pre-feasibility studies regarding the optimal path forward to increase Vametco and Vanchem's production to 8,000 mtVp.a. The expansion will be conducted in phases and will only be pursued once we have met our short-term performance goals of 5,000 - 5,400 mtVp.a. and secured the necessary funding.

 

We remain committed to achieving operational excellence at our Business and generating positive margins through our low-cost production platform."

 

2021 summary

	Year end 31.21.2021	Year ended 31.12.20	% change
Vanadium Production (mtV)	3,592	3,631	-1.1
Sales volumes (mtV)	3,314	3,842	-13.7
Average realised price (US$/kgV)	32.2	23.4	37.6
Revenue (US$ million)	106.9	90	18.8
Underlying EBITDA	(7.5)	(14.9)	49.7
Adjusted EBITDA (US$ million)	(9.9)	(14.9)	33.6
Net cash flow /(outflow) from operating activities	(12.1)	(17.1)	29.2
(Net debt)	(66.7)	(38.7)	72.4
Cash and cash equivalents	15.4	50.5	-69.5
Average Exchange rate (ZAR:USD)	14.8	16.5	10.3

 

 

                                                     ENDS

 

Enquiries: [email protected]

Bushveld Minerals Limited		+27 (0) 11 268 6555
Fortune Mojapelo, Chief Executive Officer
Chika Edeh, Head of Investor Relations
SP Angel Corporate Finance LLP	Nominated Adviser & Broker	+44 (0) 20 3470 0470
Richard Morrison / Charlie Bouverat
Grant Baker / Richard Parlons
RBC Capital Markets Jonathan Hardy / Caitlin Leopold	Joint Broker	+44 (0) 20 7653 4000
Tavistock	Financial PR
Charles Vivian / Gareth Tredway		+44 (0) 207 920 3150

 

 

 

ABOUT BUSHVELD MINERALS LIMITED

Bushveld Minerals is a low-cost, vertically integrated primary vanadium producer. It is one of only three operating primary vanadium producers, owning 2 of the world's 4 operating primary vanadium processing facilities. In 2020, the Company produced more than 3,600 mtV, representing approximately three per cent of the global vanadium market. With a diversified vanadium product portfolio serving the needs of the steel, energy and chemical sectors, the Company participates in the entire vanadium value chain through its two main pillars: Bushveld Vanadium, which mines and processes vanadium ore; and Bushveld Energy, an energy storage solutions provider. Bushveld Vanadium is targeting to materially grow its vanadium production and achieve an annualised steady state production run rate of between 5,000 mtVp.a. and 5,400 mtVp.a by the end of 2022, from projects currently being implemented. Growth plans to 8,000 mtVp.a. will be pursued, subject to funding and market conditions.

 

Bushveld Energy is focused on developing and promoting the role of vanadium in the growing global energy storage market through the advancement of vanadium-based energy storage systems, specifically Vanadium Redox Flow Batteries ("VRFBs").

 

Detailed information on the Company and progress to date can be accessed on the website www.bushveldminerals.com

Chairman's Statement

 

Dear Stakeholders,

 

While 2020 was the year in which the COVID-19 pandemic plunged lives and business into turmoil across the globe and saw the implementation of emergency measures to keep businesses afloat, 2021 was the year in which those emergency measures were put to the test. As the constant state of flux became the new normal, it became apparent that companies had to adapt for unusual business contingencies.

 

Restrictions are now lifting around the world, facilitating a return to pre-pandemic life. Not only are we able to see loved ones and to cross borders, and with less onerous restrictions global logistics are improving and the productiveness of industries the world over has begun to escalate considerably. I firmly believe that the last two years have proved our resilience as a Company and made us stronger for the difficulties faced. We continue to operate to the highest standards of business while being mindful of ongoing global uncertainties and their impact on the sector. These include but are not limited to the war in Ukraine, rising COVID-19 cases in China and North Korea, and soaring inflation in the US and Europe.

 

I applaud our employees for their stalwart commitment to the Company and our operations, ensuring that despite the ongoing impact of COVID-19 and the operational challenges at Vametco, our staff remained safe, and Bushveld adapted quickly and implemented several interventions, enabling the Group to finish the year strongly and make the upper end of our revised guidance for 2021 at 3,592 mtV.

 

As a result of the improved performance in the second half of the year, the Group generated a positive underlying EBITDA in the second half, but this was not sufficient to offset the EBITDA loss in the H1, and the Group ended the year with an underlying EBITDA loss of US$7.5 million and a loss before tax for the year of US$46.8 million (2020: loss before tax of US$37.7 million). The strengthening of the South African rand had a substantial effect on expenses and on underlying EBITDA. We made an operating loss of US$29.3 million, similarly impacted by the significant ZAR:US$ exchange rate movements and the net loss for the year was US$42.1 million, after net interest and non-cash adjustments, as detailed in the Finance Directors Review.

 

Furthermore, as we have improved maintenance and ensured operational stability, Bushveld is targeting to reach a Group production run rate of 5,000 - 5,400 mtVp.a, in the last quarter of 2022, following the commissioning of Kiln 3 in June 2022, which is now undergoing stabilisation and optimization, with ramping up expected to commence thereafter. Higher production, once the Group is producing over 5,000 mtV p.a, will lead to lower unit costs, resulting in Bushveld achieving sustainable profitable performance throughout the cycle. As such, we anticipate Group production for the year to be in the region of between 4,200 mtV and 4,400 mtV, between 17-23 per cent higher than 2021, with output weighted towards the second half.

 

We recently announced the key findings of the Vametco and Vanchem feasibility and pre-feasibility studies, the objectives of which are to increase and achieve a collective production of 8,000 mtVp.a. in the medium to long term. In contrast to the last few years where production growth was necessary to reach critical mass, we can be patient about this next stage.

 

Management intend to pursue the staged expansion plans, subject to the meeting of short-term performance targets and in a phased manner, once sufficient funding has been secured, accompanied by any necessary third-party validation of associated project economics.

 

We remain committed to our responsibility to ensure sustainable growth and provide returns to our investors, a consideration at the forefront of every company decision and are proud of the trust you, our shareholders, have placed in us to deliver this. I would like to thank Fortune Mojapelo, the Bushveld management team, and all our staff for their efforts to progress the Company and our operations over the course of the year.

I would like to pay tribute to Professor Morris Viljoen who sadly passed away in August 2021. Alongside his twin brother Richard Viljoen, he was a technical advisor to the Company and major contributor to the founding of Bushveld. His knowledge and expertise were unparalleled in his field and he will be sorely missed.

 

I have been privileged to have the responsibility of chairing the Board over the last ten years. In this time, I have witnessed the Company go from strength to strength, a small exploration company into a significant producer of vanadium no small achievement.

 

We have come a long way, from our kick off in 2012 when we listed on AIM as an exploration company with a diversified portfolio including vanadium, tin, coal, titanium and iron ore assets, and raised £5.5 million. We established a quality portfolio of tin assets, which we unbundled and listed as Afritin on AIM, enabling Bushveld shareholders to unlock value from its tin platform.

 

In this time, Bushveld acquired two brownfield processing plants for a modest acquisition cost, catapulting production over six years from zero in 2016, to about 3,600 mtV in 2021. We have also been at the forefront of pioneering a vertically-integrated vanadium value chain, including our ongoing construction of what will be one of the largest vanadium electrolyte plants with a capacity of 8 million litres of vanadium electrolyte (approximately 1,100 mtV). Our other achievements include securing three large, high-grade opencast deposits, with a primary resource base of ~548 Mt, one of the largest high-grade primary vanadium resources in the world. This gives us the confidence to pursue further growth in the years ahead, knowing that we have decades-long Life-of Mine ahead. All this has been achieved at the modest acquisition cost of approximately US$121 million, significantly less than the capital expenditure it would have required to develop our operational footprint from a greenfield state; plus further capital expenditure spent since acquisition.

 

On behalf of the Board I must thank Anthony Viljoen for his significant contribution to Bushveld Minerals over more than a decade of service. Anthony played a core part in the formation and shaping of the Company. I wish him all the best as CEO of AfriTin Mining Limited, which is rapidly developing its large-scale tin resources. In addition, I would like to I thank Jeremy Friedlander for his significant contribution to Bushveld with over a decade of service to the Company, helping provide vital guidance and leadership.

 

While I am sad to be leaving the Bushveld family, I welcome the new members of the Board including Kevin Alcock, Mirco Bardella, Jacqueline Musiitwa and David Noko. These Board appointments have been made to ensure that the Board's composition meets the high standards of corporate governance expected of AIM listed companies. I look forward to seeing the new heights to which I know they will take the Company.

 

Ian Watson

Independent Non-Executive Chairman

 

Chief Executive Officer's Review

 

Dear Stakeholders,

 

I am pleased to present this annual review statement at a time coinciding with the tenth anniversary of the listing of Bushveld Minerals Limited on the Alternative Investment Market ("AIM") of the London Stock Exchange. In that time, we have successfully transitioned from an exploration company into a sizeable, margin-positive primary vanadium producer with global distribution networks, and significant growth potential.

 

We have achieved this transition through a brownfield strategy that has seen us acquire two of the only four operating primary vanadium processing plants in the world in 2017 and 2019, respectively. We have now invested significant refurbishment capital into the plants and their connection to some of the world's largest and highest primary vanadium grade deposits has allowed our assets to provide a low-cost production platform, with potential for further cost improvements. While the vanadium market remains volatile, our cost positioning in the market presents a sustainable cash generation opportunity over the cycle, which will be more clearly demonstrated once the Group is producing over 5,000 mtVp.a.

 

Since 2017, we have built an asset base with a net asset value of US$150 million, an achievement we are proud of as we started with a market capitalisation of US$20 million. We have achieved this by investing in excess of US$185 million in: 1) our acquisitions of Vametco and Vanchem, 2) refurbishment and expansion initiatives at the two sites, including the

recently completed refurbishment of Kiln 3 at Vanchem and 3) investing in sustainable growth of the Bushveld Energy assets. We have grown this formidable asset base with a relatively heavy reliance on debt markets and very limited call on shareholders for equity financing.

 

2021 Overview

2021 began with significant challenges for Bushveld, impacted by the continued social and economic fallout from the COVID-19 pandemic.

The South African commercial sector was further affected by a range of additional challenges, including periodical power supply shortages, and the severe disruption to local supply chains caused by the unrest in South Africa in July.

 

Operations

These contextual challenges compounded problems experienced at our operations, particularly in the early part of 2021, which related to operational plant stability on the back of no extensive annual maintenance shutdown being undertaken in 2020 due to the COVID-19 pandemic. In March 2021, a slower than expected ramp-up post a planned 35-day maintenance shutdown at Vametco affected production, further exacerbated by an unprotected industrial action that followed in April 2021.

 

Following the March 2021 annual shutdown at Vametco, the company has focused on operational stability, which is being achieved through several interventions. These include a rebasing of monthly production in line with historical performance rather than aspirational targets, increasing investments in maintenance and sustaining capital, and implementing a rigorous and proactive maintenance programme.

 

We have also embarked on a Bushveld culture journey to boost our aspirations towards operational excellence. This has entailed defining and cementing of our values and culture across the business, focusing on a philosophy of Care, Courage, Collaboration, Trust and Excellence.

 

This shift in approach has seen the Company produce solid successive quarterly performances since the shutdown in March 2021. Production in the second half of the year of 2,018 mtV was 28.2 per cent higher than the H1, illustrating our success in embedding improvements across all operations. I am pleased to report that this has continued into the current year and am delighted to announce the commissioning of Kiln-3 at Vanchem which will deliver production growth and result in lower unit costs at Vanchem.

 

We expect that as we continue to pursue incremental operational improvements and further emphasise our values and culture at Bushveld over a sustained period, the effects will begin to reflect in our guidance and production numbers. We have already seen an improvement in our safety record, although this is from a very strong baseline, as set out in the Safety section below.

 

Bushveld achieved production at the upper end of our revised guidance for the year ended 31 December 2021, with total Group production of 3,592 mtV. The higher throughput in the second half resulted in lower unit costs, with production cash cost (C1) for the year of US$24.0/kgV at Vametco and US$30.6/kgV at Vanchem, both in line with revised guidance.

 

While production performance improved, Group sales of 3,314 mtV were below production levels, owing to the challenges in international logistics channels arising from COVID-19, and the disruptions at local ports in July and August. This resulted in a buildup of finished products inventory.

 

	Unit	2021	12M 2021 vs 12M 2020
Group production	mtV	3,592	-1.1%
Group sales	mtV	3,314	-13.7%

 

 

While some of these logistical challenges have persisted into the 2022 year, we expect to meet our client obligations for the year.

 

Financials

The operational improvements post Q1 also translated into an improved financial performance, with a positive underlying EBITDA of US$3.3 million in H2 2021, which has been maintained into the 2022 financial year, compared with an H1 2021 underlying EBITDA loss of US$10.8 million.

 

The overall underlying EBITDA loss of US$7.5 million for the year, an improvement on 2020, was affected by the exchange rate movements that saw the Rand strengthen significantly from ZAR16.46/US$ to ZAR14.79/US$, resulting in a negative impact on costs and on underlying EBITDA amounting to US$11.6 million for the year on a like for like exchange rate with 2020. I am pleased to note that the trajectory of improved earnings has continued into 2022.

 

After depreciation of US$19.4 million, we made an operating loss of US$29.3 million (2020: loss of US$32.8 million), similarly impacted by the significant ZAR:US$ exchange rate movements. Net loss for the year was US$42.1 million after net interest of US$11.2 million and non-cash adjustments of US$6.2 million, as detailed in the Finance Directors Review.

 

The Group ended the year with a cash and cash equivalents position of US$15.4 million, as we prioritised significant investment including growth initiatives at Vanchem, Bushveld Energy investments and debt repayments.

 

More details on the company's financial performance are set out in the Finance Director's Review.

 

Safety

The Group recorded a 52 per cent improvement in the Total Injury Frequency Rate to 7.8 relative to the previous year (2020: 16.1), as a result of improved risk assessment and the implementation of mitigation measures. While these improvements are welcome, safety will continue to be an area of focus for Bushveld to ensure that we can sustain and continue a strong safety record.

 

Sustainability

Bushveld Minerals has embarked on a journey to define and implement a comprehensive sustainability strategy. At the heart of this strategy is an overarching philosophy of going "Beyond Compliance", which requires an understanding and commitment to sustainability as core to our business and not a question of meeting regulatory requirements. The philosophy underpins our approach to environment management and engaging with social partners.

 

Our sustainability journey is in its early stages, defined with short-term (2021 - 2025) objectives to meet our regulatory compliance obligations and ensuring alignment / standardisation of practices across the business, followed by longer-term (2026 onwards ) objectives that give effect to our "Beyond Compliance" ethos. Dedicated personnel have been brought into the business with

executive leadership responsibility allocated for driving our ESG strategy going forward.

 

Our approach to sustainability is also defined along two important dimensions: (a) being clear about how we operate in a sustainable manner, and (b) articulating how our products and related solutions contribute towards global sustainability efforts.

 

In respect of the second, Bushveld Minerals is well placed to make a meaningful contribution to global decarbonisation efforts through its alloying products that reduce the carbon footprint of steelmaking, and through its electrolyte products used in large-scale long-duration energy storage systems that will support the energy transition through, among others, supporting greater penetration of renewable energy to the global energy mix.

 

Growth

Through the acquisitions and investments in our plants we have significantly increased our production by 36 per cent between 2017 to 2021 and Bushveld is now positioned as a significant global vanadium producer. While our current business model and production run rate is sustainable without the need for additional growth, we are in the process of ramping up to a production run rate of 5,000 - 5,400 mtV by the end of 2022, which will provide Bushveld further cash generation potential.

 

As outlined in the recently announced technical studies, the full production potential of our assets is much greater than the current production run rate, particularly in the wake of the commissioning of Kiln 3 at Vanchem in the second quarter of 2022. The studies provide a well-structured long-term incremental growth path to a production rate of 8,000 mtV per annum, ensuring a permanent and reliable feedstock to both Vametco and Vanchem while reducing production unit costs.

 

The option to implement the growth path in phases that are each value accretive substantially reduces the upfront capital requirements. We can attain the incremental production more rapidly and generate additional cash flows after each phase, which can be leveraged for the next phase. As we have full flexibility in relation to this growth, any decision in this regard will be dependent on market conditions and subject to capital availability.

 

Further detail on the findings of the studies can be found in the operating assets section.

 

Bushveld Energy

The momentum of the energy transition away from fossil fuels to clean energy continued to grow in 2021 and was, in fact, given further impetus by the positive outcome of the COP26 climate change conference in Glasgow. Whilst forecasts of stationary energy storage deployments growth vary among analysts, they all point to substantial growth of the sector. Bloomberg New Energy Finance, for example, forecast that deployed energy storage installations around the world are will multiply by a factor of 122 to 2,850 GWh by 2040. Furthermore, Guidehouse Insights expects global annual deployments of VRFBs to grow at a compounded annual growth rate (CAGR) of 41 per cent over the next 10 years, reaching approximately 32.8 GWh in 2031.

 

The VRFB deployment forecast by Guidehouse Insights would equate to between 127,500 and 173,800 tons of new vanadium demand per year by 2031, according to Vanitec calculations based off Guidehouse's projection. That would be more than twice as much vanadium as is currently produced annually today.

 

This certainly presents a substantial opportunity for Bushveld Energy, the company's energy storage focused subsidiary whose mission is the advancement of VRFBs. Since inception in 2016, Bushveld Energy has made significant inroads in establishing the case for VRFBs in the

growing energy storage market through its focus on key activities along the VRFB value chain structured along three key areas:

 

§ Construction of the building for the vanadium electrolyte manufacturing plant in East London, South Africa, was completed in April 2022 and the Engineering, Procurement and Construction ("EPC") contract is underway. The vanadium electrolyte manufacturing plant, targeting an initial capacity of 8 million litres, will be one of the largest plants outside of China.

 

§ VRFB Manufacturing: We invested US$10 million this year to acquire an effective shareholding of 25.25 per cent into CellCube, a grid-scale and micro-grid energy storage battery manufacturer, headquartered in Austria, bringing our total investment to $12 million.

 

§ VRFB Projects Deployments: We completed the development and achieved financial closing for a 3.5 MW solar photovoltaic (PV) generation farm and 4 MWh of VRFB energy storage pilot project at Vametco Mine ("the Vametco mini grid"). Site clearing has

§ commenced and commissioning is targeted for H1 2023; 26 mtV of electrolyte for the battery has been secured from Vametco. The Vametco mini-grid will serve to demonstrate the technical and commercial viability of hybrid mini-grids using solar PV and VRFB technology and in the process open up opportunities for the deployment of such solutions in an environment that is increasingly encouraging self-generation for large energy users.

 

In addition, we identified captive opportunities within the Group of up to 120 MW of solar and 180 MWh of VRFB storage. These projects will also reduce the Group's reliance on Eskom, help control electricity cost increases and reduce the carbon footprint of our vanadium production, as part of a broader sustainability strategy.

 

We are pleased to have successfully defended the litigation initiated, during 2021, by Garnet Commerce Limited ("Garnet"), our partner in CellCube, against VRFB Holdings Limited ("VRFB-H") and Enerox Holdings Limited ("EHL"), concerning an alleged breach by VRFB-H of the joint venture agreement in relation to EHL. Successfully defending this litigation which sought to challenge the indirect investment by Mustang plc into EHL, means the indirect investment by Mustang into EHL remains in place.

 

Notwithstanding the large opportunity presented by the energy transition for energy storage solutions and significant progress made by Bushveld Energy as summarised above, we recognise the complexity of a company spanning the vanadium value chain with operations that belong in different industry sectors and with different business models.

 

Having incubated Bushveld Energy and created the critical mass to ensure its success, we intend to carve out Bushveld Energy as a stand-alone company focused on the VRFB value chain. We believe that this will help to crystalise the value of Bushveld Energy and to position it in the capital markets to attract the appropriate energy-market focused institutional investors with an appetite and understanding of the energy proposition, while retaining the vertical integration proposition of Bushveld Minerals via a significant shareholding in the stand-alone energy company.

 

Vanadium Market Outlook

We remain bullish on the vanadium market. We believe the vanadium market is characterised by a structural deficit in the medium to long term, supported by robust and growing demand amidst a concentrated supply base with limited scope for meaningful supply growth.

 

Demand will continue to be anchored by the steel sector, underpinned by rising intensity of the use of vanadium within high-strength low-alloy ("HSLA") steel. Away from steel, significant upside potential is anticipated for vanadium within VRFBs, as the requirement for energy storage applications for renewable energy sources increases, with decarbonisation and the energy transition fast becoming global themes set to remain relevant for the decades to come.

 

Vanadium supply is concentrated and increasingly constrained in its ability to respond to demand. Increasing utilisation levels of coproduction steel plants, which account for more than 70 per cent of global vanadium supply, mean decreasing scope for co-producers to

increase vanadium production, even in favourable steel market conditions, which are the key drivers of supply movements among co-producers. Meanwhile historical vanadium price volatility will, at least in the short term, continue to limit the availability of capital for

developing greenfield vanadium projects.

 

This resulting structural deficit in the medium to long term points towards vanadium price upside relative to historical averages. In the short term, however, vanadium prices continue to be volatile, driven by the lingering impacts of the COVID-19 pandemic, especially in China where hard lock downs have continued to be imposed. The recent Russia-Ukraine conflict and global recession fears have also added to volatility.

 

The price volatility seen in 2020, 2021 and now in 2022 underscores the importance of being a low-cost vanadium producer and remains a core strategic focus for us as a company. The Russia-Ukraine conflict puts a spotlight on the geopolitics of global vanadium supply, given the geographical concentration of supply with China and Russia accounting for 50 per cent and 17 per cent respectively. This places South Africa in a favourable position, with its massive high grade primary vanadium reserves. With two of the three operational plants in South Africa and scope to grow production on these, Bushveld has the opportunity to emerge as a key producer and supplier of vanadium in a global market.

 

Outlook

We anticipate an encouraging 12 months ahead as we are on track to meet our Group production and cash cost guidance at the operations. This is supported by the commissioning of Kiln 3 at Vanchem which was completed in June 2022, and we anticipate to achieve a production run rate of 2,600 mtV p.a during the last quarter of 2022.

 

Overall, we expect Group production of between 4,200 mtV and 4,400 mtV in 2022, with volumes weighted towards the second half as Kiln 3 is ramped up by year end, with lower production cash cost (C1) of: between US$22.7/kgV and US$23.5/kgV at Vametco and between US$27.7/kgV and US$28.4/kgV at Vanchem. Production guidance at Vametco is between 2,450 mtV and 2,550 mtV and at Vanchem it is between 1,750 mtV and 1,850 mtV.

 

We reported a strong start to the 2022 financial year, with another solid set of quarterly operating results in Q1 2022. Continuing on from the performance in 2021 and the underlying EBITDA profit in H2 2021, we have now successfully produced four quarters of consistent performance,

building on the operational improvements and enhanced safety initiatives.

 

We believe Bushveld Minerals is now a solid, sustainable, margin positive business, and there still remains a large opportunity to continue our overall growth programme.

 

Concluding Remarks

So, our transformation journey continues. With two of the world's four operating primary vanadium production facilities, a diverse product profile and significant growth upside, we are well placed in a market that will increasingly look to primary producers to meet its growing vanadium demand. While we remain committed to maximising the production capacity of our plants, our immediate short-term focus is to ensure that the production base is stable, sustainable and cash generating.

 

Following the commissioning of Kiln 3 and the expected resulting Group production level of 5,000-5,400 mtV per annum by the end of 2022, the Company is in a good position to generate cash and positive margins, as one of the largest and most significant primary vanadium producers with a low cost production base and supplying approximately five per cent of the global market.

 

Our decision to carve out Bushveld Energy comes at a time when the business has generated sufficient critical mass to stand alone, albeit still linked to the upstream vanadium production platform. It also comes at a time of growing momentum behind the energy transition and long duration energy storage in particular. The positioning this will give Bushveld Energy in the market is incredibly attractive while helping simplify Bushveld Minerals' investment proposition as a vanadium producer. If the above sounds like a reset of sorts, that is because it is - a reset aimed at:

 

§ consolidating our gains with the capital invested to date;

§ building organisational capacity to successfully manage our assets;

§ realising a sustainable cash generating business characterised by a stable and predictable low-cost production base with a secure balance sheet; and

§ unlocking the value linked to a downstream, sound and growing energy storage platform that is independently funded through energy focused public capital markets. The importance of the simplicity of the resulting investment proposition cannot be over-emphasised.

 

Supporting this reset are several important developments that I am pleased to announce, which will provide much needed support in this phase. These include the appointment of Lucas Msimanga as Director of Operations with effect from 1 June 2022, significant changes to our Board of Directors with four new appointments who bring a diverse and complimentary skill and experience set, and the appointment of Royal Bank of Canada ("RBC") as a broker and financial advisor to the Company. I am delighted to welcome Lucas to the executive team.

Lucas brings more than 20 years of operational leadership experience in the processing and metallurgy sector which is important for operations whose downstream processing/metallurgical processing accounts for the vast majority of our production processes. RBC brings breadth and depth of capital markets advisory and support to the Company at a crucial time in our development.

 

Gratitude

Finally, I would like to sincerely thank each and every employee and contractor. Each and every one of you is an invaluable cog in our business and your care, courage and commitment has been fundamental in ensuring the continued success and development of Bushveld Minerals in 2021. I am privileged to work alongside you all and look forward to many years of continued service.

 

I must also thank Jeremy Friedlander, Anthony Viljoen and of course, Ian Watson, who have been serving on the Board since IPO and during which time they played an important role through a transformative period of the company. Their guidance and leadership over the last decade has been invaluable. Michael Kirkwood will be appointed acting chairperson at the next Annual General Meeting ("AGM"), while the company continues its search for a permanent chairperson. We are pleased to welcome and look forward to working with the new directors as the company continues its growth path and evolution.

 

Fortune Mojapelo

Chief Executive Officer

 

 

Finance Director's Review

 

Overview

The 2021 underlying result shows improvement from 2020, despite the continuation of the pandemic as we delivered an underlying EBITDA loss of US$7.5 million, up US$7.4 million from the 2020 underlying EBITDA loss of US$14.9 million (underlying EBITDA is adjusted EBITDA excluding impairment charges. Adjusted EBITDA is EBITDA, excluding the group's share of losses from joint ventures and the remeasurement of financial liabilities).

Foreign exchange had a material impact on costs during the year, with the Rand strengthening from ZAR16.46/US$ to ZAR14.79/US$ in that period. This gave rise to a net adverse exchange impact of US$11.6 million on underlying EBITDA. Excluding the adverse exchange rate impact then we would have achieved a positive underlying EBITDA profit of US$4.1 million for the year on a like for like exchange rate with 2020.

 

Our operational and financial performance in 2021 is however a story of two halves. In the H1, underlying EBITDA amounted to a loss of US$10.8 million, primarily due to a stronger ZAR: US$ exchange rate on costs and exacerbated by weak production performance at Vametco in the first four months. In the second half of the year, the Group achieved an underlying EBITDA profit of US$3.3 million on the back of a strong production performance at both Vametco and Vanchem and a higher realised price. This positive profitability has been maintained into the 2022 financial year to date.

 

Recognising the potential significant impact of the movement of the ZAR: USD exchange rate on our results, we are constantly reviewing our hedging policy, and we will be better placed to implement this once we attain steady state production in 2023.

 

The Group reported revenue of US$106.9 million (2020: US$90.0 million), driven by a higher average realised price of US$32.2/kgV (2020: US$23.4/kgV) and offset by lower sales.

 

We made the decision to rebase our plans by reducing our production guidance for the year, implementing the changes that were required to stabilize production and provide the platform for growth. This entailed increasing investment in maintenance and sustaining capital, to help our operations to achieve stability and support the anticipated volume increase in the 2022 financial year.

 

Overall, we recorded a Group production for the year of 3,592 mtV, just shy of the upper end of the 2021 guidance of between 3,400mtV and 3,600mtV.

 

Whilst continuing with the various cash conserving measures put in place to protect the balance sheet during 2020, we remained firmly focused on our strategy to sustainably increase production. As part of our capital allocation process, we prioritised the refurbishment of Vanchem's Kiln 3 as it provided the Group with the most rapid route to near term production growth. We successfully negotiated with Orion Mine Finance ("Orion") to lift the Production Finance Arrangement ("PFA") capital ringfence, allowing us to reallocate US$17.8 million of the PFA funding from Vametco to finance the refurbishment and expansion of Vanchem. Further details of the growth path are set out in the section on Operating Assets and Operational Review.

 

The commissioning of Kiln 3 was completed within budget post year-end in June 2022, with focus now on plant stabilisation and optimization. The Group's ability to achieve its future production profile is predicated on the Kiln 3's successful increase in production during the first three to four months following commissioning, as it ramps up. This will enable the Group to reach its targeted steady state production run rate of 5000 - 5400 mtV p.a. in the last quarter of the 2022 financial year. This is a significant increase from our production of 3,592 mtVp.a. in 2021 and supports our guidance of between 4,200 - 4,400 mtVp.a. for the 2022 financial year.

 

During the year, the Duferco loan of US$11.5million was settled by way of US$2.5 million in cash and US$9.0 million by the issue of shares.

Approximately US$12.7 million was realized in the H1 of 2021 from the sale of the investment in Invinity Energy Systems Plc ("Invinity"), earning an overall profit of approximately US$7.7 million on the original investment of US$5.0 million. We invested US$10 million of the proceeds to increase our investment in VRFB manufacturer CellCube (previously referred to as Enerox GmbH), which resulted in an indirect interest of 25.25 per cent in CellCube.

 

 

	Unit	H1 20211	H2 20211	FY2021	FY2020
Revenue	US$m	47.0	59.9	106.9	90.0
Cost of sales	US$m	(43.3)	(40.1)	(83.4)	(73.4)
Other operating and administration costs	US$m	(14.5)	(18.9)	(33.4)	(31.5)
Adjusted EBITDA	US$m	(10.8)	0.9	(9.9)	(14.9)
Impairment charges	US$m	-	2.4	2.4	-
Underlying EBITDA	US$m	(10.8)	3.3	(7.5)	(14.9)
Average foreign exchange rate	US$m	14.54	15.02	14.79	16.46
Group production	mtV	1,574	2,018	3,592	3,631
Group sales	mtV	1,608	1,706	3,314	3,842
All-In Sustaining Cost (AISC)	US$/kgV	39.7	35.2	37.4	28.8
Average realized price	US$/kgV	29.2	35.1	32.2	23.4

 

1.   Unaudited

 

The Company sold its 4.76 per cent shareholding in AIM-listed Afritin Mining Limited and realized a total of approximately US$3.5 million. The proceeds of the sale were used for general corporate purposes.

 

Income Statement

Analysis of results

Income statement summary as adjusted from "statutory" Primary statement presentation

 

	US$ 2021	US$ 2020
Revenue	106,857,285	89,988,078
Cost of sales	(83,387,087)	(73,394,608)
Other operating and administration costs	(33,357,130)	(31,534,410)
Adjusted EBITDA	(9,886,932)	(14,940,940)
Depreciation	(19,395,496)	(17,866,153)
Operating loss	(29,282,428)	(32,807,093)
Remeasurement of financial liabilities	(1,902,172)
Share of loss in joint venture	(4,351,356)
Net financing expense	(11,248,712)	(4,654,258)
Other non-operating costs		(206,066)
Loss before tax	(46,784,668)	(37,667,417)
Income tax charge	4,671,255	6,570,026
Loss after tax	(42,113,413)	(31,097,391)

 

 

Revenue

Group Sales of 3,314 mtV were 13.7 per cent lower than in 2020 due to challenges in international logistics channels arising from COVID-19, the unrest in South Africa and disruptions at local ports in July and August. Over the course of 2021, we saw a recovery in the Vanadium price to the average London Metal Bulletin of US$34.4/kgV, despite ongoing concerns about COVID-19. This recovery meant that lower sales were offset by a higher average realised price in 2021 of US$32.2/kgV (2020: US$23.4/kgV) resulting in higher revenue for the Group of US$106.9 million  2020:US$90.0 million). The logistical challenges resulted in the Company being unable to ship some of the product produced during 2021, resulting in a build-up of inventory throughout the logistics chain (stock at site, transit to Port, sea-borne and in-country warehouses) of 278 mtV which is included in the cumulative inventory at year end of 832 mtV.

 

The geographic split of Group sales in 2021 was 47 per cent (2020: 34 percent) to the United States, 29 per cent to Europe, 3 per cent to China and 21 per cent to the rest of the world. We expect the geographic mix to shift as Kiln 3 comes online in 2022 with the resultant wider product mix.

 

During the year, Bushveld took advantage of the robust vanadium demand and higher prices in the United States by diverting a larger portion of its sales to the Unites States. As a result, sales to the United States increased due to increased vanadium demand from the North American steel and aerospace industries on the easing of the pandemic lock down regulations and opening up of economies. We are pleased to have been able to supply into our framed contracts in the US despite these challenges.

 

Cost of sales

The cost of sales excluding depreciation for the period was US$83.4 million (2020: US$73.4 million), primarily due to the negative impact amounting to approximately US$8.5 million of the stronger ZAR: US$ exchange rate on costs in 2021. The balance of the increase is largely attributable to an overall increase in costs at both Vametco and Vanchem, as detailed below:

§ Increase in maintenance costs to US$16.5 million (2020: US$12.1 million) to sustain the plants, production volumes and improve operational stability.

§ Increase in energy and raw material costs to US$40.7 million (2020: US$38.5million).

§ Increase in mining costs due

§ to waste stripping of US$5.4 million (2020: US$3.2 million) associated with bringing the Upper Seam project online in September 2021.

§ The Group cost per unit sold (including sustaining capex) of US$37.4/kgV increased by 30 per cent (2020: US$28.8/kgV), mostly due to the cost factors mentioned above and lower sales volumes.

 

The Group focused on the commissioning of Kiln 3 at Vanchem along with associated downstream refurbishments. As a result, Vanchem production personnel costs increased in line with expectation as we implemented the plan in anticipation of the commissioning scheduled for May 2022. The time lag between the upfront expenditure required ahead of the planned increase in production was a contributing factor to the higher Group cost of US$37.4/kgV (including sustaining capital) relative to 2020 (2020: US$28.8/kgV). We continued with our cost-reduction measures as the Group maintained its focus on embedding the synergies across Vametco and Vanchem to grow production organically.

 

During the H1 of the year, we carried out a 35-day planned maintenance shutdown at our main operating asset, Vametco, which was followed by a slower than expected ramp up and a 10-day industrial action. The combination of these factors and a step change in our approach to a more sustainable production delivery resulted in a rebasing of our production profile for the year.

 

The rebasing of production had a negative impact on unit cost of production, with the fixed costs, accounting for approximately 45 per cent of total costs, being absorbed off a lower production volume.

 

Group production of 2,018 mtV in the second half was an improvement and 28.2 per cent higher than H1 2021 (H1 2021: 1,574 mtV) on the back of the operational improvements implemented after the production target rebasing.

 

 

 

	2021	2020
Total Cost
Cost of sales (direct) US$	(83,387,087)	(73,394,607)
Operating costs and admin US$	(33,357,130)	(31,534,411)
Other non-operating costs US$	-	(206,066)
Total income statement cost excl. depreciation US$	(116,744,216)	(105,135,084)
Total units sold (mtV)	3,314	3,842
Cost income statement per Unit sold (excl. Depreciation) US$/kgV	35.2	27.4
Sustaining capital US$	(7,192,393)	(5,375,610)
Total cost including sustaining capital US$	(123,936,611)	(110,510,694)
Cost per unit sold including sustaining capital US$/kgV	37.4	28.8
Average exchange rate ZAR:US$	14.79	16.46
Total Revenue US$	106,857,285	89,988,078
Average price realised US$/kgV	32.2	23.4

 

Cost-saving programme

We continued with the cost-savings programme ("CSP") introduced in 2020. The CSP is aimed at ensuring continued competitiveness throughout the commodity cycle while enhancing our product offering to markets across the geographies and industries in which we compete. The Group performed a diagnostic analysis for an addressable baseline procurement spend of around U$55.0 million. The process was concluded in February 2022. The outcome was targeted annualised cost savings of US$2.5 million - US$4.0 million over a 12 to 24 month period from February 2022. While, going forward, growing production is expected to contribute to further lowering of costs through fixed cost dilution, management will continue to seek broader cost saving opportunities to improve the company's unit cost performance even further.

 

Other operating and administration costs

Group administrative expenses increased by US$1.1 million at US$20.9 million (2020: US$19.8 million). On a like for like exchange rate basis the costs would have reduced by US$2.0 million, demonstrating the success of the cost containment measures we initiated in 2020.

 

Administrative expenses included staff salaries of US$10.8 million (2020: US$8.1 million) for both the operations and head office administration and management staff. Since the costs are not directly attributable to the cost of production, they are recoded under administrative expenditure based on industry practice. The operation salaries amounted to US$4.8 million (2020: US$4.7 million), whilst the shared service and change to head office division (including directors 'fees), amounted to US$5.1 million (2020: US$3.5 million). The increase in head office staff costs is as a result of the employment of key employees to manage the operations as part of shared services. Professional fees were maintained at US$5.9 million (2020: US$6.0 million), Included in professional fees are costs incurred of US$1.1m for legal fees for the litigation surrounding the Enerox Investment. On account of the successful defense against the litigation a portion of the legal costs have been recouped post year end.

 

Administrative expenses by nature	December 2021 US$	December 2020 US$
Staff costs	10,746,322	8,146,473
Depreciation of property, plant & equipment	392,669	256,929
Professional fees	5,860,976	6,017,782
Other	3,894,325	5,361,992
Total administrative expenses	20,894,282	19,783,176

 

 

Impairment losses of US$2.4million (2020:US$0) was a result of the impairment of US$0.5million Intangible asset and US$1.9million plant and equipment.

 

Other mine operating costs include social commitments and obligations at both Vametco and Vanchem costs decreased by US$1.5 million to US$3.2 million (2020: US$ 4.7 million). The idle plant costs of US$3.4 million (2020:US$4.2 million) mainly reflects the 35-day maintenance shut down during the Q1 of 2021. Selling and distribution costs increased by US$1.6 million to US$6.4 million (2020: US$4.8 million) as a result of increased commission paid which is a consequence of increased revenue in 2021 compared to 2020. The distribution costs also increased due to longer holding times as a result of logistical issues experienced in 2021.

 

Adjusted EBITDA and Underlying EBITDA

The Underlying EBITDA reconciliation shown below illustrates the impact of the increase in vanadium prices from prior year. Offset by the costs analysed above.

 

	US$
2020 Adjusted EBITDA	(14,940,940)
Revenue changes	16,869,207
Operating cost changes	(22,013,462)
Inventory movement	10,198,263
2021 Adjusted EBITDA	(9,886,932)

 

 

Underlying EBITDA is a factor of volumes, prices and cost of production. This is a measure of the underlying profitability of the Group, widely used in the mining sector. Underlying EBITDA removes the effect of impairment charges and remeasurement adjustments, foreign currency translation gains/losses and other non-cash expenses.

 

 

	Dec 2021 US$	Dec 2020 US$
Revenue	106,857,285	89,988,078
Cost of Sale	(102,782,583)	(91,260,760)
Other operating and administration costs	(33,357,130)	(31,534,411)
Add Depreciation and Amortisation	19,395,496	17,866,153
Adjusted EBITDA	(9,886,932)	(14,940,940)
Add: impairment losses	2,438,889
Underlying EBITDA	(7,448,045)	(14,940,940)

 

 

Other non-cash costs

IFRS 9 - Remeasurement of financial liabilities

The PFA was subject to remeasurement under IFRS 9. This resulted in a non-cash impact to the income statement of US$1.9 million (2020: US$ nil) remeasurement adjustment and US$2.8 million (2020: US$ nil) notional interest and a resultant increase in the loan of US$4.7 million.

 

Share of loss of VRFB JV

Our underlying investment in Cellcube, through VRFB holdings Limited (VRFB) is accounted for as an investment in Joint Venture. As such we recognise our portion of the loss recognised in Cellcube for 2021 which amounted to US$4.4 million.

 

Deferred Tax

Charges for deferred tax in 2021 amounted to a net deferred tax benefit of US$5 million, compared to a net deferred tax benefit of US$6.6 million in 2020 (restated). The deferred tax benefit arises from the unwinding of the liability over the life of the assets.

 

Deferred Tax on Vanchem acquisition

In 2019, the Group acquired assets in Vanchem which resulted in a recognition of a gain on bargain purchase of some US$60,6 million in the Group accounts and around US$85 million in the subsidiary accounts under IFRS 3 (Business combination). Based on IAS 12-Income taxes, a deferred tax liability of R333 million (c.US$23.7 million) should have been raised with a corresponding charge to tax on the income statement. The liability which has no cash impact will unwind over the life of assets with a credit to 2020 income statement on the tax line of R89 million (c.US$6.1 million) and a credit in the 2021 income statement on the tax line of R76 million (c.US$4.8 included in the US$5 million mentioned above). The overall impact of the adjustment in the 2021 accounts is a deferred tax liability of R167 million (c.US$10.5 million), a debit of retained earnings brought forward of R243m

(c.US$16.6 million) and a current year credit to the P&L of R76m (c. US$5.2m). The prior years in the balance sheet have been restated to reflect these changes and more details can be found in notes 15 and 35 of the financial statements.

 

Balance Sheet Assets

Assets

Non-current assets related to intangibles and property, plant and equipment remained broadly flat relative to 2020 and changes were mainly due to depreciation in the year. Our investment in VRFB transferred from Current assets (Refer to note 16 of the financial statements for further detail). A deferred tax asset was raised for the assessed loss incurred during the year, (refer to note 15 for further details).

 

The decrease in Group cash and cash equivalents was as a result of US$15.4 million (2020: US$50.5 million) was primarily due to the capital spend on growth projects at Vanchem, VRFB investment and the construction of our plant in East London.

The movement in fair value is as a result of the Group realising its investments in AfriTin and Invinity. AfriTin realised approximately US$3.5million and Invinity US$3.5million in 2021.

 

Equity and liabilities

Total current and non-current liabilities of US$149.9 million (2020 US$153.5 million) reduced by US$4.2 million from the prior year. The positive impact of the settlement of the Duferco loan of US$11.5 million of which US$2.5 million was cash and US$9 million settled through the issue of 66,892,037 shares, partial repayment of Nedbank of US$2.2 million as well as Orion US$1.1 million, were offset by the US$4.76million IFRS9 impact on the Orion financing loan, US$3.5million Orion convertible interest, and interest accrual on the PFA for the Q4 2021 which was only due and payable in Q1 2022.

 

 

Net debt

The net debt reconciliation below outlines the Group's total debt and cash position.

 

	2021 US$	2020 US$	Difference US$
Gross Cash and Cash Equivalent	15,432,852	50,540,672	(35,107,806)
Nedbank Revolving Credit Facility	(5 821,082)	(8,636,535)	2,815,453
Convertible Loan Notes - Duferco	-	(11,585,068)	11,585,068
Production Financing Agreement - Orion Mine Finance	(33,511,742)	(30,105,886)	(3,405,856)
Convertible Loan Notes Instrument - Orion Mine Finance	(37,313,976)	(33,073,699)	(4,204,277)
Other	(999,950)	(845,588)	(154,362)
Leases	(4,485,312)	(5,002,144)	516,832
Net Debt	(66,699,209)	(38,708,248)	(27,990,961)

 

 

Cash flow statement

The table below summarises the main components of cash flow during the year.

 

	Year ended 31 Dec 2021 (audited) US$	Year ended 31 Dec 2020 (audited) US$
Operating loss	(29,282,428)	(32,807,093)
Impairments	2,438,890
Depreciation and amortisation	19,395,496	17,866,153
Changes in working capital and provisions	(5,022,120)	1,253,029
Taxes paid	394,069	(3,452,492)
Cash (outflow) from operations	(12,076,093)	(17,140,404)
Sustaining capital	(7,192,393)	(5,375,610)
Free cashflow	(19,268,491)	(22,516,014)
Cash from other investing activities	(9,965,907)	(7,943,222)
Financing activities	(7,049,147)	47,433,269
Cash (outflow) / inflow	(36,283,545)	16,974,034
Opening net cashflow	50,540,672	34,011,557
Foreign exchange movement	1,175,725	(444,919)
Closing net cash	15,432,852	50,540,672

 

 

Net cash from operating activities was an outflow of US$12.1 million (2020: US$17.1 million), an improvement from the previous year driven by Adjusted EBITDA. Capital expenditure and investing activities for the year were US$17.2 million (2020: US$13.3 million), an increase of

US$3.9 million from 2020 mainly due to investing activities as explained below. The Group ended the year with a cash balance of US$15.4 million, (2020: US$50.5 million), the net outflow arising from, inter alia, higher capital expenditure and repayment of loans.

 

Investing activities

Investing activities were driven by capital expenditure growth with property plant and equipment expenditure of US$19.5 million, up US$9.3 million from 2020. This was mainly as a result of Kiln 3 capital expenditure of US$4.2 million and construction of the bushveld electrolyte plant of US$4.9million. In addition to above, payments were made for the deferred consideration owed to Evraz of US$1.7 million, Duferco deferred consideration of US$2.2million, Investment in CellCube of US$10million. The costs were offset by finance income to the value of US$1.0 million for the year as well as the disposal of the US$12.7million investment in Invinity and US$3.5million investment in Afritin.

 

Capital expenditure to sustain and grow our production

In line with our rebasing, we substantially increased sustaining capital at Vametco, in order for our operations to achieve stability and support the volume increase in the 2022 financial year as outlined below.

 

	2021 US$(million)	2020 US$(million)	Outlook 2022 US$ (million)
Vametco	4.5	4.4	5.5
Growth	0.6	2.6	-
Environmental/    Legal Compliance	0.2	-	0.6
Sustaining	3.7	1.8	4.9
Vanchem	7.7	3.6	8.5
Growth	4.4	-	4.5
Environmental/    Legal Compliance	2.6	3.4	2.4
Sustaining	0.7	0.2	1.6
Bushveld Energy	4.9		8.1
Growth	4.9		8.1
Total capital expenditure	17.1	8.0	22.1

 

§ The Group remained firmly focused on our strategy to sustainably increase production, prioritising the refurbishment of Vanchem's Kiln 3. During 2021 the Group spent US$17.1 million 2020:US$8.0 million on sustaining and growth capital. The total spend was comprised of the following:

§ US$3.9 million sustaining capital at Vametco, mainly comprised of medium- and long-term maintenance capex.

§ US$4.2 million growth capital for the refurbishment of Kiln 3 at Vanchem. Vanchem's production scale up to a run rate of 2,600 mtv per annum by the end of the 2022 financial year. The balance to be incurred during 2022.

§ US$4.9 million growth capital for BELCO electrolyte plant.

 

Financing activities

Financing activities of US$7.0 million comprise of the loan repayments of US$2.2 million on the Nedbank RCF and US$2.5 million Capital repayment of the US$11.5 million unsecured convertible loan note held by Duferco as well as US$1.7million interest on the Orion PFA. As explained above the balance of US$9.0 million which was due for repayment was settled by the issue of 66,892,037 new Bushveld shares. This was offset by the receipt of US$1.3million receipt from the Industrial Development Corporation(refer to note 25) for BELCO.

 

 

Financial Risk

The main financial risks faced by the Group relate to the availability of funds to meet business needs (liquidity risk), the risk of default by counterparties to financial transactions (credit risk), fluctuations in interest and foreign exchange rates and commodity prices (market risk). These factors are more fully outlined in the notes to the accounts. They are important aspects to consider when addressing the Group's going concern status. We proactively manage the risks within our control. There are, however, factors which are outside the control of management, specifically volatility in the ZAR: US$ exchange rate as well as the vanadium price, which we do not currently hedge, and which can have a significant impact on the cashflows of the business. As mentioned earlier, implementation of a hedging policy will be considered when we attain steady state production and have a wider range of products for sale in 2023.

 

Going Concern And Outlook

We manage liquidity risk by ensuring that the Group has sufficient funds for all ongoing operations. Our philosophy is to maintain a low level of financial gearing, given exposure to the vanadium price and exchange rate fluctuations.

As part of the annual budgeting and long-term planning process, the Board reviewed and approved the Group's budget and cashflow forecasting through to 2023. The forecast is amended in line with any material changes identified during the year. Equally, where funding requirements are identified from the cashflow forecast, appropriate measures are taken to ensure these requirements can be satisfied. In particular, a capital allocation framework is applied which prioritises maintenance and regulatory capital funding requirements.

 

We also closely monitor our working capital and regularly produce cash forecasts and analyse sensitivities to different scenarios, including, but not limited to, changes in commodity prices and different production profiles from the Group's producing assets. We have a pricing committee which considers commodity pricing outlook, taking into account industry analysts forecasts as well as inhouse intelligence.

 

Our future production profile in our forecasts is predicated on Vanchem Kiln 3 being commissioned during the H1 of 2022. Kiln 3 has been commissioned and is undergoing stabilisation and optimization, with ramping up expected to commence thereafter. The annual production run rate is forecast to ramp up to 5,000 - 5,400 mtV p.a. in the last quarter of the 2022 financial year and we remain comfortable that Kiln 3 will be at the forecast run rate by the end of year.

 

The Nedbank Revolving Credit Facility (RCF) of ZAR125 million available to Vametco is subject to financial covenants which are EBITDA-driven. The application of IFRS 9 on the Orion PFA resulted in an increase in accounting interest, over and above the actual interest paid which comprised the calculation of the net interest to debt covenant. Nedbank has approved the waiver of the covenants for the December 31, 2021, and we are confident of passing the 30 June 2022 reporting period. The term of the RCF ends in November 2022 and since August 2021, we have been paying approximately US$0.44 million (ZAR7.0 million) per month towards the RCF. of which approximately US$2.,65 million (R42.0 million) has been paid post the year end.

 

Although the start of the 2022 financial year has been challenging for Vanchem, as Kiln 1 battled with repairs and maintenance, we are encouraged by the positive production run rate at Vametco and the profitability that is coming through from that operation. The plant at Vametco is currently down for its annual planned shutdown during June 2022 and has generally performed well and is benefitting from the operational stability initiatives we embarked on during 2021. Whilst we have experienced logistical challenges with our sales, we have retained our customer relationships as the Group sells and distributes around 85 per cent of its product as frame contracts.

 

We continue to prioritise financial stability through cost containment, conserving cash and adhering to a clear capital allocation framework, to ensure the Group's resilience through the operating cycle. Accordingly, the Directors continue to adopt the going concern basis in preparing the consolidated financial information. Further information on the Directors going concern assessment is contained] in the accounting policies.

 

Tanya Chikanza

Finance Director

 

 

 

 

 

 

 

 

Bushveld Minerals Limited (Registration number 54506) Consolidated Financial Statements for the year ended 31 December 2021