Bushveld Minerals Limited Proposed Acquisition of 55% of Bushveld Vametco (9188X)

TIDMBMN

RNS Number : 9188X

Bushveld Minerals Limited

30 November 2017

Market Abuse Regulation (MAR) Disclosure

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 November 2017

Bushveld Minerals Limited

("Bushveld", the "Group" or the "Company")

Proposed Acquisition of 55 per cent. of Bushveld Vametco, Publication of Admission Document and Notice of General Meeting

Bushveld Minerals Limited (AIM: BMN), a mineral project development company with a portfolio of vanadium and coal assets in Southern Africa and an investment in tin, is pleased to announce the conditional acquisition of 55 per cent of Bushveld Vametco, being all the ordinary shares in Bushveld Vametco not currently owned by the Company ("Acquisition"). The Acquisition constitutes a reverse takeover under the AIM Rules and is therefore subject to shareholder approval and re-admission of the Enlarged Group to trading on AIM ("Admission"). Following the Acquisition (assuming it is approved by shareholders at General Meeting), the Company will hold 100 per cent. of the issued share capital of Bushveld Vametco Limited ("BVL") and, through BVL, will own a 78.8 per cent. economic interest in Strategic Minerals Corporation. Strategic Minerals Corporation, in turn holds 75 per cent. interest in Vametco Holdings Limited, which has a 100 per cent. interest in the Vametco vanadium mine, a high quality, low cost mine and plant producing a trademark protected vanadium product and a global vanadium customer base.

Highlights:

Acquisition details

-- The Company has entered into an Acquisition agreement, pursuant to which it has conditionally agreed to acquire all of the ordinary shares in BVL not currently owned by the Group from Yellow Dragon Holdings Limited ("Yellow Dragon" or the "Seller") for a purchase price of US$11.1 million.

-- The purchase price of US$11.1 million is to be satisfied on Admission by a cash payment of US$4.5 million and the issue of 54,766,364 new ordinary shares in the Company ("the Consideration Shares") by the Company to the Seller, credited as fully paid, at 9.06 pence per share. The Consideration Shares will represent 6.34 per cent. of the Enlarged Issued Share Capital of the Company and will be issued credited fully paid.

-- In addition, there will be two deferred payments of US$0.6 million each, payable following publication of the accounts for Vametco Holdings Limited for respectively the years ending 31 December 2018 and 31 December 2019, and a further payment to be made on publication of the Vametco Holdings Limited accounts for the year ended 31 December 2020 to be calculated by reference to the EBITDA of Vametco Holdings Limited for the period covered by its 2020 accounts.

-- Completion of the Acquisition agreement is conditional on inter alia shareholder approval at a General Meeting and Admission

-- Following completion of the Acquisition, Yellow Dragon will hold 79,766,364 shares representing 9.24 per cent of the Enlarged Issued Share Capital

-- The General Meeting for shareholders will be held at 10.00 a.m. on 20 December 2017 at 18-20 Le Pollet, St Peter Port, Guernsey GY1 1WH. The notice of this meeting is available on the Company's website at www.bushveldminerals.com and will be sent to shareholders today.

-- As a consequence of the Acquisition constituting a reverse takeover under the AIM Rules for Companies, the Company is required to apply for re-admission of the enlarged Group to trading on AIM. It is expected that Admission to trading becomes effective and commencement of dealings of the Enlarged Issued Share Capital will take place on 21 December 2017.

Rationale for the Acquisition

The Acquisition will increase the Company's indirect interest in Vametco Holdings from 26.6 per cent. to 59.1 per cent enabling it to fully consolidate the Strategic Minerals Corporation ("SMC") Group in its financial statements. The Directors believe that the Acquisition will benefit the Company and its shareholders for the following reasons:

-- Increased exposure to vanadium, a commodity with a robust and growing demand profile amid a constrained and concentrated supply environment resulting in a sustained structural deficit with no significant new supply anticipated in the near future;

-- Bushveld will own a majority shareholding in a high grade, low-cost open-cast and simple mining proposition with access to brownfield processing infrastructure that is being acquired for considerably less than its replacement cost;

   --      Vametco enjoys a significant c.3.5 per cent. share of the global vanadium market; 

-- The production base has the potential to expand within 3 years to over 5,000 mtV per annum, supported by one of the largest primary vanadium resource base in the world (under the ownership of Bushveld);

-- Vametco has the potential to diversify its product range beyond its Nitrovan(R) product; and

-- The Acquisition is further aligned with the Company's aspirations in the global energy storage space by providing capacity for potential electrolyte manufacturing.

Fortune Mojapelo, Chief Executive Officer of Bushveld commented:

"We are delighted to have reached agreement with Yellow Dragon Holdings for its interest in Bushveld Vametco Limited.

"Vametco has to date illustrated its strong cash generation capacity and, with the expansion initiatives underway, the drive toward a lower cost base which, in a rising vanadium price environment, ensures the transaction is accretive to our shareholders. This is a transformational transaction for Bushveld culminating completion of the initial phase of our vanadium strategy. Moreover the Company now completes its transition into a vanadium producer and launches a new chapter in its development. We now look forward to growing this platform in furtherance of our objective to build a low-cost, vertically integrated and scalable production base."

Enquiries: [e-mail]

 
Bushveld Minerals             [phone] 
Fortune Mojapelo, Chief 
 Executive Officer 
 
SP Angel Corporate Finance 
 LLP                         [phone] 
Nominated Adviser & Broker 
Ewan Leggat 
 
Blytheweigh 
Financial PR 
Tim Blythe / Nick Elwes      [phone] 
Gabriella von Ille            [phone] 
 

Introduction and background

The Company announced earlier today that it had entered into a conditional agreement to acquire 55 per cent. of the issued share capital of Bushveld Vametco (being all of the ordinary shares in Bushveld Vametco not currently owned by the Group) from the Seller. Following the Acquisition (assuming it is approved by Shareholders at the GM), the Company will hold 100 per cent. of the issued share capital of Bushveld Vametco and, through Bushveld Vametco, will own a 78.8 per cent. economic interests in Strategic Minerals Corporation. Strategic Minerals Corporation, in turn holds 75 per cent. of Vametco Holdings, which has a 100 per cent. interest in the Vametco vanadium mine, a high quality, low cost mine and plant with a trademark vanadium product and a global vanadium customer base.

The initial consideration for the Acquisition is US$11.1 million which will be satisfied through the issue of the Consideration Shares and US$4.5 million in cash by the Company to the Seller. In addition, there will be two deferred payments of US$0.6 million each (following publication of the Vametco Holdings accounts for the years ended 31 December 2018 and 2019), and a further payment calculated by reference to the EBITDA of Vametco Holdings in 2020 (following publication of the Vametco Holdings accounts for the year ended 31 December 2020).

The Acquisition constitutes a reverse takeover under the AIM Rules for Companies. As a result, the Company is seeking Shareholder approval for the Acquisition at the General Meeting.

The Company is also seeking to refresh its Shareholder authority for the issue of Ordinary Shares on a non pre-emptive basis, having used up a substantial amount of its current authority since the Company's annual general meeting.

The Company was incorporated on 5 January 2012 and was admitted to trading on AIM on 26 March 2012 as a mineral development company focused on exploring and developing mineral projects on the Bushveld Complex in South Africa. In November 2013, the Company announced its focus on developing a vanadium platform. In April 2014, the Company completed a scoping study on the Mokopane Vanadium Project followed by a prefeasibility study in February 2016. On 6 April 2017, the Company, together with Yellow Dragon, acquired, through Bushveld Vametco, a 78.8 per cent. economic interest in Strategic Minerals Corporation, the ultimate holding company of the primary vanadium mining and processing company, Vametco Alloys, from the Evraz Group for US$16.466 million.

This acquisition was in line with the Company's stated strategy to develop a significant, vertically integrated vanadium platform and accelerated Bushveld's path to production by several years. The acquisition was further aligned with the Company's aspirations in the global energy storage space by providing capacity for potential electrolyte manufacturing.

Bushveld Vametco has been the beneficiary of higher vanadium prices in 2017, enabling it to repay external acquisition debt. The proposed Acquisition announced today represents a continuation of the Company's strategy of building a vertically integrated vanadium platform and will, if approved, increase the Company's indirect interest in Vametco Holdings from 26.6 per cent. to 59.1 per cent.

The Acquisition Resolution will be proposed at the General Meeting to approve the Acquisition and effect the Proposals.

As a consequence of the Acquisition constituting a reverse takeover under the AIM Rules for Companies, the Company is required to apply for re-admission of the Enlarged Group to trading on AIM. It is expected that Admission will take place on 21 December 2017.

Information on Vametco Alloys

Introduction

The Vametco Mine is situated about 6.5 kilometres northeast of the town of Madibeng, (formerly known as Brits). The mine is an operational open cast vanadium mine, located in the Bojanala Platinum District within the North West Province of the Republic of South Africa. The operations are near Mmakau and Rankothea villages, approximately 500 metres to the south and west of the operations respectively.

Ore Reserves

Ore Reserves are declared for open pits inside the life of mine pit design (the optimised pit shell in this instance). Ore tonnes and grades are reported as run of mine tonnes after modifying factors for mining losses and dilution have been applied as expected to be delivered to the concentrator (i.e. before beneficiation plant recoveries have been applied). Ore Reserves are declared for in-situ tonnes in the pits and exclude any stockpiles.

Ore Reserve Statement for Vametco Mine as at 06 October 2017

 
                                   Gross                                              Net (26.6%) 
----------  ----------------------------------------------------  ---------------------------------------------------- 
 Category     Tonnes    Magnetite %    V(2) O(5) %     Contained    Tonnes    Magnetite %    V(2) O(5) %     Contained 
            (millions)                 contained in      Metal    (millions)                 contained in      Metal 
                                        magnetite        Total                                magnetite        Total 
                                                       V(2) O(5)                                             V(2) O(5) 
                                                       (tonnes)                                              (tonnes) 
----------  ----------  -----------  ----------------  ---------  ----------  -----------  ----------------  --------- 
                                                      Lower Seam 
---------------------------------------------------------------------------------------------------------------------- 
 Probable     26.12        26.79           1.96         137,152      6.95        26.79           1.96         36,482 
----------  ----------  -----------  ----------------  ---------  ----------  -----------  ----------------  --------- 
 Total        26.12        26.79           1.96         137,152      6.95        26.79           1.96         36,482 
----------  ----------  -----------  ----------------  ---------  ----------  -----------  ----------------  --------- 
 

Note: 1. All tonnages reported are on a dry basis

Note 2: There are no Measured Mineral Resources classified at Vametco Mine and therefore no Mineral Resources were converted into Proved Ore Reserves

Financial Performance of SMC Group

 
                                       FY 2014                FY 2015                 FY 2016                H1 2017 
                GBP'000                Audited                 Audited                 Audited             Unaudited 
-----------------------   --------------------  ----------------------  ----------------------  -------------------- 
 Revenue                                33,167                  32,666                  38,460                26,436 
------------------------  --------------------  ----------------------  ----------------------  -------------------- 
 No. of 
  tonnes 
  sold                                   1,884                   2,340                   2,810                 1,342 
------------------------  --------------------  ----------------------  ----------------------  -------------------- 
 Gross Profit                            9,616                   5,453                   7,709                 8,528 
------------------------  --------------------  ----------------------  ----------------------  -------------------- 
 Gross Margin                              29%                     17%                     20%                   32% 
------------------------  --------------------  ----------------------  ----------------------  -------------------- 
 Operating 
  Profit                                 4,315                     847                     687                 4,669 
------------------------  --------------------  ----------------------  ----------------------  -------------------- 
 Total comprehensive 
  profit/loss                            6,279                   (268)                 (1,176)                 3,477 
------------------------  --------------------  ----------------------  ----------------------  -------------------- 
 Net Assets                             34,474                  31,423                  31,999                33,782 
------------------------  --------------------  ----------------------  ----------------------  -------------------- 
 

Revenue primarily relates to the sale of two vanadium products, modified vanadium oxide and Nitrovan(R). Sales volumes in mtV have increased by over 20 per cent. from FY 2014 to FY 2016. Revenues fell though in FY 2015 despite an increase in number of tonnes sold, primarily due to a fall in prices. In FY 2016, the average selling price of vanadium increased by 27 per cent. which resulted in a 17 per cent increase in sales and a 41 per cent. increase in gross profit.

Products are predominantly exported. Evraz was historically responsibly for sales globally (excluding South Africa, Japan, China and Korea). Sojitz, a 21.2 per cent. minority economic interest in SMC, is responsible for sales into Japan, China and Korea. Customer contracts were directly with Evraz who received a 5 per cent. Fee. Following the acquisition of the SMC Group by Bushveld Vametco, an agreement was entered into with Wogen to provide the sales and marketing services previously provided by Evraz. Sales in South Africa are made directly by the Vametco Group.

Development Strategy

Vametco's development strategy comprises three elements:

(a) raising production capacity to increase sales;

(b) diversification of its production base to enhance the product range and broaden client customer reach;

(c) Downstream manufacturing development to maximise the beneficiation dividend.

Capacity has recently been raised to 3,035 mtV per annum and two further phases of expansion will increase this to 3,750 mtV per annum and to over 5,000 mtV per annum. The latter is anticipated to be reached by the end of 2019. The Company is exploring ways to expand its product portfolio to include other vanadium products in addition to Nitrovan(R). Finally, the Company intends to leverage its integrated platform for development of downstream operations by manufacturing value added vanadium products.

Net Present Value

The MSA Group has undertaken a discounted cash flow (DCF) analysis/valuation of Vametco. The valuation is based upon a LOM of 50 years, which includes the Indicated and Inferred Mineral Resources, and extends beyond the current converted mining right (which is valid until 2038). Furthermore, consistent with the development strategy, production is increased over a three year period to achieve consistent output of 4,920 mtV per annum from 2020 onwards. The long-term FeV price is set at US$30/kg. On the basis of a 10 per cent. real discount rate, Vametco has a NPV of US$211 million.

Overview of the Vanadium Market

The vanadium market is characterised by a robust and growing demand profile and a constrained and concentrated supply. Vanadium supply has seen significant reductions in the past 24 months resulting in a significant structural deficit projected to continue for the foreseeable future. This structural deficit has resulted in vanadium prices increasing from a low of US$13.55/kgV in January 2016 to US$23.60/kgV in December 2016. The price improvement has been maintained in 2017, with prices as of the end of October at US$34.13/kgV. of the average market price (Metal Bulletin mid) for 2016 was US$17.30/kgV, which rose to an average market price of US$27.53/kgV for the first 9 months of 2017.

On the demand front, approximately 90 per cent. of usage is in the steel industry, where growing intensity of use is anticipated, driven primarily by greater enforcement of construction standards in China, requiring higher vanadium-bearing rebar. Growth is also forecast in non-ferrous alloys (consuming 4.5 per cent. of vanadium output) and the chemical industry (consuming 3.5 per cent.). Looking ahead, the most significant driver of vanadium demand is expected to come from the energy storage sector. Industry estimates envisage vanadium flow batteries' share of vanadium consumption growing from approximately 1 per cent. in 2014, to 3 per cent. in 2016 and potentially up to approximately 20 per cent. by 2030.

Vanadium supply, on the other hand, is significantly constrained. The closure of the Evraz Highveld steel and vanadium plant and subsequent provisional liquidation of the Mapochs mine, as well as the suspension of operations at Vanchem in 2016, removed more than 10 per cent. of vanadium supply from the market and left the Vametco mine and Glencore's Rhovan operation as the only South African producers of vanadium, significantly contributing to the current global strain in vanadium feedstock.

China is the largest producer of vanadium in the world. The bulk of the supply feedstock in China comes from steel plants that process low-grade vanadium-bearing magnetite ores to produce steel and a vanadium slag which is then further processed through a process similar to the primary production processes (salt roast and leach operations). This source of vanadium is significantly constrained due to:

-- High input costs as a result of mining and processing low-grade captive ores, relative to the higher quality and low-cost seaborne haematite ores;

-- Steel plants that have to be designed for extraction of titanium and vanadium, resulting in operating costs that are significantly higher than simple blast furnace operations processing haematite ore; and

-- No leverage on steel prices as a consequence of the small share of steel production that the high-cost vanadium and titanium bearing magnetite ore processing steel plants have.

As a consequence, these plants are under enormous economic pressure, with some resorting to blending their ores with cheaper and higher-quality hematite ores (that contain no vanadium) resulting in further supply reductions. New sources of supply require higher vanadium prices to be sustained. Furthermore, few projects have the requisite vanadium grade to operate economically as primary vanadium operations, while the option to develop them as steel or pig iron producers with a vanadium slag by-product carries large and often prohibitive capital costs. Nonetheless, persistently higher vanadium prices will likely provide an incentive for some suppliers to start producing vanadium, notably stone coal miners in China which host sedimentary style vanadium deposits. These operations, though, pose substantial environmental challenges, which impinge on their feasibility of bringing additional supply onto the market.

Principal Terms of the Acquisition

On November 2017, the Company entered into the Acquisition Agreement, pursuant to which it conditionally agreed to acquire all of the ordinary shares in Bushveld Vametco not currently owned by the Group from the Seller for a purchase price of US$11.1 million to be satisfied on Admission by

   (i)         a cash payment of US$4.5 million and 

(ii) the issue of the Consideration Shares by the Company to the Seller, credited as fully paid, at the Consideration Share Price.

In addition, there will be:

(i) two deferred payments of US$600,000 each, payable following publication of the accounts for Vametco Holdings for respectively the years ending 31 December 2018 and 31 December 2019 and (

(ii) a further payment to be made on publication of the Vametco Holdings accounts for the year ended 31 December 2020 ("2020 Accounts") to be calculated by reference to the EBITDA of Vametco Holdings for the period covered by the 2020 Accounts.

The Consideration Shares will represent 6.343 per cent. of the Enlarged Issued Share Capital and will be issued credited fully paid. Pursuant to the Acquisition Agreement the Seller has also agreed to enter into an orderly market agreement for a period of 12 months from Admission in respect of all Ordinary Shares held by it on Admission (including the Consideration Shares).

Completion of the Acquisition Agreement is conditional on inter alia the passing of the Acquisition Resolution by Shareholders at the General Meeting, and Admission.

General Meeting

A notice convening the General Meeting, which is to be held at 18-20 Le Pollet, St Peter Port, Guernsey GY1 1WH at 10 a.m. on 20 December 2017, for the purpose of considering, and if thought fit, passing the Resolutions which seek to do the following:

-- approve the Acquisition and authorise the Directors to issue the Consideration Shares for the purposes of the Acquisition; and

-- authorise the Directors to issue, grant rights to subscribe for, or convert any securities into up to 287,793,087 new Ordinary Shares in the Company, being approximately one third of the Enlarged Issued Share Capital, and to disapply pre-emption rights for up to 100,000,000 new Ordinary Shares, being approximately 11.6 per cent. of the Enlarged Issued Share Capital, having used up a substantial amount of its existing authorities through the issue of the Convertible Bonds and Convertible Bond Warrants.

The Acquisition Resolution will be proposed as an ordinary resolution (Resolution 1). The Authority Resolutions will be proposed as an ordinary resolution (Resolution 2) and as a special resolution (Resolution 3). An ordinary resolution, in order to be passed, requires the approval of a simple majority of those voting in person or on a proxy or on a poll, and a special resolution requires the approval of 75 per cent. of those voting in person or on a poll by proxy.

It is a condition to completion of the Acquisition that the Acquisition Resolution is approved by Shareholders.

About Bushveld Minerals Limited

Bushveld Minerals is an AIM quoted mineral project development company with a portfolio of vanadium and coal assets in Southern Africa and an investment in tin.

The Company's flagship vanadium platform includes the Mokopane Vanadium Project, the Brits Vanadium Project, and an interest in Bushveld Vametco Alloys (Pty) Ltd primary vanadium mining and processing company. The coal platform comprises the wholly-owned Imaloto Coal Project, which is being developed as one of Madagascar's leading independent power producers. The Company's tin interests are held through its shareholding in AIM listed AfriTin Mining Limited.

Bushveld's vision is to become one of the largest, low cost, integrated primary vanadium producers through owned high grade assets. This incorporates development and promotion of the role of vanadium in the growing global energy storage market through Bushveld Energy, the Company's energy storage solutions provider. Whilst the demand for vanadium remains largely anchored in the steel industry, Bushveld Minerals believes there is strong potential for an imminent and significant global vanadium demand surge from the fast-growing energy storage market, particularly through the use and adoption of Vanadium Redox Flow Batteries.

The Company's approach to project development recognises that, whilst attractive project economics are imperative, they are insufficient to secure capital to bring them to account. A clear path to production within a visible timeframe, low capital expenditure requirements and scalability are important factors in ensuring a positive return on investment. This philosophy is core to the Company's strategy in developing projects.

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

Competent Person

The scientific and technical information relating to Mineral Resource estimation contained within this announcement has been reviewed and approved by Mr. Jeremy Witley, a professional geologist with more than 25 years' experience in base and precious metals exploration and mining as well as Mineral Resource evaluation and reporting. He is Principal Resource Consultant for the MSA Group and has the appropriate relevant qualifications, experience, competence and independence to be considered a "Competent Person" under the definitions provided in the JORC Code 2012 Edition.

This information is provided by RNS

The company news service from the London Stock Exchange

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November 30, 2017 02:01 ET (07:01 GMT)