Interview with Fortune Mojapelo, CEO of vanadium producer, Bushveld Minerals (AIM: BMN).
Bushveld Mineralsis a South African primary vanadium producer in the lower cost quartile for production. It is vertically integrated and is 1 of only 3 operating primary vanadium producers globally, owning 2 of the world’s 4 operating primary vanadium processing facilities, currently producing approximately 3,000t of Vanadium pa, which represents ~3% of the global vanadium market. The company’s target is to organically grow production to more than 8,400 mtVp.a. in the medium term.
Bushveld Minerals owns a diversified vanadium product portfolio that supplies to the steel, energy and chemical sectors. Bushveld Minerals participates in the entire vanadium value chain through its two main subsidiaries: Bushveld Vanadium: a vanadium mining and processing company; and Bushveld Energy: a project developer/energy storage component manufacturer that is focussed on vanadium-based energy storage systems (VRFBs).
Matthew Gordon talks to Fortune Mojapelo, 15th July 2020
Eventually, Bushveld Minerals aims to develop a sustainable and cash-generating business model that is in a lower quartile for cost. The platform will include high-grade, opencast, low-cost primary vanadium mines, alongside refurbished brownfield processing facilities, which provides a scalable aspect. The company also intends to be a pivotal supplier of electrolyte and other VRFB technologies.
Bushveld Minerals’ 2019 financial year numbers were disappointing for everyone. While the company met its guidance for production volumes and cost, the company only generated US$160M in revenues: a significant tail-off from its figure of US$190M for the same period in 2018. However, the vanadium price did fall from US$74/lb to US$48.90. The revenue drop is solely attributable to the drop in the vanadium price. In fairness to Mojapelo, he appears to have controlled what he is able to control, but the market can always have a sting in its tail. The ‘v’ in vanadium stands for volatile and always will; this is something investors need to get comfortable with, or they need to invest in something else.
Bushveld Minerals’ EBITDA was US$32.6M, which is a reasonable figure. Ending 2019 with US$34M in the treasury, the company was able to deal with COVID-19 more comfortably than most. What is the next move for Bushveld Minerals? The company plans to expand vanadium production to 8,400 metric tons a year (mtV), up from the 2,931 mtV it produced in its 2019 financial year. This news is something that could get vanadium investors really excited.
To get to this point, Mojapelo expects an expenditure of US$100M and aims to achieve the production figure within the next 3-5 years. The money will be spent on optimising the downstream to increase throughput at the company’s plant, alongside a phased approach to refurbishing three kilns and bringing them online by the end of 2024. It is a robust process, but can it excite the market?
Bushveld Minerals has been attempting to complete a listing on the JSE, but this has been delayed because the company was prioritising the significant acquisition of Vanchem and needed to figure out how to incorporate it into the company’s books. What is the benefit of listing in Johannesburg? Mojapelo thinks there is a growing narrative surrounding the company in South Africa, and African countries, in general, are perhaps more amenable to increasing their share of the battery metals value chain. An increase in policies that support these initiatives has gone some way to creating more momentum. Investors will need to decide if this is a waste of time, energy and money, or if this could add accretive value in the long run. Could the project be delisted from AIM in the near future? Mojapelo is coy, but he thinks the share price will eventually take care of itself if Bushveld Minerals continues to grow. Getting some more institutional names onboard would certainly shore up the value proposition and go some way towards boosting the share price. He will need to balance the effort expelled on each project within Bushveld’s portfolio effectively if he wants to deliver returns for shareholders. Lemur Holdings, a Madagascan coal player and Bushveld subsidiary, looks like a potential distraction, but he thinks a focus on value will enable it to be a worthwhile venture for shareholders eventually.
His comments could be interpreted as frustration at the level of liquidity and trading in the stock. The question is would the LSE be any better? Does JSE help? It would be marginal in my opinion. The reality is that vanadium just doesn’t look good at the moment. Bushveld is a good business with an exceptional CEO, however, Bushveld just looked a lot better at much higher prices. Now, the sheen has come off a bit and there are more exciting things like gold, which is distracting investors from a good story. Also, Bushveld Energy needs time for the market to catch up to VRFBs; it’s still early days for this technology. It is set up for success, but the reality is that the share price currently tells a different story. Investors who believe the vanadium thematic have two choices: get in now while the share price is depressed, or wait to see if and when the market recovers and revisit.
Over at Bushveld Energy, the first phase of its project, a 400MWh VRFB, should be completed this year. Every commentator I’ve heard on the vanadium space has told me that VRFBs are some way off being commercially realised. They’ve also told me any that companies that tell investors VRFBs will transform their value proposition are off the mark. What does Mojapelo think? It’s an 800MWh project, and he thinks projects of this scale are “great.” He’ll be looking to get involved in more in the future because the VRFB demand story in Africa is growing by the day. The need for energy storage is increasing as developing countries continue to progress. Could VRFBs play a key role in enhancing peaking capacity? Companies that produce their own power in Africa can now do so under much less regulatory framework, and this can only be encouraging.
The electrolyte plant, a real rarity, is currently being progressed through a phased approach. Bushveld Minerals has conducted the feasibility studies and the EIA. It has reached a construction decision and is ready to move forward with it. Investors will be hoping that Bushveld Energy and VRFBs can add to the company’s bottom line in the near future.
What did you make of Fortune Mojapelo? The company is well run, but are you a believer in the vanadium supply-demand fundamentals yet?
If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.
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Crux Investor had the pleasure of interviewing Fortune Mojapelo, CEO of Bushveld Minerals (AIM: BMN). He tells us about his journey in the mining space as well as telling us about the strategy of the company.
Vanadium has excellent fundamentals and a solid outlook.
Largest High-Quality primary Vanadium Resource in the World.
Brown Field capacity, allowing them to hit targeted production volumes quickly and cheaply.
Management team with a depth of technical expertise in Vanadium.
Operation with a natural hedge towards a Multi-Billion Dollar Market opportunity.
Substantial capital growth ahead, with possibility to start paying a dividend to shareholders.
Matthew Gordon: Well why don’t you start off, for some of the people new to the story, by giving us a two-minute overview of the business.
Fortune Mojapelo: Well what we are, we’re a Vanadium focused company. Vanadium is the commodity we focused on. And our vision, our ambition is to build it into one of the most significant lowest-cost, vertically integrated Vanadium company. Bit of a mouthful but basically what it means is, we want to combine our large primary Vanadium Resource base which is high-grade open-cast Resource base, across three deposits. The largest primary Vanadium Resource base of anybody in the world, combined with processing infrastructure that allows us to process this Vanadium into final product. And that processing infrastructure is centred around two key primary plants that we have in South Africa. The Vametco Plant, which we acquired in 2017. And Vanchem which we recently announced. So that gives us a platform to produce low-cost Vanadium at large scale. And the integrated piece of the business is how we take that Vanadium further downstream into the Energy Storage market, where we essentially plan on being one of the largest, one of the more significant Energy Storage companies through Vanadium Redox Flow Batteries (VRFB).
Matthew Gordon: The Vanadium spot price. If you look at it, it’s all over the place. It’s been a crazy ride.
Fortune Mojapelo: Yes.
Matthew Gordon: Tell us a little bit about where Vanadium sits in the market, its uses and applications?
Fortune Mojapelo: Yeah, it’s been a very volatile commodity. And when you look at its price profile it’s quite interesting to see. It can put some people off. But we think that in any commodity, your number one goal should be looking for that project or that production base that is cheap low-cost. If you’re the lowest cost producer, you won’t have much to worry about the volatility in the price.
Matthew Gordon: You’ve got a good margin. You’re one of the lowest quartile producers of Vanadium. But even so in terms of predictability, being able to plan ahead, it must be difficult?
Fortune Mojapelo: Again, I mean it depends how you structure your business.
Matthew Gordon: Tell us about that?
Fortune Mojapelo: For example you structure your business with a lot of debt, which is predicated on Vanadium coming in at a certain price. You got a problem if the price doesn’t realise there. But I think if you have a low-cost producer, and you’ve got a good capital structure, you should be okay. All right. We all want a stable Vanadium price. Make no mistake about it. But we think the first thing is make sure you’re a low-cost producer. And for us, it is one of four key pillars in the projects that we get involved in. Overall though, we think that as a commodity, Vanadium markets’ outlook is actually very good.
Matthew Gordon: Is this coming to your Redox Flow Battery (VRFB) component.
Fortune Mojapelo: But even before that.
Matthew Gordon: Describe Vanadium uses today and we’ll get onto what they could be.
Fortune Mojapelo: About 90% of the world’s Vanadium today is used in steel making. 8.2% of Vanadium to a ton of steel, you double its strength. And so it’s used in construction steel whenever you’re building infrastructure and it’s you know tensile strength in the steel…
Matthew Gordon: The rebar?
Fortune Mojapelo: And rebar. And so that’s been the traditional kind of space for Vanadium applications. And I should add that even if that was all that was to Vanadium consumption. That’s been the bedrock for a century plus. And I think it will continue to be, given its unique place in that space. In countries like China, where you got regulations that are being put in place to regulate the types of rebar that is produced, China is moving away from low-quality grade to rebar, to grade three, grade four rebars.
Matthew Gordon: China resetting the quality of the rebar did have an impact on the Vanadium price. And therefore, the knock on effect. Was that a big impact on you?
Fortune Mojapelo: It has an impact on Vanadium. I think the new standard in China, it’s estimated that if and when fully implemented, just to meet that standard, it should raise the demand for Vanadium in China domestically as much as 30%. Now given the China control about 50% of global Vanadium consumption is taking about a 15% uplift in the demand. That impact hasn’t really come through yet, because we believe that the enforcement of that standard hasn’t been as strong yet, but we believe that there will be… the government will start to implementing the inspections, and that in the second half of this year, we’ll see the enforcement of that standard increase. And therefore that demand upside will start to come through, from then on. And that’s of course just one part of the demand story. There is the Redox Flow Batteries, you talked about earlier on. And timing couldn’t be better, in terms of what’s going on in the world around higher energy electricity generation. The push for cleaner energy et cetera. So the use of Vanadium in Energy Storage, we think is going to substantially increase the demand profile of Vanadium, through these batteries called Vanadium Redox Flow Batteries.
Matthew Gordon: How long you’ve been with the company now?
Fortune Mojapelo: I have founded the company together with partners. Which stretches back to 2008. We enlisted in 2012 on AIM but we started essentially Bushveld Minerals, as an early stage exploration project, which we were developing from as early as 2000.
Matthew Gordon: You’ve gone from junior Explorer into Producer. You’ve obviously done quite well in terms of establishing yourself. So tell us about that journey?
Fortune Mojapelo: It’s been an interesting journey. I think we started our journey in the junior space at an interesting time, because it’s about the time that the global financial crisis was setting in. And as you know when that happened, risk capital becomes scarce because people are less willing to take big risks and the casualty of that is actually endeavours such as junior mining and Exploration. I partnered with three individuals in South Africa, two twins. Identical twins, both Professors of Geology. Maurice and Richard Filion and Anthony Filion is Richard’s son. And essentially, we started life with a view that you know these two gentlemen are doyen of geology in Africa. They know the Bushveld complex inside out. They’ve advised many people to find new deposits. Let’s create a business where we leverage that IP and we do it and we build projects and that’s how we started life and we started looking for Exploration projects that we can build up. And our journey grew from there.
Matthew Gordon: Are you a geologist?
Fortune Mojapelo: I’m not a geologist. I studied actuarial science and I worked in strategy consulting for a little bit.
Matthew Gordon: When you start it’s all about equity. Raising equity to be able to do what you needed to do.
Fortune Mojapelo: Look when we started, my interest was to do principal investments. I was looking for opportunities in Africa where there is scope for scale growth. And I’ll be honest with you, a year before that I didn’t know about anything called Junior mining at all, until I met with the Filions. And I think from there and we gelled. And we started finding projects, we started developing the projects, and were fortunate to get Baccus who backed us early. And you know one project led to another project, until we got Bushveld Minerals listed in 2012, on AIM.
Matthew Gordon: It’s interesting when we talk to a lot of CEOs, it’s not all plain sailing. It’s not smooth lines.
Fortune Mojapelo: It never is.
Matthew Gordon: So what are the important things for you, given you weren’t into junior mining when you first started. What are the things which stand out for you, what are those moments where there was a significant change in your understanding, or indeed the business?
Fortune Mojapelo: You’re always learning as you go. And I think for me starting point was that when you’re working with a technical team, in a technical field, that is exceptional, that it’s distinguished, who know what they’re talking about, is a good starting point. You know they will tell you that everything starts with geology and mining, and I tend to agree with them. And then the second thing is, your early deals there’s a general thing your early deals are always going to be the most expensive. But what’s more important is proving yourself and making money for your investors that give you capital to do what you want to do. And with time as you develop and as you prove successful. You can get a bit more leverage in your conversations with investors. So our very first project, was an expensive project from a financing point of view. But it gave us a platform to develop more. And that’s how we’ve developed ourselves. Even after we listed, we faced what every junior company faced. It was hard to raise money. We had projects that we were comfortable with, that they are solid projects. And we had a guiding philosophy, which we believed in, which I think has stood as very well. And we were fortunate that we had good projects. And from about 2013, after seeing our share price come down, or maybe it can come down since listing, we did what I think was pivotal, which is we decided to focus on Vanadium as a commodity. And it is really there that I think our inflection point started. We were still very small but we got our scoping study on our flagship project that we had done quickly. We did a Pre-Feasibility Study (PFS) and we developed a conviction about this market, that we’ve carried since then. And we believe it’s a market that is really for us to participate in.
Matthew Gordon: How much of the Vanadium market… you’re world number one?
Fortune Mojapelo: Well the largest in terms of the Resource base.
Matthew Gordon: In terms of the Resource base…in terms of production?
Fortune Mojapelo: In terms of production, we not the largest producer. There is at least two primary producers, that produce more than we do. Largo Resources and Glencore Rhovan operation in South Africa. But after their position that we did that we just announced a Vanchem between Vanchem and Vametco, from just a potential point of view, we have the capacity to become the largest primary producer, yes.
Matthew Gordon: What are you supplying in terms of world production now?
Fortune Mojapelo: Currently just under 3%.
Matthew Gordon: Just under 3%. And after?
Fortune Mojapelo: When we’ve gone through the refurbishment of Vanchem and we’ve got Vametco operating at full capacity, we’re targeting just about 10% of the global market.
Matthew Gordon: So significant. You have – Bushveld Minerals, Bushveld Vanadium, Bushveld Energy. Are those eventually going to be three different companies or are those just brands with the overall group?
Fortune Mojapelo: Bushveld Minerals is the listed holding company. Underneath that we got Bushveld Vanadium which essentially houses our mining and processing assets. So, it’s is the Resource platform. Mine it as cheaply as possible. And process it and produce Vanadium units. Bushveld Energy says let’s take it a step further and take a position in the energy storage market.
Matthew Gordon: I want to see if that gives us a clue or sense of where you want to go. Because if you’re creating those brands now, will they be separate entities at some point?
Fortune Mojapelo: I think you want to always retain flexibility around that. So we structure our companies always in a view, in a way that allows us that flexibility. Is it foreseeable that Bushveld Energy could be a standalone company in the future as possible. It’s not something that’s we definitely do. The reason we created it that way however, is that it is focused on a specific sector which is the energy market, and the energy storage market to be specific. If for example, we wanted to attract investors that are particularly interested in the energy market only, we have the ability to do that through Bushveld Energy. So we like that.
Matthew Gordon: But right now they are on the same P&L?
Fortune Mojapelo: Yes.
Matthew Gordon: Different team? Same team? Different skillset that’s for sure.
Fortune Mojapelo: It’s a different skill, especially if you look at the Bushveld Energy team is headed up by Mikhail Nikomarov, who’s got extensive experience in the energy markets. And his team includes people who have been involved in energy project development. So it is, you’re right, a very specific skill set that is required there.
Matthew Gordon: There’s Energy, and then there’s Energy. So again we’ll probably come onto it, but just to finish off with the recent acquisition. You made a recent acquisition! Why did you do it? What you’re thinking and what are you trying to fix?
Fortune Mojapelo: So our strategy that we’ve spelt out, the best route to developing are our projects is through targeting Brownfield assets. In fact if I step back. I mentioned earlier on that there’s a guiding philosophy to our projects. It talks about four key elements. 1. You want a commodity that is good sound fundamentals and good outlook from a price point of view. 2. You want to project all cost proposition will put you in the first or second quartile of the cost curve. 3. You want to have projects that you can reasonably bring into production, in the foreseeable future, without requiring massive CapEx. 4. And then the fourth one is you want scalability.
Matthew Gordon: Or it looks cheap or non-dilutive CapEx?
Fortune Mojapelo: Because if you need billions of dollars, where you gonna raise the money right? Especially if you’re a junior. 4. The fourth point is you want scalability. Vanadium ticks all of those boxes for us in South Africa. It’s a commodity with good fundamentals, as we talked about earlier on, from a demand side, from a supply side. In South Africa we really well located there.
Matthew Gordon: Well you are. But again, there’s a perception in the market in terms of country risk. Because there have been problems at various points in South Africa.
Fortune Mojapelo: I can come to that. But if I may for a second. I think you’ve got a commodity whose supply outlook is concentrated, mainly between three countries; China, South Africa and Russia. With South Africa having the largest high-grade primary Resources. We always say if you want high-grade Vanadium Resources, you’re going have to come to South Africa. Because that’s where we’ve got the combination of scale and grade. But also, the distribution of Vanadium Resources globally, and the distribution of the production Vanadium. It’s such that in our view, if you look forward to see where does new supply come from. If you don’t have grade that allows you to build a primary plant like we have in South Africa. You have to build a steel plant, which requires billions of dollars. Which is why you see most of the production in China and Russia, being of that nature, co-production steel plants which are expensive to build. New supply in our view is not going be dominated by the steel plants or big iron plants. It’s going to come from primary producers. But if you’re going to do primary production. You’re going to find grade.
Matthew Gordon: I think that’s true of a lot of commodities. I agree with you. Where are you’re selling your production?
Fortune Mojapelo: +50% of our production goes to the US.
Matthew Gordon: Goes the USA.
Fortune Mojapelo: But it’s predominantly the steel sector at the moment. And yeah. So you were we were talking about this philosophy and how we go to brownfields. So when we focused on Vanadium, and with our project in Mokopane, we did a scoping study, we did a Pre-Feasibility Study. What that showed us, we’d a project that required $300M. It was a high-grade Vanadium Resource. $300M CapEx to build mine & plant. Gives a good IRR of 25% assuming a Vanadium price, we’ll call it $33Kgs. Very nice project right.
Matthew Gordon: What’s it been averaging the last five years?
Fortune Mojapelo: Look I mean when prices have gone as low as $13.50 and gone as high as $127… So I couldn’t tell you exactly what the average is. But I’ll tell you that at $33, we’re comfortable we have a project that is good. All right. But the point I’m highlighting here is that, if you’re a $20M market cap company, or £20M might be coming market cap company, how are you going to raise $300M? Even though with a project that is solid, it is at that point for us where the epiphany of brownfields here, which is if I can find existing facilities, that I can convert into primary production for Vanadium, that a cheap and I can do it cheaply, then fantastic. And South Africa is unique in some respects in terms of Vanadium, because historically a lot of our industry was built on a vertically integrated basis. They didn’t just have mines, they’d in mines and processing plants. But what happened over like a 30yr globally, a shift upstream. So, your BHP’s, many of these companies they decided to focus only on mining. They saw the Pilbara expand capacity though just mining and ship it to China. Let China process it. It left a number, that kind of migration, left a number of facilities, downstream facilities, underutilised, in some instances not profitable et cetera et cetera. That is for us the opportunity when we talk Brownfield. It is can I acquire a facility that is either not being utilized or underutilized, and combine with my Resource base and produce Vanadium cheaply. The acquisition we did of Vametco was as a result of that of that strategy. We acquired it initially for $16.5M in partnership. It’s a plant which just last year, delivered a $107M in EBITDA. All right. And it’s a low-cost producer. And it’s a plant which we are now scaling up in terms of its production throughput. The same thing when you think of Vanchem. We thought okay. What are the plants out there that we can get our hands on? We’ve got the Resource base to supply them. We’ve got the logistics infrastructure to link our deposits with the plants. So Vanchem was the next one, where we did Vanchem. And between the two of them we create processing capacity that would have cost us many times over to build on a greenfield basis.
Matthew Gordon: I understand the financial logic. But in terms of a strategy for the business. We’ve touched upon briefly, in terms of what your plans are in terms of the energy space as well, but how do you describe your strategy? I mean you’re… logical, methodical about this. Would you describe yourself as aggressively confident about the way you do things?
Fortune Mojapelo: Maybe it’s part of a function of my upbringing and my learning. We tend to be very fact driven. Very analysis driven.
Matthew Gordon: Where does that come from?
Fortune Mojapelo: I studied Actuarial Science. I worked in a firm like McKinsey & Company, and there’s this sort of stuff that we did. And when we decided that Vanadium was a market we’re going to focus on, we bought Vametco at a time when Vanadium prices, this is when we agreed the deal, Vanadium prices were about $13.50. And yet we thought even if we have to subsidize this plant for another two years, it would still be worth it. What gave us the conviction, was a lot of work that we had done around the market structure, to come to the conclusion that this is a market in a structural deficit. A deficit that will continue for a while. A deficit that quite frankly, to close it, is the opportunity of primary producers, who have existing production capacity. And it was hard to convince people, so the deal wasn’t easy.
Matthew Gordon: By people, you mean the then owners?
Fortune Mojapelo: To convince financiers. But in the end, we got it done. And I think we’ve been proven right in respect of that. Another part of our strategy… so the brownfield strategy is a very clear strategy, that says Target Brownfield assets, and make sure that you invest in them. You refurbish them as necessary, and you maximise your throughput through them. Second part of it was that we realised 90% of the Vanadium demand is coming from the steel sector. What other sources of demand are there?
Matthew Gordon: What don’t you tell people about the VRFB which is Vanadium Redox Flow Battery. Start with that. What’s the difference between them and Lithium ion?
Fortune Mojapelo: Both of them are batteries which means that they store energy. And you charge them, and then you discharge them when you need energy. Vanadium Redox Flow Batteries (VRFB) essentially store that energy in Vanadium Electrolyte. Vanadium is one of those…
Matthew Gordon: So it’s liquid?
Fortune Mojapelo: It’s liquid. Vanadium can exist in four different oxidation states. It’s quite stable. So the concept of Vanadium Redox Flow Battery really is a reversible oxidation reduction reaction, between Vanadium and different oxidation states. So from two plus to three plus, from four plus to five plus. The charging and discharging, is the movement of ions between the different oxidation states. But what’s good about it is that it’s one element you’re using, so you don’t have the risks of cross contamination. Secondly what’s good is the fact that the way you store the electricity in these tanks, you can scale them up to the amount of energy you store by just increasing the size of the tanks, without duplicating the entire system. So they’re flexible, they’re scalable, they’re intrinsically safe.
Matthew Gordon: So less risk of fire or overheating?
Fortune Mojapelo: Never heard of any Vanadium battery catching fire. They can operate in fairly robust ranges of temperature and they’re long lifespan.
Matthew Gordon: So that’s less degradation?
Fortune Mojapelo: No degradation.
Matthew Gordon: No degradation?
Fortune Mojapelo: And you can run this for 20 years plus.
Matthew Gordon: So uses for something like this… You’re talking about the much longer life.
Fortune Mojapelo: Yes.
Matthew Gordon: Larger.
Fortune Mojapelo: Yes. Safe.
Matthew Gordon: Safer.
Fortune Mojapelo: And scalable.
Matthew Gordon: Scalable so different applications to Lithium Ion.
Fortune Mojapelo: Lithium advantages are typically, its high energy density. And Lithium is cornered, mainly, the mobility space. You’re not going to put a Vanadium battery in a car. And so mobility, your cellphones, your laptops. That’s typically its space. In the stationary, when you took stationary storage, Lithium still plays in that space, but it’s typically are in the short duration space, like frequency regulation for example. Once you gain long duration, and long lifespan, that’s a space we believe flavors Vanadium Redox Flow Batteries.
Matthew Gordon: So how much of Vanadium Redox Flow Battery would be Vanadium? What’s the potential size of this market, have you done any work?
Fortune Mojapelo: Yeah we’ve done a lot of work. And in fact, on our website, we’ve got a webinar on the ‘Energy storage 101’, which does a deep dive into…
Matthew Gordon: What’s the URL?
Fortune Mojapelo: www.bushveldminerals.com or bushveldenergy.com. Both websites will give you access to it. It’s worthwhile, because it’s quite a deep dive into this, into the applications of stationary energy storage. So maybe just to explain on a very high level. You use, if you’ve got a utility, and your load in a country for energy is not flat. You’ve got peak periods, and you’ve got off-peak periods, and you’ve got another peak periods… in South Africa for example, typically morning and evening peaks, afternoon off-peak. So how do you design your generation to meet that? Typically you go with what is called base load. Which is not designed to be at the peak level and then you supplement during the peak periods, with peaking capacity. And these are typically other gas plants or diesel generator plants et cetera. What energy storage allows you to do, is it can help you to flatten in off-peak periods you can store the excess energy and you can supplement during peak periods. Equally as you introduce more renewable energy to the grid, you need to smooth that entrance of that into the grid. Energy storage can help you with that. Thirdly in some markets like South Africa, you’re generating… peak, your peak generation capacity for solar is during the day, off-peak. If you’re able to store that power you can make it available in a more flexible way during peak periods. And there are few other things like, your transmission CapEx deferral. When you’ve got a transmission infrastructure. Think of it like a highway. If you get a freeway that gets clogged in the morning, and gets clogged in the evening, you got four lanes. You don’t build half a lane. You’re going to build two lanes right. Or three lanes extra lanes. But if that same four lane freeway, during the afternoon, is virtually empty. Building an extra two lanes is not quite efficient. So what if you could distribute that traffic more regularly during the day? The result of that is that you don’t have to build that extra lane. So your CapEx for transmission expansion, you can push it out more. So the world over utilities are recognising the value of stationary energy storage. It’s so big a market. It’s expected by 2027 to be in the order of $50Bn+.
Matthew Gordon: Globally?
Fortune Mojapelo: Yeah. So you’re talking about something like a 100,000 megawatt hours of new energy storage deployments per year. Now there’ll be different technologies to take a share of that market. We estimate that if Vanadium Redox Flow Batteries (VRFB) captures only 10% of that market, you will need about 55,000t of Vanadium to support that. That’s more than 50% of last year’s total production.
Matthew Gordon: But there’s ifs and buts in there? If being gets to that. So that VRFB style of battery is not there yet. Is there… Well you tell me… is there much of a take-up?
Fortune Mojapelo: What do you mean?
Matthew Gordon: I mean Lithium ion everyone’s gearing up Lithium ion and there’s a few other options, that people around that, but where is this design today?
Fortune Mojapelo: So what if I tell you that today, the biggest battery installed with more than +4hours storage capacity in the world is a Vanadium flow battery built by Sumitomo, 60Mw hours, 15Mw for 4hrs in Japan. The biggest battery being constructed in the world today is an 800Mw hours. 200Mw for 4hrs storage. Vanadium Redox Flow Battery is being constructed in China. It’s not a technology that’s in a lab. It is a technology that is in commercial deployment.
Matthew Gordon: Sorry there’s one-off batteries to sort of see what sort of scale they can get to, because they are going to…You mentioned some pretty… Sumitomo- big name, a lot of money. So are they planning to roll this out? Are they going be manufacturers or is this just like you say…
Fortune Mojapelo: There are several companies there are manufacturing Vanadium Redox Flow Batteries today. And the point I’m making that they are in commercial deployment today. They need to scale up of course. But what’s going to drive this scale up is more uptake of the various systems. Right now, we are seeing signs of that growing momentum. So I’ll give you an example, in South Africa our utilities announced that they’re going to be procuring 1,400Mw hours of battery energy storage. Funded already.
Matthew Gordon: Have they decided on the technology for that?
Fortune Mojapelo: It’s batteries. Multiple batteries will bid in that space. It’s long duration type. We believe that Vanadium batteries have a very strong proposition there. Not to mention a strong local content proposition there. The World Bank has announced a program for 17,500Mw Battery energy storage by 2025, in low and middle income countries. And they’ve committed a $1Bn to mobilise another $4Bn towards this. It’s a terrain which will be occupied by multiple technologies. So I’m not saying that this is going to be solely Vanadium’s terrain. But the numbers I told you, I said, if VRFB’s were to capture even 10% of that market. This is what it means. The point about it is that it’s such a big deal for Vanadium, that the entire Vanadium industry, in my view, should be doing everything they can to support the VRFB opportunity: the technology is there, the scale-up is what is required. And what we did in setting up Bushveld Energy is precisely to drive that going forward.
Matthew Gordon: You’ve adapted your strategy since 2012 to understand what’s coming down the line. But you’re… what you’re saying is, you think there’s a big bet to be made on the Battery technology…
Fortune Mojapelo: I think there’s a big low-risk bet. Let me tell you why low risk. Because our demand is anchored in steel-making. If Batteries never existed, we still have a fantastic story, anchored in supplying to the steel market with a low production cost basis. Two, it’s low-risk because the capital expenditure required to play in that space is much, much smaller relative to the capital expenditure incurred in building mines and processing infrastructure. I’ll give an example of that. To build a processing… a chemicals electrolyte manufacturing plant, capable of delivering 200Mw hours worth of Electrolyte a year. That will cost us $10M. Debt / Equity included, $10M to build. And that will use about 1,100 metric tons of Vanadium. To build a mine and a plant that supplies 1,100t of Vanadium. If I just do a ratio, simple ratio. You’re talking about a $100M. So the capital intensity down there is very, very low. And if you take that into account, for us as a company, it’s a no brainer to say, let’s do everything we can to support this emerging industry, which is not only attractive for its demand strengthening proposition. Commercially we think it’s potentially x10 as big as the commodity market.
Matthew Gordon: Okay so tell me, we’re going to bring this back to your company right. We’re talking about the market here. So, where’s Bushveld going to sit in this? What precisely are you doing? You’ve got the Vanadium. You’ve got energy division, we’ll call it. What are you going to be actually doing?
Fortune Mojapelo: So, there are two things. The first one is Bushveld Vanadium which is developing a large Resource base. Developing processing capacity. We have two processing plants producing Vanadium, low-cost high-quality. With good margins in case…
Matthew Gordon: For sure, I bought that, big tick.
Fortune Mojapelo: Tick. Second part of it is Bushveld energy. Which is there to promote the Vanadium Redox Flow Battery (VRFB) opportunity for Bushveld minerals. There are three things we do there. One is to manufacture electrolyte for the industry. Two is we engage in market development. It’s project development. What I mean by that is a team of people that understand the energy industry. Those are regulated market. Those are structured in markets. You need to know where the structural levers are to unlock them at large scale. So it’s individuals, who know the energy markets. We go we secure mandates for large-scale energy storage deployments. That’s the second thing we do. So for example bidding into the Escom program, the World Bank program. The third component to the business is partnering with Vanadium Redox Flow Battery companies. And we don’t need to reinvent the wheel there. We partner with the existing players…
Matthew Gordon: So, break that down, because that’s about the future. The future value of your company is inextricably linked to this. If you think the market’s going the way it is. So, I get the bidding bit, that’s a real skill. It’s tough. It’s hard. But in terms of these JV’s, these partnerships and linking with existing Battery technologies and manufacturers. What would that look like for you in real terms?
Fortune Mojapelo: Suffice to say there are several of these companies that have a good product. That have good management teams. That need to solve two things: Security of supply of Vanadium. And the need to solve for the price volatility of Vanadium historically. Two things which we can work on…
Matthew Gordon: Would it work on a contract basis in terms of forward purchase?
Fortune Mojapelo: No.
Matthew Gordon: No, it would be always spot.
Fortune Mojapelo: No, we’ve got a solution for that, which I’ll talk to. And then they need to scale up. For us it’s a case of saying, let’s partner with these guys. And partnership takes many different forms. And whether it means equity partnerships, whether it means JV’s, or whether it means just a simple relationship of supply of Electrolyte into their systems.
Matthew Gordon: Well you need certainty too. What they want is very important. But what you need is important too?
Fortune Mojapelo: But we can do a lot about that. That’s why we’ve got a project development arm so we go secure the mandates. So, I can come to someone and say, “I’ve got a partner”. Let me give an example. We’re doing a mini-grid at our mine. A 4Mw hour battery, 2.5Mw of solar. So for me to go to battery companies and say, I have the opportunity to build batteries, to supply into. I will supply the Vanadium into that. Can you give me a solution? And can we put together a solution which is ‘bankable’, which provides a solid business case to our mine. And in the case of the mini-grid the answer is absolutely. And we’ve had a number of responses from companies, and we’re in negotiations at the moment. And we are going to appoint somebody, and news of that we will publish.
Matthew Gordon: That would be interesting. Well I think there would be a few other miners knocking on your door at that point.
Fortune Mojapelo: At least it will provide a good model that others can… that combination of solar + storage can be a viable source to their energy requirements. I had mentioned that we’ll help them solve for the cost piece, the supply piece. The question is how do we do that? On the supply side, that’s why we’re scaling up our production capacity. I mean you’re talking about more than trebling production from 2,560 last year to about 10,000Mt. On the cost side, what we tried to do is to say, let’s take out the price risk of Vanadium from the CapEx decision that needs to be made about a Vanadium flow battery. And because the Vanadium, as we talked earlier, doesn’t degrade over life. And that at the end of the life, I can take it out of the battery without destroying the battery. And I can use it in another battery or I can convert it into pure Vanadium and sell it into the Steel market. It’s got residual value. And that allows us to actually rent the Vanadium into battery systems. And they’re of such a scale that a single contract can allow me to deliver enough Vanadium and it’s secure. And while it’s sitting in that battery, it’s earning yield and it’s still sitting on the balance sheet. So we think that by combining innovations like this, we’re able to solve for the two main hurdles that Vanadium flow batteries may have faced in the past. And we think that is going to support their deployments globally.
Matthew Gordon: Could you give us five reasons why they should be thinking about your company as an investment proposition.
Fortune Mojapelo: Five! I‘ve got seven. First one is that we have a commodity of Vanadium with excellent fundamentals as I said earlier on it’s in a structural deficit its outlook is really solid. Two, we have high-quality high-grade primary Vanadium Resources. The largest primary Vanadium Resource base of anybody. And three, we have Brownfield processing capacity, which we’ve put together, which we’re going to be scaling up, which allows us to hit the kind of production volumes that we are targeting very quickly and much cheaper than it would cost us on a greenfield basis. The fourth point, I would mention is that through the way we’ve gone about it. We’ve also acquired and inherited management teams with depth of expertise in Vanadium. South Africa has been doing Vanadium for decades. So we understand Vanadium from a technical point of view. The fifth point to highlight is that, the integration we have into energy storage. We have an operation that has got a natural hedge. Well if Vanadium prices come down, energy storage solutions such as Vanadium become a lot more compelling. Right. And also that gives us access into what we see as a multi-billion dollar market opportunity for the company. Then finally, not finally, second but not least, is that we are operating in a South African jurisdiction. The Bushveld complex, which is host to the largest high-grade primary Vanadium Resource base in the world. And with the story that we’ve put together today, with the growth that we have, our proposition then to shareholders is even just on a production growth basis, we’ve got substantial capital growth ahead. When you look at the downstream integration into energy storage that’s significant capital growth proposition. On top of all of that, we believe that being a low-cost producer we’ll be generating sufficient cash to look after our growth. And also, at some point to start paying a dividend to shareholders. So, in a nutshell that the proposition…
Matthew Gordon: That’s a magical phrase that. We like that. You’re sitting on a little bit of cash at the moment. I think you’re looking at building that up… you seem to know where you’re going with the company. It’s been fascinating listening to you today. Thank you very much for coming in and we look forward to seeing you soon.
Fortune Mojapelo: Thanks for your time.
Company page: www.bushveldminerals.com
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