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Good day, and welcome to the Bushveld Minerals Q2 2023 Operational Update. At this time, I will turn the call over to your host today, Mr. Craig Coltman, CEO. Please go ahead, sir.
Thank you, and good afternoon all. Welcome to our quarterly and half year operational update call, and thank you to all who have dialed in. It's a pleasure to discuss our results for the first time as CEO. Presenting with me today is our Finance Director, Tanya Chikanza, who will provide an update on the quarter just gone, and I will discuss and share some of the plans and initiatives we have already started to put in place. I'm pleased to announce that all resolutions put to the shareholders at the Annual General Meeting held earlier today were duly passed.
I will now hand over to Tanya to present the second quarter operational performance.
Thank you for the introduction, Craig. Good afternoon to you all. I will start with safety, where thanks to our continued focus on the safety improvement program across the group, we can report that a total recordable injury frequency rate of 3.39% was achieved, a 58% decrease for the first half of the year.
Again, looking at just at our half year group production for the first half was 1,784 mtV, up 8.7% from H1 '22 with H1 2023 cash cost coming in at $26.6 per kgV, $1.7 less than prior year costs. Group sales for the first half were 27.4% up on prior year at 2,096 mtV.
Looking at the group numbers for the quarter. Before we dive into the individual assets, production for the quarter was 840 mtV, up 25.8% from Q2 2022, with a group-weighted quarterly average production cash cost of $27.40 per kgV, which is $3.80 less than Q2 2022. This was attributable to higher production volumes and a weakened South African rand to U.S. dollar exchange rate. Sales for the quarter were up 36% to those of last year at 1,068 mtV and is supported by reductions in stocks.
Looking at the individual operations and beginning with Vametco, quarterly production was 485 mtV. Production was negatively impacted by 4 main things: a 5-day unplanned maintenance shut of the Sulfate Recovery Plant; unusually high rainfall levels during the period, which necessitated the plant stoppage due to barren dam level constraints; a further 7-day unplanned maintenance shut for the duct collectors at the refinery; and power instabilities as a result of the transformer failure at the local municipality during the end of June. These events resulted in a loss of approximately 200 mtV at Vametco for the quarter.
Costs were $27.50 per kgV for the quarter compared to $24.40 per kgV a year ago owing to high raw material and maintenance costs. We are continuing to explore both long and short-term plans to mitigate the challenges posed by the barren dam. But unfortunately, these issues and challenges with the Sulfate Recovery Plant mean we have had to reduce our 2023 guidance in Vametco to between 2,300 to 2,400 mtV.
I can move on to Vanchem. This quarter saw increased production levels of 355 mtV, up from 191 mtV in Q2 2022, supported by the use of Kiln-3. As a result of the higher volumes and the benefit of a weaker South African rand to U.S. dollar, we saw cost flattening over the course of the quarter and productional cash cost for Q2 2023 at Vanchem were $27.2 per kgV compared to $48.5 per kgV in the prior year period. Notwithstanding the higher production during H1 2023, Vanchem's production was materially lower than what we had anticipated for the period. As a result of unplanned plant breakdowns and unscheduled power disruptions arising from lack of reliability of the municipality's infrastructure. In addition, there were delays in the use of third-party, better quality ore, which we had expected to begin utilizing in April 2023, but processing of this ore only started in July 2020. For these reasons, we have revised guidance to between 1,400 mtV and 1,500 mtV for the full year.
During the month of July, we implemented a number of initiatives to improve Vanchem's performance, and Craig will discuss these initiatives further down in the call. Overall, given the aforementioned challenges at Vametco and Vanchem, we now expect to produce between 3,700 mtV and 3,900 mtV as a group for the full year, with costs expected to coming between $26.60 per kgV and $26.90 per kgV.
With regard to the vanadium market, demand for Bhushveld full range of products remains strong globally and we continue to expect sales to be in line with production volumes through the second half of the year.
Moving on to BELCO. Construction and initial testing of the plant were completed with the hot commissioning phase commenced. The plant will continue to the hot commissioning process during the second half and production of vanadium electrolyte will commence on suitable off-taker for the product are secured. I am pleased to report that the hybrid mini-grid project in Vametco is making good progress. The VRFB system has included electrolytes and energized for the first time, marking a successful milestone that puts us in line with our expectations to become fully operational in Q4 2023. Upon completion, the plant will generate nearly 10% of Vametco's electricity requirements. Thank you.
I will now hand over to Craig to discuss the production outlook for the rest of the year.
Thank you, Tanya. In my short time at Bushveld, having had the opportunity to visit our key operations recently, I've seen that while there are challenges, there are also many opportunities to get the most out of our assets. My immediate priority is to focus on the fundamentals of the business by ensuring stability at Vametco and achieving a turnaround strategy at Vanchem. As Tanya alluded, Vanchem has struggled during the first half of 2023. And although volumes are higher relative to last year, its production is significantly lower than what it should have been for the first half of this year.
To this end, we have initiated a Vanchem turnaround project, and I'm glad to report that a number of the initiatives have already been implemented during the month of July with the aim of getting Vanchem into a sustainable positive cash flow position in the short term and achieve sustainable production levels of around 180 mtV per month within the next 6 months. These initiatives include changing the reagent mix from 100% Sodium Sulfate to a mix of Sodium Carbonate and Sodium Sulfate, which will reduce the silica buildup at the kiln and, of course, increase the kiln availability. Secondly, deploying a team from the Vametco to Vanchem to improve knowledge sharing. Thirdly, including shift managers for supervision 24/7 to ensure immediate decision-making. Since the implementation of these initiatives, we've seen Vanchem produce 158 mtV during the month of July.
In order for Vanchem to meet its revised guideline of 1,400 to 1,500 mtV, average monthly production has to increase by at least 50% relative to the average monthly production for the first half, which has already been achieved in July. We have a reasonably high level of confidence of this performance continuing through the rest of the year and achieving the new revised group guidelines of 3,700 to 3,900 mtV.
Thank you for your time, and I'd like to pause now to take questions.
[Operator Instructions] Our first question is coming from Marina Calero calling from RBC Capital Markets.
I have a question on the barren dam challenges that you're experiencing at Vametco. Can you give us more details about the potential solutions you are exploring? And maybe as an extension of that, how should we think about your CapEx outlook for this year given the [indiscernible] you have to do?
Thank you. So the storage facility at the barren dam comes at the downstream side of the business just after the precipitation of vanadium. And it is at a very, very high level. The SRP and the barren dam are interdependent. And when the levels get to maximum capacity and the SRP can't facilitate the evaporation process it hampers the ability to run at full capacity. Two things are happening in the short term. We are deploying humidifiers on the dam to assist with accelerated evaporation plus a temporary storage facility. It is envisaged this will be put in place for no more than 3 months. And simultaneously to that, we are working on fixing temporarily the SRP to an extent that it will be able to get back to its normal capacity. The expected time frame to fix the SRP is in the order of 2 months, giving us some headroom for the 3-month period that we've set aside to assist the current barren dam with evaporation. The estimated cost of the SRP capital fixes in the order of ZAR 15 million to ZAR 20 million. The CapEx requirements on the barren solution and the temporary storage is really around piping and a few pumps and it really is a few million rands. I hope that answers your question.
Next question is coming from Nick Chalmers calling from ARC.
Just following up on that last question, is that CapEx that you alluded to? Is that in addition to the sustaining CapEx guidance that was provided at the beginning of the year? Or is it coming out of that budget? And second question for me is, at Vanchem, you've been receiving the third party or since July, I think the press release said, has that been performing as expected? And can you give us a little bit of color on the term of that supply contract and how long that materials likely to be available to you?
Let me address the first question. The initial capital guidance that was provided did not include the ZAR 15 million or ZAR 20 million that is now required to address the repairs/maintenance on the SRP. So that's in addition too. In terms of the ore, the VTM ore that we had processed in the month of July I'm not satisfied with the quality of the ore we're getting yet. And in simple terms, the expectation was that when we process it through our plant or our MAG separator, the mix would be 85-15, 15 going to slimes dam and then 85 coming to the front end of the kiln. That would be an acceptable level of silica. What we experienced in the first month is a 70-30 split, 70 going to the front of the kiln, 30 going out to the slimes dam. That's unacceptable, not too much silica for the kiln. Fortunately, we've had no stoppages on the kiln because we've had a change in the reagent mix with increased Sodium Carbonate.
What we have done is moved our own MAG separator to the source of the ore. And as of today, we've actually commissioned our own MAG separator at the source of the ore such that by the time it gets delivered to our operations at Vanchem, we are expecting to get to what was originally envisaged the 85-15 split when we processed it through our MAG separator, and that will, in turn, result in improved efficiency through our kiln. In terms of the tenure of that contract, for the VTM ore, it is until October 2025. I hope that answers your question.
Our next question is coming from Thomas Martin calling from BNP Paribas.
On Vanchem plant, you're targeting the 180 a month within the next 6 months, do you need to receive -- I mean is that contingent upon you receiving this steady supply of on-spec third-party ore?
Absolutely. A critical success factor of achieving that 180 mtV is to get the constant supply of all that we've just signed up for this new contract that I referred to earlier.
Okay. And is it fair to assume that you've got next to no stockpiles ore at present? I mean it's all relying upon you receiving the deliveries on a timely basis.
Next to nothing is correct. We've got about 5 days on average of stock at the site. Not much contingency. But we're making sure we put our best relationship manager managing this contract to make sure that things work as effectively as possible with the supply of VTM.
Perfect. The last one related to this, just on the -- I mean, 180 a month equates to about 2,200, 2,160 on an annual basis. And what I'm wondering is -- is that your guidance for -- that implicitly going to be your guidance of 2024 of Vanchem production? Should we be thinking about a multiyear period to ramp up to those levels? Simply getting ore on a regular basis and the equipment relocation that you mentioned working correctly is 2,160 what you're shooting for next year?
It's too early to give realistic and confident guidance for 2024. There are a few issues around those initiatives that still need to bed down. Once we've had a couple of sustainable months under the belt, we've got a shutdown in October. That will give us further opportunity. And after that, we'll see what consistently we are achieving and that will be a much better position to give guidance with more confidence in terms of what the 2024 numbers are going to be for Vanchem.
If you could bear in out a couple of other ones, big picture one. Just when you announced your year-end results and you had the Going Concern statement in there, was this outlook for the business that you're talking about today related to first half operations incorporated in that? Or is this an incremental upon that assessment?
It's Tanya here. The Going Concern statement in the financial reports obviously looks at your outlook of 12 months from the date that we sign the accounts. So in that Going Concern, we looked at what the performance of the assets, what we expected them to be for 2024. As Craig says, we've not -- we have not reviewed those, but we did look at what we expected for the rest of this year as well as importantly, the financial aspects, primarily the Orion restructuring, which is well flagged out in the market. And we did specify in there as well the working capital retirement, which are a function of the fact that it is well articulated, the ramp-up of Vanchem has really been less than what we initially planned and anticipated has been taking longer than planned.
Thank you, Tanya. It's also worthwhile to mention. I think that these turnaround initiatives that I spoke to earlier are expecting to deliver the 180 mtV sustainable from August. That's a 75% step change or improvement versus what Vanchem achieved on average for the first 6 months. So doable, and we've seen that in July, but it's worthwhile mentioning that it's a quantum improvement in terms of what was done in the first half, but confident about those initiatives being sustainable.
Can I ask one final one, sorry for me. BELCO, you mentioned that you haven't secured off-take as yet. Wondering if you could provide any more detail around that process. And I guess what I'm wondering is, I mean, do you actually have off-takers that your -- potential off-takers that you're in discussion with who want to see the plant fully hot commissioned. Is that a critical enabling step or is that not the case?
I mean I understand that in an ideal world the marketing gets done ahead of commissioning of plants and that you've got some level of confidence around the number of customers. I'm actually going to BELCO tomorrow to get a better understanding. It will be my first visit there, I've been in the seat a month now, to get a view of what is the odd and the possible to understand the variables, to understand the model, understand the risks and the opportunities. And I think after that, I'll be in a much better position to give a response with more confidence.
[Operator Instructions] Our next question is going to be coming from Sergey Raevskiy of SP Angel.
So many of those have been already answered. But just if you can comment on the -- again, on Vametco. So you say that the second half, you'll be doing the changes that you highlighted. But would it be reasonable to expect from next year that you'll be targeting 2,700 tonnes of vanadium as per previous guidance, once you dealt with those things?
I'll be able to give a more definitive answer and the probability of that once we have spent the first 2 months fixing the SRP and a month after that, we can see what the throughput is like. Obviously, the team have a goal that's internally going to stretch them. And only then will I be in a position to think about what the annualized number is going to be in terms of guidance for 2024.
Okay. And another one is, can you say how much of the vanadium product you've gotten stocked out at the moment? You -- I noticed that you've been destocking through first quarter and more in the second quarter. Is there more inventories that could come through in the second half?
Tanya, can I ask you to respond to that, please?
Just the second part -- what was the second part of your question? The last...
Just how much stock piles you've got in vanadium product and if you could sell it in the second half?
Well, clearly, you can see that our sales exceeded production. So we have been winding down our stocks. And also, importantly, one of the things that we do, do is we do that stocks in anticipation of shutdowns. So there isn't really going to be that much of a buildup of stocks in the second half, especially when also you add the fact that Vametco is -- the production in the second half is going to be reduced compared to prior year.
So the stocks are on the lower side.
Very much on the low side, yes.
This is the answer.
Okay. And also just the last one is on the Enerox investments and Mustang Energy deal, what's the latest is the interest in VRFB going into Bushveld Energy? Is it -- like what's the latest thought on that?
When you would have seen the announcement, we have now 40%-60% equity stake in VRFB. And in terms of Mustang, I mean, we cannot comment on Mustang's plans. Mustang will release an update on the relisting process as they progress.
Can I just explain that the 60-40 split comes into effect once Garnet has provided the entire $3.25 million. So once Garnet provides the full settlement that's when 60-40 split comes into effect.
Yes and certain some regulatory approvals. Thank you for clarifying that, Chika.
Our next question is coming from John Meyer calling from SP Angel.
Thank you, Craig, for giving us the presentation. Looking at the recovery rates, which is always something we look at fairly early on when we analyze companies. It wasn't so good in Q2. You've discussed a little bit of that, but what steps are you putting in place in order to try and bring those recovery rates back up. I mean, at the Vametco, clearly, there's an issue. And also a little bit at Vanchem.
When you refer to recovery rates are you referring to the OEE efficiency at the plant.
In the RNS, the recovery rates are from the kiln to the MVO at Vametco and in Vanchem, recovery kiln to final product, those are the figures that we have to look at.
Yes. So let me start with Vanchem first. In June, 80% of our downtime at the kiln is due to silica build up. So we have changed the reagent mix to a 70-30 split now with Sodium Carbonate that we believe, is going to assist the uptime on the kiln, and we've seen that in the month of July. We've also had the other initiatives in place in terms of individuals that have moved across from the Vametco albeit temporary all of that, plus the shift managers all contribute towards the improvement recovery at the kiln for Vanchem.
In terms of the Vametco, we had some difficulties, particularly in June, around I wouldn't call it load shedding, some curtailment where some of the substations were out for a reasonable period of time and the whole operation was shut down. I was there when that actually happened during the week. The guidance going forward assumes that, that disruption won't continue. And of course, ongoing supervision and maintenance on the kiln, slightly changed shutdown plan from just about a month or sort of 10 days is going to allow us to spend more time on the kiln. The guys have deliberately stockpiled a bit of ore at the end of the kiln, so that we can continue the downstream to get the production through and just spend a bit of time on maintenance on the kiln to get it back to acceptable levels of recovery. I hope that answers your question.
One more question. Tailings dams, well mines live and die on tailings dams and you report a certain amount of rain, but I'm not aware that this is a particularly bad year for rain in South Africa. We haven't been seeing the floods that we saw a year ago in the tail, for example, So it's concerning that there's a buildup of water in that. I mean is there more work that needs to be done on the tailings dams. When I first visited the site with Fortune some years ago, there was a load of CapEx that was earmarked for tailings dam's work, and that was an important part of the acquisition from the Russians. Is there going to have to be a pile of -- sorry, a bunch of new CapEx to sort these tailings facilities out?
So first of all, I mean, we may not have had excessive rain over the summer months, but we have certainly had record rains in the month of May, which is unusual in this part of the [indiscernible]. So significantly above what you would expect as an average over the last decade in the month of May. The team around me all nodding same. So that's definitely. In terms of the slimes dam, yes, there's absolutely some buttressing that needs to be done. The team have a plan, but rather than a big bang approach, there's a phased approach that we're going to do over a period of time, starting in Q1 2024. The environmental guys on site, the safety guys on site, the operations guys on site. So the answer is we can't do nothing and we do have to do buttressing, but that's a phased approach starting in Q1 next year.
We have a follow-up question from Thomas Martin of BNP Paribas. [Operator Instructions]
I think you had some issues with silica formation in the kiln last year -- sorry, before your time with the company, I guess. Is this a repeat of the same issue here or is this different in some way? I guess if it's a repeat, then what happened with the prior rectification, it doesn't appear to deliver the solution through Q2 of this year or was there difference in emissions?
I mean I presume that you're referring to the Vanchem plant and the silica buildup in the kiln?
Was it -- yes, yes, yes. Is it related to the same ore?
Yes, it was a different ore that was high in silica content. The -- I said earlier, the VTM ore that we've got hasn't met expectations in the first month of July. That's the change in reagent mix to a 70% Sodium Carbonate sort of counteracts that, and we haven't seen any stoppages in the kiln despite a higher-than-expected silica content in the new ore. In addition to the initiative of the change in the mix, I said we put in a MAG separator at the source of where the ore is to go through kind of almost a primary separation process if you like, it started today, so that where the time the ore gets through to the Vanchem operation itself, we will be back to approximately an 85-15 split from the time it's the end of the MAG separator at our operation, which would result in a lot less silica. So in some aspects, similar issues, but we've dealt with it in different ways. And the two ways, there's one, the change in the reagent mix that I've spoken about plus putting our MAG separator at the source of the ore to give us a better MAG separator, albeit meaning less silica from the time we feed it into the front of the kiln. I hope that answers your question.
As we do not appear to have any further questions at this time, Mr. Coltman, I'd like to turn the call back over to you for any additional closing remarks. Thank you.
Thank you very much. So whilst it's still early days for me, there's no doubt that there were a number of items that have to be prioritized for the rest of the year. Getting maximum value out of the Vametco and Vanchem is my #1 priority. Another key priority, of course, is the Orion debt restructure. We've made progress with the documentation, details of a separate general meeting for shareholders to approve the Orion transaction will be sent after the legal documentation has been completed, and we've received approval from the South African Reserve Bank. I will also be focusing on reviewing the group's capital allocation strategy and prioritize projects that provide higher financial benefits with manageable risks.
Bushveld is a company with potential, and I look forward to sharing the company's investment proposition from a new perspective. Thank you very much for listening.
Thank you very much, sir. Ladies and gentlemen, that will conclude today's conference. Thank you for your attendance. You may now disconnect.