There is a buzz around the Bushveld Minerals (LSE:BMN) share price. As of 21 May, the broker consensus is overwhelmingly to buy shares in the South Africa–based miner and processor of vanadium. The story of this stock is about vanadium’s role in batteries that could power a green energy revolution, so let’s start there.
Battery-powered
Renewable sources of energy are intermittent; electricity is only produced when the wind blows, the sun is out, and the rivers are full. Fossils fuels or nuclear power can step in to bridge gaps in supply, or water pumped high for later release, but suitable batteries will unlock renewables potential. Lithium-ion batteries are great, but suffer from short lives and can generate a lot of heat. Redox flow batteries are better suited to large scale applications like powering factories and running electricity grids. Vanadium looks to be the best metal to use in redox flow batteries. In fact, National Grid has deployed them already in its U.S. operations.
Got the minerals
Buying Bushfield Minerals shares gains exposure to a business with significant scale in its industry and low-cost production. Vertically scaling up the VRFB value chain should also boost margins. Bushveld signed a joint venture agreement on 9 March to supply an electrolyte of the vanadium it mines to Invinity Energy Systems for their vanadium redox flow batteries (VRFBs). Bushveld also holds influential stakes in both Invinity and Enerox, a Germany-based manufacturer of VRFBs.
Besides its use in VRFBs, vanadium finds itself used in alloys for tools, construction, and turbine blades. However, Bushveld is positioning itself for the anticipated increased demand for use in VRFBs. Vanadium prices slumped in 2019, but have recovered. Increased demand for use in batteries should support prices in the long term. Also, a healthy VFRB market will see Bushveld’s investments in manufacturers of the technology do well.
Share price bargain?
Bushveld is not an exploration company, hoping to strike gold. It is an established outfit with history. The last published full-year financial results are from the year ended in 2018 when revenues and profits were $192m and $49m respectively. An update for 2019 reveals revenues are lower at $111.1m, unsurprising given the vanadium price woes, but is silent on profits. They will undoubtedly have fallen, which would put the trailing 12-month price-to-earnings ratio for the stock at 5.04, which looks very cheap, and misleading. However, even a 75% fall in profits would only lift the P/E to 20 or so, which is not extreme.
The coronavirus crisis has hurt production at Bushveld. Still, management is confident that they have enough cash and credit facilities to survive. Even South Africa’s volatile electricity grid, which forced reductions in power consumption for Bushveld in 2019, did not hurt production.
Overall, Bushveld Minerals looks like a well-run mining company. But that is not what is driving the buzz around its share price. The coronavirus crisis should help focus minds on the looming climate one. VRFBs look ideal for greening up electricity grids, with industry analysts expecting them to do just that. Therefore Bushveld Minerals share price could be fully charged and ready to fly. If not then there is still a decent vanadium business there, which does make Bushfield a safer bet than the VRFB producers themselves.
