CHAIRMAN’S STATEMENT
It is with considerable pleasure that I write this review of our Company’s operations over the past financial year and of its future prospects. As a whole we have successfully progressed our various projects with the focus being on the Vanadium Project. And while we have not yet reached the point of developing any mines of the various minerals on which we are focused, the declines in the prices of virtually all commodities since the start of our 2015 financial year have affected our project planning. This is not a development to be taken amiss. We have responded by prioritising our plans so as to ensure the operating and cost flexibilities that will allow us to generate profits while minerals prices consolidate and as markets stabilise.
As a company, at this early stage of its development, we are particularly conscious of the need for frugality, for making all money spent count. And I am encouraged by the manner in which my executive colleagues have managed our strategy as we proceed to the definitive studies of the mines we are planning. I am also particularly encouraged by our success at raising new finance at a time when many other junior mining companies have struggled.
Our operational and planning progress is detailed fully elsewhere in this report and I will confine myself to discussing the economic environment in which we find ourselves at present, and that in which we shall be operating in future.
Let me start, then, with metals markets and their outlooks. The commodities of most-immediate importance to us in South Africa are vanadium and tin. Somewhat further into the future, there is iron ore, titanium dioxide and thermal coal in Madagascar.
Vanadium is an important and crucial constituent of specialty steels and particularly of flexible steels needed in the construction sector, and its price has been less affected in recent months when compared to, for instance, iron ore. Looking back five years, at the start of 2010, ferro-vanadium was trading in the region of $26/kg and, within a few months had reached a high of $34/kg. Since then, there has been something of a roller coaster ride, with the trend generally downwards to $24/kg at the end of our 2015 financial year and $22/kg as I write, showing some sign of stability.
While South Africa at one stage produced tin from three comparatively small mines, the combination of falling prices and ore depletion led to their closure more than two decades ago.
However, those resources were not completely exhausted and, by using appropriate techniques, we can again yield up their tin profitably. Our mineral resources are all on or around the old Zaaiplaats mine which closed a quarter of a century ago, but they are targets that had previously been explored and evaluated by the mining house, Gold Fields of South Africa (GFSA), and we have access to those exploration results.
Based on our own and on these earlier exploration results, we completed a scoping study in August 2014 of the Zaaiplaats property, its old residue dumps and the Groenfontein extension of the old mine’s mineralisation. This yielded positive results showing, against a low capital expenditure of US$16.7 million, a post-tax net present value (NPV) of US$10 million (at a 10% discount rate) and post-tax real internal rate of return (IRR) of 34.6%. However, since the completion of this scoping study, tin prices have, in line with those of most other commodities, fallen from the region of $22,000/tonne to approximately $15,000/tonne. While this may be of concern to short-term traders, our planning is based on realistic price estimates and allows for the volatility that has characterised tin over the thirty decades since the collapse of the International Tin Council in 1985.
Though export coal prices have also fallen over the past year, this is not an issue that affects the viability of our Madagascar Coal Project. Our strategy is based on being awarded an independent power producer’s permit by the Madagascan authorities to generate electricity and deliver power to the Madagascan national grid. The project’s success and investment attractions do not then depend on international coal prices, but more on our ability to manage the proposed colliery efficiently.
While we await the permits which will allow us to develop and operate our project, we continue to refine our plans so as to be able to move quickly once the requisite licences have been granted. We have made considerable progress towards completing the Vanadium Project’s Prefeasibility Study which will form the basis for raising development capital or for finding joint-venture partners for this project.
I have directed a large part of this review to the markets for the minerals on which the Company’s future success will be built, but I am no less sensitive to the environment in which we shall be operating. In South Africa, I am encouraged by the government’s support for domestic beneficiation of raw materials as this will provide support for our envisaged projects. The government is supportive of new mining ventures and the regulations on ownership, environmental responsibility, labour and taxation are transparent, and we remain confident of the future.
While our staff complement is not large, if we take into account the Company’s stage of development, the team with whom I enjoy the privilege of working has again shown their competencies and their commitment. I extend my sincere thanks to each and every one of them and, in particular, to CEO Fortune Mojapelo, who has led the Company through a period in which mineral resources have been expanded and in which a firm base has been laid for future development. Also, to my colleagues on the board, I extend my appreciation for their wise counsel and the advice that I have received during the year.
Without the contributions of this team, Bushveld Minerals would not be, as it is, poised for future success.
IAN WATSON
Non-executive Chairman
