Bushveld Minerals Limited (OTCPK:BSHVF) Q4 2021 Results Conference Call July 4, 2022 6:00 AM ET
Company Participants
Fortune Mojapelo – CEO
Tanya Chikanza – CFO
Conference Call Participants
John Meyer – SP Angel
Operator
Welcome to the Bushveld Minerals Full Year Results. I’d like to pass you over to Fortune Mojapelo. Fortune, please go ahead.
Fortune Mojapelo
Thank you very much. Good morning to everyone, and welcome to our full year results presentation. Thank you for joining Tanya and I, who will be assisting me in today’s presentation.
Before we move to the first slide, I just would like to start with some comments. But perhaps even before those comments, if we can just please note the disclaimers that we need to put out. Thank you, Scott.
Now to a few high-level comments. These annual results coincide with the tenth anniversary of the listing of Bushveld Minerals Limited on the AIM market of the London Stock Exchange. It’s an opportune time in our journey to post and reflect. In that time, we have successfully transitioned from an exploration company with a diversified portfolio, including vanadium, tin, coal at some point, titanium and iron ore assets inter-sizable, margin positive primary vanadium producer with global distribution networks and with significant growth potential. We’ve established a quality portfolio of tin assets, which we unbundled and listed as Afritin on AIM.
We have achieved this transition to vanadium primary producers through a brownfield strategy that has seen us acquire 2 of only 4 operating primary vanadium processing plants in the world in 2017 and 2019, respectively. And we have to acknowledge that it has taken time to bed down these acquisitions. We have now invested significant refurbishment capital into the plants, including the recently completed refurbishment of Kiln-3 at Vanchem, and their connection to some of the world’s largest and highest primary vanadium grade deposits has allowed our assets to provide a low-cost production platform.
With potential for further cost improvements, we have been bidding down the acquisitions. And in 2021, our focus particularly was on operational stability. We have experienced some highs and lows, typified by the volatility of the vanadium price, which we — tend to be very strong correlated with. And these vanadium prices have closed over $100 per kgv at times. While the vanadium market remains volatile, our cost positioning in this market, which will be more clearly demonstrated once the group is producing at over 5,000 metric tonnes of vanadium per annum by the end of 2022 financial year presents a sustainable cash generation opportunity over the sample.
Ultimately, our view is when you have a volatile commodity, your best protection is making sure that you are a low-cost producer.
Certainly, our resource base with the grades we have and with the production scale that we’re looking at provide us the opportunity to do that. We have grown this formidable asset base with a relatively heavy reliance on debt markets and very limited call on shareholders for agri financing. This reliance on debt, particularly convertible loan notes instruments to grow our assets, has however see an allocation of equity at future points during a time that was increasingly dilutive due to our falling share price over the past 18 months or so. We acknowledge that the recipients of this equity were unlikely to be long-term holders. But given the limited cash resources at a time of significant capital investments, we have to be creative in structuring the transactions that we did.
It would be understandable to question the capital structure we used under these circumstances. But when you take a snapshot today, you can ask what have we accomplished. Today, we have a scalable and flexible primary production platform with a net asset value of $150 million, an achievement we are proud of as we started off with a market cap of only $20 million. Our market share of just over 3% of the global market, vanadium market is set to grow to around 5% once Kiln-3 is fully ramped up by the end of this year. This platform, which has been strengthened with our focus on operational stability in 2021, delivered underlying EBITDA of $3.3 million in H2 2021, and that has been EBITDA positive for the last 12 months to June 2022.
It’s safe to say that we are not pleased with the share price performance that we have seen, and I have to thank our loyal shareholders for their support through what must be a very difficult time. But we are very clear also of where we are heading, and we choose to focus and ensuring that the underlying fundamentals of our business are strong, and we believe that in time, the share price of the company will reflect this.
While we strongly believe that the share price is not in line with the fundamentals of our business, we acknowledge that with the stock market experts, and we defer to the various analysts who have our stock. And it’s worth noting that the valuations of the analysts is significantly higher than the current share prices that we see.
We have reached a very important juncture in our journey, and we shall carry on delivering and increasing positive EBITDA as we have done for the last 12 months to June 2022. I’m pleased to point out several important developments which will provide much needed support in the next phase. These include changes to our Board of Directors with 4 new appointments, who bring a diverse and complementary skill and experience set; and the appointment of Royal Bank of Canada as a broker and financial adviser to the company. I’m delighted to welcome RBC, who bring breadth and depth of Capral Markets Advisory and support to the company at a particularly crucial time in our development.
Going forward, we believe that we will be in a better position to leverage the capital markets from the foundation that we now have built and I’m excited as we embark on the next phase of growth. As outlined in the recently announced technical studies, the full production potential of our assets is much greater than the production run rate of 5,000, 5,400. The recently announced studies provide a well-structured, long-term incremental growth path to a production rate of 8,000 MTV per annum, ensuring a permanent and reliable feedstock to both Vametco and Vanchem while also reducing our production unit costs.
The option to implement this growth path in phases that are each value accretive substantially reduces the upfront capital requirements and is further testament to our brownfield growth strategy. As we have full flexibility in relation to this growth, any decisions in this regard will be dependent on market conditions and subject to capital availability.
Our business model and production at a run rate of 5,000, 5,400 mtV by the end of 2022 is sustainable without the need for additional growth and provides pushout with cash generation potential, and we think that this is very significant.
Now if we can go to the slides, I would like to move on and provide just an overview. If we can just go to Slide #4, please.
Sorry, can I just ask you that we move the slides forward?
Unidentified Company Representative
Fortune, can I just confirm which slide you like to be on, please?
Fortune Mojapelo
Slide #4, please.
Unidentified Company Representative
Introduction slide?
Fortune Mojapelo
Yes. You are showing just the cover slide. Second, please. Thank you very much.
So this slide is just a high-level overview of the year. In the year, we produced exit production at the upper end of our revised guidance with the total group production of 3,592 metric tonnes of vanadium. The stable operational performance in H1 2022 continued in H2 2022 with the commissioning of Kiln-3 completed in June 2022, and we anticipate that this will continue to support delivering positive underlying EBITDA.
We maintained our cost control and capital discipline. We reduced the group’s liabilities by repaying part of the acquisition legacy debt, and we do not require any further growth capital expenditure with the target production run rate of 5,000 to 5,400 that we’ve set for ourselves by the end of 2022. And this will support lower unit costs and improve margins, as I mentioned earlier.
We announced with this results our intention to provide Bushveld Energy as a standalone entity with Bushveld Minerals retaining a significant strategic shareholding, which would allow us to still maintain our vertical integration structure. In the period, as I indicated as well, we have built an asset base with a net asset value of $150 million. If we can move to the next slide, please.
In terms of the operational highlights, our production in the second half of 2021 was 2,018; mtV, 28.2%, higher than H1 of 2021, which is 1,574. And this was largely on the back of operational improvements implemented. Higher throughput in the second half results in lower unit cost for H2 2021, which enabled us to meet our production cash cost revised guidance.
The group recorded a 52% improvement in total injury frequency rate to 7.8 relative to the previous year as a result of decreased number of incidents recorded and continuous efforts to improve our safety environment. While these improvements are welcome, safety continues to be an area of focus for Bushveld to ensure that we can sustain and continue its strong safety record. The Upper Seam project development to supply ore to Vance was commissioned in Q4 2021. During commissioning and ramp-up, ore quality was at times below requirements due to heavy rains that we experienced and mining constraints, and this resulted in operational challenges in the Vanchem, and the project team will continue to optimize the plant performance to ensure that the supply of ore from the Upper Seam and Vametco to Vanchem is supportive of Vanchem’s operational requirements.
If we’re going to go to Slide #6, that talk to the financial highlights. I will give a very high level, and Tanya will talk to this in more detail. Revenue generated $106.9 million, just 18% higher than 2020. This was driven by an improved average realized price of $32.20 per kgV.
I must highlight that we still see these prices of $32 to be relatively low.
Suddenly, we have seen higher prices going into 2022. And this was partly offset — this revenue performance was — particularly the higher average realized price, was partly offset by lower sales volume at 13.7% lower than in 2020 with sales of 3,314 mtV. And this was due to challenges in international logistics channels that arose from the COVID-19 pandemic; the unrest in South Africa in July, which caused significant disruptions at our local ports as well.
We made an underlying EBITDA loss of $7.5 million for the year, but the higher throughput in the second half translated into an improved financial performance with positive underlying EBITDA of $3.3 million in H2 2021, compared with an H1 2021 underlying EBITDA loss of $10.8 million. I’m pleased that this positive EBITDA performance has been maintained into 2022 financial year.
At the end of the year, the group ended with a cash and cash equivalent position of $15.4 million, as we prioritized significant investments, including growth initiatives at Vanchem, Bushveld Energy investments as well as debt repayments with our gross debt decreasing to $82 million. Tanya will unpack the details of the investments and digital payments later on.
Now if we can go to Slide #8, and we’ll talk about the operational group performance. We announced last year that we were rebasing production, particularly at Vametco with a strong emphasis on operational stability. This has in the company produced solid successive quarterly performances since the shutdown in March 2021, illustrating our success in embedding down improvements.
I am pleased to report that this has continued into the current year. We expect that as we continue to pursue incremental operational improvements and further emphasize our values in culture at Bushveld over a sustained period, the effects will begin to reflect in our guidance and production numbers. We expect group production of between 4,200 and 4,400 mtV in 2022, with volumes weighted towards the second half as Kiln-3 is ramped up by year-end. We, therefore, expect to attain group production run rate of 5,000 to 5,400 mtV towards the end of the fourth quarter.
Now we will talk in Slide #9 specifically to Vametco and to Vanchem.
As seen on the slides, Vametco achieved an annual production of 2,453 mtV, 8% lower than in 2020, and this was largely due to the lower production in H1 of the year. The weaker performance in the first half of the year was due to a slower-than-expected ramp-up post the completion of the planned 35 day maintenance shut down, along with an unprotected industrial action that took place in April 2021. Thus from April 2021, our primary focus shifted to increasing maintenance investments, sustaining capital to ensure the reliability of mining and plant equipment.
Moreover, we implemented greater discipline in our proactive maintenance practices, installed an organized and sequential maintenance methodology, introduced more short integral process controls for the technical team and invested significantly in our people development strategy. And since the implementation of these measures, we have seen stable and consistent production at Vametco, which is carried on into the first half of 2022 and bodes well for the year 2022.
Production guidance at Vametco is set at between 2,450 and 2,550 mtV, with cash cost guidance of between $22.70 and $23.50 per kgV. Meanwhile, following the acquisition in 2019, Vanchem continued operating with the smaller Kiln-1 at a steady state that belies a significant — its need for significant capital expenditure as part of the company’s refurbishment program.
During 2021, Vanchem achieved an annual production of 1,138 mtV, a 15% increase compared to 2020. And this was as a result of Vanchem ramping up production in 2020 and running at capacity in 2021. Vanchem met its revised production guidance while refurbishment work on the larger Kiln-3 was underway. With Kiln-1 reaching the end of its useful life, however, this affected online time in the first quarter of 2022 prior to the commissioning of Kiln 3 in June 2022.
Kiln 3 has now been commissioned and is going through the stabilization and optimization process phase expected after such a major refurbishment. The pace of ramp-up of Kiln 3 has been slower than planned, impacted by, among others, electricity load shedding and technical issues that are consistent with the ramp-up.
We are experiencing high load shedding of up to 3x it did at Vanchem at the moment. I must say that so far, South Africa this year has seen record levels of load shedding that have not been seen before. Even though we have backup generators, the switchover and the resulting mess in chips and instrumentation and electrical issues that come with that are not necessarily very helpful. We are hopeful that we will see the incidence of load-shedding subside as we get out of the winter period going forward.
We expect to increase production during the first 3 to 4 months following commissioning as this will result in the group reaching its target of steady-state production run rate of 5,000 to 5,400 per annum by the end of 2022 financial year. Accordingly, Vanchem production will be heavily weighted towards the last quarter.
Despite the lower production and increased costs in the first half of 2022, the ramp-up of Kiln-3 and increased production and the resulting dilutive effect on fixed costs means we are able to maintain Vanchem’s production and cost guidance for the year between 17 — between 1,750 mtV and 1,850 mtV at cost of between $27.70 and $28.40 per kgv.
When we see the full year production at Vanchem with Kiln-3 in 2023 onwards, we expect that those unit costs will further go down as the impact of that increased production throughput comes through. And I’d like to talk a little bit more about Vametco cost performance, which is shown in the slide in front of you.
2021 production cash cost of $24 was 31% higher relative to 2020. This was impacted by the stronger South African USD exchange rate, lower production due to production rebasing and increased expenditure on costs such as sustaining and maintenance spend to improve operational stability, increased in mining costs associated with bringing the Upper Seam project online to supply ore to Vanchem.
As you can see in the bridge — the production cost bridge, the impact of the strong Rand, the lower volumes and the increase in sustained business CapEx contributed the most to the increase in total cash costs.
Slide 11 provides similarly a cost analysis for Vanchem. Vanchem achieved C1 production cash cost of $30.60 per kgV and the total cash cost of $42.20 per kgV impacted by the stronger South African U.S. dollar exchange rate as well and increases in raw material costs to optimize process parameters and the increase in sustaining CapEx.
The unit cost of production reflects the weighted average cost across all the various product categories, chemical products, including specialist V2O5 powders are produced typically at high unit cost because of V2O5 and ferrovanadium. I must mention that this product also fetch higher prices and better margin.
As you can see on the production cost bridge, the growth CapEx and the impact of the strong rand contributed the most to the increases in the total cash cost.
Now I’d like to move to talking about Bushveld Energy. The momentum of the energy transition away from fossil fuels to clean energy, continued and abated in 2021, and we expect this momentum to continue going forward. This was given further impetus by the positive outcome of COP26 Climate Change Conference in Glasgow that took place during the year. This suddenly presents a significant opportunity for Bushveld Energy, which since inception in 2016, has met significant ingrowth in establishing the case for VRFBs in the growing energy storage market through its focus on key activities along the VRFB value chain structured along 3 key areas: one, investments in VFRB manufacturing, where we acquired an effective shareholding of 25.25% into VRFB manufacturer CellCube, a grid scale and microgrid energy storage better manufacturer headquartered in Austria.
We invested $10 million this year to bring our total investment to $12 million. And some of the installations are highlighted, which include a 6-megawatt hour contract with an Austrian fish farm. Worth mentioning that CellCube will be supplying the 4-megawatt hour battery to our mini grid at Vametco. We’re also very pleased that we were able to successfully defend the litigation initiated during 2021 by Garnet, our partner in CellCube, against VRFB Holdings and Enerox Holdings Limited, which concerned allegations of bridges of the joint venture agreement by VRFB-H, and this alleged breaches pertains to the investment by Mustang into VRFB-H that we are able to successfully defend this litigation is certainly positive news, and it means, among other things, that the investment by Mustang into VRFB-H stands.
The second area of focus for Bushveld Energy is the deployment of VRFB projects. We completed the development and achieved financial closing for 3.5 megawatt solar PV generation farm and 4-megawatt hours of VRFB energy storage. At Vametco mine, which we call the Vametco mini grid, third clearing has commenced and commissioning is targeted for H1 2023. 26 metric tonnes of vanadium of electrolyte for the battery has been secured from Vametco. The Vametco minigrid will serve to demonstrate the technical information viability of hybrid mini grids using solar PV and VRFB technology.
And in the process, we believe this will open up substantial opportunities for the deployment of such solutions in an environment that is increasingly encouraging self-generation for large energy users.
In addition, we identified captive opportunities within the group of up to 120 megawatts of solar and 180-megawatt hours of VRFB storage. These projects will also reduce the group’s reliance on Eskom and help control electricity cost increases while reducing the carbon footprint of our vanadium production as part of a broader sustainability strategy.
Third aspect of Bushveld Energy’s work pertains to the construction of the vanadium electrolyte manufacturing plant in East London, which we call BELCO. The construction of the building for the plant was completed in April 2022, and the EPC contract work is underway. The vanadium electrolyte manufacturing plant targeting an initial capacity of 8 million litres will be one of the largest plants outside of China. We’re scaling up the electrolyte rental product — I beg your pardon.
We are scaling up the electrolyte rental product offering with new rental opportunities and creating an off-balance sheet funding platform for the vanadium electrolyte.
We are scaling up the electrolyte rental product offering with new rental opportunities and creating an off-balance sheet funding platform for the vanadium electrolyte, and we see this as a very important catalyst for VRFBs globally.
Now if we can move to Slide #13. We recently announced a cover to Bushveld Energy. Our strategy for developing Bushveld Energy was based on the need to resolve 2 risk factors: the security of supply and the security of cost of vanadium. Where the vertical integration — I beg your pardon.
Can I just ask that Tanya perhaps you take us through on Slide #13, while we address this fire alarm.
Tanya Chikanza
Thanks, Fortune. Just looking at why we have decided to carve out Bushveld Energy into a standard one company. The original strategy was always to develop Bushveld Energy taking into account 2 risk factors: the security of vanadium supply and the security of costs of the vanadium.
And it was the always intention to have a vertical integration. But as we — as the group really grew and as Bushveld Energy grew, so did our capital requirements. And if one just sort of looks back at what we’ve seen in the last couple of years, the competition for that capital has been fierce within the group. And so the pressures around capital allocation have grown.
So the position of Bushveld Minerals as an operating company in the mining sector has increased and limited the access to energy focused investments. And in a way, what we have found is that those who enjoy mining, who understand mining, understand the mining, and we need to grow that business. But does an understand energy do not have necessarily the same appetite around mining. So this has limited the access of energy-focused investment into our story.
And also, we found that it has limited the coverage of energy-focused analysts with appropriate valuation models. And so this is where we have now come to the view that we’ve developed Bushveld Energy such that it has got sufficient critical mass to be able to stand on its own. And so we are carving it out, and we’ll position it as appropriate as an energy-focused capital market sector.
And we’re allowing to leverage in terms of this capital investment in a single vehicle and allow it to scale on [APIs] investment platform. We will remain involved in as far as being a shareholder going forward so that we retain that vertical integration, which our whole thesis is formed from and details will follow around how that carve-out will actually play out in the future.
Fortune Mojapelo
Thank you, Tanya, for that. And I just need to make the point that there is a significant distinction between the carve out we’re talking about here and the carve out we did earlier on with respect to Afritin. We certainly do intend to maintain that strategic relationship and shareholding in Bushveld Energy and returning that vertical integration model in our group.
Thank you, Tanya. If we can then move on to the next slide, and that’s a perfect timing to reintroduce you back, Tanya, to talk to the financial results.
Thank you very much.
Tanya Chikanza
Thank you, Fortune. Good morning, ladies and gentlemen. I should have said good morning before I just launched into that previous slide. And I will now give an overview of our financial results for the year ended December 31, 2021.
We generated revenue of $107 million, up from last year’s $90 million, supported by improved average realized prices of $32.2 per kgv, up from $23.4 per kgv in 2020. This was partly offset by the lower sales volumes, 18.7% lower than in 2020 as 3,314, and you’ll see that our stock levels at the end of that year speak to that on unfinished goods.
Part of the — contributing factors to this were the challenges in international logistics arising from COVID-19, and I know we were not alone around that. But we also experienced unrest in South Africa and disruptions in particular in the local post that we use in July and August 2021, and that contributed to that lower sales. Cost of sales, excluding depreciation, increased to $83.4 million, $10 million up from 2020. And I will elaborate on this increase in the next slide.
Adjusted EBITDA loss was $9.9 million for the period, an improvement of $5 million when compared to the adjusted EBITDA loss of $14.4 million for 2020. We delivered an underlying EBITDA loss of $7.5 million, an improvement of $7.4 million from the 2020 underlying EBITDA loss of $14.9 million.
I think let me just take some time to just explain what our definition is around the EBITDAs.
Underlying EBITDA is adjusted EBITDA, excluding impairment charges of $2.4 million for which there wasn’t any last year. And adjusted EBITDA is EBITDA excluding the group’s share of losses from joint ventures of 4.4 million. Again, there wasn’t any last year, and the remeasurement of financial liabilities of $1.9 million, which again, we did not have in 2020.
We don’t consider losses from joint venture revaluation and losses from the remeasurement of financial liabilities is a measure of our operating profitability, hence excluding these from EBITDA.
Our operation and financial performance in 2021 was a story of 2 halves. In H1, you recall our underlying EBITDA amounted to a loss of $10.8 million, primarily due to a stronger rand to U.S. dollar exchange rate, which impacted costs and exacerbated by the weak production performance at Vametco in the first 4 months, which Fortune spoke to earlier on.
In the second half of the year, the group achieved an underlying EBITDA profit of $3.3 million on the back of strong production performance at both Vametco and Vanchem and a higher realized price. This positive profitability has been maintained into the 2022 financial year-to-date. As you can see from the underlying EBITDA waterfall on my right, foreign exchange had a material impact on costs during the year with the rand strengthening from ZAR 16.46 to the dollar to ZAR14.79 million in that period. This gave rise to a net adverse exchange impact of $11.6 million on underlying EBITDA, illustrated in the chart with both $7.3 million in the first half and $4.3 million in the second half.
Excluding the adverse exchange rate impact then, we would have achieved a positive underlying EBITDA profit of $4.1 million for the year on a like-for-like exchange rate. Recognizing the potential significant impact of the movement of the Rand to the U.S. dollar on our results, we are constantly reviewing our hedging policy. And we do feel that we’ll be better placed to implement this once we attain steady steel production in 2023.
The net finance costs increased to $11.2 million compared to $4.7 million in 2020. As a result of the interest cost of the Orion Mine Finance PFA and the convertible loan notes with Duferco and Orion. You will recall this is the first year we are incurring fully the Orion costs. The income tax credit of $4.7 million benefited from deferred tax movement of $5.1 million. And we closed off the year by a loss of $42 million, which I think if we just look back to what I’ve just been speaking about, it really explains why that loss has caught up.
As I mentioned, we saw the cost of sales escalate by — moving on to slide — next slide, please, sorry.
Thank you. As I mentioned, we saw the cost of sales escalate by $10 million with the stronger rand against the dollar contributing $8.5 million of the increase. Our maintenance costs increased by 36% to $16.5 million from $12.1 million in 2020, as we sought to sustain the plants and improve operational stability.
Energy and raw materials increased by 11% to $40.7 million in 2020, while mining costs associated with bringing the Upper Seam project at Vametco online to supply all to Vanchem increased to $5.4 million from $3.2 million in 2020.
Looking at the line, other operating and administration costs, group administration expenses increased by $1.1 million to $20.9 million from $19.8 million in 2020. On a like-for-like exchange rate basis, the cost would have reduced by $2 million, demonstrating the success of the cost containment measures we initiated in 2020.
Sustaining capital was up $7.2 million, owing to plant maintenance at the assets in line with the group’s maintenance plan to improve operational stability that we set off on after Q1. The group cost per unit sold, including sustaining capital for the period was $37.4 per kgV, up from 28.8 kgV in 2020. And — but I think it’s worth noting that every half year, this cost was actually standing at $39.70. I move on to the next slide. Thank you.
The cost per unit sold increased to $37.4 in 2021 from $28.8 per kgv, an increase of $8.6. The impact of the stronger rand to the U.S. dollar exchange rate in 2021 accounted for $3.8 per kgV, while the impact of the lower volumes accounted for $4.6 per kgV, and this to make up most of the increase in unit costs. As I mentioned, we are looking at — we will be looking at our foreign exchange hedging policy. Turning to Slide 18.
Just want to just comment on the gross debt here for — as you can see, there has been some movement on our gross debt. During the year, we settled $11.5 million of the Duferco loan, using $2.5 million of our own cash and converted $9 million of the debt into equity. We also retired the legacy payment on EVRAZ, we paid $1.7 million towards that. And we also paid $2.2 million on the Nedbank RCF, which is due to — come to an end in November 2022.
$1.1 million was paid to Orion PFA. We will report the PFA is made of capital repayment of $1 million, just $1 million per annum. And that is exactly what that payment is. It includes just a little portion of 2020 payment in there. This reduction that we achieved during the year was offset by the IFRS 9 impact of $4.76 million on the Orion financing loan if it had to revalued, and it has also been offset by the $3.5 million interest accrual on the Orion convertible, which is included in that $4.2 million figure.
Turning to Slide 19. Just looking at the cash flow. That cash flow table summarizes the main component of the cash flow during the period with the cash flow decreasing based on the operational reasons already outlined in previous slides, we will continue to balance cash conservation and capital requirements, and there was a lot of focus on this in 2021 with net cash outflows of $36.3 million, which included an improvement of $5 million when you compare the 12.1 cash outflow from operations there compared to 17.1 million in 2020.
In respect to capital expenditure and investing activities, we spent around $19 million, an increase of $4.2 million as we prioritize the Vanchem, Kiln-3, BELCO and invested the $10 million into — further into CellCube during 2021.
Again, as I mentioned earlier on, the net cash from financing activities was an outflow of $7 million, which was met by repayment and some of the deferred loan repayments as well as the Orion as well.
Just turning to group capital expenditure on the next slide. I just want to close and briefly touch on our capital expenditure. I think managing the balance that I think Fortune spoke to this early on in terms of how we’ve been growing the business and managing cash being very important and — but prioritizing capital expenditure, which would allow us to see growth in the business.
So we remain focused on that strategy to sustainably increase production and we prioritize the refurbishment of Vanchem Kiln-3 and the stabilization of Vanchem. And so you see that in 2021, we spent $7.7 million on Vanchem and 2022 is 8.5 that you’ve seen — you see there on the slide.
It’s also worth highlighting that in terms of our spend, we do spend money on sustaining our environmental and legal compliance as a group, which is important. As far as BELCO is concerned, we spent 4.9 in 2021, and we’ll be spending an 8.1 in 2022. And it’s worth noting that just as a reminder that in BELCO, which we are jointly on with IDC and there’s a component in there that will be funded from a loan facility with IDC that will come in 2022. That’s all from my side. Thank you for listening.
I will hand back to Fortune.
Fortune Mojapelo
Thank you, Tanya. Next, I want to talk very briefly around our growth, our growth plans going forward. As outlined at the beginning, the company is now positioned as a significant producer with the ramp-up to production of 5,000, 5,400 by end of 2022. We emphasized that number because we believe that at that level of production, we have a sustainable operation with good cash generation potential. And it gives us then a very good platform on which to think about growth.
We completed technical studies in respect of that growth, which essentially outlined therefore phased four staged production growth plan. The first of which is focused at Vametco with the installation of a SAG Mill to establish a sustainable and reliable supply supporting production levels of up to 6,800 metric tonnes of vanadium per annum between the 2 plants. And the expected capital spend of that would be about $33 million.
Thereafter, as you will see here, focus will turn to Vanchem with the refurbishment of Kiln-2 and then thereafter the refurbishment of Kiln-1 before turning back to Vametco to increase single count capacity. All in all, expected production of 8,000 metric tonnes of vanadium per annum with a total capital spend of about $150 million. Emphasize again is that this is capital we’ll only look to spend, taking into account market conditions and availability of capital.
We are confident, comfortable that this growth is value accretive with positive economics. I do note that we do not show here any particular NPVs and IRRs for this work. That information will be made available as we complete independent verification of our financial modeling, suffice to say that we are very comfortable and confident that this growth in addition to just lowering our cost per kilogram will be very value accretive. If we can move on to the next slide that focuses on our outlook and 2022 guidance.
Now here, I want to just focus on near-term objectives, which are financial, operational as well as strategic. We continued with cost savings program, which was introduced in 2020, and we’re targeting annualized cost savings of between $2.5 million and $12 million over a 12- to 24-month period from February 2022. While going forward, grain production is expected to contribute to further lowering of cost through fixed cost dilution will continue to seek broader cost-saving opportunities to improve the company’s unit cost performance even further.
Operationally, we anticipate an encouraging 6 months ahead to the end of 2022. We started the 2022 financial year with another solid set of quarterly operational results in Q1 continuing on from the performance in H2 of 2021, and this is supported by the commissioning of Kiln-3 at Vanchem. Overall, we expect group production of between 4,200 and 4,400 mtV. And with volumes weighted towards the second half, as Kiln-3 is ramped up by year-end, which would allow us to get to that steady step production of 5,000 to 5,400 by the end of 2022. We’ll progress the EPC work and construction of our BELCO plant in East London with targeted completion of H1 2023.
And also, we have commenced construction of the Vametco Mini Grid with completion targeting H1 2023. We intend to continue supporting the growth of CellCube, which is facing increasingly attractive prospects in terms of orders and opportunities to supply VRFBs into the energy storage market.
On the strategic initiatives side we’ll provide more details as we implement the carve-out of Bushveld Energy as a standalone company focused on the value chain, as discussed earlier on. If we can just go to the final slide, and then I would like to just give some concluding remarks.
The investment case of Bushveld is one that we have talked about before. Four key elements, green commodity for the future with very strong market fundamentals that are only getting even more stronger as the demand for vanadium in the VRFB space continues to grow. Interesting to see that there is increasingly more and more previously skeptical or previously conservative analysts that are going forward, significantly revising their outlook on the opportunity for vanadium in the energy storage space. That strong demand, combined with supply, which remains concentrated and constrained with limited new primary supply, we think that is going to continue to support a positive outlook for vanadium prices.
We’ve got a solid asset base, as we’ve spoken about with the large resource base with 2 or 4 primary operating plants and well positioned to grow our production on this path to 8,000 tonnes above a level of 5,000 to 5,400, which is now funded and expected by the end of 2022. And the vertical integration model continues to be an important part of our story, notwithstanding the carve out of Bushveld Energy that we’ve spoken about.
It’s been a long way since we acquired Vametco several years — we’ve come a long way since the acquisition of Vametco. And with the assets that we now have, I believe that we are really in a very, very good position. As we indicated, focus being on ensuring that with the platform we have today, we have a cash-generative business. We believe that with the studies that we’ve done, we’ve now established a good pathway for further growth going forward and as well in terms of the work that we’ve been doing with Bushveld Energy, we believe that timing couldn’t be better for this company, and we certainly look forward to its continued growth going forward.
Supporting our journey, I want to just also conclude by noting a couple of things. First being the appointment of Lucas Msimanga as our new Director of Operations, who commenced on June 1, 2022; the changes that we made to our Board of Directors with 4 new appointments and bringing a diversity and complement — a diverse and complementary skill set; the appointment of Royal Bank of Canada, we believe that we have actually established now a solid base for the company for this next chapter going forward.
I want to just take the opportunity to also thank Jeremy Friedlander, Anthony Viljoen and of course, Mr. Ian Watson, who have been serving the Board since its IPO 10 years ago and during which time they played an important role through a transformative period of the company. We wish to thank them for their guidance and leadership over the last decade and certainly wish them well in the future. Finally, in 2021, we suddenly lost Professor Morris Viljoen, who was a technical adviser to Bushveld Minerals and who, more importantly, was one of the co-founders of VMIC, which is the company at the heart of the formation of Bushveld Minerals, together with his twin brother, Professor Richard Viljoen and Anthony Viljoen and myself.
VMIC is a principal investment and advisory company focused on mining projects in Africa, and it led the foundation for the establishment of Bushveld Minerals and Afritin’s fully operational mining activities. The Bushveld Minerals family will miss Professor Morris dearly for his unwavering support, wisdom and incredibly deep knowledge of geology. We’ll forever celebrate the rich legacy that he has left in our business.
And on that note, I’d like to end this presentation, and thank you all for your patience listening to us and we will open for questions. Thank you.
Question-and-Answer Session
Operator
[Operator Instructions] It does look like we have a question in the queue, and it comes from the line of John Meyer from SP Angel.
John Meyer
Given that you’ve got this well-reasoned series of expansions running through a series of stages, can you just talk us through where the ore is coming from? How confident you are in that? Do you have the tailings facilities and the concentration facilities to ensure that this can continue to feed Vanchem as well as Vametco going forward?
Fortune Mojapelo
Thank you, John, for that question. A couple of points on the question of ore. The Bushveld complex is spoiled when it comes to vanadium resource space. Massive, massive resource on the complex. The critical barrier to entry in vanadium, you appreciate is the processing infrastructure, and that’s typically where we’ve mistaken.
The second point I’ll highlight is that within Bushveld Minerals alone, our resource base is huge with 550 million tonnes of resource between Vametco, the Mokopane Project and the Bridge Project. And we’ve always said that primarily, we will look to our own resources to support our growth, and that remains the case that we’re comfortable that between the resources that we have we’ll be able to support this growth.
The third point I will highlight is that even before you talk about Mocopan, Vametco resource itself is quite large and is capable of supporting Vametco and Vanchem, which is why in setting up the SAG Mill, we believe that we will provide even further security to the supply of concentrates to Vanchem by allowing a single concentrate facility that can support production levels of 6,800 metric tonnes of vanadium per annum.
In addition to — and by the way, before the SAG Mill itself is in place, you will note that we implemented the Upper Seam Project at Vametco targeting the MML layer within our resource there, which we’re currently supplying to Vanchem, and that is complemented by some third-party supplies that we also do have access to. And so we have enough ore supply to support Vanchem.
Over the next several years and to a level where if we put in place this SAG Mill, the SAG Mill will then fill in thereafter. So again, I want to emphasize ore is not the issue at all. When it comes to Vanchem, we’re comfortable that within the resources we control, we’ve got more than enough. Having said all of that, we’re continuously facing offers from several third parties that have projects that they’ve been developing. And what are they going to do with it?
The only place they can really take those deposits for processing is going to be to our facilities or to the [Robin] facility.
So availability of ore is one of the lowest risk factors, if I can put it that way when it comes to Vanchem’s production even at the growth levels that we’re talking about.
John Meyer
Fortune, as a second question. A lot of mining businesses are suffering a degree of cost inflation at the moment. Can you just talk us through the operating cost pressures that you are experiencing and how you are working to reduce those?
Fortune Mojapelo
Thanks, John. A couple of points on that. You’re right that I think cost inflation is something that pretty much everybody today has to bring a lot of attention to. We use coal, for example, we use diesel and the cost of both elements have gone up. However, I think that there are a couple of things that are helpful. The one is that we are incurring most of our costs in Rand terms. And we realize most of our revenues, if not all, in dollar terms. And the exchange rate and the movement of the exchange rate relative to the local inflation is something that it’s a little bit as a buffer.
I think if you look, for example, our current exchange rate is sitting at about ZAR 16.40 or something like that to the U.S. dollar. I mean you don’t want to rely entirely just on that. Internally, you need to ensure that you’re running your operations as efficiently as possible. The cost of the input is — in terms of the unit cost, the cost of core, for example, the cost of diesel, there’s little you can do as far as those costs, of course, that we — that happened to all of us. What we can do is make sure that we’re just running operations a lot more efficiently, that the usage of those inputs is as efficient as possible.
That’s why earlier on, when I talked about the cost initiatives that we are doing, procurement is one area we’re focusing on, but we’re also focusing on all the elements, whether it’s payroll or energy consumption, or raw materials just to try and make sure that we’re running our operations as efficiently as possible. So as far as that’s concerned, there’s a dedicated work stream that we are busy with. In addition to the effect that as we increase production, we expect to see fixed cost dilution, which will help our cost position as well.
Operator
Our next question comes from the line of [Mark Ryan from Tower Capital].
Unidentified Analyst
I wonder if you can give any sort of information, background or update on Bushveld Energy’s ability to apply or win any tenders or any reason why they haven’t managed to secure any projects yet?
Fortune Mojapelo
Sure. I can answer that question. I think at the core, if you look at — let’s look at tenders that have been announced in South Africa, which we are all very aware of and been closely monitoring, the key issue with VRFB manufacturing today is capacity. We have a company CellCube, which manufactures world-class product. and which is delivering them into the market as we talk at megawatt scale.
But when you look at the tenders that were put out by Eskom and the times of delivery that we associated with that, there’s no way that, in our view, CellCube, for example, could supply those batches within the timeline. The issue that needs to address very urgently is manufacturing capacity, which is one of the reasons why we got involved with the company because we believe that they get a product which when scale up in terms of manufacturing capacity, they will be in a position to respond to those opportunities in due course.
I should also highlight that the mini grid that we are deploying at Vametco, we did an open tenderfor various companies to bid and CellCube won that tender on a competitive basis. I should also highlight that the mini grid that we are deploying it forvametco, we did an opentenderfor various companies to bid and sell cubewon that tender on a competitive basis.
So that 4 megawatt hour battery, we are going to see it now that we’ve reached financial close on that project. We, ourselves as — our requirements are substantial. I just talked earlier on about the level of load shedding that we are dealing with, just to mitigate against that, we run diesel generators at our operations. There’s a very, very clear business case for deploying more renewable energy with energy storage, and we’re certainly going to be looking to do that. So I’m not concerned that there will be — there will not be enough business to deploy for VRFBs that are produced from within the group setup.
Unidentified Analyst
Secondly, do you have any sort of timeframe for when you will carve out Bushveld Energy? And how you’ll position it as an attractive investment in light of the fact that it has no revenue or projects to date?
Fortune Mojapelo
Yeah, so before I come to that question, if I can just make one additional comment on the previous point, right. I think that it’s also fair to say that, when people are talking energy storage today, there is still very much deference to lithium ion technologies. What we do certainly see is that with greater emphasis of long duration energy storage, that flow batteries are increasingly recognized as the solution. So, some of it is also just a matter of timing that we see. More longer duration energy storage, you see more flow batteries are being deployed.
I definitely think that our Mini Grid at Vametco is going to be particularly a very useful catalyst because here is a solar and storage hybrid play, which one has been set up as an SPV, has been funded by third parties from an equity perspective, has been able to also generate debt capital financing to get to financial close and delivers good economics in today’s environment.
And we only expect of course, that with time, because of this systems come down and they become that much more competitive, also we expect that tariffs in our country will only continue to be going upwards. So what we do have is a very good use case, which we think is going to be a very good example for others who are also looking to do self-generation to follow.
To your question around time scales and positioning, I can’t give you an exact time other than to say that having made the decision we definitely are working to implement it as soon as possible, and that work is underway. I — we haven’t communicated a specific time by when this needs to have been completed. But we certainly are — have aspirations to get it done as much as possible within this calendar year.
In terms of positioning, we mentioned earlier on that part of the challenge we do have is when you talk — when you look at Bushveld as a mining company, your preoccupation is going to be around production, is going to be around its cost per unit, it’s margin and it’s cash generation and what its growth looks like, right? And that’s typically the lens through which you look at a mining producing platform. When you’re looking at energy companies, they typically looked at with different valuation lens. I mean, if you look at a few examples of companies that are listed that are developing energy storage place, how are they valued? Are they valued as a tech play? Are they valued as an IPP? And what are the relevant valuation metrics that are applied?
And when you position that company in the right sector, we believe that it will attract the right levels of valuations, it will attract the right levels of energy-focused investors also who understand it and who see what that upside in that story looks like. So that’s very much what we are hoping for when we’re looking to carve out the company and how we’ll position it as an energy-focused company.
Operator
We have no further questions in the queue at the moment. [Operator Instructions] It looks like there are no questions coming through, so I’ll hand you back over to the hosts.
Fortune Mojapelo
Well, thank you very much for your attendance. And I apologize for that alarm earlier on. And certainly a lot going on in the second half as we alluded to. I look forward to providing an update as we continue implementing the strategy that we’ve outlined to the market. And we’re certainly hopeful that the vanadium prices that we see continue into the second half, and we certainly look forward to producing and supplying into that market.
And we’re fairly confident that come end of the year, we will have met the objectives that we set out and I certainly hope that we’ll be sitting with the company whose valuation reflects much better the fundamentals that are as exciting as we believe they are in what we have today.
So thank you again for your time. Thank you for your questions, and I look forward to engaging with you further in the coming months and certainly, with the operational update for Q2 which you can expect fairly soon. Thank you very much.
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