Improving Vametco Production H1-2017


10 August 2017

The 9th Aug 2017 Vametco Production Update has a lot of excellent information to help quantify the production at Vametco during the first quarter of operation by Bushveld Vametco since April this year (H1 2017). This all goes to support ‘fact-based company valuation’ as described by Fortune in his brrmedia interview later that day.

The key production figures are copied below:



6 months ended

Year ended

Year ended

Vanadium produced




2 419

Vanadium sold




2 340

USD/ZAR exchange rate















Production costs

US$/kg V




The headline production costs appear to have increased from 14.50 USD to 15.58 USD and this is then followed by the somewhat confusing section in the RNS:

During the first half of 2017, cash production costs have increased by 7% above reported 2016-year amounts. This is a testimony to management initiatives focussing on tight cost controls over all major components of the production value chain.

Have costs increased – well no, not at all – if you convert back to the local currency, ZAR, in which most of the on-the-ground costs are incurred you will get the following results:

Year 2015 2016 H1 2017
Vanadium Produced 2419 2804


(ann. 2882)

Production costs (USD/Kg) 17.23 14.50 15.58
Production costs (ZAR/Kg) 219.7 213.3 206.0 

Now shorn of the vagaries of the USD/ZAR exchange rate things start to look a lot simpler now – the more Vanadium you produce the cheaper it becomes – gosh, who knew ?

This is simply the result of being able to spread the company’s fixed costs (all the administrative staff, baseload energy use, maintenance of equipment and buildings etc) over a larger number of Tonnes of Vanadium produced. A simple calculation can extract the fixed costs and production costs for each Tonne V produced – this is the very simplest model that one can create for a manufacturing or mining company.

Fixed costs 275,520,000 ZAR
Production Unit Costs 114,900 ZAR/Tonne
Year Annual Production Volume (T) Total Production Costs Estimated Total Production cost per Kg Actual Production Cost Per Unit (USD) USD/ZAR Actual Production Cost Per Unit (USD/KgV)
2015 2419 553,463,100 228.80 17.23 12.75 219.6825
2016 2804 597,699,600 213.16 14.5 14.71 213.295
H1 2017 (Scaled to ann. prodn.) 2882 606,661,800 210.50 15.58 13.22 205.9676
2017 (Estimated) 3177 640,557,300 201.62

The production unit cost trends are shown in the graph below – at the ultimate production level of 5000 TPA, which BMN are aiming for in 2 years or so, the unit production cost would fall to 170 ZAR/Kg, some 23% lower than 2015 – a pretty good improvement in anyone’s book.

How far along this path are we – well obviously we only have the first half of 2017 to go on and so in principle we would have to wait patiently until the end of the year before getting the final yearly figures to be able to compare periods like-with-like – but do we really need to wait another six months to work out what is going to happen ?

The first guess we can make is to say that the annual production for 2017 is simply twice the 1441 Tonnes that was stated for H1 – that gives 2882 Tonnes, and is shown as the red square on the bottom right of the graph above.

However we also know that there was an annual maintenance shutdown at Vametco in march for 21 days – and at this point improvements to the production equipment may well have been made to increase the production rates – how does this affect things ? Assuming that the maintenance shutdown is annual and does indeed happen every year then the average rate of production in 2016 was 2804/49 = 57.2 T/week. If the shutdown happened in late march 2017 then that only gave 10 weeks of production at 57.2 T/week before the shutdown and then 13 more weeks after at a higher rate.

How much higher ? Well, you’d need 13 weeks at 66.8 T/week (17% higher than before the shutdown) to get a total of 1441 Tonnes in H1.

What does all this mean  – the H1 figures do not tell the whole story about improving production rates. We are in a crossover period, and even if no further improvements were made at all in the rest of the year since the march shutdown it looks like we are on track to easily exceed 3,000 tonnes production this year.

My specific projections for 2017 are therefore

  1. Production 3177 Tonnes
  2. Unit cost – 201.6 ZAR/Kg – though it looks like Bushveld Vametco are currently undershooting on the costs graph, so they may indeed break through the 200 ZAR/KgV price level.

Postscript – BigBiteNow has spotted that the 2016 shutdown was only 1 week. This only makes the production figures for H1 post-shutdown better and the projected production for 2017 higher. For the sake of simplicity I will leave this article as originally written, but with the proviso that projection 1, above, is a conservative minimum figure.

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