REG - Bushveld Minerals Ld - Shareholder Correspondence and Questions & Answers

Bushveld MineralsAnnouncement

24/05/2024 18:00

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RNS Number : 9282P  Bushveld Minerals Limited  24 May 2024

 

24 May 2024

 

Bushveld Minerals Limited

("Bushveld Minerals", "Bushveld" or the "Company")

 

 

Shareholder Correspondence and Questions & Answers

 

 

 

Summary:

 

The purpose of this announcement is to:

·     Provide an update on the proposed disposal of Vanchem and to respond
to the published Open Letter from BVI;

·     Confirm that the Board has explored multiple alternative funding
options;

·     Provide the rationale as to why any alternative proposal is not
possible; and

·     Re-emphasise the probable consequences of the Vanchem Disposal (as
defined below) not being accepted by Shareholders.

 

Bushveld Minerals Limited (AIM:BMN), the primary vanadium producer, notes the
recent open letter ("Letter") by Business Venture Investments No 1833
(Proprietary) Limited ("BVI") dated 18 May 2024 regarding the recently
announced agreement to dispose of 100% of Vanchem ("Vanchem Disposal" or the
"Transaction") to Southern Point Resources Fund I S.A. LP ("SPR").

 

The Letter raised certain matters which the Company believes to be factually
incorrect or potentially misleading and the Board of Bushveld (the "Board")
wishes to provide further context and correct them to ensure the shareholders
are fully informed of the background to the Vanchem Disposal and the financial
position of the Company.

 

Less than 8 weeks ago, the Company sought to engage BVI along with other major
shareholders on such matters and made it clear that further near-term funding
would be required. At that time, BVI declined to sign a Non-Disclosure
Agreement and this prevented the Company from sharing more detailed
information with BVI. After the meeting, BVI also indicated that the BVI
shareholders were not prepared to invest further equity into the Company, nor
did they want to suffer dilution through an equity raise at Bushveld's
currently low share price. Subsequently, and having heard the response from
BVI, SPR and Orion put forward proposals to the Board; these were then
negotiated to the point where a binding term sheet was signed with SPR, which
was the subject of the Circular sent to shareholders on 13 May 2024
("Circular").

 

In the alternative proposal that BVI outlined in the Letter and to which we
respond in further detail below, we note that BVI has indicated the basis upon
which Acacia has offered to settle its equity subscription where they remain
in default, which default is the subject of pre-action legal correspondence.
It is not clear to the Company in what capacity BVI and Mr Chipane are acting
on Acacia's behalf and have the authority to be able to make such an offer.

 

The Board further notes BVI's stated intention to vote against the Vanchem
Disposal, which could result in immediate business rescue or insolvency.
Through both processes, shareholders are unlikely, in the context of the
Company's debt position, to achieve any value.

 

The Company has prepared the following answers to the points raised in the
Letter in order to assist BVI to reconsider their voting intentions.

 

1.   Why can SPR vote their shares at the upcoming general meeting given
that they remain in default of their subscription agreement?

 

The Company has taken appropriate local legal advice and is acting in
accordance with it. SPR's right to vote is not tied to receipt of the
subscription funds, but rather to the issue of shares, which were issued as
fully paid. The subscription monies owed, as first announced on 03 January
2024, are classified as a short-term receivable on Bushveld's balance sheet
until they are received. In specific reference to clause 78 of the Company's
Articles, the amount owing under the subscription agreement is not owing "in
respect of these shares" but is a separate standalone debt.

 

The US$12.5 million loan which has been provided on an interest free,
non-refundable and unsecured basis (to be repaid once SPR provides Bushveld
with the entire US$12.5 million pursuant to the SPR subscription agreement) is
a debt. SPR is treated as an equity holder in relation to their equity and a
debt holder in relation to their debt.

 

There is nothing contravening South African foreign exchange regulations, the
Company articles or the AIM Rules for Companies which prevents SPR from
voting.

 

2.   The proposed Vanchem disposal does not give Bushveld any additional
cash in the near future than the original 50% Vanchem sale.

 

The proposed sale of Vanchem will enable the Group to move forward in a more
agile and lean manner without incurring the additional Vanchem near term
losses, capital expenditure requirements or consequential Vanchem working
capital demands. From July 2024 until the Closing Date, SPR has committed to
advance a loan to Vanchem of up to US$8 million for working capital purposes
and for critical capital expenditure, where such requirements were previously
incurred by the Group on behalf of Vanchem. SPR's deferred consideration
constitutes a minimum of US$15 million (12 quarters of US$1.25 million) but
could be up to US$20 million. It will be payable quarterly in arrears
commencing on the Closing Date. This means that part of the deferred
consideration will be unlocked as early as Q4 2024, with potential for further
upside exposure to Bushveld and its shareholders over the 3-year deferred
consideration term, if in aggregate the distributable free cashflow is
positive and exceeds the minimum quarterly payments of US$1.25 million.

 

In Summary, the structure of the Vanchem Disposal preserves Bushveld's
underlying going concern asset value, significantly reducing the ongoing
financial burden of a loss-making enterprise at the prevailing vanadium prices
which are down US$10/kgV since June 2023, and allows the Company's balance
sheet resources focus to be on the Vametco turnaround, unlike the original 50%
Vanchem sale.

 

3.   The proposed Vanchem disposal is irrational and unreasonable in the
context of a pending completion of the sale of 50%, whose only remaining
condition precedent for completion is approval of the transaction by
competition authorities.

 

Under the original proposal to sell 50% of Vanchem, Bushveld would likely,
given the current cash position, need to suspend all operations for an
indefinite period of time, given that the vanadium market has shifted
dramatically against the Company compared to the time when the original
agreement with SPR was entered into. With the Vanchem Disposal, SPR is going
to advance Vanchem a loan for the ongoing costs of Vanchem in the interim
period, including creditors and working capital, while concluding Competition
Commission approval, which will reduce Bushveld's financial burden associated
with running Vanchem and only be repayable in the unlikely event that the
Transaction doesn't close.

 

The Company originally expected the proceeds from the Vanchem 50% sale to have
been received by February / March 2024. The approval by the Competition
Authorities ("CA") was significantly deferred when SPR's lawyers were informed
by the CA that the threshold for the transaction constituting a large merger
was breached when they considered the financial information of SPR's
shareholders in combination with the financial information of the Bushveld
Group. This was not foreseeable by the Company in advance of the submission
and added additional complexity and hence delay. In addition, the Company was
informed that the Minister of Trade, Industry, and Competition would
participate in the transaction review, which has again extended the timeframe.
These events were beyond the control of Bushveld and have delayed vital funds
that would have allowed the business to normalise creditors and significantly
improve its working capital position. Under South African law, the transaction
cannot complete without the CA approval, meaning the Company has had to rely
on loan advances from SPR. The Company has been advised by the authorities
that it will not be possible to accelerate this process and a decision is
expected in July/August 2024.

 

 

4.   The proposed Vanchem disposal removes from Bushveld a key growth asset.
which is key to lowering the Company's unit costs while leaving Vametco and
therefore Bushveld shareholders saddled with the debt.

 

Under the Vanchem Disposal, the current Vametco / Vanchem subordinated
inter-company loan shall be equitized ahead of drawing down any advance from
SPR. Given that this is an inter-company balance which is consolidated into
the accounts of the Company without impacting upon the cash flow or balance
sheet of the Company, this loan has no relevance to the financial standing or
liquidity of the Company. Further, the primary reason for the inter-company
balance has been the continued loss-making and urgent capital needs of
Vanchem. This was known to BVI and was done in order to prevent Vanchem
entering into insolvency proceedings or care and maintenance.

 

Without further funding, Vanchem may be required to consider filing for
business rescue or liquidation. In the face of these challenges, full recovery
of the Vanchem loan is therefore not a likely outcome. However, the proceeds
of the Vanchem disposal will be applied to paying down the inter-company loan
balance to Vametco.

 

 

5.   The financial consequences of the Vanchem disposal outlined in the
Circular are selective and do not present a complete picture for shareholders
to vote with.

 

The Board disagrees with the statement and has included relevant financial
information in respect of the asset for sale as well as post transaction
balance sheet information on Bushveld Minerals. In particular, the Circular
clearly states that "Without further funding, Vanchem and/or Vametco may be
required, pursuant to the South African Companies Act, 2008, to consider
filing for business rescue or liquidation which may, depending on the
circumstances, result in a total loss of income for the Group, and
Shareholders are therefore likely to lose a substantial part or all of their
investment."

 

6.   There are better alternatives that could have been pursued and were
likely not.

 

As part of the initial SPR investment process, the Company undertook an
extensive outreach programme to interested parties. The Company has explored
all viable funding options, including the sale of the energy and coal assets.
The Company has also considered the issuance of further equity; however, as a
result of the Company's share price trading below par value and limited
shareholder support, this was not a viable option, given the immediate need
for funding and the absence of any investors willing to advance funds other
than Orion an SPR.

 

Once the original SPR investment (50% Vanchem disposal) was agreed and the
Orion restructuring was implemented, all security of the Company, as well as
the off-take of the Company had been pledged to secure these transactions. As
such, in the very limited time available and given the entrenched nature of
the incumbent investors in SPR and Orion, it was not possible to secure viable
alternatives, and the amount required to secure the future of the Company was
beyond what existing shareholders would be willing to provide, given the
appetite and participation in the last round of funding.

 

Alternative Proposal

BVI has no authority to speak on behalf of Orion and SPR (and the Board
questions BVI's authority to do so for Acacia) in respect of its alternative
proposal and the material additional risk that Orion and SPR would need to
assume through such a proposal.

 

Furthermore, as part of BVI's alternative proposal, there is no suggestion of
a proposal that does not include substantial funding from SPR and Orion and
which includes any contribution of risk capital by BVI.

 

Therefore, the only solution for shareholders remains the Vanchem Disposal
which would provide Bushveld with sufficient capital to:

·     Meet the short-term funding requirements of Group to continue as a
going concern;

·     Focus the financial resources on the Company's most valuable asset,
Vametco, enabling the turnaround plan to be executed;

·     Eliminate the burden of Vanchem's working capital requirement; and

·     Allow Bushveld to have some residual exposure to value upside in
Vanchem.

 

The Company has been completely transparent about the distressed state of the
business and the immediate need for funding without delay as well as advising
that the timing of the original SPR- Vanchem transaction being contingent upon
matters that are outside of its control. The Alternative Proposal does not
achieve any solution to this, nor does it provide an additional source of
capital.

 

When the Company announced its 2022 financial results in June 2023, it was
already clear that the Company could not continue as a going concern unless
further funding was brought into the business, and until the existing complex
business model was simplified to enable a reduction in the Company cost base.

 

Since that time, a number of significant actions have been implemented,
including:

·     A change in executive leadership within the business;

·     The cessation of ongoing expenditure on non-core operations which
were not likely to be income-generating in the short-term;

·      A reduction of 40% of the head office cost base;

·      A turnaround plan executed at Vanchem which has enabled an
improvement in production volumes and reduced the monthly operating losses;

·      A plan to exit the non-core business units including Energy and
Coal assets;

·      More than US$25m of new capital being introduced into the
business, including an amount of US$8.1m in September 2023 and then an amount
of US$3m on 1 May 2024, both amounts being funded at short notice by SPR based
upon a signed term sheet when no other capital was available from other
parties and where such capital was critical for the Company to remain
operational and a going concern.

 

Despite all of the above actions, the Company has had to endure a collapse of
US$10/kgV in the Vanadium price since June 2023 and this has resulted in
ongoing operational losses due to production challenges and cashflow
constraints.

 

Furthermore, the Board recognises that these difficult decisions required
compromises in the strategy of the Company; however, they were taken in the
best interests of the Shareholders and Group as a whole, taking into account
the difficult circumstances the Company was faced with at each point in time.

 

The Board will continue to meet its fiduciary responsibilities to the Company
and once the proposed Vanchem Disposal is completed, that will inevitably lead
to a different construct of the Board and any changes that occur will be done
in an orderly and AIM-compliant manner to ensure the stability of the Company.

 

Conclusion

 

The Vanchem Disposal would further allow Bushveld to focus its management and
financial capacity on a single asset, Vametco. In Summary, the structure of
the Vanchem Disposal preserves Bushveld's underlying going concern asset
value, significantly reducing the ongoing financial burden of a loss-making
enterprise at the prevailing vanadium prices which are down $10/kg since June
2023, and allows the Company's balance sheet resources focus to be on the
Vametco turnaround.

 

In the event that the Resolution is not passed the Proposals will not proceed,
and the Company will be forced to consider administration as, if no
alternative funding becomes available immediately, Vanchem and/or Vametco
would be required, pursuant to the South African Companies Act, 2008, to
consider filing for business rescue or liquidation which may, depending on the
circumstances, result in a total loss of income for the Group, and
Shareholders will likely to lose a substantial part or all of their
investment. The Company therefore again urges all shareholders to support the
disposal transaction at the forthcoming General Meeting.

 

The Company has prepared a Q&A document dealing with further questions
regarding the Proposed disposal of Vanchem that the Shareholders may have for
the Company, which will be available on the Company website at:
www.bushveldminerals.com (http://www.bushveldminerals.com)

 

Craig Coltman, CEO of Bushveld Minerals Limited:

 

 "I'd recommend all shareholders to vote in favour of the Vanchem Disposal on
the basis of the information laid out in the Company's circular dated 13 May
2024 as I and other members of the Board intend to do in respect of our own
shares."

 

 

ENDS

 

Enquiries: info@bushveldminerals.com

 Bushveld Minerals Limited                                                                     +27 (0) 11 268 6555
 Craig Coltman, Chief Executive Officer
 Chika Edeh, Head of Investor Relations

 SP Angel Corporate Finance LLP                          Nominated Adviser & Joint Broker      +44 (0) 20 3470 0470
 Richard Morrison / Charlie Bouverat
 Grant Barker / Richard Parlons

 Hannam & Partners                                       Joint Broker                          +44 (0) 20 7907 8500
 Andrew Chubb / Matt Hasson / Jay Ashfield

 Tavistock                                               Financial PR                          +44 (0) 207 920 3150
 Gareth Tredway / Tara Vivian-Neal / James Whitaker

 

 

ABOUT BUSHVELD MINERALS LIMITED

Bushveld Minerals is a primary vanadium producer, it is one of only three
operating primary vanadium producers, with a diversified vanadium product
portfolio serving the needs of the steel, energy and chemical sectors.

Detailed information on the Company and progress to date can be accessed on
the website www.bushveldminerals.com (http://www.bushveldminerals.com)

 

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