Bushveld Minerals Limited (AIM: BMN), the AIM quoted, integrated primary vanadium producer and energy storage provider, with ownership of high-grade assets in South Africa, is pleased to announce that it has signed a long-term Production Financing Agreement of US$30 million (or the “PFA”) with mining-focused investment business Orion Mine Finance (“Orion”), primarily to finance its expansion plans at Vametco and debt repayment. Drawdown on the loan is subject to completion of certain conditions precedent as described in this announcement.

Under a separate investment agreement, Orion has also conditionally agreed to subscribe for a minimum of US$10 million, and a maximum of US$20 million of convertible loan notes under a US$35 million convertible loan notes instrument (the “Instrument”). The Company intends to seek other subscribers for the balance of the total. The Instrument’s proceeds will go towards the first phase of Vanchem’s critical refurbishment programme and debt repayment.

Since both the PFA and the Instrument require the prior written consent of Nedbank Limited (“Nedbank”), the Company and Bushveld Vametco Alloys (Proprietary) Limited (“Vametco Alloys” or the “Borrower”) are in discussions with Nedbank on the outstanding term loan and revolving credit facilities, including discussions on the potential pre-payment of the outstanding debt facilities on completion of the PFA. The outstanding balance of the Nedbank facilities is ZAR375 million (circa US$21.9 million), plus accrued interest of US$0.3 million.

Fortune Mojapelo, CEO of Bushveld Minerals Limited, commented:

“We are excited to announce the innovative funding agreement with Orion, which puts us on track with our expansion plans at Vametco, and we look forward to further elaborating on these plans and the impact on our business in the coming months.

Importantly, the long-term nature of the PFA and its early repayment options caters for the cyclical nature of the vanadium market and enables Bushveld to take advantage of the long-life, high-grade resources we are proud to own at Vametco, for the benefit of all our stakeholders. The Instrument’s proceeds will go towards the first phase of Vanchem’s refurbishment programme and debt repayment.

In addition, I am pleased to announce that the previous owner of Vanchem, Duferco Participations Holding S.A., has agreed to accept an early repayment of US$11.5 million of their US$23 million convertible loan notes issued in accordance with the terms of acquisition announced on 23 October 2019. US$6.5 million will be repaid through the issue of new Bushveld shares and US$5 million of the loan notes, plus interest of US$1.15 million will be settled as a cash payment. This puts us in an even stronger financial position with a solid balance sheet.

While there are certain conditions and approvals outstanding, this total funding solution provides us with flexibility around our capital expenditure plans, which we were forced to review as a result of the Covid-19 pandemic.

Once again, the relatively small amount of investment required for such a large uplift in production, vindicates our strategy of acquiring these brownfield processing facilities over the past several years, allowing us to ramp up production quicker and at a lower capital intensity than what would be required to build such capacity from greenfield investments.

We look forward to working with Orion, one of the leading mining-focused investment business with more than US$6.2 billion under management”

Philip Clegg, Portfolio Manager at Orion commented:

“Orion is delighted to become a cornerstone investor in Bushveld. We have been attracted to the quality and growth profile of Bushveld’s portfolio of mining and processing assets for some time, and we also recognise the leading role that the Company has assumed in the supply of crucial raw materials to the vanadium redox flow battery industry. We are looking forward to partnering with Bushveld as it continues on its growth trajectory and supporting the Company as it realises its full potential.”

Key Highlights

Production Financing Agreement

• Vametco Alloys, a subsidiary of Bushveld, has executed a debt instrument in the form of a PFA of US$30 million with an affiliate of Orion (as lender), to provide the necessary funding to finance the Vametco phase III expansion project to 4,200 mtV and debt repayment.
• The PFA amortises over the life of mine and will be serviced through quarterly repayment amounts (comprising repayment of principal and payment of interest).
• The security provided is customary for a secured financing of this nature, including cession of shares in the Borrower, security over the assets of the Borrower, and a parent guarantee.
• The quarterly repayment amount will be determined as the sum of a gross revenue rate and a unit rate calculated as follows:
  • Gross revenue rate of 1.175 per cent for years 2020 and 2021 and 1.45 per cent from 2022 and periods, thereafter, multiplied by the gross revenue for the quarter:
    • From the beginning of the 2022 calendar year and throughout the remaining life of the loan, where the average quarterly vanadium price realised equals or exceeds US$47 per kgV, the gross revenue rate shall be 1.175 per cent, subject to a gross revenue amount floor.
  • Unit rate of US$ 0.443/kgV multiplied by the aggregate amount of vanadium disposed of by the Borrower or Vametco Holdings to any third party or Borrower Group Member for the quarter.
    • The unit rate will be adjusted for inflation at each anniversary of the loan agreement’s execution date.
  • Once Vametco reaches life of mine vanadium sales of approximately 132,020 mtV during the term of the facility, the gross revenue rate and unit rate will reduce by 75 per cent (i.e. to 25 per cent of the then applicable rates).
  • On each of the first three loan anniversaries, the Borrower has the option to repay up to 50 per cent of both constituent loan parts. If the Borrower utilises the loan repayment option, the gross revenue rate and the unit rate will reduce accordingly.

Material Conditions to Completion include (amongst other things):

• Exchange control authorisation from the South African Reserve Bank Financial Surveillance Department;
• Execution and delivery of certain security documents to Orion;
• Provision of certain legal opinion(s) in relation to the Borrower and each of its guarantors; and
• Agreeing revised terms or prepayment with Nedbank in relation to the Nedbank Financing (including all amendments required to the Finance Documents in a form approved by Orion).

Convertible Loan Note Instrument and Investment Agreement

Bushveld is to issue unsecured convertible loan notes, pursuant to the Instrument dated 29 September 2020, up to an aggregate amount of US$35 million. Under an investment agreement entered into between Bushveld and an affiliate of Orion on 29 September 2020 (the “Investment Agreement”), Orion has conditionally agreed to subscribe for a minimum of US$10 million and up to US$20 million of the Instrument with the remaining balance to be offered on similar terms to interested third party investors (“Other Noteholders”).

Financing terms of the Instrument

• A fixed 10 per cent per annum coupon with a three year maturity date from the drawdown date.
• All interest will accrue and be capitalised on a quarterly basis in arrears, but compounded annually.
• Accumulated capitalised and accrued interest is convertible into Bushveld ordinary shares. For further information, see “Conversion feature”, below. All interest and principal, to the extent not converted into ordinary shares, is due and payable at maturity date.
• Funds raised are to be used for capital investment purposes for the first phase of Vanchem’s critical refurbishment programme, and the balance for debt repayment purposes.

Drawdown

• Bushveld can serve 15 business days’ notice to Orion drawdown in one tranche only, for a minimum of US$10 million and a maximum of US$20 million, at any time from the date of satisfaction of the conditions until 30 November 2020.
• The issuance of convertible loan notes is conditional, inter alia, on completion of the PFA.
• Bushveld will first draw down on Orion’s maximum commitment of US$20 million prior to drawing down on the US$15 million from other Noteholders.

Conversion feature

• Between drawdown and the Instrument’s maturity date Noteholders may, at their option, convert an amount of the outstanding debt, including capitalised and accrued interest, into Bushveld ordinary shares as follows:
  • First six months: Up to one third of the outstanding amount;
  • Second six months: Up to two thirds of the outstanding amount (less any amount previously converted);
  • From the anniversary of drawdown until the maturity date: the outstanding amount under the Instrument may be converted;
  • Bushveld also has the option to convert all, but not some, of the amount outstanding under the Instrument, if its volume weighted average share price is more than 200 per cent of the conversion price over a continuous 15 Trading Day period, a Trading Day being a day on which the AIM market is open for the trading of securities.
• At any time until the convertible maturity date, the Noteholders may convert the debt as abovementioned into an amount of ordinary shares equal to the total amount available for conversion under the Instrument, converted to pounds sterling at the average exchange rate of the 15 days leading to the date on which the Drawdown Notice is served, divided by a conversion price.
• The Conversion Price will be the lesser of (i) 130 per cent of the volume weighted average closing price of a Bushveld ordinary share for the 15 Trading Days leading to the date on which the Drawdown Notice is served; and (ii) 25p.

Customary orderly market provisions, anti-dilution protections, events of default, warranties and pre-emptive rights on future financings are incorporated as part of the agreements.

Alternative Resource Capital, a previous broker to the Company, acted as lead broker on the transaction with Orion Mine Finance.

In the interview below with Bushveld CEO Fortune Mojapelo, we learn how demand for the metal is set to increase and how the Energy Division acts as a “natural hedge” to the share price volatility.