Vanadium is a metal that is not on the mind of most resources investors currently and one could say, "rightfully so", as the price was in a constant downtrend since the short upward spike in 2019. However, in resources investing & speculation it is important to turn off the recency bias and find out where the "puck is going and not where it has been".
I had sent out a newsletter to my subscribers in February about vanadium and stocks that I hold myself which could benefit from an increase in the vanadium price. If you want to be added to the newsletter list and receive exclusive updates early and free of charge, please subscribe.
Since the newsletter was sent out an important development has arisen that could accelerate the case for the vanadium price to explode higher. Largo, a vanadium producer that pivoted to battery production, is in the process of launching a physical vanadium trust. This is a financial vehicle that has the goal of buying and holding physical vanadium. With this vehicle in place there would be a constant buyer in the market, decreasing supply and thus driving up price and leading to a more liquid price discovery. We had seen a similar development with Sprott Physical Uranium Trust (SPUT) in the uranium sector. Once SPUT got into its groove, it drove the uranium spot price up from the low $30s to above $50 in Aug-Sept 2021.
What is vanadium?
Vanadium is recovered principally from magnetite & titanomagnetite ores. 93.1% of production is used in the steel industry to increase strength. Future demand is coming from Vanadium Redox Flow Batteries (VRFB) which are needed for stationary energy storage that stores the energy produced by solar and / or windfarms. Deposits are usually titano-vanadiferous magnetite (TVM). This has the implication that high temperatures are needed for roasting in order to extract the vanadium. This process is very complex and highly energy intensive. This in turn means that the costs to produce vanadium are high. Investors therefore should look for vanadium projects with deposits which are either huge, non TVM or both.
Supply and demand
The annual vanadium production including vanadium as by product from iron ore processing, primary production and secondary production is 113K metric tonnes (MTV).
Vanadium Supply/demand is expected to be in a structural net deficit by 2023. In addition, Vanadium supply is dominated by China and Russia. Their combined production volume is 77% of global supply. The steel industry in China has been increasingly relying on imported iron ore, which is non-vanadium bearing. The supply in domestic iron ore is rapidly declining and there is a ban on vanadium slag imports.
With possible sanctions or self sanctioning the demand for non Russian vanadium is likely to increase. This should be a tailwind for projects in South Africa and Kazakhstan (depending on how their affiliation with Russia is characterized in the future).
Source: Vanadium Resources
Moreover, a rise in China's vanadium demand from the vanadium redox flow battery (VRFB) industry is expected to rise to at least 9,100t of vanadium pentoxide (V2O5) equivalent in 2022 from this year's 3,640t, on the back of increasing energy storage projects.
Price action
Over the past 12 years prices peaked at US$29 /lb V2O5 in 2018 and hit a low of US$2.25 /lb V2O5 in 2015. Accounting for inflation, the average price was US$ 7.87/lb V2O5 since the start of reporting by Metal Bulletin in 1997. Current Vanadium price is $ 12.00 and broke out of a long-term downtrend recently.
Source: vanadiumprice.com
Largo Physical Vanadium Corp - the reason you should research vanadium stocks right NOW
The uranium spot price had been a constant frustration for many uranium investors. It is very obvious that there is a uranium supply/demand deficit but due to the mechanics of the broken spot market, true price discovery was impossible. This all changed during
Aug-Sept 2021. The constant buying power of the Sprott Physical Uranium Trust (SPUT) in the uranium spot market drove the uranium spot price up from the low $30s to above $50. The effect SPUT had on the uranium spot price is easy to see in the below chart.
Source: Trading Economics / Ocean Wall March 2022
Now a financial vehicle very similar to SPUT will be launched soon for the vanadium market. Keep in mind that the vanadium market is much smaller than the uranium market, we should see sharp price rises as soon as the new vehicle is starting to buy vanadium. The vehicle is called Largo Physical Vanadium Corp. (LPV) and is brought to light by the vanadium producer Largo Inc. (TSX:LGO). Largo is operating one of the world's highest-grade vanadium deposits at the Maracás Menchen Mine in Brazil. They are in the middle of a strategic transformation and acquired vanadium redox flow battery technology in 2020 in order to vertically integrate its world-class vanadium products with its VCHARGE vanadium battery technology, LPV will become a publicly listed physical vanadium holding company that will purchase and hold physical vanadium.
Another tailwind for vanadium demand became a reality last week, as US president Joe Biden invoked the Defense Production Act in connection with the executive order signed on Dec 8th 2021 that includes the goal of achieving 100 percent carbon pollution-free electricity use by 2030, including 50 percent on a 24/7 basis. Electricity produced from resources that generate no carbon emissions is required to achieve this goal, including solar and wind. Both of these energy sources need energy storage solutions in order to operate as projected. The new demand for VRFB and the financial demand through LPV has not been part of any of the current demand forecasts. With supply not keeping up and demand rising, the price has only one way to go and that is north. Vanadium pure play developers are organically leveraged to the vanadium price and offer great upside risk with limited downside.
Vanadium pure play companies to look at
Below I will give an high level overview of two stocks I hold in my private portfolio that should be leveraged rather well to a vanadium price increase. Vanadium Resources is developing a huge deposit in South Africa, Ferro-Alloy Resources is developing a non TVM depost. There are other stocks as well, which have vanadium deposits, but I am only referring to pure plays in this article.
Huge deposit - Vanadium Resources (ASX:VR8)
Market cap: 52M AUD
Jurisdiction: Bushveld Complex in South Africa
Vanadium Resources owns 74% of the world class, tier 1, Steelpoortdrift (SPD) Vanadium licensed mining project in Limpopo Province, South Africa, one of the world’s largest vanadium deposits with a total JORC Resource of 662 Mt at 0.77% V2O5. SPD is located within the famous Bushveld Complex, home to some of the richest vanadium deposits in the world. The producer Bushveld minerals is located there as well.
Source: Vanadium Resources
Based on the scoping Study SPD is projected to generate a post-tax NPV(8%) of between US$359M and US$401M based on a Vanadium price of US$6.95/lb, capex of US$161.5M to US$187.9M and average unit cash operating costs of US$3.07/lbto US$3.37/b.
SPD is also one of the few vanadium resources globally with a mining right granted, which includes environmental approval.
Parallel to the DFS VR8 did acquire an integrated ESG processing technology and registered a JV company (TCM-VR) that is focused on ESG integrated extraction, processing, refining and manufacturing technology. This new technology innovatively utilises existing processing methodologies to produce battery grade Vanadium Pentoxide and high-end Vanadium products, including other products arising from the Steelpoortdrift Ore such as Iron, Titanium, Silicon and Aluminium, which are not currently extracted using conventional processing methods.
Next catalyst: The team is working on a DFS (fully funded) that is expected to be released in Q3 2022. They have released constant updates to the market, ensuring that the project is in time and on budget.
Non TVM deposit - Ferro-Alloy Resources (LON:FAR)
Market cap: 90.6M GBP
Jurisdiction: Kazakhstan
Ferro-Alloy Resources (FAR) is a vanadium developer with projects based in Kazakhstan. A project with lower production volume is already live but the investment case for FAR is all about the bigger project they are developing called Balasausqandiq. The deposit is not the usual vanadiferous titano-magnetite type of deposit, of which there are many out there, but which require high costs to develop. The ore at Balasausqandiq is a sedimentary deposit, with a high grade of vanadium and negligible iron, which is a significant advantage.
Source: Ferro-Alloy Resources
FAR is expected to become the lowest cost vanadium producer on a costs/lbs basis. Their cost/lbs are actually forecast to be NEGATIVE $ 1.20 because of the by-products uranium and Carbon Black they plan to produce as part of the vanadium production process. In addition, FAR can apply acid leaching and doesn't have to do ion smelting from magnetite and thus don't have to use as much energy. Acid leaching is used in gold, copper and uranium industry. In uranium it is known as in-situ acid leaching. The deposit is so huge that it is equivalent of 5 years of global vanadium production. Should it come into production it will likely have some effect on price, but with LPV as a constant buyer in the market, the prices will likely stay elevated on a healthy level. In addition, FAR's cheap production costs could accelerate widespread adoption of VRFB and thus keep demand high as well.
Source: FAR
Overview of the possible by-products:
Source: FAR
Portfolio matters give a great overview of the project and why the share price dropped so hard in the past in this video from March 19th 2021.
Source: YouTube channel "Portfolio Matters"
In the time frame after the video was released there were many announcements which can be read on the RNS website of FAR. One significant development was the announcement on June 28th 2021 that further investment of $7m were completed by Vision Blue Resources (investment vehicle of Mick Davies).
Another development is the economics around carbon black as a co-product. Carbon black is a raw material needed for tires and silicon. The university in Almaty has been commissioned for testing the feasibility of possible carbon black applications.
In addition to what is discussed in the video, the share price is also artificially depressed because FAR's team could not officially file their current resource estimate so far as it is from the previous owner and not in a standard western regulators accept. They will have updated resources soon which can be officially filed. Drilling is ongoing, but important to keep in mind that it is just to confirm the resource and not to find out if there is any vanadium deposit at all. All in all the risk reward is favorable. Especially because of the financial KPIs.
Cash flow is expected to be $ 430M per year while the current MC is only $118M
Model assumes a price of $ 7.5/lb V2O5 while current price is $12 and rising
Potential of $2bn NPV which would mean ca. 10 GBP per share while current price per share is 0.24 GBP
Next catalysts: Drill results are expected in H1, feedback re carbon black in Q2 and a bankable feasibility study is scheduled for Q4 2022.
Update 4/26/2022: Based on the lack of communication from the company and the lack of progress, I decided to sell FAR and move the funds into VR8. My conviction rate with VR8 is much higher, as they are rapidly advancing their project and are also better at investor relations. I will keep FAR on my watchlist. Should the situation improve, I'll open my position again.
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Sources:
https://www.argusmedia.com/en/news/2265782-chinas-2022-vanadium-demand-from-vrfb-forecast-to-rise
Bushveld minerals https://www.bushveldminerals.com/about-vanadium/
https://www.whitehouse.gov/briefing-room/statements-releases/2021/12/08/fact-sheet-president-biden-signs-executive-order-catalyzing-americas-clean-energy-economy-through-federal-sustainability/
Disclaimer: This blog post is purely my personal opinion and is not financial advice. Please do your own research, before taking investment decisions. I am long VR8. No payment or other incentive was received to write this article.