Low operating costs and a high-purity vanadium product are future-proofing TMT’s Gabanintha
Special Report: Some of the heat has come out of the vanadium space this year, but the positive fundamentals have not changed.
We still need those new mines to come online to cater for increasing demand.
In November last year, new Chinese rebar standards – which required more vanadium — had just come in and the price ran up to over $US37/lb, exacerbated by the traditional end of year inventory build-up.
Just as quickly, it pulled back down to around $US15/lb as Chinese steel mills curtailed or dramatically reduced production over the winter period, due to environmentally motivated quotas and the production disruption over Chinese New Year.
But now vanadium demand is swinging back in as rebar standards are being more strictly enforced, and steel mills ramp up production again.
Of the 40 or so ASX listed stocks that offer exposure to vanadium, Technology Metals is one of the closest to production.
Technology Metals (ASX:TMT) wants to have its Gabanintha mine near Meekatharra in Western Australia up and running in 2021.
The company is confident its definitive feasibility study – due to be completed in mid 2019 — can improve on its already excellent base case pre-feasibility study.
The 2018 pre-feasibility study estimated that Gabanintha would generate $3.1 billion of total earnings before interest tax, depreciation and amortisation.
It would only take 2.5 years to pay back its initial construction costs of $380 million.
This is all based on operating costs of just above $US4/lb and a long term V2O5 price of about $US13/ lb – still lower than the current spot price of around $US17/lb.
But the fact that prices stabilised in the mid to high teens is a very good outcome — that’s still a 40 per cent increase on the start of 2018.
“The vanadium price pulled back to a level which is historically very high,” Technology Metals managing director Ian Prentice told Stockhead.
Mr Prentice says all the signs point to a structural change in the market.
“This latest price movement is different to what we have seen previously (in 2008),” he says.
“This time, we’ve had a nice slow build-up over a couple of years, we had that spike, but then it pulled back to the trendline of that nice steady increase.
With the Technology Metals pre-feasibility study based on a $US13/lb price, anything above this delivers some pretty special numbers.
“Around $US15/lb is certainly supportive of new project development, the sort of price you need to attract capital to develop projects,” Mr Prentice says.
“More importantly, the steel industry is more likely to continue consuming and increasing the consumption of vanadium.”
“When we listed back in 2016 the price was around $US4.50/lb.
“By the end of 2017 it was around $10/lb, and by the beginning of 2019 we are at between $US15 to $US18/lb.”
The real key for any prospective vanadium projects is vanadium head grade and vanadium recovery (or yield) in to a magnetic concentrate. Those two combined will be what drives the economics of its project, Mr Prentice says.
“Certainly from that point of view, the Gabanintha project stands out as one of the top development projects in the world,” he says.
“That positions us very well to be that next greenfields mine development.”
Key ingredients around environmental permitting and mining lease approvals are all in train and running in parallel with the full feasibility study, Mr Prentice says.
“We certainly see ourselves as being the one of the next most advanced projects as far as timeline to development.”
Technology Metals has worked hard over the past year to build positive relationships with end users and prospective finance partners across different regions including China, Japan, Europe and India.
“There’s a general acceptance in the vanadium industry that there is a lack of new supply, and a willingness to engage in offtake discussions in different jurisdictions,” he says.
In September, it also provided final, very high purity V2O5 product samples to some of those parties.
That has set Technology Metals apart of its peers.
It is delivering a 99.5 per cent purity V2O5 product — well above the benchmark 98 per cent product used by the steel industry.
With low operating costs and a high purity end product, it appears Technology Metals is well-positioned for the long term.
“At some point in time there’s going to be a number of new production centres coming online and the market will come back into balance,” Mr Prentice says.
“This means we need to be competitive on operating costs, which I believe we are.
“But our product is of such a purity that customers will seek that out over some of the lower purity producers – these two parts of the equation are really important long term.