Special Report: The pullback in the vanadium price from last year’s exuberant highs to a more realistic and sustainable normal is actually a really good thing for the market.

Most people tend to think a falling price is a bad thing, but in fact it’s the opposite.

In the case of vanadium, a lower price actually brings buyers back to the market.

Ian Prentice, managing director of advanced vanadium player Technology Metals Australia (ASX:TMT), said there was a price point above which end users started to use less vanadium or look for a substitute.

“The rally in vanadium prices we saw in the December 2018 quarter when the vanadium market got a bit exuberant was beyond where the industry was comfortable to continue to steadily consume vanadium,” he explained.

The Chinese price for vanadium pentoxide flake peaked at $US33.90 ($48.59) a pound in early November last year and has pulled back to around US$10.50 a pound.

“A price at $30 a pound is not sustainable from the consumers point of view and what we need to do as producers, or prospective producers and consumers, is to find that middle ground where it works for both groups,” Prentice said.

“The fact that it’s retraced into the mid-teens is actually a positive because it means the growth in consumption will be maintained, so we will actually have the growth in the industry that is required to support the development of new production.

“Our view is that the $10-$15 a pound range is probably the price point in the near-term where it supports both sides of the market.”

And the price is still more than double the $5 a pound it was when Technology Metals listed at the end of 2016.

High-margin production

Technology Metals is advancing its Gabanintha project near Meekatharra in Western Australia rapidly towards production and is closing in on the completion of a definitive feasibility study (DFS), which is on track for delivery in mid-2019.

The Gabanintha project is shaping up to be a large, long-life, low-cost mine. (Supplied)

The DFS is an important milestone for potential off-take partners and financiers.

The Gabanintha project is shaping up to be a large, long-life, low-cost mine.

If the mine was in production at the current price, it would be a high-margin producer, because its costs are estimated to be just US$4.27 a pound, according to a June 2018 pre-feasibility study (PFS).

“If we were in production today at those PFS operating costs we would be the fourth lowest cost producer in the world based on the forecast industry cost curve of 2019,” Prentice said.

Gabanintha vanadium project is an emerging tier 1 vanadium project. (Supplied)

“So that means with a price in that mid-teen range we’re going to get support for developing our project because it will be one of the lowest cost producers in the industry.”

And Technology Metals believes it can get the costs down even further in the current DFS.

“Technology Metals remains in a very strong position to develop the Gabanintha vanadium project and prosper at these price points,” Prentice said.

Declining supply

Not only is demand for vanadium increasing, but inventories have been steadily declining each year since 2010.

Prentice said the supply deficit is likely to be in place for a number of years until significant new primary production enters the market.

Roast/leach processing delivers very high purity final product. (Supplied)

“So, we see that the vanadium market fundamentals are still very, very strong for supporting the development of a project like ours,” he said.

Technology Metals has completed most of the engineering and design work and is moving closer to completing pilot scale test work — the “final building block” of the DFS.

The company is processing a bulk sample of its magnetic concentrate through a pilot scale kiln.

The larger pilot scale test work is designed to confirm the scalability of the processing flow sheet, as well as further de-risk the Gabanintha project from a development point of view.

>>Read: Vanadium stocks guide: Here’s everything you need to know

This story was developed in collaboration with Technology Metals Australia, a Stockhead advertiser at the time of publishing.
This advice has been prepared without taking into account your objectives, financial situation or needs. You should, therefore, consider the appropriateness of the advice, in light of your own objectives, financial situation or needs, before acting on the advice. If this advice relates to the acquisition, or possible acquisition, of a particular financial product, the recipient should obtain a disclosure document, a Product Disclosure Statement or an offer document (PDS) relating to the product and consider the PDS before making any decision about whether to acquire the product.