Largo Resources (TSX: LGO) – Vanadium Innovators Sitting on a Throne of Cash (transcript)

Largo Resources Ltd.
  • TSX: LGO
  • Shares Outstanding: 563M
  • Share price C$1.08 (29.07.2020)
  • Market Cap: C$608M

Interview with Paulo Misk, President & CEO of Largo Resources (TSX: LGO)

Largo Resources is a vanadium miner, but since Misk became CEO in 2019, the company has decided to abandon its roots and is morphing into a clean tech solution provider. Why? Because it has the potential to rerate the company. Misk explains how.

The company is ramping up V2O5 production, alongside Tio2 Titanium Oxide (ilmenite – pigments sector) and Vanadium Trioxide (aerospace and Chemical industrial), which would eventually double to company’s revenue whilst maintaining a high margin. We question Misk as to how he hopes to use the catalyst of removing Glencore as their trading partners to break in to new markets and capture more of the margin. Can they do it?

With c. US$200M of cash, Largo Resources will need to continue to innovate if it hopes to drive the share price up. It’s been tracking gently upwards recently after months on the downward slope from its vanadium sport price highs of 2018 & Q1/19. Let’s see what the rest of 2020 has to offer for Largo Resources and vanadium investors.

We Discuss:

  1. 2:27 – An Update of the COVID-19 Situation in Brazil
  2. 4:41 – Company Overview and Background
  3. 8:02 – Evolution vs Revolution: The Re-Development of the Business Model
  4. 15:57 – Confusion in the Market: Update on the Contract with Glencore
  5. 17:45 – Setting Largo up for VRFB
  6. 20:14 – Focus on Core Revenue: Cash Position, Debts, and Money Streams
  7. 25:55 – Plan for the Future: Growing The Company and its Value
  8. 28:50 – Masters of Their Own Destiny: Discussing Glencore Contract Terms
  9. 30:34 – Talk of Stockpiling: Views on Vanadium Price
  10. 32:40 – Allocating Their $200M and Fueling Growth
  11. 36:04 – Management Shareholding and Buying in Market

CLICK HERE to watch the full interview.

Matthew Gordon: Paulo. How are you doing, sir?

Paulo Misk: I’m very fine. Thank you.

Matthew Gordon: And how are things in Brazil?

Paulo Misk:  Brazil is going well, in spite of the COVID situation we are doing very well. We have a very good relationship with the community in the State we are Bahia. It’s a hard situation. It’s tough times, but we have been doing all the preventive measures. No, we are following all the safety and health protocols according to all the authorities and everyone. We are doing our best in that regards.

Matthew Gordon: Good, good.

Paulo Misk: As a result of it, we have kept running. We have full production since the beginning of the year; no impact at all in our performance.

Matthew Gordon: We speak to people from all around the world every day, and different countries are reacting in different ways. We see some quite high numbers with regards to COVID coming out of Brazil. What is the government’s advice to you or to its population?

Paulo Misk: In Brazil, the government is supporting mining. They find that’s the essentiality of the mining in Brazil as the raw material source for the whole industry, it is all in the basics, that’s mining. We have support from the government. We have support from the community, and of course, we need to do our work, our job. We are providing all healthy issues for the employees. And of course, what I say is, we are going to pass this crisis together, each one doing their best. That’s we are doing

Matthew Gordon: I hope the rest of the population is good. I’m hearing you loud and clear; business as usual. So look, there’s a new, well, I said, we interviewed your predecessor, Mark Smith, back in early September, shortly before he left and you took over, so we have heard a version of the story. We are going to hear a new version today. Could you give me a one-minute overview of the business for people who have not heard this story before, and then I’ll pick it up from there?

Paulo Misk: Yes, just a little background about Largo. Largo is an industry-preferred producer and supplier of Vanadium. We produce the best Vanadium in the world, of quality. We have the VPURE and VPURE+, and interestingly about these; the world market is 91% Ferro-Vanadium and the remainder 10% is aerospace industry and chemical applications and VRF B, and the benefit of having a very good product is that we can sell 2/3rds of our production in this special application market. So that gives us a great advantage because there is a premium, a very good premium for that special application. We have produced from our mine in Brazil, we have the world’s greatest, highest-grade of V205. We have the best recovery, overall recovery from the mine to the product, which testifies to our good performance and efficiency at our plant, our production.

At the same time, we have a very low cost. We are one of two or three low cost in the world. I’m comparing to everybody, including Chinese. It gives us a situation, a very good situation to have a very good performance, quality, low cost, and we look at the production, just to have an idea, a of flavour of that: we have been increasing our production year by year. When you look at the Q1/20 results this year, it was 35% over last year, 2019. In Q2/20, we have for production, a 2% increase over 2019 as well. It’s a very good performance. But I will tell you what: our team is responsible for most of those good results. We have a fantastic team. And I have a very good sense of that because I have been there since the beginning, since we started producing in 2014, and I have built, I have helped. We have built this team and we have fantastic people. We are improving every year. Every day, we are looking for our performance, our KPIs, and improving. It’s good. That’s the way we perform.

Matthew Gordon: Let me jump in there because it’s been all change – you have been there since 2014, and in a different role from one you are in now, you took over as CEO at the end of September last year. The business looks like it has changed. You are presenting a different company from the one I spoke to back in early September. So why the change and what was wrong with the previous model?

Paulo Misk: We didn’t change the strategy. It’s just evolution of what we have been doing before.  Mark Smith has a helped a lot, our normal progress we have, and it’s just continuous of all the strategy we have set before.

 But we have a very good news, in fact, last year we increased our production by 24%, our capacity. By the way, it’s a very small CAPEX. And just to have an idea of how successful was these expansion, we jumped from 800t to 1,000t per month of in V205. In the last 2-months, we produced more than 1,000t, 1,050 to 1,030t. We increased our production. And this year we are going to improve our, increase nameplate capacity by 10%. It is a very small cost. The CAPEX will be USD$1.3M, or a 10% increase.

Matthew Gordon: I get it. You go from 800 to 1,100, a 36%, 37% increase overall in that timeframe. These are good numbers indeed, but I want to stick with, I know you said it’s an evolution in the business, but I want to ask, are you, or do you consider yourself a Vanadium business? You have a Vanadium mine, but you are developing products. You are developing VPURE and VPURE+, and you have got other products in the line. So how are you positioning it? How in the board positioning the company?

Paulo Misk: We are today a ‘clean tech’, we provide clean tech solutions. The mine is how we source our product to provide a clean tech solution for the market. And we are working with Vanadium today. It doesn’t mean that’s going to keep producing only Vanadium. And not just this: we are approaching the market, providing more products. We are implementing next year, the Ferro-Vanadium. Also, we are implementing the V203. V203 is 50%, one third of the whole consumption of the aerospace industry and also chemical industry as well. We are approaching the market with more solutions, better products. And it’s not just these: we are developing a process to produce Titanium pigment – Tio2. That’s going to be a fantastic improvement to our business. And we are developing a technology that is going to produce these in an environmentally friendly, it is not going to discharge any fluid, any drop of a fluid into environment. We are doing disruptive improvements in Vanadium. And we’ll be in the future for Titanium as well.

Matthew Gordon: This is what interests me, okay. Because, mining is very difficult. Mining is very tough. Vanadium is quite tough, because of the erratic nature of the pricing in the marketplace, obviously in the second half of 2018, the beginning of 2019, you guys made a lot of money as the price went, shooting up, as it does every 10-years or so. Supply-demand economics on that. But what I want you to explain today is, you said it’s actually an evolution, but to me it seems like a revolution because mining is one thing, going downstream and capturing value, capturing the ability to make more money is important for you because of the way that the Vanadium market has traditionally been, i.e. erratic. Is it an evolution, as you say, or was there the need to say to the board, look, we need to be a clean tech solutions company. We need to position ourselves as something where investors can get away from this Vanadium issue and see us coming up with solutions into this, , whether it be, whichever verticals that you want to sell into, whether it be aerospace, chemicals, or even the EV component or battery storage, etc. What was that conversation like when you became CEO?

Paulo Misk: Yes, first of all, I need to say that I have the full support of the board, and I’m very grateful for that. They have been supporting us, all the projects. they contribute and they support it 100%. That is very important. And the alignment with the board and the management, it ensures that we are in the right path. But when we focus on from the metals, reduction in costs, quality, providing the best product to our customers, provide the green tech solution. When I approached the company that way, we see that we can do more. We have Titanium in our tailings, a huge amount of Titanium, by the way. We are developing that and getting the advantage of have this unique situation. When you look at our revenues and results, when you put Titanium on top of Vanadium, we have another very important revenue stream as important as Vanadium. It gave us a much better situation for facing the market volatility. Titanium is more stable. And, we started those things when we decided to have our own sales team in April, our contract was blanked over, and we did decide to face the market by ourselves. Not just with Vanadium, but it created a situation that we can face another product as well as Vanadium, and these is by this core by-product will be Titanium.

Matthew Gordon: Let’s look at this, because it’s really important because when we were doing this research, people were confused because there are a lot of new things and there are a lot of variables. First of all, you are no longer a Vanadium miner, you are clean tech solutions company – number one.  You have a Vanadium mine clearly, but that’s one product. Secondly, you are looking at Titanium-oxide, ilmenite, for pigments and that thing, as a second revenue, a non-correlated revenue stream. Is that right?

Paulo Misk: Yes.

Matthew Gordon: You have talked about Vanadium trioxide, which is to be able to sell into the high purity end of things, which is the aeronautical chemicals, et cetera line as well. These are small markets, but they’re high margin markets, so I can see why you got that. But the thing which people haven’t understood, properly is obviously with Glencore, the contract finishing earlier this year, you built your own sales and trading team. What does that mean? What are you now capable of doing, and what’s that done for your bottom line?

Paulo Misk: We joined a very good sales team, experienced people, competent, and I’m very happy with them, very confident with all the capabilities and they have been performing in a very, very good way. We joined them in the middle of last year. It was part of our strategy as well. And it means that we’re going to get all the opportunities, and value that sales opportunities provide. And for us, it’s essential to have our own path and to know about how we going to face to market and provide the best solutions. There is no other way. We are not just a producer. We are not just a project with, which was six years ago, but now we are a company that’s providing clean tech solutions and not just for aerospace or chemical applications, we are looking very closely at all the VRF B opportunities. I don’t know if everyone knows about that.

Matthew Gordon: Vanadium reflux batteries, we have talked about that a bit on our shows, we have done a few interviews on the topic. It is a nascent industry. It is very early days, but you need to set yourself up for that. So again, without wanting to bounce around too much, what are you doing with regards to setting yourself up for Vanadium redox flow batteries?

Paulo Misk: Yes. I said that Largo is a unique company that can supply Vanadium for these applications because we have the quality enough, not everyone has the quality. If you look at the whole production of Vanadium, it’s 70% is slag, which doesn’t provide enough quality. Our product, which we can apply to VRF B. And at the same time, we are expanding our production. We don’t need to put this extra production into the Ferro-Vanadium market, which may not have a good impact on the price, but we can drive this extra volume of Vanadium to an application of Vanadium redox flow battery, which is a storage energy. It is a completely new, disruptive improvement in the market. When you see all the green generation of energy, electricity, solar, wind farms, they need some device to store energy. Nobody uses energy late at night, or the bigger consumer consumption is not at noon. You need to keep the energy producing during those periods and discharge it when people use most. And the VRF B provides that solution,

Matthew Gordon: Vanadium electronic for VRF B, it’s coming, but it’s early days. So, years of business. You need to plan for it, but you can’t plan for the revenues that it may generate yet because it’s some way down the line because people need to be taken up in the marketplace. People need to come up with designs which they’re able to sell into market for you to be able to sell into that market. So right now, you are focused on your core revenue streams. Which is selling what? Where is the bulk of the money that you are going to be focused on coming from now and for the next couple of years?

Paulo Misk: Yes. Right now, we are not producing Ferro-Vanadium, because we convert some partners. Vanadium pentoxide, especially the high purity, the V Pure plus. Increasing the V203 as well, because they have the capacity to increase our sales in aerospace and chemical by 50%, only having this material. And it’s interesting because our customers are asking us that we need to have V203, because they’d like to have our Vanadium, high, pure quality in the whole Vanadium needs. So that’s the way we are going to approach and make the results.

Matthew Gordon: So that’s the core focus for the next couple of years. You have got to focus on money, you have got to be making money. Okay. So, and with your sales team on board, your margins, well, presumably your margins have increased because you are not giving it away to a Glencore anymore. Can we talk through your finances? Because, you make a big thing of the amount of cash that you’ve got available. How much of that is free cash and where does it come from in terms of operations versus financing?

Paulo Misk: We have a very good cash position. Very good. It is a unique situation. By the end of the last quarter, our cash position was in a range of USD$147M. It is a very comfortable situation. We have enough cash to pay all the debt that was with Glencore. There are some payments we have done but we have a very comfortable situation to face in the new projects, to face in all the period with COVID. Of course, there is some impact in Europe and the US mainly. China today is launching and producing, it is US crazy, and we are getting independent of that. We are selling material to China today. If you look at the price in China of V205, it is in the range of USD$7 per pound. It is a very strong market and we are getting the advantage of that market, which is really hot, really excited, but also Europe and the US, we will rescue all of the industry and as production, I expect, by Q4/20 this year. That is the way we are making good for the investors.

Matthew Gordon: I’m just looking at your presentation; you talked about Q1/20 numbers, the operations contributing, it’s USD$11.6M, but you have got USD$35.8M provided by financing activities. Can you just help us understand the difference between those two?

Paulo Misk: Yes, that is because we are positive in cash and we are getting advantage out of the situation, but of course, the best investment for our cash is our operation. We have great results and we provide much better results by investing in Largo and all these projects and expanding all of our operations and solutions for the customer.

Matthew Gordon: But what things does it cover? Because that is a good return, given them amount of cash that you’ve got – USD$5M is quite nice. What sorts of things were you doing there, given you paid off a big chunk of debt to Glencore, you are now debt free. Is that true?

Paulo Misk: Eventually, we got some cash in the market, some loans. Just to, we didn’t know how COVID-19 would impact our business. It is an unpredictable situation. We got a small portion just to be safe. And we could see that we didn’t have any problem with operations, sale, so it was just to be safe.

Matthew Gordon: Okay. But you had no problems raising that loan or that debt in the marketplace because you are producing cash and people want to give you money? Is that what you are telling me?

Paulo Misk: Yes. That’s a fact. We have a very good situation. We have cash and that’s the perfect situation to get some money from the market; when you don’t need it, you get a very nice interest rates and that’s the way we did it.

Matthew Gordon: Banks love to give you money when you don’t need it. That’s the time to ask for it. Again, I have built up a picture of where the company was in September and what you have done in terms of migrating it through to a solutions provider. I get it. And I can understand why that might have a higher multiple as far as investors are concerned, certainly institutional investors, once you get those revenue streams going. Can you talk to us about how quickly you think those new revenue streams are going to be able to kick in with meaningful revenue? What does the next five years look like for you? And if you can give us some sense of where, as a percentage, where the revenue is coming from, how much is trading going to contribute as a percentage? How much each of the new product lines going to contribute?

Paulo Misk: Yes. Well, we didn’t disclose those figures so I cannot give you the details about it, but I can give you an overview. We are going to keep growing the revenue and the margin with Vanadium by providing better products like the V203. When you get this Titanium pigment, it’s not even supplies, it is pigment. We expect that, it is our objective and aim to double our revenue stream, any to be basically 50:50 Vanadium/Titanium pigment; that’s our aim. And when you look at all the production from Titanium, we just need to add the processing, ore processing. I’m not including crushing, not milling, because it has already been done, this phase, but just the produced the ilmenite from flotation, adding a chemical plant, in a sequence. And you are going to get the lower cost Tio2 pigment in the world. Because we have already spent all the mining and milling, which is an expensive step. It will be in a very good margin as well.

Matthew Gordon: It is Titanium-oxide, ilmenite pigment used in food and in all sorts of applications, paints, etc. That will double your revenue, but as a percentage of your margin, you think it’s going to be quite a high margin product?

Paulo Misk:  Yes. That is going to keep high, as much as we are doing Vanadium. But that’s our expectation. We need to fulfil all the studies steps and there’s a lot of work to do. We expect to have this package done, all of the studies done by Q1/21 next year. In Q1/21, I will be able to provide all the numbers and exactly forecast for what we are going to do in all of our plants.

Matthew Gordon: Understood. It is not such a long runway if you are talking about Q1/21 next year, so that’s not too far away. We will listen out for those numbers as and when you start to understand them better.

Sorry to keep coming back to the trading, but, such a big deal was made of the fact that Glencore would be removed and you would be  masters of your own destiny at that point, but can you give us an idea of what you think that should do to your bottom line? I mean, if you are now in charge of your own sales process, I mean, how much was Glencore taking off the top?

Paulo Misk: Yes. again, I cannot give you details about the agreement with Glencore, but we don’t get the full premium when you sell the high purity. Now we have, the full one. So, it is an advantage to be alone, but not just that; we are increasing our share in the high purity, I’m talking about aerospace, although this sector is facing a very hard time, but also for chemical. We didn’t sell one pound for chemical applications before, but we have done this already. We are selling material to the chemical applications. That is our focus, because the premium is even higher than aerospace. So just not having Glencore doing our sales, we get more premium and we increase the VPURE+ sales. It is big advantage. Glencore was a very nice partner of Largo, but they are also a Vanadium producer s there is a conflict of interest.

Matthew Gordon: Tell me a little bit about stockpiles, creating stockpiles. What is the idea? Sell everything that you produce out of the mine as quickly as possible, or do you stockpile and say, there’s price recovery in the market to come in. And what’s your view on the Vanadium pricing in the market, for instance?

Paulo Misk: In Q2/20, we built some inventories because you need to put some material in the warehouses around the world. We are converting to V203, but the build-up we have done this step already. Q2 is a very important one. And that is the thing to have a very good cash position because it doesn’t, hit the company. We built the inventories, we are ready to supply all customers around the world with Vanadium Pentoxide, high purity, and Ferro-Vanadium, as when they need it, because we have already built those inventories in Q2. We are ready to –

Matthew Gordon: What is the value of those stockpiles that are sitting around the world? What are they down on the balance sheet as?

Paulo Misk: It is about, let’s say 2000 tons overall of V205. If you look at our production guidance, it’s 12,000 tons of V205 this year, but our sales guidance, is about 2000 tons less. That’s why we planned that situation and we are performing as planned.

Matthew Gordon: Say you produce that 2,000t at around, let’s say a cost of USD$3.25. So that gives us a sense of how much money, net, is available to you sitting around the world in stockpiles. I just want to understand what else do you do with your USD$200M? You have got a lot of different new projects at various stages, requiring markets to develop, requiring you to deliver things like, especially like run the Titanium oxide project. So how much net cash have you got and how do you plan to spend that? How do you keep driving this growth? Have you got enough projects on the go?

Paulo Misk: It is one step at a time. I would not say exactly what cash position we have today, just because it has not been disclosed yet, but we have enough cash now to run the V203 plant. We will implement that. That is our priority, by the way. We postponed the FEV plants, by the end of last year. We have time to do both in a very good way, no problem at all. And the Titanium implementation will take a little bit longer because we’re going to have, next year, all the things done. And we have started already talking to the market to see how we can fund this for the Titanium project. So, let’s build all the projects one at a time and adjusting our cash situation and finance and getting partners. All the strategies are not definite as yet, but I have no doubt when you have good things to sell, it is much easier to get partners and people to help you. And all of our shareholders support all those actions. I have been talking to them and they are very happy with what we are doing with the company and how we are going to make it happen.

Matthew Gordon: There are some very, very big plans in there. And I appreciate that the change of positioning of the company could be dramatic in terms of the institutions’ view of you. I get that. That’s good. But you are going to be building up a big debt position to be able to get these things going. I presume it’s going to be mostly debt, is it?

Paulo Misk: Yes. We didn’t define the strategy for these yet, but probably it is going to be that.

Matthew Gordon: You have got the revenues to be able to pay the coupons. So why not?

Paulo Misk: And by the way, that’s the perfect situation because the interest rates are very low. You asked, for example, the expectation for this interest rate for next three years to be the same level. It is unbelievable, and we have never seen this situation in history before. It’s a good time. We have a good project to raise money and help the economy to re-establish at the previous level. And we will be part of that and take advantage of all situations.

Matthew Gordon: Stay in touch with us and let us know how that’s getting on. Because that’s quite important because with growth comes growing pains, and the cost of finances is important, as you say. The board, have you been buying shares in the market? I know you were pre-COVID, but what have you been doing since then?

Paulo Misk: I have been buying shares because the price is ridiculous, by the way, it’s very low price. And I expect, I’m not an analyst, but it values much more, in the current basis. I’m not talking about the projects. I’m not talking about the improvements that we are going to implement, but in the current basis, performance, this price is very under-valued. It’s a good moment for buying and I’m doing this.

Matthew Gordon: Your shareholders would agree with you. They don’t understand what has been happening with the share price, because obviously, since the highs of, towards the end of 2019, it has been in steady decline as the price has fallen away, obviously. But they are looking for you to lead from the front and tell them why the future looks good. What I’m hearing today is there are future revenue streams that you are planning for. And the possible re-rate, if the market buys your story that you are no longer a Vanadium company, for sure. Well, Paulo, that’s a nice run through for the first of the new story. It’s the first time we have spoken or met, so I appreciate you spending your time explaining that. People are unsure about Vanadium, but maybe what you are doing, the plans that you have in terms of capturing more of the value downstream might be more appealing to a lot of your current investors and a lot of new investors as well. Thank you very much for your time.

Paulo Misk: Thank you very much. And thank you to the audience. It has been a pleasure talking to you and keep safe, please.

Company Website: https://largoresources.com/

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

Largo Resources (LGO) – Vanadium Technology Innovators with $200M Cash in Bank

Largo Resources Ltd.
  • TSX: LGO
  • Shares Outstanding: 563M
  • Share price C$1.08 (29.07.2020)
  • Market Cap: C$608M

Interview with Paulo Misk, President & CEO of Largo Resources (TSX: LGO).

“We produce the BEST vanadium in the world.”

Largo Resources is an ‘industry preferred producer and supplier of vanadium.’ The company used to be an outright vanadium miner, but since Misk became CEO in September last year, the company has sought to distance itself from this reputation in favour of something new. Now, Largo Resources is a ‘high-tech, green solutions provider’ for aeronautical, chemical and other sectors.

Matthew Gordon talks to Paulo Misk, July 2020


The majority of vanadium is produced as ferrovanadium, and it is primarily used in stainless steel. However, Largo Resources is producing high-grade vanadium pentoxide flake, whilst pondering the potential production of vanadium trioxide and titanium oxides to create new, high-margin products that could double margins. How can Largo Resources market itself effectively to demonstrate this new value proposition for investors?

Largo’s VPURE TM and VPURE+TM products are sourced from one of the world’s highest-grade vanadium deposits at the Maracás Menchen Mine located in Brazil.

The share price has been falling for the last 2-years, so what does Misk have to offer for investors when it comes to talking about accretive value for shareholders?

VRFBs are an early-stage technology that are still some way from adding commercial value to companies. How is Misk setting up Largo Resources for VRFB so that, when the time comes, it can add to the company’s bottom line meaningfully? Interestingly, 70% of global vanadium supply comes from slag and is low-quality. Misk sees expanding the company’s production of VFRB-grade vanadium to capture the high-grade high-margin part of the market as critical to future success. But for now, the main focus is on core revenue streams.

High-purity vanadium pentoxide is the key focus for the next few years claims Misk. With the sales team at Largo Resources now controlling its own sales destiny, the company’s margins are much healthier than previously because as of May 1st, the vanadium off-take agreement with Glencore expired. Largo Resources has a “very good cash position:” c. $200M right now. This means Largo Resources had sufficient cash to pay off the debt to Glencore whilst pushing its new projects forward. Misk claims the V2O5 market is really hot right now, and by breaking into the Chinese market where V2O5 prices are higher (US$6.90/lb in China, US$5.30/lb in Europe) because of increased demand, Largo Resources is able to enhance its value proposition for investors.

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Despite COVID-19 restriction in Brazil. Largo Resources churned out 2,831t V2O5 in Q1/20, a 35% increase on the same time period for the previous year, with a 79.9% recovery rate. With increased production comes increased profits and reduced costs because of economies of scale, as evidenced by the Q1/20 financials:

  1. Net income of US$5.7M
  2. Basic earnings per share of US$0.01
  3. Cash operating costs (excluding royalties) US$2.79/lb V205, a decrease of 18% over Q1/19.
  4. V2O5 sales of 3,170 tonnes, a 51% increase over Q1/19.
  5. Revenues of US$58.2 million, an increase of 31% over Q1/19.
  6. ‘Commercial independence:’ Over 85% of committed sales in 2020

The numbers look good, and the share price has begun to track upwards gently in recent months. Let’s hope it can continue. Misk expects the production of titanium oxide, ilmenite, which is used in pigments, to double revenue and keep margins high. He expects to have a “package” of studies completed by Q1/21. Investors can then expect to see the numbers and forecasts for what could potentially be a gamechanger. We’ll be keeping a keen eye on this story to see what other projects could come into the fold, because investors are sure to want to see how this repositioning of the company rerates in the market.

What did you make of Paulo Misk and Largo Resources? Comment below and we will respond.

Company Website: https://largoresources.com/

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

Bushveld Minerals (BMN) – Investors Eye Vanadium Outside China but…

Bushveld Minerals Ltd.
  • AIM: BMN
  • Shares Outstanding: 1.15B
  • Share price GB£0.13 (15.07.2020)
  • Market Cap: GB£151M

Interview with Fortune Mojapelo, CEO of vanadium producer, Bushveld Minerals (AIM: BMN).

Bushveld Minerals is a South African primary vanadium producer in the lower cost quartile for production. It is vertically integrated and is 1 of only 3 operating primary vanadium producers globally, owning 2 of the world’s 4 operating primary vanadium processing facilities, currently producing approximately 3,000t of Vanadium pa, which represents ~3% of the global vanadium market. The company’s target is to organically grow production to more than 8,400 mtVp.a. in the medium term.

Bushveld Minerals owns a diversified vanadium product portfolio that supplies to the steel, energy and chemical sectors. Bushveld Minerals participates in the entire vanadium value chain through its two main subsidiaries: Bushveld Vanadium: a vanadium mining and processing company; and Bushveld Energy: a project developer/energy storage component manufacturer that is focussed on vanadium-based energy storage systems (VRFBs).

Matthew Gordon talks to Fortune Mojapelo, 15th July 2020


Eventually, Bushveld Minerals aims to develop a sustainable and cash-generating business model that is in a lower quartile for cost. The platform will include high-grade, opencast, low-cost primary vanadium mines, alongside refurbished brownfield processing facilities, which provides a scalable aspect. The company also intends to be a pivotal supplier of electrolyte and other VRFB technologies.

Bushveld Minerals’ 2019 financial year numbers were disappointing for everyone. While the company met its guidance for production volumes and cost, the company only generated US$160M in revenues: a significant tail-off from its figure of US$190M for the same period in 2018. However, the vanadium price did fall from US$74/lb to US$48.90. The revenue drop is solely attributable to the drop in the vanadium price. In fairness to Mojapelo, he appears to have controlled what he is able to control, but the market can always have a sting in its tail. The ‘v’ in vanadium stands for volatile and always will; this is something investors need to get comfortable with, or they need to invest in something else.

Bushveld Minerals’ EBITDA was US$32.6M, which is a reasonable figure. Ending 2019 with US$34M in the treasury, the company was able to deal with COVID-19 more comfortably than most. What is the next move for Bushveld Minerals? The company plans to expand vanadium production to 8,400 metric tons a year (mtV), up from the 2,931 mtV it produced in its 2019 financial year. This news is something that could get vanadium investors really excited.

To get to this point, Mojapelo expects an expenditure of US$100M and aims to achieve the production figure within the next 3-5 years. The money will be spent on optimising the downstream to increase throughput at the company’s plant, alongside a phased approach to refurbishing three kilns and bringing them online by the end of 2024. It is a robust process, but can it excite the market?

Bushveld Minerals has been attempting to complete a listing on the JSE, but this has been delayed because the company was prioritising the significant acquisition of Vanchem and needed to figure out how to incorporate it into the company’s books. What is the benefit of listing in Johannesburg? Mojapelo thinks there is a growing narrative surrounding the company in South Africa, and African countries, in general, are perhaps more amenable to increasing their share of the battery metals value chain. An increase in policies that support these initiatives has gone some way to creating more momentum. Investors will need to decide if this is a waste of time, energy and money, or if this could add accretive value in the long run. Could the project be delisted from AIM in the near future? Mojapelo is coy, but he thinks the share price will eventually take care of itself if Bushveld Minerals continues to grow. Getting some more institutional names onboard would certainly shore up the value proposition and go some way towards boosting the share price. He will need to balance the effort expelled on each project within Bushveld’s portfolio effectively if he wants to deliver returns for shareholders. Lemur Holdings, a Madagascan coal player and Bushveld subsidiary, looks like a potential distraction, but he thinks a focus on value will enable it to be a worthwhile venture for shareholders eventually.

His comments could be interpreted as frustration at the level of liquidity and trading in the stock. The question is would the LSE be any better? Does JSE help? It would be marginal in my opinion. The reality is that vanadium just doesn’t look good at the moment. Bushveld is a good business with an exceptional CEO, however, Bushveld just looked a lot better at much higher prices. Now, the sheen has come off a bit and there are more exciting things like gold, which is distracting investors from a good story. Also, Bushveld Energy needs time for the market to catch up to VRFBs; it’s still early days for this technology. It is set up for success, but the reality is that the share price currently tells a different story. Investors who believe the vanadium thematic have two choices: get in now while the share price is depressed, or wait to see if and when the market recovers and revisit.

This image has an empty alt attribute; its file name is company-profile-ad-copy-1024x115.jpg

Over at Bushveld Energy, the first phase of its project, a 400MWh VRFB, should be completed this year. Every commentator I’ve heard on the vanadium space has told me that VRFBs are some way off being commercially realised. They’ve also told me any that companies that tell investors VRFBs will transform their value proposition are off the mark. What does Mojapelo think? It’s an 800MWh project, and he thinks projects of this scale are “great.” He’ll be looking to get involved in more in the future because the VRFB demand story in Africa is growing by the day. The need for energy storage is increasing as developing countries continue to progress. Could VRFBs play a key role in enhancing peaking capacity? Companies that produce their own power in Africa can now do so under much less regulatory framework, and this can only be encouraging.

The electrolyte plant, a real rarity, is currently being progressed through a phased approach. Bushveld Minerals has conducted the feasibility studies and the EIA. It has reached a construction decision and is ready to move forward with it. Investors will be hoping that Bushveld Energy and VRFBs can add to the company’s bottom line in the near future.

What did you make of Fortune Mojapelo? The company is well run, but are you a believer in the vanadium supply-demand fundamentals yet?

Company Website: https://www.bushveldminerals.com/

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

Battery Metals – A Shocking Introduction (pt2/7: Vanadium)

A fully-labelled cartoon diagram of a vanadium redox flow battery.

Vanadium: Longer Life, Inspired Investment?

A photo of a pile of big chunks of vanadium.

In the last article of this series, we began exploring the battery metals behind the EV economic revolution. Click here to read about the raging ethical debate that will affect every investor’s dealings with cobalt. In this article, it’s time to take a step away from the cultural hurricane of opinions and instead look at the technological tornado surrounding another battery metal.

Vanadium

Vanadium has been a useful industrial metal for many years. It has been used in nuclear reactors, superconducting magnets, catalysts, gears, axles and jet engines. The concept of a vanadium redox battery had been problematic throughout much of the 20th century, with Pissoort, Nasa, and Pellegri and Spaziante all being unsuccessful in their attempts to create one. However, since the first successful all-vanadium redox flow battery in the 1980s, companies have been clamouring to explore the immense possibilities generated by a battery that has a lifespan far longer than current solid batteries.

Higher than expected supply and lower than expected demand has resulted in a downward price trajectory for uranium in 2019 after the record highs and growth of the sector in 2018. However, the vanadium market worldwide is projected to grow by $17.5 Billion. (1) A primary reason is the predicted growth of iron and steel, not the green revolution. Eventually, when the technology standards for VRFB have been agreed, vanadium will find applications for longer-term energy storage in towns and cities to regulate peak-energy surges and provide domestic whole-home use and remote off-grid use. Vanadium will be able to compete in terms of cycle life, safety, and reliability for stationary applications. However, lithium-ion will continue to own the mobile energy market such as automotive (EV) and electronics.

Despite higher upfront costs and lower energy density, VRFBs potentially have a shorter payback time because of capacity retention even after many thousands of cycles. This potential also exists because of their ability to recycle core components more easily than other battery chemistries. Very few VRFBs are in commercial use so investors must take the claims of vanadium companies aligning their success to that of VRFB with a pinch of salt. However, that is the cherry on the cake. Right now, the vanadium producers’ economics are 90% aligned to the steel market.

Lithium-ion batteries will suffer a setback from the emergence of utility-grade flow batteries, which will contribute to easing the pressure on lithium resources that are more needed for electric mobility applications. One final interesting remark is that, with notable exceptions, a sizeable portion of the RFB industry is located in Europe and the US.

A photo of a large yellow vanadium redox battery inside a factory.
A Vanadium Redox Battery

Vanadium Flow is in developmental infancy relative to its older brother, lithium-ion, but is on an upwards trajectory. Wattjoule predicts an increase of 30% for the total Substantial Storage Market by 2025. (2) Vanadium-Flow offers a fully containerised, non-flammable, compact product that doesn’t degrade; therefore, it can be reused. It seems to be an infinite supply! I am attempting to understand if this is a good thing or a bad thing as an investor as scarcity drives prices up and oversupply drives prices down. Investors may also be interested to hear there is significantly more Vanadium in the earth’s crust than lithium; currently, twice as much Vanadium is produced each year.

However, investors so far have been deterred by the economics of vanadium, and commercialisation of the batteries has suffered as a consequence. The benefits are not yet understood by the retail market, so regardless of their promise, they are yet to bear fruit. Vanadium-flow batteries remain less effective than others in terms of energy-to-volume ratio and round-trip efficiency. They are also heavy, which restricts the flexibility of their application to mobile solutions. Lastly, the toxicity of vanadium oxides renders the batteries more dangerous than competitors. The industry needs to assure investors they have a solution for this or they will suffer the same push back that Nuclear energy is getting from some quarters, despite the zero-carbon claims.

Vanadium is produced in a variety of ways for many applications. Vanadium pentoxide (V2O5) always contains 56% vanadium by mass. (3) One of its uses is as a cathode in primary and secondary rechargeable lithium batteries, and in VRFBs, both of which are a key part of the EV revolution. It is also utilised in air treatment, automotive manufacture, paint, flooring materials and as a catalyst or colourant, along with many other uses.

Another popular variant of vanadium is called ferrovanadium (fEv). Ferrovanadium is a master alloy/universal hardener used in ferrous alloy production, such as stainless steel, that is formed by combining vanadium and iron; it has a vanadium content range of 35%-85%. Vanadium is also sold as a nitride that can be used in cutting materials or hard coatings.

57% of vanadium is produced in China and 18% in Russia. India, South Africa and Brazil are also large producers. The USA produces ≅3%. (4)

The spot price of ferrovanadium is ≅$31/kg in China and ≅$21/kg in Europe. The price of vanadium pentoxide flake is ≅$14.55/kg in China and ≅$10.47 in Europe. Historically venadium pentoxide flake has been as low as $2.43/kg in worldwide markets in 2002, and as high as $74.74.kg in November 2018. Ferrovanadium reached a height of $143.50/kg in October 2018 and a low of $6.20/kg in early 2002. (5)

An arial photo of White Mesa Mill, Utah.
Energy Fuels’ impressive uranium/vanadium asset, White Mesa Mill, Utah.

Crux Investor recently took the opportunity to interview Largo Resources (https://youtu.be/TsWIAvM24Ww), Energy Fuels (https://youtu.be/Kf4WwL-VNac), Australian Vanadium (https://youtu.be/5kZaEG2y_ns) and BlueSky Uranium (https://youtu.be/lhFSQ0c56Pg) about vanadium. They helped shed light on the expanding market of vanadium and shared useful information for investors. It is important to decipher the difference between what the CEO says versus what is a reality today. They need to paint a picture of a growth story for investors. We must work out what is real and what is wishful thinking.

  1. https://www.researchandmarkets.com/reports/338739/vanadium_market_analysis_trends_and_forecasts?utm_source=CI&utm_medium=PressRelease&utm_code=39vjl9&utm_campaign=1310740+-+Global+Vanadium+Market+Analysis%2c+Trends%2c+and+Forecasts+Report+2019%3a+Market+is+Projected+to+Grow+by+US%2417.5+Billion&utm_exec=chdo54prd
  2. https://energypost.eu/can-vanadium-flow-batteries-beat-li-ion-for-utility-scale-storage/
  3. https://www.convertunits.com/molarmass/V2O5
  4. https://www.bushveldminerals.com/about-vanadium/
  5. https://www.vanadiumprice.com/

Company page: http://www.cruxinvestor.com

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

A fully-labelled cartoon diagram of a vanadium redox flow battery.

Australian Vanadium (ASX: AVL) – Hitting Milestones and Moving Towards Supplying 5% of the Market (Transcript)

We spoke with Vincent Algar, Managing Director of Australian Vanadium (ASX: AVL) whilst he was in London.

Highlights of the Interview:

  • Company Financials, Investors and G&A
  • Priorities and Focus
  • Value Creation for a Junior Company
  • Vanadium: the Market & Promotion

Matthew Gordon: What are you doing here in London?

Vincent Algar: I decided to come over to London to make some introductory meetings to some funds with a corporate advisory company we working with out of Singapore. So just getting to meet people, following up from our 121 meetings.

Matthew Gordon: And the purpose of that being what?

Vincent Algar: Twofold really. 1. To open ourselves to a new group of investors, primarily an institutional base, PE and family office space. But also to investigate coming here with a potential listing, probably which now looks like around March next year, if it goes ahead in that timeframe.

Matthew Gordon: We should come back to that another time perhaps. For people who are new to your story, why don’t you give us that 2 minute summary and we will pick up some questions.

Vincent Algar: Australia Vanadium is a company that’s been listed for over 10 years. Our main focus is our project South of Meekatharra, which is in the central part of Western Australia. Active mining region and we are developing a project that’ll be about 5% of global Vanadium production out of a magnetite deposit. Very similar in style and geology to that being mined by Bushveld and by Largo.

Matthew Gordon: And that’s a nice summary. So I want to start off and talk about junior miners first of all. So give us a rundown of the finances with regards to the company in terms of market cap share price etc.

Vincent Algar: Currently 1.7Bn shares on issue, which is a lot. The company’s been around for 10 years. We know that, that’s what it is. We’ve got 670,000 shareholders, which is also quite a large number for a company of our size. Market cap currently around $29M-$30M, depending on how it went this week. If we had a good week which is always good in the first part of financial new year in Australia. Sitting with about $4.5M in cash working our way through and deep in the process of doing a pilot study as part of a Feasibility Study.

Matthew Gordon: And you mentioned are you’re working towards the DFS as well.

Vincent Algar: Yes. That is definitely part of the DFS work is to do that part and we’ll spare I’ll spend a bit of time in saying why that’s important that we doing that in a particular way.

Matthew Gordon: So you’ve got $4.5M left. That takes you through to when?

Vincent Algar: Probably take us through to the end of the year. On the run rate that we are going. We are a very small team focused both in our consulting team and internally. And they were focused really on getting that work done in the best possible timeframe.

Matthew Gordon: And are you seeing any pressure from retail investors, institutional investors in terms of managing that G&A a little bit further out? Or that’s what you need to get to and you’re going to have to raise at the end of this year no matter what?

Vincent Algar: Look I think everyone looks at the capital. They look at what needs to be done and everyone will know that we have to do something to make sure that we keep on our time lines to get to the end. There’s two ways to do this. We sit on our hands and go slow, and we know where that goes. That it doesn’t get the project done. Or we push our sleeves up and get on with the work. And that will require us to have the money we need to get it done. Which is one of the reasons why I’m here as well. To make sure we understand the capital markets around what we need going forward.

Matthew Gordon: Because you used the phrase with me when we spoke. And we did this on line but previously. So the thing that can affect dilution most is not being able to raise capital.

Vincent Algar: Running out of money is the worst form of dilution the shareholder can have. That’s a very relevant thing in a junior resource company. Knowing what you’re spending. How you spending it. So being very tight on a budgetary level. Have a budget which is often quite an anathema to some people. But knowing what your budget constraints are. Knowing that you are well ahead of time how you’re going to be spending that money and where it’s going to be going. And what deliverables it’s giving you.

Matthew Gordon: You going to be raising how much do you think? You got a sense of that? It’s a long time between then and now.

Vincent Algar: We could We could finish the work we need to do down to the end of the feed study with between $5M-$10M. So that’s a additional amount of money that at some point we’ll have to put in the bank. And that’s what we were working towards, to either saving our cash to get to that point and then putting that in. But we need to deliver some deliverables to add some value along the way.

Matthew Gordon: And what do your institutional shareholders think of this process?

Vincent Algar: We don’t have a lot of institution al shareholders. One of the reasons I’m here again. We have on our register a couple of people around 2.5%-3% mark. We have people that we may think are institutional shareholders sitting behind nominee companies in that top five.  But there’s quite a lot of high net worth money in our company. And that’s become come in through my Director Les Ingraham who’s nursed the company until I joined in 2014, where he was strongly supported by people around him. He kept the company going and kept the company on its feet. A lot of his own money in and his high net worth friends’ money. That’s where we got to today. That shift of bringing the project to a new level is one of the changes we were looking to make in share register.

Matthew Gordon: I’m going to come back to overhead again, because the conversations I’m with a lot of juniors at the moment, is there are a lot of disgruntled investors. They’re looking at the salaries. They’re looking at the overheads. The way that money is spent. It’s all public information but very few people look at it. But when they do they’re stunned. Mining executives are extremely well remunerated.

Vincent Algar: I certainly can look at what we do, and I don’t turn up on the top 200 lists so I’m okay. But I think junior resource company CEOs. We’re doing something that other people are not doing. We are having a crack at something that is almost impossible to do. You’re trying to find something that is unfindable. You’re trying to then turn that into a resource; 1:100, 1:1,000 will make it to that next level. You’re trying to turn that Resource into proper Feasibility Study. We’re out there on the risk margin taking chances and when we pull that off our shareholders often benefit significantly.

Matthew Gordon: You’re taking these chances with some else’s money and they expect you to behave a certain way. When people are taking not a lot of that risk on their own shoulders. And by that, I mean taking big salary, not necessarily aligning themselves with shareholders and taking a smaller salary with more equity or shares. I can see why that stick in the throat.

Vincent Algar: No of course I can see that as well. But there’s a balance in there for everybody. I think that the best way that I see that in junior company sector is for there not to be so pointy at the CEO end. I think a lot of junior companies are CEO heavy. And they would be far better service by having a technical team at the top. Where those top players are equally remunerated and they all focused on the core objectives of the company. So for example, we just put Todd Richardson on our executive team and COO. He’s come in with a very specific objective of delivering that project and the approvals that go with it at the technical level with his team in budget and on time. My role is to make sure that he has the funds to achieve that. So that’s my role. We’re equals in every other way. And that’s really important part of our structure. I don’t feel that if I go out of the office like I am now that the ship’s listing at the back. It’s very much under control and the projects definitely working.

Matthew Gordon: But in terms of how you remunerate yourselves, are you more incentivise against deliverables, against share price, against those sorts of things or is it all front loaded?

Vincent Algar: Todd got some shares when he came in. I got some performance shares given to me on the way in when we delivered some of our Resources. We have now reached a point at the end of the PFS where we have to lock in some new remuneration for us on the incentive side. But at the same time you got that shareholder view that you don’t want to do that too early for the wrong reasons either. So it’s definitely on our cards to do so. We haven’t locked it in. You want to do that with the blessing of the shareholders and in the Australian market in any market probably other public company you do have to go to shareholders with those direct remuneration opportunities. And they have to approve. I don’t think that in our company where we’re over the top. I’ve definitely seen a lot worse. But I think the most important thing about that is that the executive team is has got a load that I can deliver in the projects. And that is strategically split across key members. I think we’ve got a very good structure in place now in our company.

Matthew Gordon: Generally, I always advise people to take a look at this prospectus and actually understand what they’re getting into to. And if the management team look like they’re keen to get as much money out as possible, as soon as possible then it’s something that you should think about twice.

Vincent Algar: I’d say it’s a good lesson for anybody from a due diligence point of view. Investors should read the accounts. Read the notes. That’s what I was taught. Therefore, you make an investment, look at everything and then form your opinion from there.

Matthew Gordon: Let’s get onto the money side of things. You’re here in London having a few meetings with some institutions and family offices as well.

Vincent Algar: And interviews as well.

Matthew Gordon: So what are you telling them? Because when we spoke last I was impressed by a lot of what you said. You seem to know what you need to do. That’s a big list. So what I’d like to understand is what you think your 3, 4, 5 priorities are? And tell me how you’re going to actually deliver those. Because we’re going to raise money, you need to be clear about that story with people. So what do you think your focus is?

Vincent Algar: But so just take you through a typical scenario when you’re meeting with one of these guys. It either focuses on the on the market. Sometimes quite heavily and what the market is like, because we’ve got a commodity here that when you look at the vanadium price chart, it’s not a pretty thing to behold. It’s very spiky. If people don’t know the commodity, why would you believe that that the price over the next 10 years would be any different than it is now. So a lot of time understanding what the market behaviour is and what we see the forward growth is. And we have to have a view on the forward growth, not only on the price but also on the market demand before you can even entertain looking at the project at all. So that’s part of the conversation. The second point is what have you been doing to get you to this point. What if what have you really achieved in terms of the milestones?

Matthew Gordon: So what are they?

Vincent Algar: I joined four years ago. We’ve taken the company through drilling it out, and pushing the resource up to 90Mt in terms of our target horizon, and getting that through the PFS which allowed us to declare that maiden reserve of 18Mt. Which looks like a first pass mine life of 18 years. If you take that from the total remaining inferred resource that gives you another 2 times that life if you like. Another 30 odd years of life after that, which really is something that people want to see. Is it a long-life project? Yes. Does it have the grade? Yes. Then we talk about the technical side. We’ve found this great Vanadium deposit. Is it special in grade? Is it special in thickness? Those are the things they want to hear. What is it like? Who’s done the same thing?

Matthew Gordon: Is it economic is where you want to get to.

Vincent Algar: Exactly. The PFS indicated that at the price ranges we gave. It’s economic. Is it’s fantastic at today’s price, which is when we look at and go, ‘well it can be a lot better’. What are we going to do to stay in business when we’re in business? And then last thing where are we going to get the capital.

Matthew Gordon: All great questions. Let’s answer a few of them.

Vincent Algar: The project itself from a metric point of view is very comparable to the Largo and Bushveld Projects in terms of the geology. So we know we’ve got tonnages. We’ve got concentrate grades, we’ve developed from our test work and we’ll be confirming in our pilot work, are in line with delivering a high-quality concentrate. Not the best concentrate in the world, not a 3% or 2% like Bushveld has, but certainly at that 1.4%, comfortably for the life of the project. So that’s a really important cornerstone of our delivery. The silica grade needs to be in a very tight space, very low. And that has implications for operating costs so you need to keep it down. We’re very comfortable with what we’ve done so far. We’ve continued to deliver far more work and again the pilot study will confirm that we can get good value at that.

Matthew Gordon: You’re looking for the $4.15.

Vincent Algar: Anywhere South of $4 is good. I think is good. Let’s say you’re looking at an operating margin of $4 on a price it’s $8.60 even if you say in the worst scenario for. So it’s the key thing in operation for us. We want to show in our study work that our operating cost can be comfortably and safely below $4 or at $4. And we’ve shown it in our PFS and we’ll continue to show that in the work we’re doing in the DFS. That is our goal because without that we’re not an option for people going forward.

Matthew Gordon: Okay.

Vincent Algar: The pilot study is about confirming everything and de-risking everything around the process route, to give people a comfort, whether it’s a bank or a small investor or institution, that the work is being done well, it’s being done properly and it reflects the feed that’ll go into the mine.

Matthew Gordon: And presumably a strategic partner? And institutions for sure on the money side, but that’s not necessarily going to come from banks or institutions. Are you having conversations with strategic investors?

Vincent Algar: So now you get to the point of the capital. So the operating cost is part of the study work. But the key thing is then we’ve got a capital number that has scared some people to be honest. And people look and go, ‘Oh it’s a big number’. You look at big projects around the world and it’s not a big number, compared to other projects. But people still look at and go. How are you going to get that money? You’ve got a $30-$40M market cap. You need to raise somewhere along the line you need to raise this to $350M. Now what we are doing in the DFS, is looking at all the options you’ve got to reduce that capital. So by taking things or not taking them away but engineering them out, they don’t have to be there. That’s the first thing. And that’ll allow us to a optimise the capital that we need to get from a strategic investor. They will also help us with de-risking the project as well significance.

Matthew Gordon: I mean that’s not a new model. Tried and tested done before. It’s a question of who you partner with and what they think of the asset that you’ve got. You’re doing something with the pilot plant. I can understand why they would find that particularly interesting because it gives them a better sense of what the economics and how hard this is going to be. So with those conversations, do you then step back let them come in on a project level and take over. Are you incubating this? Or do you think that actually, no I want to bring this into production. I’ll just take the money.

Vincent Algar: So you asked earlier about the key partners. We’ve got a target space that is cross that’s both incoming and outgoing if you like in terms of targeting people who are in the vanadium space, either as converters or as producers, across the world. We obviously we’ve got one MOU in place already. They are a converter. A converter being someone who either makes Ferro from vanadium or who makes VCN and from vanadium. So those are those are the converts space. They’re a very interesting market because they have got money, but they don’t have feed. Then you’ve got the smaller steel mills in China who are probably more likely to be ones that are going to be looking at it.

Matthew Gordon: Those conversations haven’t started yet? You know where to go?

Vincent Algar: There are conversations that we have ongoing. Conversations under CA (Confidentiality Agreement) mainly. Those are not at the MOU (Memorandum of Understanding) level. They’re at the data review level. So we have an active data room.

Matthew Gordon: Those people may have been talking to lots of people. You’re one of them, if they like what they see, they may take it up.

Vincent Algar: It’s more pointed than that. It’s one-on-one MOU review of data. We have a data room. It’s very active. We have a full financial model which is at close to or at banking level.

Matthew Gordon: What I think is interesting is that a $30M market cap company has got this full data room available, because it knows now is the time to be having those conversations. Which means that your market cap is it going up the chance to grow or how does it grow? Where’s the value come from with a small company like this, where someone’s going to come in and take a sizeable piece of the action.

Vincent Algar: Well if someone comes in and takes a portion of the project say the project. Let’s just say hypothetically a corporate comes in. They like this for whatever reason they decide and then they want to make is that the proposal for a project level in. That earn amount and their ability to go through will be at the project level, not at the shareholder level. And that’ll reflect the value that we’ve put in the company. We would say in our presentations, in our model that this is where we think the projects worth. By them coming in validates that whole project for us.

Matthew Gordon: But others I’m trying to get at. I’m trying to understand your strategy. Your model. You’ve got an asset. You’ve only got one asset. Someone going to come in with cash, a strategic., It’s not coming in at the Australian vanadium PLC or Ltd state. They are coming in on the project level, so it doesn’t affect your share price, but it doesn’t leave much room for equity growth there unless you go and do something with either the cash you may receive for their portion, if there is any. You don’t have any other assets. How do you continue the growth component to your story?

Vincent Algar: Well you asked earlier to follow up one of your other questions. Do we want to stay there and do that. So our team is ideally equipped to actually build this thing. So the value creation really sits in the team sticking around and making it happen.

Matthew Gordon: So that will be the type of conversation you want to have.

Vincent Algar: That’s the conversation. We’re saying listen guys, ‘you want to come in and do, but we know that you will not be able to find a better Vanadium team with experience than you’ll find here’, both from a consulting point of view and an internal team point of view. We know what to do here, and we know you know what we what to do here. So we’re going to go and do that. So you come in and we’ll help you do it. At some point that goes past them wanting to do it but we’re then part of the team. So it’s adding value on our side, along the way while they help us do it. So that strategic investor will soften the blow of that funding requirement. It will allow the company to grow the valuation. We just have to look at the valuations of Largo and Bushveld today. A billion dollars and half a billion pounds. That’s where you can head to. So if those valuations are even partially reflected in the share price with those partners in play.

Matthew Gordon: You’ve got to do peer analysis at this level. It’s nice to say, ‘we’re like Bushveld’, but you are where you are.

Vincent Algar: We want to be like Bushveld.

Matthew Gordon: You want to be like Bushveld. But we’ve got to talk about where you are today. And what I’m trying to get out of you is, how do you move from $30M market cap. To $100M to $300M. What are those steps that you’re going to take, apart from the vanadium price going through the roof?

Vincent Algar: No of course. I’m not relying on that because that’s not a thing you can or should rely on. You’ve got to believe that the demand is there. So then when you’re in production you can sell it in to the market.

Matthew Gordon: Give me those steps then?

Vincent Algar: So we’re right at the point where our workflow really is cut out for us over the next six months.

Matthew Gordon: You know what you are doing. Okay.

Vincent Algar: Each of those workflow items are about value. Convincing everyone around us that we have each of those milestones ticked off and moving towards production.

Matthew Gordon: They are. 1. Get the DFS complete.

Vincent Algar: Absolutely

Matthew Gordon: 2. Get a strategic on board. With the prerequisite cash to do so. Then what?

Vincent Algar: Get our environmental approvals in order. And on the table and done. Decide on how the actual final layout of that plant looks. And then start to work on who our vendors are and how we’re going to deliver it. So get down to the dirty part of the engineering as soon as possible. But the environmental approval for us is always going to be a critical path. So as much work we do on the technical side. De-risking technically is very key for us. Our pilot study is essential part of our work. It precedes the DFS engineering component and the FEED study component. It’s something we’re doing now. We’re doing it in a quite an aggressive big way. Just to touch on that point. That will be the thing that defines what the circuit looks like and what the engineering will be. How much it’s going to cost us to build it. So we have to do it properly and do it well. So that is a body of work. But the environmental approval running alongside it is a time critical issue. You might have seen we put out an announcement last week. We signed an MOU with the neighbours West Gold. They’re pretty big fishing in our area, in terms of Gold production. They’re sitting with a lot of water in their pits. Us being able to access their water for our mining operation for the duration, significantly de-risks our water supply. And also it significant risks our environmental approval process, because we’re not risking any access to a deep aquifer. And all the Australian issues around these issues and we’re trying to avoid that because that is a red flag to them. And if we don’t have to go there it’s great. So active things like the MOU with West Gold is a really positive step for us. And we have to put those milestones on the table aggressively. But the pilot and the DFS that follow it are really most important. Those are where the value add comes in, because we can do those two things I mentioned earlier. We can lock in, plus or minus 15% of the operating cost that we would expect. And we can lock in our best shot at the capital reduction.

Matthew Gordon: That’s what I wanted to hear. So in a year’s time looking back, you’ll have done all of those things. What else would you have done?

Vincent Algar: By the end of next year? We’ll have moved through the DFS and started what’s called a Feed Study, a front engineering design. That starts to count how many rivets and pop rivets and pipes and everything that you need to have in the project. That’s really an important part because it finalises down to plus or minus. And getting people involved on the on the engineering EPC itself.

Matthew Gordon: So 18mths plus a little bit, you’re in production?

Vincent Algar: That’s right.

Matthew Gordon: So that’s quite exciting people know where they are. Let’s see what happens in the Vanadium market between now and then. Something you mentioned last time, which might smooth out the spikiness of Vanadium as it currently is, and you hope it doesn’t remain spikey, was the Vanadium Redox Flow Batteries. As a market, we know about the steel rebar etc. But this battery market, everyone’s excited about it. But it’s a nascent industry. It’s early days. You’re all learning. Gives us an update about what you’re doing.

Vincent Algar: I’m in London but I’m on my way to France to the International Flow Battery Forum. That’s a collection of Flow Battery scientists and companies that are involved in this space. Obviously because of the development of Vanadium Flow.

Matthew Gordon: Remind people, these are large, long-life storage of energy which is different from lithium, which is a shorter life cycle.

Vincent Algar: They are large scale stationary energy storage battery, not for EV market. But they are ideal for true load shifting. And where they come into their own is when we are applying lots of renewables to a grid, we need to really learn, on a global level, how we’re going to shift our energy that we capture from our renewables and use it at other times of the day. So Flow Battery sweet spot is around 4hrs-8hrs. So that’s a difference from the high punchy energy that we get of lithium ion.

Matthew Gordon: But these things because the electrolytes, it’s kind of liquid, they can build these things larger and larger.

Vincent Algar: They’re infinitely scalable.

Matthew Gordon: Scalable and reusable which is which is very interesting.

Vincent Algar: And they use a lot of Vanadium.

Matthew Gordon: So vanadium companies, you should if you’re watching this, should also consider them as a battery company going forward. But early days. You are all learning. So what’s something at this conference in France?

Vincent Algar: So the Flow Battery forum has been running for about 9yrs, I believe.

Matthew Gordon: Why is only now that people are taking notice of this?

Vincent Algar: I think if you look back to the history of Lithium Ion you would have found that they had probably a few years of conferences. They took off. And as a group of electro-chemical engineers mainly lots of thesis and proposals.

Matthew Gordon: But almost all of it centred around the benefit rather than any because vanadium is the core of the flow story. We get together but vanity which is a body that ourselves Bushveld and Largo like a belong to, and we have an active promotion effort within Vanitech that is centred around the development of the Flow Battery market. It’s a subcommittee on energy application of vanadium. We promote this to the to the flow battery companies. Principally because they are the ones who will be buying our vanadium to put in their batteries. They’ll require vanadium for their batteries to run. They are our key future customers.

Vincent Algar: And that works a couple of different ways. Okay. So again vanadium companies. Some are going to be fully vertically integrated. Some are not. Depends on capital constraints and skill sets in-house. The reality is for small companies like you. That’s too early to be thinking about but I know you’re spending a lot of time learning about it. Where do you hope that goes? As a collective we would need to create a market. So that’s why as a group, we’ve decided to use the Vanitech marketing platform to promote the use of Vanadium Flow Batteries globally. We do it via aggressive work on Twitter, on social media. By telling people what these batteries are. How they work. Where they go. What they do. And how much vanadium they use. But with the flow battery companies, they need to be educated about us as potential producers. We need to talk to each other and say ‘well what I need to do today?’, that I can produce a product that you can use in your battery. If your battery is different from your friend’s battery. What is the difference in the recipe that I have to give you versus giving him? And do you want to come to me with a long-term agreement to buy vanadium from me. That validates my new market. It is not too early to do that. It validates my reason for incorporating any design. Incorporating in my planning. Incorporating my off-take agreements that I’m trying to get.

Matthew Gordon: Which you hope you’ll get some value tribute to?

Vincent Algar: Absolutely. And we’ve seen it. That’s worked. One of our best early moves in the space was when Cell Cube out of Austria. We signed a sales deal with them while we were their agent in Australia. We’ve probably got $4-$5M on our market cap just for doing that in a few years ago I saw an article about Bushveld the other day and there was a value attribute put on value Bushveld Energy. So that’s a very interesting concept that there is actually a value of this energy component in what we do. We as vanadium companies need to create a market here. And we need to know exactly what that market is. If it’s real. What the requirements are of the products we need to produce for specification for example. So they all need a 99.4% or 99.6% with none of this, none of that. Minor element chemistries are really important. So we have to do some work on that. We can’t just take it out of our plant and there it is. It’s something you have to plan for. But it’s really important because if you have a market like this. It’s worth one or two additional mines at a minimum projection of new production. Again it gives us a differentiation between steel and another market, which at the moment the Vanadium market, spiky as it is, is driven by the steel market. We need to diversify.

Matthew Gordon: That’s the market as a whole. You’re going to follow the crowd. See what happens. Make your mind up some future point. Could you, for me because I think I’ve been maybe describing a company, and I shouldn’t be. How are you describing your company? You’ve got a big asset potentially 5% of the world’s Vanadium market. Depending on what happens now then. How are you positioning yourselves?

Vincent Algar: Some of those words, as you know, because you’ve heard them all before. They’ve been used very often right.

Matthew Gordon: Be honest.

Vincent Algar: So I think you’ve got to look at being able to show is the asset different from other assets. So in this case I do believe it has unique characteristics. It’s not totally unique. But it is a valid asset to take down this path. The only way for me to validate that the best way is to compare it to operating peers. Look at their metrics. Can I match their metrics? And the only way I can do that is match that in my study work. And I believe I can do that. So that’s for me how I validate. We are we good enough basically. Are we good enough to be in production. And the answer to that in my view is yes.

Matthew Gordon: It seems you’ve got the scale. You haven’t got the grades. You’re okay but you’re not 2%-3% as you said earlier. You’ve got to work on the economics in other ways. You talked about innovating and privatisation et cetera. Which was I’m a buyer of. So tell me the second question I ask you. So that’s how you want to characterise your company. How do you characterise your ability to your own investors to deliver in the next six months… the next 18 months?

Vincent Algar: My skill set is being able to sit here and talk to you and get some sort of message across. Being able to work and build a team around the right people to get the job done. So my own experience being resource based and having a corporate history of some sort enables me to be here. But it’s all about building a team that is able to deliver and at any stage I do believe we’ve really got the core of that team in place. With the vanadium experience which is a stand. We mentioned the leadership of a company of the size is really needs to be focused on people doing the job they need to do, and being empowered to do so at the right level. So we think we’ve got a good structure in place. Daniel Harris has got over 40 years of experience in the vanadium space but more importantly as a corporate guy. He’s been in a lot of corporate situations. He’s able to give us the guidance as a mentor, as well as a director that we structure ourselves properly and that the right people are doing the right things at the right time. I’m advancing the cause of funding. Is Todd doing the right thing being back working on the pilot study? Absolutely. He’s advancing the project. Those are the right things to be doing. So it’s about that it is a totally team structure thing. Trying to keep ego out of the structure of a junior company is absolutely essential. And the easiest way to remove ego from the project problem is to share the load at the top. And if you do that you are less likely of having a myopic answer or an egotistical answer which the ore body will always beat you.

Matthew Gordon: Thank you very much for that update. I really enjoyed that.

Australian Vanadium (ASX: AVL) – Packing a Punch. With a High-Grade Global Scale Resource. Nearing DFS. (Transcript)

We recently interviewed Vincent Algar, the Managing Director of Australian Vanadium (ASX: AVL).

With aspirations to be the next Bushveld along with an experienced Vanadium management team, Vanadium Redox Flow Battery (VRFB) know-how and reach to hedge Vanadium steel swings, there is a lot to like.

He said all the right things. Now we need to see him deliver on those within the strictures of a tight treasury, the swinging Vanadium price, and a market still not back and focused on mining.

Vincent scans well and knows what he is doing. Working towards the Definitive Feasibility Study (DFS) and optimising his options as he goes. A good strategic partner with cash would be welcome signal. We feel he will get there with the vertical integration he strives for, but they are quite small at the moment (with some of the concerns that brings). Australian Vanadium could however be a very cheap addition to ones portfolio, especially when the market sees Chinese rebar regulations kick in and the right type of strategic partner step up. We see some discomfort and uncertainty from retail investors but institutions seem more confident on Vanadium.

Click here to watch the interview.


Matthew Gordon: We always get people to kick off with a two-minute summary on the business. Then we’ll get stuck into some questions.

Vincent Algar: Australian Vanadium is developing a project, just South Meekatharra, in the State of Western Australia, which is a very well known and respected mining state globally. Actually currently number two on the platform of best places to invest in mining projects globally. The project is a Vanadium project. It’s a primary ore Vanadium project, very similar in style to Bushveld and Largo Resources’ projects. And we’re looking to… we’re currently finalising the Pre-Feasibility Study (PFS). We’re in the middle of a pilot study, as part of a Definitive Study (DFS), to aim to go into production producing about 10,000t of V2O5 high-purity material in late 2021.

Matthew Gordon: Thanks for that. So let’s just cover some technical components. You’ve done a PFS. You’ve started a DFS process and you’re also running a pilot process at the moment. What do you think you’ve got at the moment?

Vincent Algar: So we’ve done our Resource work. We’ve actually put out a Maiden Reserve, which is about 17.5Mt, as our main reserve, just over 1% in grade, in head grade. And our deposit is particularly wide for Vanadium deposit. We have a particularly high mass yield to Vanadium concentrate which stands out on a global level by comparison. So those three factors give us quite a unique geology, and we have estimated… Our Resource estimate is currently running at over 90Mt of this high-grade feed material. So given that, we’re going to be mining around 1.4Mt a year that gives us a fairly large long-life Resource there ahead of us.

Matthew Gordon: And the DFS process just started, so when is it due to be completed?

Vincent Algar: The completion date is set for late this year. The way we’re doing this DFS is, we finished the DFS at the end of last year and we broke the DFS into three parts. One was the data collection. So as we went out and we drilled a few thousand meters of core, so we could use that for our pilot study. Actually we collected nearly 30t of our target horizon, which was no mean feat. We collected that so that we can actually really do a pilot properly. Then subsequent to that collection and characterisation, which started in January and finished in April, we have then set up a pilot study. The pilot study is currently underway and breaks the processing down into its three component parts: which is Magnetic separation and beneficiation of the concentrate through to Vanadium high-purity product. And those are the steps that are currently underway. They’ll take us through until September. And then following that we’ll integrate all the results of that pilot work into a Final Definitive Study (DFS) document towards the end of the year, which will set us up to move into a FEED Study and move to a very clear pathway into mid-2020.

Matthew Gordon: It’s a tricky market at the moment. The prices are all over the place. You’ve been as high $17, as low as $3. Have you got the team on board who are capable of getting you through this dip at the moment? You’ve got some cash to take you through the next phase to DFS. But the market’s not very forgiving at the momentWho’s on board that’s been through this before, that will help you get to where you need to be next?

Vincent Algar: We’ve got two people on our team with extensive Vanadium experience. A guy called Daniel Harris, who’s been in the Vanadium business for over 40 years. He ran Vametco, the current operation of Bushveld. He ran it for a couple of years. He was the managing director in South Africa. He came through from the US, while working for Evraz and then he moved on to run Evraz’s Russian business for 3yrs. He’s a process engineer, but he’s been involved with some pretty big corporates and corporate players over the years as well. He’s been an MD of very large portions of Vanadium businesses for a long time. And been involved in process design and running the companies basically. He’s our go-to guy in terms of his knowledge base and network. And our COO,Todd Richardson. He’s been in the Vanadium business for 20 years, since graduation. He’s operated on 3-4 Vanadium operations. He is a process design engineer, heavily focused on building and delivering. Then lastly, our technical team on the consulting side. We’re using a collection of people who know the West Australian environment very well, and we’re using Wood Consulting engineers. And we’ve got a couple of people within the Wood team, that have experience in Vanadium operations and design. They are helping us through this critical period of the process design and testing. We know that this is the key part. If we don’t pilot properly the right material, and have an absolutely thorough honest understanding of the material we’re dealing with. That is the risk that you face of failure. We know we have to be auditable and that is why we believe we’ve got exactly the right team in place. Of course we’ll be adding people to the team as we go along. But our criteria for adding those people to the team will be that they’ve got the Vanadium experience in place. My own experience is a Resource base. I’m a Resource geologist. The geology here is obviously important. The geo-metallurgical side. The scheduling is right within my experience base. And I can add value in that respect. And obviously I’m very interested in all the other aspects of what we have to do here to deliver. But we want to build the right team to get this done. And we believe we’ve got most of it in place.

Matthew Gordon: You’ve got the right technical experience. And you got in position a globally significant Resource. But you are where you are, at the moment. You’ve got a market cap of circa $30M. You got $5M-$6M of cash, the junior mining space is very tricky, because of the amount of risk involved in mining. Vanadium price is being very volatile. Who are the guys on board who keep the show on the road while you are developing the DFS?

Vincent Algar: You mean in terms of the corporate side of things?

Matthew Gordon: Yes. What do you think the challenges are? And what are you doing to meet them?

Vincent Algar: The challenge is clearly to fund the project, absolutely. And I think we totally try to be transparent about needing to do that. We have to, on the technical side, our technical team has to make sure that we understand the costs of the project, and be very clear about what it is we think it’s going to cost. And so therefore our central focus is that moving into that low-cost quartile, making sure we know our operating costs will be able to be delivered at the lowest possible place. But then the capital side, we have match the capital with what the equity markets will offer us, and start to deliver a really deliverable story to the equity markets. And then subsequent to those the debt markets as well.

Matthew Gordon: What do you think that story is? I mean what do they need to hear? What are they going to hear from you?

Vincent Algar: Well I think one of the things they need to hear about is our belief in the market itself. We haven’t really discussed the market. What is the market for this metal? Why is it so interesting to people? Why is it so volatile? How do we knock the volatility out? Having seen and heard the discussions that you had with Bushveld for example. One of the aspects of reducing the volatility of the price is, why battery and the development of the Vanadium Redox Flow Battery (VRFB) market is so important. It’s a large-volume market, that’s disconnected from the Steel market. It offers a huge opportunity to level off this market.

Matthew Gordon: A lot of people listening to this are new to mining, let alone Vanadium. So let’s talk first about the volatility component in the marketplace, because Vanadium has a huge relationship with the Steel market, Rebar etc.. It’s 90% of the market for Vanadium. Do you want to give your view on why the volatility is there? And then we can get into the opportunities.

Vincent Algar: I think much of that market is based on the Chinese Rebar market, which is a very complex beast. It is a complex environment, but it is a growing environment nevertheless. And the application of Vanadium in that environment is a clear benefit to the people who employ it. There is a natural growth curve that we can take advantage of. That natural growth curve needs and requires additional tonnes of Vanadium to come online. Those tonnes have to be relatively cheap, so that those operations can get into play and stay in play for a long period of time. Newcomers to the market, need to be low-cost producers. The other thing that they’re requiring is that those newcomers are responsible from an environmental point of view. If you’re in China and you’re a new producer, well you’re not going to get up and running if you’re going to be a dirty producer. You’re going to have to produce a clean product. The banning of slags in China is a key example of that. You can’t push waste products into China. So high-purity products are going to be ideal. There is definitely a growth market in the Chinese Steel market, not only in Rebar, but in other products as well, which the Vanadium industry hasn’t fully exploited over time.

Matthew Gordon: Such as?

Vincent Algar: Such as high-strength beam steels. It’s a very good market. It’s quite a big market, and it hasn’t really been exploited by the Vanadium producers. It has significant benefits to uses of that steel. Remember the more Vanadium you use in Steel, the less Steel you need to achieve a particular objective. And in the construction industry in China that’s quite relevant. If we can build a strong, earthquake resistant building with less Steel, that’s a great outcome for everybody, in terms of energy use, in terms of Steel use, in terms of cost. More Vanadium in Steel has a lot of downstream benefits for everybody. The fundamental thing is Vanadium is relatively easy to use to apply in the Rebar market and some other markets. And its cost is not that expensive, if its price isn’t too volatile. But we’ve seen recently, whether it be speculation, substitution from Niobium, affect that price and also the non-implementation by some parts of the Chinese Steel industry of the standard that’s been imposed on them. So that volatility, if you knock that out over time, you’ll settle into an environment where more Vanadium is being used in the Chinese Steel market. And even at relatively modest projections, that still means additional tonnes, and additional new mines required, and additional expansions to existing operations. Such as we see being done by Bushveld and Largo.

Matthew Gordon: So in terms of the size of that market, Rebar, Steel market, you still see that growing. I think that’s widely accepted. You’ve talked in your PPT about VRFB, Vanadium Redox Flow Battery. I think everyone in Vanadium is talking about that, because of potential rental component, that seems to be the story of the month at the moment. You’re some ways from that, but you’ve still got to talk to that market, talk to investors about the opportunities there. Right now you’re focused on working out what’s in the ground. How you get it out economically, and at a margin which will allow you to be profitable and successful. Because you’ve got to hire the right skill sets on board to take advantage, and have the right partnerships take advantage of the VRFB space, and that’s probably not something for now, for you guys. Or is it?

Vincent Algar: We’re fairly active in that area. We’ve had a subsidiary similar to Bushveld Energy for the last two and a half years. We’ve been really developing that market in terms of looking for the niches within the Australian market, to place those batteries. We’ve seen the Vanadium battery market grow here in Australia, from 1, which was only installed at the University of New South Wales, by the inventor, to now having 6 batteries online, and one pretty large 1 coming online pretty soon. 3 of those are CellCubes. And there’s a very real opportunity within the Australian market. Should the psyche work. We are very gifted by the amount of renewable energy we can put into the systems here. We have high energy costs, fringe of grid opportunities. The Vanadium Redox Flow Battery (VRFB) fits our market perfectly.

Matthew Gordon: You’re going to have to take a view on how you vertically integrate the business, because you are not of any scale at the moment. I mean how much time and money have you spent on that aspect?

Vincent Algar: We’ve built and installed a pilot electrolyte plant at the University of Western Australia. We understand the production of electrolyte from raw materials. We understand the energy cost of that and how that flows downstream. We know that there’s a step in between, making a product. We also understand the quality issues, through my work at the Energy Storage Committee with the other players in the Vanadium space. We understand the quality parameters around making Vanadium that needs to go into Electrolyte for example. So across the whole chain, we believe that within AVL we already have a very good understanding and set of data that we’ve been working with over a few years and we can take that into the plant design. Coming back to your question, how do we implement this in the plant? We’ve recently announced some work where we’ve produced a 99.4% product as part of our pre-pilot work. That’ll be our standard product. Now the definition of an electrolyte-ready Vanadium product, is around that level sometimes higher, sometimes lower. But most Vanadium battery players will want you to produce something around that level. Now for us to target an electrolyte ready finished product, which is both ready for our Steel customers, and for our battery customers is what we want to achieve. That’ll give us the total leverage to go into Steel and to take a portion of our production into the battery market. And that’ll be built in to our very underlying principles of our design and our economics.

Matthew Gordon: So it’s an important, but not necessarily fundamental, part to the business for the future. You’re investors have seen the price fall in the last year. Sitting around $0.02 at the moment. What’s your message to them in terms of how you deliver a strategy for, much overused phrase, value creation for shareholders, meaning share appreciation?

Vincent Algar: We tell them that we understand what you’re doing. We’ve got a very good asset. And we’ve got to demonstrate the value along the way. So some investors are going to look for the short-term hits on that. But at the same time, when you’re looking at an investor that needs to see the long-term value, you need to demonstrate that. There’s two ways we can demonstrate that. Do we have a project that’s deliverable in production? Will it have a capital cost that is too high for a Junior? So if it is, then where are your partners? We need to find those technical partners that are going to participate with us. That is one of the strongest ways we can demonstrate our ability to deliver is get a partner involved.

Matthew Gordon: So does that mean dilution? Or does that mean an equity partner who will fund at a project level? How does that work?

Vincent Algar: I think you’ve got to take that from the partner that you choose. But ultimately it’s going to be a project partner who you want to work together with. We believe we’ve got a very strong team that can deliver. But we want someone who wants to come in for the ride and can deliver their component. If it’s a corporate, or if it’s a Vanadium player who has got something to offer. We can build it from there. We really have to focus on what we can deliver for the investor. In terms of dilution that concept is quite interesting. The worst form of dilution is running out of money. You have to stay in the business. We’ve got a very robust story to tell. And I’m a 100% confident that as the project gets funded through to its logical conclusion of being built, it will reach the value it needs to reach. And then no one is going to be diluted by that because you’re in production in a stable market. So getting into production is the best result. The hurdles of funding are always there.

Matthew Gordon: Sorry I interrupted you. You’ve mentioned the second thing you need to do?

Vincent Algar: Is to demonstrate that…when we’re operating that we’re going to be in that low-cost quartile. So that’s a technical deliverable that we believe is one of our core objectives. We’re currently at $4.15 in our PFS. We want to get that well below $4 and that we know would give us a sustained operational cost through the life of that initial 17 years.

Matthew Gordon: You talk in your PowerPoint about de-risking and improving project valuations and you just talked about trying to get the operational cost down. Is that marginal or is that going to be meaningful. If so how do you achieve meaningful difference from $4.15 down to…

Vincent Algar: Well I think you’ve got to innovate. We’ve said in our announcement two weeks ago in particular as a typical example of that. We’ve innovated by changing out one of the back-end processes in the standard process and also looking at pelletising the front. Both of which delivered a significant result for us. And implementing those in the final plant are the ways to innovate. The Vanadium industry using standard technology has been fairly bland in terms of that level of innovation. Also looking to produce electrolyte-ready products. Ones that are open for additional investment into other markets for example. A lot of people would just go out and produce a product that’s ready for steel. Australia has a very conducive environment for R&D. We get $0.45 back per dollar of R&D money that we spend. And that is a fantastic opportunity for almost all Junior Resource companies to really push the trigger on their R&D, especially when it comes to process innovation. And we do that. We use it and it’s a great opportunity for us to keep low-cost R&D in the actual design and build of our plant. So we’ll been doing that. But all of that is driven from the fact that we need to get the operating cost to that point. Some are incremental, and some are significant.

Matthew Gordon: And are they going to have a big impact on your IRR. Because I noticed in your presentation you’re using a variety of price points to give an inferred IRR number and enterprise value. I mean that’s very price dependant on the market and not so much about what you’re doing. Or is it?

Vincent Algar: We are sensitive to our operating cost. When we did our PFS we did about eight option studies. And each of those option studies in addition to a series of risk workshops, we looked at where we would be able to add the most in terms of bottom line revenue by changing certain things. And those are the things we focused on and we are focused on throughout our DFS. Where can we add… and those two innovations, I mentioned the modification of the back-end circuits to ABV and the pelletising. Other things we can do is looking at our capital cost. Where can we stage the capital costs so that we don’t have to hit it all at once. There’s a lot of work that we’re doing through the course the DFS. But we’re looking for those big hits as well. But the little ones will add up. We’re taking a systematic approach to the process.

Matthew Gordon: What are investors worried about? What are you doing about it?

Vincent Algar: Well investors are worried about us being able to fund the project. All I can do on that front is to continue adding value to the project, and to continue to work with new investors and existing investors to show that the project value is there and the project is deliverable.

Matthew Gordon: And you’re talking about institutional investors there or strategic investors? Are you talking about the retail? When you say investors, who do you mean?

Vincent Algar: Well my focus will be on attracting institutional investors to the company. Which is why we were in London. While we’re looking at longer-term institutions, both in New York, London, Hong Kong, Singapore. The Australian institutions as well obviously on that list. But then we do have a lot of high net worth and retail investors within the stock as well. So I have to keep telling my story.

Matthew Gordon: What’s resonating with them? You know the Vanadium market extremely well. Investors may not necessarily. What are they buying into, are they buying into the future of energy storage components of Vanadium? Are they buying into your particular story about how you’re going to get into the marketplace?

Vincent Algar: I think there is a two-fold answer. I think for the more sophisticated investor knows the way the Steel markets work and how they grow and how Vanadium fits into that. That’s obviously an education process. But when people have been educated they say ‘I get that, that’s what it’s all about’. I had two responses in London at 121 that said exactly opposite things. Someone will come in and go ‘yep it’s all about the steel. I get it. I’ve been doing this for years, this is what works. You get this right. I see it works. We’re going on the steel side’. That’s the fundamental markets. 90% of the current market are not interested in anything else. Then you get the guys to come and say, ‘this Vanadium battery market is absolutely amazing. It’s got huge volume implications the world needs stationary storage we’re going to switch to renewable’s everything is going on’. And then you get the person who’s going ‘it’s all about the battery’. So there’s a very big swing there but AVL’s had success with both of those investor groups. People will come in as long as we are showing that we will do something in both spaces, which we will do because that’s the perfect hedge for a Vanadium company to be involved with this new sector and the existing sector.

Matthew Gordon: The strategic partners are not on board yet or there are conversations which are happening? What are the catalyst moments for the next 12 months for you? What are you targeting doing? Obviously the DFS. And the results from the pilot plant. What else is happening with the business to ensure its survival, to ensure that it’s able to deliver the things that you think you want to deliver now, like vertical integration? What targets are you setting yourself and what are you measured on?

Vincent Algar: Well we’re measured on the success of the share price. Growing our market capitalisation. And then closing those key deals with interested parties, whether they be investors or whether they be off-take partners. There are people that are interested in Vanadium, because they’re really vested in it. And there’s people that have looked at Largo  and looked at Bushveld’s success. They have looked at the price of Vanadium and the potential returns that it can give when it’s really cranking, and they say, ‘This is not a bad business to be in’. And a lot of it’s actually aligned quite well with other steel businesses and other alloy businesses. There’s a quite a number of natural partners, both in China and outside of China. But anyone making a deal has to go through the diligence process. You have to court each other and work closely with each other and become friends and trust each other. So all of that is an ongoing process which is what I and my team are doing with the confidence that the project at the back-end is solid as a rock.

Matthew Gordon: It’s been a great introduction to the business. I think you’re in a period of discovery with the things that you’re doing. Sounds like you’re having the conversations you need to be having. Give us five reasons for new investors to be looking at your business.

Vincent Algar: The fact that Australian Vanadium’s project can be another Largo or another Bushveld, that’s one reason. 1. Where is Australia Vanadium’s project? It’s in one of the world’s best investable regions for mining projects generally, both the location and the state itself is very pro-mining. 2.The returns on the Vanadium industry are looking like something that people need to be involved in. I think people need to take close heed of what’s happening in the Vanadium industry both from a Steel and an energy storage point of view and also the other applications that may involve Vanadium that can significantly increase its consumption globally. 3. A producer of high-purity material with a significantly long-life. 4. On a technical level, as an investor what is the best Vanadium project in the world to invest in? That’s the one that’s going to have the highest chance of success and is de-risked to the maximum and can come into production for a significantly long time.

Matthew Gordon: 5.  At a good price today?

Vincent Algar: Cheap, cheap, cheap, cheap, cheep. Going cheap today! Not that we like that, but we won’t be going cheap tomorrow.

Matthew Gordon: Thanks very much for your time. I do appreciate it. Keep us up to date with things as they develop. What’s the next bit of big news?

Vincent Algar: We’ve got a fair bit of work around the concentrate production quality that we’re producing from the pilot study. We’ve got some Resource results and drilling results coming out. Some Resource results coming out later probably early next month. And we’ll be working on an updated Resource from those results. Then we’re looking at some of the other… Then there’s this obviously various discussions we’re ticking away on. And them we’re looking at getting the view on the actual, an update to the BFS, We’ve mentioned that in announcement recently. We want to take the new base case with all these changed parameters in, and squeeze it out so we can actually show people what we’ve done so far. Have we brought some stuff? What improvements have we made? So that investors can see we’ve made progress as we lead into end of the DFS itself.


Company page: https://www.australianvanadium.com.au/

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Bushveld Minerals (AIM: BMN) – Interview with CEO Fortune Mojapelo (Transcript)

Crux Investor had the pleasure of interviewing Fortune Mojapelo, CEO of Bushveld Minerals (AIM: BMN). He tells us about his journey in the mining space as well as telling us about the strategy of the company.

  • Vanadium has excellent fundamentals and a solid outlook.
  • Largest High-Quality primary Vanadium Resource in the World.
  • Brown Field capacity, allowing them to hit targeted production volumes quickly and cheaply.
  • Management team with a depth of technical expertise in Vanadium.
  • Operation with a natural hedge towards a Multi-Billion Dollar Market opportunity.
  • Substantial capital growth ahead, with possibility to start paying a dividend to shareholders.
  • Vanadium Redox Flow Batteries (VRFB).

Click here to watch the interview.


Matthew Gordon: Well why don’t you start off, for some of the people new to the story, by giving us a two-minute overview of the business.

Fortune Mojapelo: Well what we are, we’re a Vanadium focused company. Vanadium is the commodity we focused on. And our vision, our ambition is to build it into one of the most significant lowest-cost, vertically integrated Vanadium company. Bit of a mouthful but basically what it means is, we want to combine our large primary Vanadium Resource base which is high-grade open-cast Resource base, across three deposits. The largest primary Vanadium Resource base of anybody in the world, combined with processing infrastructure that allows us to process this Vanadium into final product. And that processing infrastructure is centred around two key primary plants that we have in South Africa. The Vametco Plant, which we acquired in 2017. And Vanchem which we recently announced. So that gives us a platform to produce low-cost Vanadium at large scale. And the integrated piece of the business is how we take that Vanadium further downstream into the Energy Storage market, where we essentially plan on being one of the largest, one of the more significant Energy Storage companies through Vanadium Redox Flow Batteries (VRFB).

Matthew Gordon: The Vanadium spot price. If you look at it, it’s all over the place. It’s been a crazy ride.

Fortune Mojapelo: Yes.

Matthew Gordon: Tell us a little bit about where Vanadium sits in the market, its uses and applications?

Fortune Mojapelo: Yeah, it’s been a very volatile commodity. And when you look at its price profile it’s quite interesting to see. It can put some people off. But we think that in any commodity, your number one goal should be looking for that project or that production base that is cheap low-cost. If you’re the lowest cost producer, you won’t have much to worry about the volatility in the price.

Matthew Gordon: You’ve got a good margin. You’re one of the lowest quartile producers of Vanadium. But even so in terms of predictability, being able to plan ahead, it must be difficult?

Fortune Mojapelo: Again, I mean it depends how you structure your business.

Matthew Gordon: Tell us about that?

Fortune Mojapelo: For example you structure your business with a lot of debt, which is predicated on Vanadium coming in at a certain price. You got a problem if the price doesn’t realise there. But I think if you have a low-cost producer, and you’ve got a good capital structure, you should be okay. All right. We all want a stable Vanadium price. Make no mistake about it. But we think the first thing is make sure you’re a low-cost producer. And for us, it is one of four key pillars in the projects that we get involved in. Overall though, we think that as a commodity, Vanadium markets’ outlook is actually very good.

Matthew Gordon: Is this coming to your Redox Flow Battery (VRFB) component.

Fortune Mojapelo: But even before that.

Matthew Gordon: Describe Vanadium uses today and we’ll get onto what they could be.

Fortune Mojapelo: About 90% of the world’s Vanadium today is used in steel making. 8.2% of Vanadium to a ton of steel, you double its strength. And so it’s used in construction steel whenever you’re building infrastructure and it’s you know tensile strength in the steel…

Matthew Gordon: The rebar?

Fortune Mojapelo: And rebar. And so that’s been the traditional kind of space for Vanadium applications. And I should add that even if that was all that was to Vanadium consumption. That’s been the bedrock for a century plus. And I think it will continue to be, given its unique place in that space. In countries like China, where you got regulations that are being put in place to regulate the types of rebar that is produced, China is moving away from low-quality grade to rebar, to grade three, grade four rebars.

Matthew Gordon: China resetting the quality of the rebar did have an impact on the Vanadium price. And therefore, the knock on effect. Was that a big impact on you?

Fortune Mojapelo: It has an impact on Vanadium. I think the new standard in China, it’s estimated that if and when fully implemented, just to meet that standard, it should raise the demand for Vanadium in China domestically as much as 30%. Now given the China control about 50% of global Vanadium consumption is taking about a 15% uplift in the demand. That impact hasn’t really come through yet, because we believe that the enforcement of that standard hasn’t been as strong yet, but we believe that there will be… the government will start to implementing the inspections, and that in the second half of this year, we’ll see the enforcement of that standard increase. And therefore that demand upside will start to come through, from then on. And that’s of course just one part of the demand story. There is the Redox Flow Batteries, you talked about earlier on. And timing couldn’t be better, in terms of what’s going on in the world around higher energy electricity generation. The push for cleaner energy et cetera. So the use of Vanadium in Energy Storage, we think is going to substantially increase the demand profile of Vanadium, through these batteries called Vanadium Redox Flow Batteries.

Matthew Gordon: How long you’ve been with the company now?

Fortune Mojapelo: I have founded the company together with partners. Which stretches back to 2008. We enlisted in 2012 on AIM but we started essentially Bushveld Minerals, as an early stage exploration project, which we were developing from as early as 2000.

Matthew Gordon: You’ve gone from junior Explorer into Producer. You’ve obviously done quite well in terms of establishing yourself. So tell us about that journey?

Fortune Mojapelo: It’s been an interesting journey. I think we started our journey in the junior space at an interesting time, because it’s about the time that the global financial crisis was setting in. And as you know when that happened, risk capital becomes scarce because people are less willing to take big risks and the casualty of that is actually endeavours such as junior mining and Exploration. I partnered with three individuals in South Africa, two twins. Identical twins, both Professors of Geology. Maurice and Richard Filion and Anthony Filion is Richard’s son. And essentially, we started life with a view that you know these two gentlemen are doyen of geology in Africa. They know the Bushveld complex inside out. They’ve advised many people to find new deposits. Let’s create a business where we leverage that IP and we do it and we build projects and that’s how we started life and we started looking for Exploration projects that we can build up. And our journey grew from there.

Matthew Gordon: Are you a geologist?

Fortune Mojapelo: I’m not a geologist. I studied actuarial science and I worked in strategy consulting for a little bit.

Matthew Gordon: When you start it’s all about equity. Raising equity to be able to do what you needed to do.

Fortune Mojapelo: Look when we started, my interest was to do principal investments. I was looking for opportunities in Africa where there is scope for scale growth. And I’ll be honest with you, a year before that I didn’t know about anything called Junior mining at all, until I met with the Filions. And I think from there and we gelled. And we started finding projects, we started developing the projects, and were fortunate to get Baccus who backed us early. And you know one project led to another project, until we got Bushveld Minerals listed in 2012, on AIM.

Matthew Gordon: It’s interesting when we talk to a lot of CEOs, it’s not all plain sailing. It’s not smooth lines.

Fortune Mojapelo: It never is.

Matthew Gordon: So what are the important things for you, given you weren’t into junior mining when you first started. What are the things which stand out for you, what are those moments where there was a significant change in your understanding, or indeed the business?

Fortune Mojapelo: You’re always learning as you go. And I think for me starting point was that when you’re working with a technical team, in a technical field, that is exceptional, that it’s distinguished, who know what they’re talking about, is a good starting point. You know they will tell you that everything starts with geology and mining, and I tend to agree with them. And then the second thing is, your early deals there’s a general thing your early deals are always going to be the most expensive. But what’s more important is proving yourself and making money for your investors that give you capital to do what you want to do. And with time as you develop and as you prove successful. You can get a bit more leverage in your conversations with investors. So our very first project, was an expensive project from a financing point of view. But it gave us a platform to develop more. And that’s how we’ve developed ourselves. Even after we listed, we faced what every junior company faced. It was hard to raise money. We had projects that we were comfortable with, that they are solid projects. And we had a guiding philosophy, which we believed in, which I think has stood as very well. And we were fortunate that we had good projects. And from about 2013, after seeing our share price come down, or maybe it can come down since listing, we did what I think was pivotal, which is we decided to focus on Vanadium as a commodity. And it is really there that I think our inflection point started. We were still very small but we got our scoping study on our flagship project that we had done quickly. We did a Pre-Feasibility Study (PFS) and we developed a conviction about this market, that we’ve carried since then. And we believe it’s a market that is really for us to participate in.

Matthew Gordon: How much of the Vanadium market… you’re world number one?

Fortune Mojapelo: Well the largest in terms of the Resource base.

Matthew Gordon: In terms of the Resource base…in terms of production?

Fortune Mojapelo: In terms of production, we not the largest producer. There is at least two primary producers, that produce more than we do. Largo Resources and Glencore Rhovan operation in South Africa. But after their position that we did that we just announced a Vanchem between Vanchem and Vametco, from just a potential point of view, we have the capacity to become the largest primary producer, yes.

Matthew Gordon: What are you supplying in terms of world production now?

Fortune Mojapelo: Currently just under 3%.

Matthew Gordon: Just under 3%. And after?

Fortune Mojapelo: When we’ve gone through the refurbishment of Vanchem and we’ve got Vametco operating at full capacity, we’re targeting just about 10% of the global market.

Matthew Gordon: So significant. You have – Bushveld Minerals, Bushveld Vanadium, Bushveld Energy. Are those eventually going to be three different companies or are those just brands with the overall group?

Fortune Mojapelo: Bushveld Minerals is the listed holding company. Underneath that we got Bushveld Vanadium which essentially houses our mining and processing assets. So, it’s is the Resource platform. Mine it as cheaply as possible. And process it and produce Vanadium units. Bushveld Energy says let’s take it a step further and take a position in the energy storage market.

Matthew Gordon: I want to see if that gives us a clue or sense of where you want to go. Because if you’re creating those brands now, will they be separate entities at some point?

Fortune Mojapelo: I think you want to always retain flexibility around that. So we structure our companies always in a view, in a way that allows us that flexibility. Is it foreseeable that Bushveld Energy could be a standalone company in the future as possible. It’s not something that’s we definitely do. The reason we created it that way however, is that it is focused on a specific sector which is the energy market, and the energy storage market to be specific. If for example, we wanted to attract investors that are particularly interested in the energy market only, we have the ability to do that through Bushveld Energy. So we like that.

Matthew Gordon: But right now they are on the same P&L?

Fortune Mojapelo: Yes.

Matthew Gordon: Different team? Same team? Different skillset that’s for sure.

Fortune Mojapelo: It’s a different skill, especially if you look at the Bushveld Energy team is headed up by Mikhail Nikomarov, who’s got extensive experience in the energy markets. And his team includes people who have been involved in energy project development. So it is, you’re right, a very specific skill set that is required there.

Matthew Gordon: There’s Energy, and then there’s Energy. So again we’ll probably come onto it, but just to finish off with the recent acquisition. You made a recent acquisition! Why did you do it? What you’re thinking and what are you trying to fix?

Fortune Mojapelo: So our strategy that we’ve spelt out, the best route to developing are our projects is through targeting Brownfield assets. In fact if I step back. I mentioned earlier on that there’s a guiding philosophy to our projects. It talks about four key elements. 1. You want a commodity that is good sound fundamentals and good outlook from a price point of view. 2. You want to project all cost proposition will put you in the first or second quartile of the cost curve. 3. You want to have projects that you can reasonably bring into production, in the foreseeable future, without requiring massive CapEx. 4. And then the fourth one is you want scalability.

Matthew Gordon: Or it looks cheap or non-dilutive CapEx?

Fortune Mojapelo: Because if you need billions of dollars, where you gonna raise the money right? Especially if you’re a junior. 4. The fourth point is you want scalability. Vanadium ticks all of those boxes for us in South Africa. It’s a commodity with good fundamentals, as we talked about earlier on, from a demand side, from a supply side. In South Africa we really well located there.

Matthew Gordon: Well you are. But again, there’s a perception in the market in terms of country risk. Because there have been problems at various points in South Africa.

Fortune Mojapelo: I can come to that. But if I may for a second. I think you’ve got a commodity whose supply outlook is concentrated, mainly between three countries; China, South Africa and Russia. With South Africa having the largest high-grade primary Resources. We always say if you want high-grade Vanadium Resources, you’re going have to come to South Africa. Because that’s where we’ve got the combination of scale and grade. But also, the distribution of Vanadium Resources globally, and the distribution of the production Vanadium. It’s such that in our view, if you look forward to see where does new supply come from. If you don’t have grade that allows you to build a primary plant like we have in South Africa. You have to build a steel plant, which requires billions of dollars. Which is why you see most of the production in China and Russia, being of that nature, co-production steel plants which are expensive to build. New supply in our view is not going be dominated by the steel plants or big iron plants. It’s going to come from primary producers. But if you’re going to do primary production. You’re going to find grade.

Matthew Gordon: I think that’s true of a lot of commodities. I agree with you. Where are you’re selling your production?

Fortune Mojapelo: +50% of our production goes to the US.

Matthew Gordon: Goes the USA.

Fortune Mojapelo: But it’s predominantly the steel sector at the moment. And yeah. So you were we were talking about this philosophy and how we go to brownfields. So when we focused on Vanadium, and with our project in Mokopane, we did a scoping study, we did a Pre-Feasibility Study. What that showed us, we’d a project that required $300M. It was a high-grade Vanadium Resource. $300M CapEx to build mine & plant. Gives a good IRR of 25% assuming a Vanadium price, we’ll call it $33Kgs. Very nice project right.

Matthew Gordon: What’s it been averaging the last five years?

Fortune Mojapelo: Look I mean when prices have gone as low as $13.50 and gone as high as $127… So I couldn’t tell you exactly what the average is. But I’ll tell you that at $33, we’re comfortable we have a project that is good. All right. But the point I’m highlighting here is that, if you’re a $20M market cap company, or £20M might be coming market cap company, how are you going to raise $300M? Even though with a project that is solid, it is at that point for us where the epiphany of brownfields here, which is if I can find existing facilities, that I can convert into primary production for Vanadium, that a cheap and I can do it cheaply, then fantastic. And South Africa is unique in some respects in terms of Vanadium, because historically a lot of our industry was built on a vertically integrated basis. They didn’t just have mines, they’d in mines and processing plants. But what happened over like a 30yr globally, a shift upstream. So, your BHP’s, many of these companies they decided to focus only on mining. They saw the Pilbara expand capacity though just mining and ship it to China. Let China process it. It left a number, that kind of migration, left a number of facilities, downstream facilities, underutilised, in some instances not profitable et cetera et cetera. That is for us the opportunity when we talk Brownfield. It is can I acquire a facility that is either not being utilized or underutilized, and combine with my Resource base and produce Vanadium cheaply. The acquisition we did of Vametco was as a result of that of that strategy. We acquired it initially for $16.5M in partnership. It’s a plant which just last year, delivered a $107M in EBITDA. All right. And it’s a low-cost producer. And it’s a plant which we are now scaling up in terms of its production throughput. The same thing when you think of Vanchem. We thought okay. What are the plants out there that we can get our hands on? We’ve got the Resource base to supply them. We’ve got the logistics infrastructure to link our deposits with the plants. So Vanchem was the next one, where we did Vanchem. And between the two of them we create processing capacity that would have cost us many times over to build on a greenfield basis.

Matthew Gordon: I understand the financial logic. But in terms of a strategy for the business. We’ve touched upon briefly, in terms of what your plans are in terms of the energy space as well, but how do you describe your strategy? I mean you’re… logical, methodical about this. Would you describe yourself as aggressively confident about the way you do things?

Fortune Mojapelo: Maybe it’s part of a function of my upbringing and my learning. We tend to be very fact driven. Very analysis driven.

Matthew Gordon: Where does that come from?

Fortune Mojapelo: I studied Actuarial Science. I worked in a firm like McKinsey & Company, and there’s this sort of stuff that we did. And when we decided that Vanadium was a market we’re going to focus on, we bought Vametco at a time when Vanadium prices, this is when we agreed the deal, Vanadium prices were about $13.50. And yet we thought even if we have to subsidize this plant for another two years, it would still be worth it. What gave us the conviction, was a lot of work that we had done around the market structure, to come to the conclusion that this is a market in a structural deficit. A deficit that will continue for a while. A deficit that quite frankly, to close it, is the opportunity of primary producers, who have existing production capacity. And it was hard to convince people, so the deal wasn’t easy.

Matthew Gordon: By people, you mean the then owners?

Fortune Mojapelo: To convince financiers. But in the end, we got it done. And I think we’ve been proven right in respect of that. Another part of our strategy… so the brownfield strategy is a very clear strategy, that says Target Brownfield assets, and make sure that you invest in them. You refurbish them as necessary, and you maximise your throughput through them. Second part of it was that we realised 90% of the Vanadium demand is coming from the steel sector. What other sources of demand are there?

Matthew Gordon: What don’t you tell people about the VRFB which is Vanadium Redox Flow Battery. Start with that. What’s the difference between them and Lithium ion?

Fortune Mojapelo: Both of them are batteries which means that they store energy. And you charge them, and then you discharge them when you need energy. Vanadium Redox Flow Batteries (VRFB) essentially store that energy in Vanadium Electrolyte. Vanadium is one of those… 

Matthew Gordon: So it’s liquid?

Fortune Mojapelo:  It’s liquid. Vanadium can exist in four different oxidation states. It’s quite stable. So the concept of Vanadium Redox Flow Battery really is a reversible oxidation reduction reaction, between Vanadium and different oxidation states. So from two plus to three plus, from four plus to five plus. The charging and discharging, is the movement of ions between the different oxidation states. But what’s good about it is that it’s one element you’re using, so you don’t have the risks of cross contamination. Secondly what’s good is the fact that the way you store the electricity in these tanks, you can scale them up to the amount of energy you store by just increasing the size of the tanks, without duplicating the entire system. So they’re flexible, they’re scalable, they’re intrinsically safe.

Matthew Gordon: So less risk of fire or overheating?

Fortune Mojapelo: Never heard of any Vanadium battery catching fire. They can operate in fairly robust ranges of temperature and they’re long lifespan.

Matthew Gordon: So that’s less degradation?

Fortune Mojapelo: No degradation.

Matthew Gordon: No degradation?

Fortune Mojapelo:  And you can run this for 20 years plus.

Matthew Gordon: So uses for something like this… You’re talking about the much longer life.

Fortune Mojapelo: Yes.

Matthew Gordon: Larger.

Fortune Mojapelo: Yes. Safe.

Matthew Gordon: Safer.

Fortune Mojapelo: And scalable.

Matthew Gordon: Scalable so different applications to Lithium Ion.

Fortune Mojapelo: Lithium advantages are typically, its high energy density. And Lithium is cornered, mainly, the mobility space. You’re not going to put a Vanadium battery in a car. And so mobility, your cellphones, your laptops. That’s typically its space. In the stationary, when you took stationary storage, Lithium still plays in that space, but it’s typically are in the short duration space, like frequency regulation for example. Once you gain long duration, and long lifespan, that’s a space we believe flavors Vanadium Redox Flow Batteries.

Matthew Gordon: So how much of Vanadium Redox Flow Battery would be Vanadium? What’s the potential size of this market, have you done any work?

Fortune Mojapelo: Yeah we’ve done a lot of work. And in fact, on our website, we’ve got a webinar on the ‘Energy storage 101’, which does a deep dive into…

Matthew Gordon: What’s the URL?

Fortune Mojapelo: www.bushveldminerals.com or bushveldenergy.com. Both websites will give you access to it. It’s worthwhile, because it’s quite a deep dive into this, into the applications of stationary energy storage. So maybe just to explain on a very high level. You use, if you’ve got a utility, and your load in a country for energy is not flat. You’ve got peak periods, and you’ve got off-peak periods, and you’ve got another peak periods… in South Africa for example, typically morning and evening peaks, afternoon off-peak. So how do you design your generation to meet that? Typically you go with what is called base load. Which is not designed to be at the peak level and then you supplement during the peak periods, with peaking capacity. And these are typically other gas plants or diesel generator plants et cetera. What energy storage allows you to do, is it can help you to flatten in off-peak periods you can store the excess energy and you can supplement during peak periods. Equally as you introduce more renewable energy to the grid, you need to smooth that entrance of that into the grid. Energy storage can help you with that. Thirdly in some markets like South Africa, you’re generating… peak, your peak generation capacity for solar is during the day, off-peak. If you’re able to store that power you can make it available in a more flexible way during peak periods. And there are few other things like, your transmission CapEx deferral. When you’ve got a transmission infrastructure. Think of it like a highway. If you get a freeway that gets clogged in the morning, and gets clogged in the evening, you got four lanes. You don’t build half a lane. You’re going to build two lanes right. Or three lanes extra lanes. But if that same four lane freeway, during the afternoon, is virtually empty. Building an extra two lanes is not quite efficient. So what if you could distribute that traffic more regularly during the day? The result of that is that you don’t have to build that extra lane. So your CapEx for transmission expansion, you can push it out more. So the world over utilities are recognising the value of stationary energy storage. It’s so big a market. It’s expected by 2027 to be in the order of $50Bn+.

Matthew Gordon: Globally?

Fortune Mojapelo: Yeah. So you’re talking about something like a 100,000 megawatt hours of new energy storage deployments per year. Now there’ll be different technologies to take a share of that market. We estimate that if Vanadium Redox Flow Batteries (VRFB) captures only 10% of that market, you will need about 55,000t of Vanadium to support that. That’s more than 50% of last year’s total production.

Matthew Gordon: But there’s ifs and buts in there? If being gets to that. So that VRFB style of battery is not there yet. Is there… Well you tell me… is there much of a take-up?

Fortune Mojapelo: What do you mean?

Matthew Gordon: I mean Lithium ion everyone’s gearing up Lithium ion and there’s a few other options, that people around that, but where is this design today?

Fortune Mojapelo: So what if I tell you that today, the biggest battery installed with more than +4hours storage capacity in the world is a Vanadium flow battery built by Sumitomo, 60Mw hours, 15Mw for 4hrs in Japan. The biggest battery being constructed in the world today is an 800Mw hours. 200Mw for 4hrs storage. Vanadium Redox Flow Battery is being constructed in China. It’s not a technology that’s in a lab. It is a technology that is in commercial deployment.

Matthew Gordon: Sorry there’s one-off batteries to sort of see what sort of scale they can get to, because they are going to…You mentioned some pretty… Sumitomo- big name, a lot of money. So are they planning to roll this out? Are they going be manufacturers or is this just like you say…

Fortune Mojapelo: There are several companies there are manufacturing Vanadium Redox Flow Batteries today. And the point I’m making that they are in commercial deployment today. They need to scale up of course. But what’s going to drive this scale up is more uptake of the various systems. Right now, we are seeing signs of that growing momentum. So I’ll give you an example, in South Africa our utilities announced that they’re going to be procuring 1,400Mw hours of battery energy storage. Funded already.

Matthew Gordon: Have they decided on the technology for that?

Fortune Mojapelo: It’s batteries. Multiple batteries will bid in that space. It’s long duration type. We believe that Vanadium batteries have a very strong proposition there. Not to mention a strong local content proposition there. The World Bank has announced a program for 17,500Mw Battery energy storage by 2025, in low and middle income countries. And they’ve committed a $1Bn to mobilise another $4Bn towards this. It’s a terrain which will be occupied by multiple technologies. So I’m not saying that this is going to be solely Vanadium’s terrain. But the numbers I told you, I said, if VRFB’s were to capture even 10% of that market. This is what it means. The point about it is that it’s such a big deal for Vanadium, that the entire Vanadium industry, in my view, should be doing everything they can to support the VRFB opportunity: the technology is there, the scale-up is what is required. And what we did in setting up Bushveld Energy is precisely to drive that going forward. 

Matthew Gordon: You’ve adapted your strategy since 2012 to understand what’s coming down the line. But you’re… what you’re saying is, you think there’s a big bet to be made on the Battery technology… 

Fortune Mojapelo: I think there’s a big low-risk bet. Let me tell you why low risk. Because our demand is anchored in steel-making. If Batteries never existed, we still have a fantastic story, anchored in supplying to the steel market with a low production cost basis. Two, it’s low-risk because the capital expenditure required to play in that space is much, much smaller relative to the capital expenditure incurred in building mines and processing infrastructure. I’ll give an example of that. To build a processing… a chemicals electrolyte manufacturing plant, capable of delivering 200Mw hours worth of Electrolyte a year. That will cost us $10M. Debt / Equity included, $10M to build. And that will use about 1,100 metric tons of Vanadium. To build a mine and a plant that supplies 1,100t of Vanadium. If I just do a ratio, simple ratio. You’re talking about a $100M. So the capital intensity down there is very, very low. And if you take that into account, for us as a company, it’s a no brainer to say, let’s do everything we can to support this emerging industry, which is not only attractive for its demand strengthening proposition. Commercially we think it’s potentially x10 as big as the commodity market.

Matthew Gordon: Okay so tell me, we’re going to bring this back to your company right. We’re talking about the market here. So, where’s Bushveld going to sit in this? What precisely are you doing? You’ve got the Vanadium. You’ve got energy division, we’ll call it. What are you going to be actually doing?

Fortune Mojapelo: So, there are two things. The first one is Bushveld Vanadium which is developing a large Resource base. Developing processing capacity. We have two processing plants producing Vanadium, low-cost high-quality. With good margins in case…

Matthew Gordon: For sure, I bought that, big tick.

Fortune Mojapelo: Tick. Second part of it is Bushveld energy. Which is there to promote the Vanadium Redox Flow Battery (VRFB) opportunity for Bushveld minerals. There are three things we do there. One is to manufacture electrolyte for the industry. Two is we engage in market development. It’s project development. What I mean by that is a team of people that understand the energy industry. Those are regulated market. Those are structured in markets. You need to know where the structural levers are to unlock them at large scale. So it’s individuals, who know the energy markets. We go we secure mandates for large-scale energy storage deployments. That’s the second thing we do. So for example bidding into the Escom program, the World Bank program. The third component to the business is partnering with Vanadium Redox Flow Battery companies. And we don’t need to reinvent the wheel there. We partner with the existing players…

Matthew Gordon: So, break that down, because that’s about the future. The future value of your company is inextricably linked to this. If you think the market’s going the way it is. So, I get the bidding bit, that’s a real skill. It’s tough. It’s hard. But in terms of these JV’s, these partnerships and linking with existing Battery technologies and manufacturers. What would that look like for you in real terms?

Fortune Mojapelo: Suffice to say there are several of these companies that have a good product. That have good management teams. That need to solve two things: Security of supply of Vanadium. And the need to solve for the price volatility of Vanadium historically. Two things which we can work on…

Matthew Gordon: Would it work on a contract basis in terms of forward purchase?

Fortune Mojapelo: No.

Matthew Gordon: No, it would be always spot.

Fortune Mojapelo: No, we’ve got a solution for that, which I’ll talk to. And then they need to scale up. For us it’s a case of saying, let’s partner with these guys. And partnership takes many different forms. And whether it means equity partnerships, whether it means JV’s, or whether it means just a simple relationship of supply of Electrolyte into their systems.

Matthew Gordon: Well you need certainty too. What they want is very important. But what you need is important too?

Fortune Mojapelo: But we can do a lot about that. That’s why we’ve got a project development arm so we go secure the mandates. So, I can come to someone and say, “I’ve got a partner”. Let me give an example. We’re doing a mini-grid at our mine. A 4Mw hour battery, 2.5Mw of solar. So for me to go to battery companies and say, I have the opportunity to build batteries, to supply into. I will supply the Vanadium into that. Can you give me a solution? And can we put together a solution which is ‘bankable’, which provides a solid business case to our mine. And in the case of the mini-grid the answer is absolutely. And we’ve had a number of responses from companies, and we’re in negotiations at the moment. And we are going to appoint somebody, and news of that we will publish.

Matthew Gordon: That would be interesting. Well I think there would be a few other miners knocking on your door at that point.

Fortune Mojapelo: At least it will provide a good model that others can… that combination of solar + storage can be a viable source to their energy requirements. I had mentioned that we’ll help them solve for the cost piece, the supply piece. The question is how do we do that? On the supply side, that’s why we’re scaling up our production capacity. I mean you’re talking about more than trebling production from 2,560 last year to about 10,000Mt. On the cost side, what we tried to do is to say, let’s take out the price risk of Vanadium from the CapEx decision that needs to be made about a Vanadium flow battery. And because the Vanadium, as we talked earlier, doesn’t degrade over life. And that at the end of the life, I can take it out of the battery without destroying the battery. And I can use it in another battery or I can convert it into pure Vanadium and sell it into the Steel market. It’s got residual value. And that allows us to actually rent the Vanadium into battery systems. And they’re of such a scale that a single contract can allow me to deliver enough Vanadium and it’s secure. And while it’s sitting in that battery, it’s earning yield and it’s still sitting on the balance sheet. So we think that by combining innovations like this, we’re able to solve for the two main hurdles that Vanadium flow batteries may have faced in the past. And we think that is going to support their deployments globally.

Matthew Gordon: Could you give us five reasons why they should be thinking about your company as an investment proposition.

Fortune Mojapelo: Five! I‘ve got seven. First one is that we have a commodity of Vanadium with excellent fundamentals as I said earlier on it’s in a structural deficit its outlook is really solid. Two, we have high-quality high-grade primary Vanadium Resources. The largest primary Vanadium Resource base of anybody. And three, we have Brownfield processing capacity, which we’ve put together, which we’re going to be scaling up, which allows us to hit the kind of production volumes that we are targeting very quickly and much cheaper than it would cost us on a greenfield basis. The fourth point, I would mention is that through the way we’ve gone about it. We’ve also acquired and inherited management teams with depth of expertise in Vanadium. South Africa has been doing Vanadium for decades. So we understand Vanadium from a technical point of view. The fifth point to highlight is that, the integration we have into energy storage. We have an operation that has got a natural hedge. Well if Vanadium prices come down, energy storage solutions such as Vanadium become a lot more compelling. Right. And also that gives us access into what we see as a multi-billion dollar market opportunity for the company. Then finally, not finally, second but not least, is that we are operating in a South African jurisdiction. The Bushveld complex, which is host to the largest high-grade primary Vanadium Resource base in the world. And with the story that we’ve put together today, with the growth that we have, our proposition then to shareholders is even just on a production growth basis, we’ve got substantial capital growth ahead. When you look at the downstream integration into energy storage that’s significant capital growth proposition. On top of all of that, we believe that being a low-cost producer we’ll be generating sufficient cash to look after our growth. And also, at some point to start paying a dividend to shareholders. So, in a nutshell that the proposition… 

Matthew Gordon: That’s a magical phrase that. We like that. You’re sitting on a little bit of cash at the moment. I think you’re looking at building that up… you seem to know where you’re going with the company. It’s been fascinating listening to you today. Thank you very much for coming in and we look forward to seeing you soon.

Fortune Mojapelo: Thanks for your time.


Company page: www.bushveldminerals.com

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