Glencore cut in vanadium output continues to push prices higher

VANCOUVER (miningweekly.com) – News Thursday that major miner and minerals trade Glencore has produced 10% less vanadium owing to lower kiln availability and maintenance on their evaporation plant is good news for vanadium prices with the shortfall in production likely to continue to support higher vanadium prices for longer.

According to London-based boutique investment dealer SP Angel, vanadium pentoxide (V₂O₅) prices have jumped another 11% since April 7, and it is possible that vanadium flake prices may have risen further.

The brokerage believes vanadium prices should remain supported by rising demand for hardened steels and lower levels of non-primary production, such as vanadium from magnetite and slag production.

“Bushveld Minerals is one of the luckiest companies we know. Not only has it contrived a formula for using the cash flows from its Vametco acquisition to pay for the deal, but it can now see those cash flows accelerating as vanadium prices rise further,” the firm said in a note to clients.

It continued to state that Bushveld’s timing has been “spectacular” in terms of agreeing the Vametco acquisition at the bottom of the vanadium market and then completing the deal as vanadium prices take off. Vanadium prices have risen by around 150% since the deal was agreed to in May 2016.

Vametco is one of the cheapest primary producers of vanadium in the world, realising an all-in cash cost of $17.33/kg vanadium ($3.57/lb V₂O₅ equivalent) for the year 2015. “We reckon the business should be substantially cash generative with prices now at $6.07/lb. Our modelling shows the plant to be highly leveraged to the V₂O₅ and FeV [ferro vanadium] prices. Profitability should also be helped by further falls in the South African rand,” SP Angel analyst John Meyer stated.

The London Aim-listed Bushveld Minerals, headed by CEO Fortune Mojapelo, has a portfolio of greenfield vanadium, iron-ore, tin and coal assets in South Africa and Madagascar.

The company's envisaged integrated vanadium platform includes Vametco's vanadium mine and processing plant and Bushveld's Mokobane vanadium project at Brits, in South Africa’s North West province.

A six-month, $7-million-maximum inventory financing facility to Strategic Minerals Corporation subsidiary Evraz Vametco Alloys facilitates the monetisation of Bushveld’s proprietary Nitrovan vanadium inventory, providing additional cash resources that would otherwise have been received only after delivery completion to customers.

On completion of the acquisition, Bushveld Vametco intends refinancing an $11-million bridge loan without the need for an equity issue. The bridge loan facility is repayable within two months of drawdown and attracts $939 077 in interest, fees and legal charges.

Meanwhile, the president and CEO of V₂O₅ producer Largo Resources, Mark Smith, recently stated that the company’s strong production record, stabilisation of cash operating costs and, particularly, the positive outlook for vanadium prices, will underpin Largo's financial performance during fiscal 2017.