Ferro-Alloy Resources plc (LON:FAR) Chief Executive Officer Nick Bridgen caught up with DirectorsTalk to discuss the long-term strategic investment with Vision Blue, what Sir Mick will bring to the company, offtake rights, the demand for vanadium and what we can expect to see from the company in the short term.
Q1: Now, you’ve announced a long-term strategic investment with Vision Blue Resources this morning, with some Mick Davis of Xstrata fame being the main backer amongst some other big names in the mining space. Can you just run us through what this means for Ferro-Alloy Resources in the near term and looking out to the future and then maybe a little bit on the funding structure?
A1: That’s a big and complex question.
What does it mean for us? Well, first of all, I think it’s a real sign of credibility in us that Sir Mike of Xstrata fame has sort of chosen us to be a partner of, he’s going to end up with just over 20% of us in the initial phases of this. If we go on to develop, it could go up to nearly 30%.
What it means for us is not only access to the network of contacts that Sr Mick will bring but in more practical terms, quite a lot of money, the money that we need to go quickly and efficiently and safely to where we want to get to in about a year’s time.
Three parts of the finance, first thing to say is that the loan notes and the shares are really much the same thing, it’s done partly as convertible loan notes, only for technical reasons, but they convert directly into the shares that that could have been issued at the same price at the beginning.
So, the whole deal is done at 9p and the money comes in effectively in three trenches. First one is upfront $3.1 million, some of that straight away, and some of it just waiting on certain technical things. Then, after three or four months, there’ll be $7 million coming in and then two months after the feasibility study, there is an option to put another $2.5 million in which I’m sure will be taken up because that’s at the same price too.
So, all together, we’ll have $12.6 million which gives us enough to do everything that we need to do. We will expand out the existing plant, improve the infrastructure, which is to benefit the big project as well as the little one, and more overdue, a really good feasibility study without scrimping so that we’re set fair to develop the project.
So, really everything we need to do with fully funded, well-funded and I’m sure that that will get us to the best study and a good start to developing the big project.
Q2: What attracted Sir Mick to the company’s story? This is the first Vision Blue investment in London isn’t it, I believe?
A2: Well, you don’t have to look far to see why.
This is a dream project in the mining space, the Balasausqandiq project, first of all, it’s huge, secondly, it transforms the world of vanadium because it’s a different type of deposit compared with nearly all the others. Nearly all the others are magnetite-based, that’s the type of ore and that means to extract the vanadium, it’s very expensive in capital and operating costs. We’re completely different, different types of deposit, we don’t have to concentrate, we don’t have to roast, we can do a whole ore recovery, with simple technology and that means about 60% less capital costs and 60% less operating costs.
So, we have a dream deposit, very low CapEx for the size and profitability of our project in a very popular metal, because vanadium is expanding rapidly.
So, NPV from our competent persons report for phases one and two of the development was $2 billion, all access from a $100 million dollars of CapEx so it really is, in mining terms, the project to dream of.
So, Sir Mick has recognised a good project, did his due diligence, and here we are.
Q3: And Sir Mick will be joining the Board once the first stage of investment has completed. What do you envisage him bringing to the development of your operations?
A3: Well, he certainly knows how to run a mining company, history speaks for itself. He’s well connected in the mining world; he’ll bring a very rich contact list both financially and in practical terms and his prestige and the credibility brings to us. So, he’ll be an excellent Chairman.
Q4: Now, there are offtake rights and put in the structure where Vision Blue can purchase vanadium at market price. Why is this a positive for the FAR shareholders?
A4: First thing to say it’s at market price so we’re not giving anything away. Secondly, it really just signifies the strategic partnership where Vision Blue’s reason for being is to invest in battery metals and, we, of course, are a battery metal. Vanadium goes into vanadium redox flow batteries, which are set to expand greatly and that could increase the demand for vanadium by a factor, not just, just incrementally. So, it really is an ideal partnership, it will give us the potential to sell into the electrolyte industry.
We announced a few months ago that we’ve developed the technology to make electrolyte from our material direct from AMV – Ammonia Metavanadate – so it’s a space we want to get into, and this will give us the market to do it and a partner to help develop the right type of electrolyte for their technology.
Q5: You also announced an operations update to the end of December 2020, simultaneously, although production looks positive in the year, you have been hit with some COVID-related restrictions, resulting in production a little bit lower than you’d hoped. It sounds like production should improve with some changes and developments going on stream. Can you just talk us through those and your confidence in more reliable production going forward?
A5: Yes, well, 2020 was a year when we really added a lot of equipment to really increase the productive capacity of the plant enormously. The actual production has lagged that capacity to some degree, partly because of the unreliable power that we had, now that’s being fixed, we’ve almost finished the project to connect onto the high voltage power line, that very conveniently almost crosses our site. That’s a$2.5 million project and that should be done in April and then probably take another month to reticulate it around the plant so that power restraint will disappear.
We’ve been restrained as you, as you mentioned, some of our suppliers, we’ve contracted for the right amount of raw materials but our suppliers didn’t supply over winter, they’re blaming it on COVID, and it does seem to be rectifying itself. So, the supply of raw materials should increase, our ability to treat it should increase because of the work we’ve done over 2020 to increase capacity and getting, the power on.
So, yes, our aim is to make this into a really nice little profitable plant that will help contribute to the funding of the main project. Remember the main project is 95% of our NPV, it’s the reason we’re in business, but this small plant is a very good steppingstone, it’s perfectly capable of making $10 million a year and that is a huge help.
I should also say that there’s another big piece of kit we want to put in during 2021, an electric arc furnace, which will double our capacity again so there’s a lots of good news on the production front for this plant.
Q6: What are you seeing in the market for demand for vanadium? You say you’re expecting it to be strong, but can you just talk our listeners through the reasons for this, and how FAR is in prime position to benefit from demand?
A6: Well, vanadium has one existing main use, 90% of it goes into micro alloying of steel and the sort of steel that’s made with vanadium added, mostly goes into construction steels so that demand is very tied into world construction. What micro alloying does is you add a kilogram or two or three per ton of steel so very, very small amount of vanadium and it can double or more the strengths of that steel.
So, the first thing to be said about micro alloying is it’s very economically efficient, it reduces the amount of steel sections that you need in construction, that reduces the steel production requirement, reduces the world’s fossil fuel burning to create that steel. So, it’s an extremely green way of cutting down on fossil fuels to use more vanadium and that’s why the world has been using more and more vanadium per tonne of steel over the last 20 years, you can track that growth and that growth is continuing.
Then there’s the battery storage which, at the moment, it’s quite small, I think it’s 2% or 3% of vanadium goes into vanadium flow batteries but that is set to increase, could easily increase to as much as the existing market, if it really takes off.
So, two big reasons for expansion plus a lot of others I haven’t got time to tell you about, but the vanadium market is definitely growing. The supply is constrained because bringing in new production capacity is so expensive, it’s expensive in capital, and the new plants tend to be quite operating-cost hungry.
So, because of both of those factors, really to justify building a new primary vanadium producer, developing a project in the usual type of material, requires a price of in excess of $10, maybe quite a lot more than $10 per pound. Whereas our project, uniquely because of its completely different characteristics, really only needs a price well below the historic average to justify development.
So, really the vanadium market is a very good place to be.
Q7: Finally, what can we expect to see from Ferro-Alloy Resources in the short term now that the strategic investment has been secured?
A7: Incrementally, lots of small developments on the existing plant and that will take place throughout the year as we put more kit in and get their power connected and all those things.
The really big news that everyone’s waiting on is the feasibility study and that is what will really electrify the share price, I’m sure.
As I’ve said before, the competent persons report evaluation NPV of our phases one and two of the big project come to $2 billion whereas our market cap is around £40 million pounds so there’s a huge growth to go there once we get the credibility of a feasibility study.