Ferro Alloys Will Likely Become The Lowest Cost Vanadium Producer In The World, Allowing It To Ride Out Any Pricing Weakness

The key aspect of the giant Balasausqandiq vanadium deposit in Kazakhstan is that it will be extremely low cost to mine.

This matters, because the vanadium price has taken a bit of a tumble recently, and may even go lower. While this is not a welcome development, the owner of Balasausqandiq, Ferro Alloys Resources Ltd (LON:FAR), nevertheless remains sanguine about future prospects.

In part, that’s because it’s already sending third-party product through an existing pilot plant at Balasausqandiq, and generating a certain amount of cash flow. That’s a luxury that most junior companies with large projects to develop don’t enjoy, and those companies often suffer from significant downward pressure on their share prices.

Ferro Alloys, by contrast, produced 71.5 tonnes of vanadium pentoxide in the first half of 2019, and generated just over US$1.1mln in revenue. What’s more, there should be a significant boost this year, as most of the work needed to boost production to 50 tonnes per month has already been completed.

All that, though, is by way of a prelude to the main event.

Ferro Alloys has just appointed SRK and Coffey to undertake a full feasibility study on the development of Balasausqandiq, updating previous work that was done in line with local practices in Kazakhstan.

Although this work is just getting underway, the previous modelling allows Ferro Alloys to be confident that Balasausqandiq can come in as the lowest cost major vanadium operation anywhere in the world. The unique nature of the ore is central to this contention.

Unlike most primary vanadium deposits, which are based around an ore known as vanadiferous titano-magnetite, Balasausqandiq is a sedimentary deposit. While VTM deposits are expensive to treat and require complex and capital intensive equipment, the sedimentary nature of Balasausqandiq allows for a simple leaching process, with low acid consumption and a high recovery rate.

What’s more, the process also allows for the simple recovery of by-product metals like uranium, molybdenum, rare earths and aluminium, which together comprise around a third of the value of the ore.

Sulphuric acid can be obtained locally, as it is produced as a by-product from the de-sulphurisation of oil, while the outcropping nature of the orebody also helps keep costs down.

It all adds up to a vanadium operation which, on current projections, will have negative cash production costs, since all the costs are paid for by the by-product credits. But allowing that costs are spread across all products, then Ferro Alloys’ costs at Balasausqandiq are likely to come in at just over a third of the level of costs at an average VTM mine.

This is why Shore Capital calls the project “best in class”, and why the Development Bank of Kazakhstan amongst others are showing a keen interest in providing the company with financing options.

But what of the vanadium price?

Ferro Alloys chief executive Nick Bridgen has some interesting things to say on that score.

“The recent fall of the vanadium price from the frothy levels of last year can be viewed as a positive for the industry as it will allow demand to continue growing, particularly in the nascent flow battery industry, and will lead to the shut-down of high cost opportunist production.”

Balasausqandiq has a clear advantage in such circumstances, since its costs of production will be so low.

It’s also worth noting that the proportion of vanadium used in steel is rising, as countries enforce higher standards in steel manufacture. The wider adoption of the vanadium redox flow battery is also likely to boost demand.

Furthermore, it highlights the clear advantage of the Balasausqandiq Project, which is expected to become the world’s lowest cost primary supplier.”