vanadium - what a by-product!, page-18

Hi FRB,

I suspect that it is just too early at this stage, to try and guess whether the graphite offtakes from Balama will continue in large lumps, a la Chinalco, or possibly fall short of our hopes. Commercial realities being what they are, we'd have to say that it is more likely that SYR will gain further sales, than not. But, as you say, until they actually happen, we can only speculate.

The issue of control of the graphite and vanadium markets is a very interesting one. Your question as to whether Chinalco would allow SYR to control a large segment of either, is fascinating, but I think it has already been overtaken by events.

For graphite, the recent downwards price changes, and the forecast trends, also downwards, hint strongly that the market has already made up its mind that Balama will have a big influence, regardless of what Chinalco, or anybody else, may wish. The new levels are here to stay, and high-cost producers will just have to get used to it.

Vanadium is another story. Largo Resources commence production this year at their big new mine at Maracos, in Brazil. This will be the world's largest producer, providing about 15% of total world consumption. Balama will produce perhaps one-quarter to one-half as much, so, although a large contributor, they cannot possibly be considered as dominating the world vanadium market in the same way that they will do in the case of graphite. If Chinalco really want to limit potential control by one company, then the one they will go after has to be Largo, not SYR. In fact, it is not likely they will pursue either, because the Maracos deposit is titaniferous magnetite (like Rhovan, in South Africa), and it is therefore relatively costly to mine and process the ore. Maracos will be the biggest producer, but probably not the lowest-cost.

Which simply means that any intention to limit SYR control of graphite or vanadium is already out of Chinalco's hands.

Cheers, Prime1