Ann: Barrambie Vanadium DFS - Final Mineral Resou, page-14

re: Ann: Barrambie Vanadium DFS - Final Miner... Nose,

With respect to substantiation: do you mean they haven’t been substantiated because they haven’t had the chance to ramp up to full production? If so, then we all have that issue at this stage. Or have I misinterpreted your statement?

On the subject of our operational costs: I have to be careful here because of market disclosure obligations. Our DFS is due for completion right around now. However, the board has not yet had the opportunity to review and sign-off on the DFS. So, I can’t answer that question until those details have been released to the market.

On the subject of current market prices for the material: obviously we (the world) are in some of the worst economic circumstances we have faced for a long time. However, at this stage prices are still considerably higher than they were during the last downturn (when Windimurra v1.0 was first decommissioned). To put that into perspective, ferrovanadium traded as low as $3.35/lb back in April 2002. It is currently trading at $8.90/lb (taken from Ryan’s Notes – www.ryansnotes.com – requires subscription). Is this the low? I can’t answer that. If so, what is keeping the price up? Well, China is producing 3-4 times as much steel as it was back in 2002. That may have something to do with it.

We are believers in the future of the vanadium market. To see why, check out Chris Reed’s last presentation at the Explorers Conference. It can be viewed from our homepage at http://www.reedresources.com . In addition, we try to keep a list of articles relating to vanadium bookmarked at http://delicious.com/ReedResources/vanadium

Please understand that the following is not a comment on the business case for or against AXO. With that said…(and at risk of stating the obvious)
As you have identified, vanadium from AXO will be sourced as a co/by-product which means that, if all costs up to the stage where the slag is separated from the Fe are apportioned to the primary product (i.e. Fe), then the by-product is a bonus up to that point. So, presumably there would be a cost advantage there. However, the issue here is that the amount of vanadium produced is directly linked to the amount of primary product produced. If you want to increase the amount of vanadium produced, you will first have to increase the amount of primary product produced. If there is sufficient demand for the primary product – then no problem. But if there isn’t then why spend all that money on a product you can’t sell just to produce a by-product? The only time you would do that was if the demand/price for the by-product was high enough to essentially make it become the primary product. If that were the case, then there will be enough demand/profit for us all to share. And we are of the opinion that there is considerable upside to vanadium demand (again, see Chris's presentation).

The only other issue that wasn’t mentioned but needs to be considered is the cost of producing the primary product – especially if you aren’t going to apportion any of the upfront costs to the vanadium side of the equation.

I’m not sure how much use this is to you, but I can’t really say much more on costs than that at this point in time.

Thanks very much for asking.