Morning All,
I am sure these figures have been posted before, but I wanted to refresh my mind as to the extent to which VR8 is comparatively undervalued when comparing other pure-play Vanadium explorers. I've reviewed the relevant studies for each, noting that the TMT figures are quite out of date (2019 DFS) versus the more recent studies of VR8 and AVL in 2022. Nevertheless, I feel these are worthwhile comparisons to make, as I seek to understand exactly why there is such a large gap and further identify the upside potential here.
Firstly, this is the comparative performance of these three companies over the recent past:
All 3 stocks have followed the price of Vanadium relatively consistently, with AVL seeing the greatest increase over this period. Quite a gap between AVL & VR8/TMT on this basis.
Secondly, I have extracted the key economic metrics from each of the relevant Feasibility Studies, which presents quite a bullish case for VR8 however with a few disclaimers:
- VR8 is seeking to develop a Vanadium project in South Africa, versus both TMT and AVL in Western Australia. This difference in jurisdiction is relevant, particularly considering the Australian investor's risk aversion to international projects, particularly in Africa. However, given that SA is a top producer of Vanadium worldwide, it is clear that these projects do come to fruition and hence this risk may not be quite what it seems at the outset. Worth mentioning though.
- I have ignored the recent price decline of Vanadium, which I believe has weakened the market response to the recent off-take and Investment developments. This is relevant to the key economic metrics, however only on the basis that the price doesn't recover (extremely unlikely). Vanadium demand is set to grow at a CAGR of circa 8% per year to 2032, which is significant, and the forecasts for Vanadium pricing at the time of Production see a significant uplift versus today's price.
- As noted, TMT's study is quite outdated, hence I believe the more relevant comparison to be AVL. VR8 is at the earliest stage of development of the three, which naturally deserves a discount when considering NPV, but with strong progress occurring at the current time. All things equal, we'd expect to see the SP increase as the risk declines (with the key catalysts of a) clear pathway to funding, b) FID, c) further off-takes, etc).
The comparison of the metrics is below (noting that TMT used a slightly higher pricing for the study than VR8 and AVL):
It is clear from viewing the studies that, on a like for like basis, VR8 is undervalued. The NPV is one thing (significantly higher), but my eyes are drawn to the Capex difference between projects. It is curious that AVL and TMT arrive at the same figure of $604m, but I am cautious to fully accept VR8's estimate of a much lower figure at $329m. I have not fully versed myself in the technical differences between the projects, but this is a significant gap and leads to a much more favourable payback period for Investors. Holistically, I am shocked at where we currently sit from a MC perspective.
The second table is purely for scenarios, which shows how our SP responds to an increased MC/NPV % over time (as the project is de-risked). Please note that this
ignores dilution, and doesn't factor in the recent dilution announced this week. But broadly speaking, the scenarios would still be close to the money for early stage developments.
Long story short, I am a buyer at these prices, I see a significant gap between VR8 and relevant comparisons, and I am buoyed by the confidence and professionalism of our leadership. I am excited to see where we are in a year's time. The main risks I see are a) cost creep (higher Capex & Opex), and b) jurisdictional risk. However, given our DFS was released at a later point that the other two references, I believe it is fair to assume VR8 probably had the best view of cost accuracy & forecasts. And I noted earlier, SA being a top producer of Vanadium worldwide is a strong catalyst for project success, so I see this as a lesser risk than it may appear at the offset.
All of the above is my own research, I'm happy to share it but please DYOR! I welcome all points of difference/challenge to the above. Cheers.
