Morning Preempt Buddy - I hope the weekend is going well. This may - or may not - interest you and others. So - I did some research in regards to the misconceptions about how to Value the monster V pile at Haggan. Some posters had suggested that you multiply the total by the grade of V - This is INCORRECT. However - there are other factors to consider - but are yet known.
I spoke with a Earth Sciences Researcher and a Professor this morning - John Quakes @quakes99 on Twitter - and had a very interesting private conversation with him in regards to Vanadium and AEE.
Extracts of the conversation are below:
Me:
“Hi Jon - I hope you’re well. Could you help me with the calculation of AURA Energy’s Vanadium deposit?? Some saying over 200Billion - others saying below 50Billion. Any help would be massive!! Thank you. T”
John:
“Hi T. There is a large swing in the estimated values because there has not yet been a Preliminary Economic Assessment done on the deposit to determine how much Vanadium can be mined, how efficiently it can be extracted in processing, how much that will cost, and what kind of profit margins, IRR, NPV, and CAPEX are estimated. Too many factors to consider at this point. Market is generally positive on the numbers but yet to be seen how cost effectively it can be mined and whether or not Swedish government approves all the necessary mine permits and environmental assessments. Still a long way to go, I think... but looks very positive overall and most say worth taking the risk by investing in AEE. Each to their own, though, so do your homework. Hope that helps! Cheers mate and good luck! John”
Me:
“Thanks Jon - extremely helpful. Do you believe that one should take the Grade into consideration?? IE 13.1Billion X $15.65 ((current price of V) X 0.28% (Grade) T”
John:
“Give me a few minutes and I'll take a look and see how it compares to other deposits currently being mined. Grade determines how expensive it is to operate the mine... higher grades mean you can excavate less rock to produce more uranium per tonne of ore... while lower grades mean you'll have to excavate more tonnes of ore to achieve the same rate of production... so costs more to mine.”
John continued:
“Okay T... here are some things you need to know. 1st, No, you don't multiply by the grade... the estimate is 13.1 Billion pounds in total if all of the estimated V2O5 was mined. However, the announcement says that those are "Inferred" pounds which means that the drill holes are very far apart, so it has yet to be confirmed by drilling many more holes closer together to increase the confidence in the estimate. It's a "rough guess" right now. Resources go from being "inferred" to being "indicated" then finally "measured" by drilling holes closer and closer together. Only proven "measured" minerals can be mined, so lots of drilling yet to come to confirm the estimates. Are you with me so far?”
Me:
“Yes”
John continued:
“The grade is an indication of how much it might cost to mine the ore. The world's largest pure play Vanadium mine is in Brazil run by Largo Resources so worth having a look at their presentation:
http://www.largoresources.com/English/investors/events-and-presentations/default.aspx They have 41B pounds of "measured" V205 (Resource & Reserves) at an average grade of 1.2%... so nearly 5 times higher grade there. Compared to Aura's deposit, Largo's will have a much lower operating cost because it only takes 1/5th the amount of ore to be excavated to produce the same amount of vanadium at the grades estimated by Aura. Does that make sense?”
Me:
“Yes”
John continued:
“So that's were the Economic Assessment part comes in. If you look at Largo's presentation they show what it costs to build a mine and mill, what the operating costs are in Brazil per lb of Vanadium produced... around US$4/lb... so they are making a really nice profit at today's V2O5 prices. So in the case of Aura, the Economic Assessment would need to take into account the cost of building a mine/mill, wage rates in Sweden in $US (probably a lot higher than in Brazil) and exchange rate between the Euro and $US. It gets very complicated you see, and with the grade in Sweden only 1/5th of what it is at Largo's mine in Brazil, the costs for production will be a lot higher... so hard to say without those studies completed exactly how profitable a new mine in Sweden would be. Okay?”
Me
“Yes”
John continued:
“So, bottom line is that a lot more drilling will have to be done to convert that "inferred" resource to indicated and finally "measured"... which goes into a report called a Definitive Feasibility Study to determine if it will be profitable to mine... provides a red or green light on whether to proceed with getting funding, applying for permits, and actually building a mine. That's probably 2-3 years off... which is why Aura's share price and Market Cap is still very low. All speculation at this point until a lot more drilling has been completed... so share price could be very volatile and is likely to simply follow the price of Vanadium until the next Resource Update published by the company. That's pretty much the story, if you are following me okay.”
Me:
“John - you have been beyond incredible. I would like to reference some parts of this conversation on another forum called HotCopper. May I use your name OR would you prefer I mention “I spoke with a respected geologist” HotCopper can have its fair share of trolls.
Again - thank you. So much. Incredible information.”
John
“LOL! Feel free to share whatever you like and I already hear that my name is being bounced around on Hot Copper so do as you please. There's tonnes more to learn... but those are some of the key issues that need to be considered... how much capital cost will be involved in building a mine and processing mill, how much per lb operating cost will there be, how much Inferred mineralization can be turned into Measured by future drilling (which costs money so need to raise cash for that too), environmental impact studies and government approval... and if all the numbers look good and government says okay then after all that's done a mine can start construction many years from now. Good luck and all the best, John.”
Hope you all have a wonderful day and take from this what you will. Personally - I still think we are sitting a phenomenal amount of V and yes it’s worth WELL OVER $200 Billion - how much profit can be made is another story. Time for a beer and see you all at AEE $1 Monumental Bender!! T
(20min delay)