The following is from a company listed on the London Stock...

The following is from a company listed on the London Stock Exchange.

Vanadium Overview

As economiesaround the world began to recover from the devastating impact of the COVID-19pandemic, industry pundits anticipated demand for vanadium to improve in 2021.This expectation was fuelled by the fact that the vanadium market was, at thestart of 2021, in a slight deficit of 317mtV, with supply at 119,750 mtV.Demand did indeed grow during the period under review, driven by a rebound inglobal steel production and consumption, excluding China, although demand wasrobust in the first part of the year. Though still relatively small vanadiumconsumption in the energy storage sector also witnessed growth, as moreprojects were implemented.

Vanadium demandin 2021 was approximately 120,067 mtV with the steel production and vanadiumredox flow battery (VRFB) markets accounting for 92 per cent and two per centof the vanadium consumption, respectively.

Pricestraded in a fairly broad range, with the average price for the year beingUS$34.31kgV (2020: US$24.99/kgV) for the London Metal Bulletin in Europe, US$34.86/kgV(2020: US$28.83/kgV) for Ryan’s Notes in North America and US$33.52/kgV (2020:US$25.36/kgV) for the Asian Metals in China. In the final quarter of 2021,vanadium traded at an average price of US$32.33/kgV. While this is, 38.1 percent higher than the previous year, it is marginally lower than long-termhistorical average vanadium prices.

Vanadium Marketfundamentals

Supply

Vanadium supplyis concentrated – by type of production and geography. The most commonoccurrence of vanadium is in vanadium and titanium bearing magnetite ore bodiesfrom which vanadium is extracted either directly (primary production) orindirectly as a vanadium rich slag during steelmaking or pig-iron production(co-production):

· Co-production –where a vanadium-rich slag is produced by steel plants processingvanadium-bearing magnetite ores.

· Primaryproduction – where vanadium is produced as the primary product directly fromprocessing vanadium bearing magnetite ores.

Co-production is the most significant source ofvanadium supply, accounting for an estimated 73 per cent of production in 2021.Most of these steel slag producers are situated in China and are operating atclose to full capacity. Their economics are driven by steel and iron prices andnot by the vanadium market.

Primary production was estimated at 17 per cent ofglobal supply in 2021. The main producers are Bushveld Minerals and Glencore inSouth Africa, and Largo Resources in Brazil. These three companies have largereserves of high-grade ore and the ability to bring more tonnes to the marketat a low production cost.

Apart from vanadium bearing magnetite ores, some vanadiumproduction, also derives from secondary sources (secondary production)Secondary production is the recovery of vanadium from such as fly ash,petroleum residues, alumina slag, and from the recycling of spent catalystsused in crude oil refining. Secondary vanadium production It accounted forapproximately 10 per cent of global supply in 2021. It is Being dependententirely on other industries for its feedstock, it can only increase productionif more spent catalysts are available.

In 2021, global vanadium supply increased to 119,750 mtV from116,128 mtV in 2020.

The world’s top vanadium producer, China, accounted for 61 percent of global vanadium supply in 2021. Most of its vanadium was derived fromco-production as most slag producers are Chinese steel mills. Russia is thesecond-largest producer and South Africa the third-largest, accounting for 17per cent and seven per cent of 2021 supply, respectively.

Like most ferroalloys, vanadium has been and still is largelyexposed to the market characteristics of steel and more specifically to theChinese steel industry. Although Chinese steel production fell by three percent relative to 2020, due to the country’s COVID-19 mitigation measures, theworld’s largest steel producer accounted for 53 per cent of the world steelproduction at 1,033 Mt in 2021.

New vanadium supply may be triggered by the gradual implementationof International Maritime Organization’s (IMO) 2020 standard that introduces anew limit on sulphur emissions for ships operating outside designated emissioncontrol areas. The cutting of sulphur in bunker fuel would increase the volumeof recycled spent oil catalysts. According to Wood Mackenzie, this increasedvanadium supply could either displace projects with weaker economics or createa larger and more durable surplus. Nevertheless, secondary production islimited by both the availability of the necessary feedstock and the high costsof production.

Opportunities for growth invanadium supply can be considered across three categories: capacity expansionsof current producers, re-commissioning of production plants that have beenmothballed, and greenfield project development. Capacity expansions have thehighest probability of realisation, with the lowest capital requirements andfastest path to production. New greenfield projects face the most significanthurdles and the longest development timelines. Most of the recent greenfieldprojects announced for development are of a co-production or multi-commoditynature, suffer from relatively low grades and require significant capital and arelatively stable and higher price outlook than recent prices indicate.

Demand

Global vanadiumconsumption increased by approximately seven per cent to 120,067 mtV in 2021 from112,157 mtV in 2020.

The steelindustry accounted for 92 per cent1 of total vanadium demand in 2021. It isexpected to continue underwriting vanadium demand, led by China which accountsfor about 60 per cent3 of global vanadium consumption and whose growingintensity of use of vanadium in its steel sector thus maintaining positivevanadium demand momentum.

Notwithstandingregulation-driven growth in Chinese intensity of use of vanadium, China’svanadium usage intensity, at 63 g/t of crude steel, still lags that of thedeveloped economies in Europe, Japan and North America at 80 g/t. This suggestsfurther support for demand even in a market expecting peak steel productionlater in 2022. Consumption of the metal from the steel sector is forecast torise by 2.8 per cent in 2022 to 113,100 mtV. In the medium-term Wood Mackenzieforecasts that vanadium demand in the steel market will grow at a CAGR of about3.1 per cent through to 2030, when it is expected to reach approximately136,000 tonnes by 2030.

The VRFB sectorhas the potential to create an additional large market for vanadium andtransform the commodity into a prime energy metal. VRFB development could alsosupport the development of new magnetite greenfield projects, producinghigh-purity vanadium pentoxide or trioxide for battery use.

In addition, asthe requirement for energy storage for renewable energy sources increases,demand for vanadium from this sector is expected to increase over the comingyears. While forecasts vary for energy storage market growth, they all agree onsubstantial if not exponential market growth, driven by the energy transitionto greener energy. Similarly, forecasts for the market penetration of vanadiumredox flow batteries (VRFB’s) in this sector vary. Yet even the more conservativeestimates see vanadium demand from the energy storage fundamentally shiftingvanadium demand in the future. Still, the question is how quickly this demandactualises, in a stationary energy storage industry that, while seeingincreasing momentum, is still nascent. The growth in the number of large-scalevanadium redox flow batteries being commissioned or developed in recent yearsis encouraging in this respect. Examples include Sumitomo 51MWh VRFBinstallation in 2021, as a follow up to a 60MWh installation in 2015, andRongke Power’s 800 MWh project in Dalian, China, to mention a few.

Accordingto Guidehouse Insights, global annual deployments of VRFBs are expected toreach approximately 32.8 GWh in 2031. This presents significant growth with a CAGRof 41 per cent across the forecast period.

Vanadiumprice outlook

The outbreak ofwar in Ukraine in February 2022 led to volatility in the vanadium market. Thiscompounded an already tight market and resulted in vanadium prices spiking inMarch and into early April.

2021, sawchallenges presented by global logistical delays which affect the supply chainwhich contributed to the irregular prices in North America relative to pricesin Europe and China. In February 2022, supply disruptions generated by theRussia-Ukraine conflict resulted in increased buying of Chinese ferrovanadium.This trend continued through April and trade data shows that ferrovanadiumexports rose to 934 t (gross) in April, up 176 per cent year-on-year. Themajority of these shipments have been destined for the Netherlands, Japan andSouth Korea.

Ferrovanadiumprices rose rapidly through February and early March, driven by the combinationof tight supply and market volatility. European ferrovanadium prices averagedat US$45.3/kgV in Q1 2022 and Chinese ferrovanadium prices averaged atUS$46.4/kgV, which was an increase of 41 per cent and 28 per cent on theprevious quarter, respectively. These factors hit the North American marketmost severely, where prices were anomalously high in March at US$73.50/ kgV,representing a premium of over 18 per cent over regions.

China’s ongoingbattle against COVID-19 and strict lockdowns has led to a weaker macroeconomicoutlook, however, even with the reduction in the demand forecast as expected byWood Mackenzie, a small deficit is expected this year.

In the VRFBspace, there have been further announcements for developments not just in Chinabut also in the North American and African markets. Wood Mackenzie maintainsits previous forecast for annual VRFB installation capacity to rise to 1.5 GWhin 2024, which equates to 7.1 ktV consumption in 2024.

From 2024, WoodMackenzie expects the market to enter a surplus as new greenfield projects comeon-line and will outpace demand growth. It is worth noting that Wood Mackenzieassumes that all new projects announced will come into production, which may bean overly bullish assumption. This surplus is expected to peak in 2025-2026 andthe market should gradually rebalance supported by growing demand due to higherintensity of use of vanadium in steel and as well as demand from vanadium redoxflow batteries.

Overall,we retain our in-house view that supply remains concentrated and constrainedwith only limited new supply expected from primary greenfield projects, whileco-production is still mainly driven by steel and iron ore fundamentals. As aresult, primary producers of vanadium remain best positioned to meet thegrowing vanadium demand in the medium term

A green commodity for the future

Vanadium’s benefits to a greener,more sustainable society include its contributions as an alloy inhigh-strength, low-alloy steels, primarily used in construction. A recent studyquantified this benefit as equivalent to the annual CO₂output of thePhilippines or annually “planting approximately 260 million trees.” Its use asthe critical mineral in energy storage coupled with electricity generation fromrenewable energy sources, further positions vanadium as a green commodity forthe future.

In the aerospace sector, vanadium has long been used to ensure lowdensity, high strength, and strength at high operating temperatures which isessential in aero-engine gas turbines and airframes. Development of newtitanium alloys continues and grades containing 8, 10 and 15 per cent vanadiumhave even higher strengths. They have the potential to make importantcontributions to weight reduction and fuel efficiency in the aircraft of thefuture.

One of the key green applications of vanadium, with even morepotential future upside, given the energy transition, is in VRFBs used for gridenergy storage. VRFBs are safe and have a long lifespan, enabling them torepeatedly charge/discharge over 35,000 times for a lifespan of over 20 years.They also have a lower manufacturing carbon footprint than lithium-ionbatteries.

Bushveld Minerals is building itsown VRFB solar mini-grid at the Vametco mine. This will decrease the Company’scarbon footprint, as it will reduce CO₂ emissions by more than8,000 metric tonnes per year (and nearly 200,000 tonnes of CO₂ overthe life of the project).

Sources:

1. WoodMackenzie, Nobel Steel Alloys, Short term, Outlook May 2022

2. WorldSteel Association, 2021 global crude steel production totals

3. Bloomberg,December 2021, June 2022

4. Texas A&M Study

The Case for VanadiumRedox Flow Batteries in Energy Storage

The energy sector is undergoing a fundamental transition, both inthe extent of electrification and the overwhelming trend toward renewablesources of energy.

The importance of electricity is increasing, a critical factor ofthe “energy transition” and the path to net zero carbon emissions.Electricity’s share of global energy consumption is expected to continue togrow at a rapid pace, doubling from 10 per cent in 1980 to 20 per cent today toover 40 per cent by 2050. At the same time, renewable energy is displacing thepredominance of fossil fuels in energy generation. These two changes haveenormous implications, not only for global energy production, but for allminerals involved in energy related value chains.

Electricity is much more difficult to “store” than other types ofenergy, and the acceleration of demand is further increasing the need forstationary storage, such as large batteries. On top of that, the variability ofrenewable energy sources such as solar, wind and tidal, further exacerbates thedaily misalignment between electricity production and consumption.

Both aspects increase the need forstationary energy storage, especially long-duration storage (four or more hoursper day). Storage is essential to support the growth in electricity demandwhile enabling the energy transition to a carbon neutral world. Thus, energystorage is now one of the most dynamic and rapidly advancing sectors in thebroader technology industry, recognised for its ability to fundamentallyreshape the power system.

ENERGY STORAGE MARKET

According to Bloomberg New Energy Finance, global stationaryenergy storage installations will grow 122-fold from 2018 to 2040, rising from17 GWh to 2,850 GWh by 2040.

Unsurprisingly, investment into battery technologies is alsoaccelerating. Mercom Capital reported that in 2021 corporate funding of batterystorage companies reached US$17 billion, compared to US$6.5 billion in 2020 andUS$2.8 billion in 2019, almost tripling each of the past two years.

• According to Bushveld’s own analysis, South Africa may be one of the top-five utility energy storage markets in 2022.
• Over 1,440 MW of utility procurement has already been announced, including;
• 350 MW from the first phase of the World Bank-funded Eskom battery procurement programme (already tendered).
• 578 MW from storage co-located with renewable energy in seven awarded projects in H1 2021, under South Africa’s Risk Mitigation Independent Power Procurement (“RMIPP”) round.
• 513 MW in new tenders announced by the Department of Mineral Resources and Energy for H2 2021 that are included in the South African Government’s Integrated Resource Plan.

Within the roughly 8,000 MW globalforecast from Guidehouse Insights for 2022 for utility scale storage, SouthAfrica is poised to account for approximately 15%.

VRFBS FOR ENERGY STORAGE – ANOVERVIEW

Bushveld Minerals supports the demand growth of mined vanadiumthrough Bushveld Energy, a subsidiary that participates in the global valuechain for energy storage. It is doing this through the construction of avanadium electrolyte plant and investment in Vanadium Redox Flow Battery (VRFB)companies and manufacturing. In addition to this, Bushveld has an energystorage project development business focused on the African market, an areatraditionally under-served but which offers immense growth potential.

The VRFB is the simplest and most developed flow battery incommercial operation. The technology is durable and has a long lifespan, lowoperating costs, is safe in operation, and has a low environmental impact inmanufacturing. Furthermore, the vanadium used in the batteries can be easilyrecycled. The storage system can work in tandem with other technologies to filldemand in a growing energy storage market.

Advantageous features of VRFBsinclude:

• Long-lifespan, with ability to charge/discharge more than 35,000 times for over 20 years;
• 100 per cent depth of discharge, allowing the entire battery to be used all the time;
• Lowest cost per kWh at long duration, lower than Li-ion batteries, when fully used at least once daily;
• Safe, with no fire risk from thermal runaway;
• Very fast response time of less than 70 milliseconds; and
• No chemical cross-contamination as only one battery element is used, a unique feature among flow batteries.

In addition, VRFBs have existing supply chain synergies withindustries such as vanadium mining and vanadium chemicals production. Theseexisting capabilities and facilities can be expanded to produce more vanadiumor recycle existing electrolyte.

Despite the many advantages, as a technology in the early stagesof commercialisation, VRFB markets still face commercial challenges.Misconceptions about costs and comparisons based purely on upfront rather thanlifetime costs are significant barriers for VRFBs. Furthermore, a historicalmarket for short duration storage has positioned Li-ion batteries as a dominantincumbent battery technology. Increasing understanding, reaching economies ofscale and developing innovative funding solutions to overcome these barrierswill lead to VRFBs’ continuous growth in the storage industry.

As VRFBs solely rely on vanadium as a mineral and because thechemistry itself does not degrade from usage, either the vanadium or the entireelectrolyte in VRFBs can be re-used, creating an opportunity to deviseinnovative financial solutions, such as electrolyte rental. Such innovationincreases the circularity of vanadium and the sustainability of VRFBtechnology. Furthermore, these solutions accelerate adoption of VRFBs atcommercial scale by reducing the upfront capital costs, while creating neweconomic opportunities for vanadium producers.