Vanadium Boom - TMT

For many, Vanadium is a relative unknown.

I thought I'd take the time now to outline a few key highlights about the Vanadium market and demonstrate that it is at the very beginning of a long, protracted bull run which should replicate that of Lithium over the next couple of years.

This is important to note, both TMT & Vanadium are fundamentally at the beginning of the run & drawing comparisons to specific stocks in the Lithium space, it is like taking an investment in PLS when it was trading at an EV of $4m (currently over 550m - 137 bags from here & peak of over $1B - 250 bags from here).

Vanadium Pentoxide is the primary sales product when mining for Vanadium. It is not traded on an exchange (like copper or iron ore), rather it is traded on a contract basis between suppliers and consumers of the material. Below is the price chart over the last 10 years.

Vanadium Pentoxide Price $US/lb 2008-2016


source: https://do not advertise external sites

As I was saying, Vanadium is at the very beginning of the next Vanadium Redox Battery (VRB) boom and as such has seen its price almost triple over the last 18 months from c. $2/lb to almost $6/lb which is illustrated above.

Vanadium isn't a 'new' metal - it has been used in the steel industry to harden steel for many years. The steel industry accounts for over 90% of Vanadium consumption. The VRB component of the market is only 1% of total Vanadium demand at the moment and this is forecast to explode higher in the years to come given the breakthroughs being made with VRB's.

What is a VRB?

These new technology batteries - Vanadium Redox Batteries - have been proven to store much more power for later use than any other technology on the market. As such, they are in high demand from the renewables space & alike.

Below is an extract from http://www.valuewalk.com/2017/03/death-uranium-renaissance-vanadium-batteries/?all=1

5. The emergence of utility-scale batteries to improve the availability factor of wind and solar power to serve as base load energy

One of the largest issues with wind and solar energy sources is the need to store and release the electrical energy produced. Specifically:

How to plug the hole in the grid supply when the wind stops and the sun does not shine?

What to do with excess wind and solar power?

A promising storage technology is vanadium redox flow batteries (VRB). They are the most practical solution and will increase the demand for vanadium.

The emergence of utility-scale battery storage for energy is happening now, accelerating, and will get bigger in the next two to five years, according to Andrew Slaughter, the Deloitte Center for Energy Solutions’ Executive Director and co-author of Electricity Storage Technologies, Impacts, and Prospects.

Grid-level battery costs have also come down remarkably in recent years. At the LCOE of 20 to 30 cents per kwh, vanadium batteries are gaining traction on certain on-grid applications such as substituting peaker plants and tiered pricing arbitrage.

At the current rate of innovation and adoption, the LCOE for grid batteries may come down to 10 to 15 cents per kwh within 3 to 5 years to dominate the fast-growing energy storage market estimated to be $2.5 billion or 1,662 MW by 2020 – more than 8 times the 2016 level.

Vanadium batteries combined with the ultra-low cost of wind and solar energy are starting to compete with traditional base-load energy sources such as coal, natural gas and nuclear. In Japan, Hokkaido Electric Power Co.’s 15-megawatt/60-megawatt-hour vanadium redox flow battery from Sumitomo Electric Industries, Ltd. started operation in December 2015.

Lithium-ion batteries are not ideally suited for grid-level energy storage because they have a short-duration and discharge run time cycle, and begin to degrade after a few hundred discharge cycles (i.e. 1,000 cycles at most), whereas vanadium batteries can operate for 10,000 cycles. Vanadium batteries can scale up with decreasing unit storage costs, whereas the unit cost of lithium batteries increase when sizing up.

Lastly, vanadium accounts for 30% to 50% of the cost of VRBs, making it essential for VRB manufacturers to secure vanadium supply.

The Vanadium Wave

Many market commentators which have seen the V2O5 contract price almost triple in 18 months are beginning to draw attention to the impending supply crunch and the rush for manufacturers to lock-down off-take agreements in both the traditional (steel) sectors & in the new (battery) sectors.

The economics of supply & demand are stark in this market and the exponential growth which is set for the VRB market is going to significantly disrupt the Vanadium market which is already in shortage.

The science is clear & the largest energy companies in the world have made up their mind about which way they are going to go with regards to energy storage. They are steering away from Lithium Ion & towards Vanadium because compared to lithium-ion batteries, VRB are non-flammable, environmentally friendly, have estimated lifespans in excess of 10,000 cycles and maintain 90% of their capacity over 20 years.

Vanadium Suppliers

Traditionally V2O5 was only mined as a by-product - much like Cobalt.

However, recently suppliers are mining directly for V2O5 and with any mining operating, grade is key. The higher grade, the lower containments & the higher auxiliary credits from other minerals - the lower overall mining costs.

Largo Resources (TSX:LGO) has been often referred to in the TMT presentations & this is because LGO has one of the highest quality Vanadium deposits in the world with an average grade of over 1%. Note LGO's mkt cap is $200m

On the Aussie market, there are TNG (110m EV), AVL (20m EV) & TMT (4m EV).

From a grade perspective, TMT has the highest grade with every intercept well over 1% (note this is only on the back of the 12 holes which have been returned of the 36 total. However, the grades are expected to get better with the final holes).

Note that TNG & AVLs deposits have JORC status, and TMT is working its way through that process & should have a JORC resource by the end of this month or early the next.

Summary / My Investment Case

In summary, given all the macro tailwinds in the space & the price movements already for V2O5, I am a firm believer that this will go a long way to replicating the epic move seen in Lithium over the last few years.

Given that predisposition, I have been looking for the equities exposure that will deliver the biggest bang for buck. I have locked in to TMT & it suits every criteria that I'm looking for being:
- Very high grade
All holes over 1% with the higher mineralisation zone pending
- Low contaminants
Low levels of Silica & Aluminium
- High level of 'extra credits' in the mining process to significantly reduce mining costs & enhance strip ratios
TiO2 averaging c. 9% (compare to TNG's deposit which is 5%), Iron Ore at c. 60% , Cobalt at c. 200-600ppm across the deposit. Plus the huge bonus of having a very thick layer of V2O5 (71m at 0.7%) overlying the high grade deposit. This will do wonders for the strip ratios of the mine which could be 1:1 at best or 2:1 at worst (both of which would be world leading for a V2O5 deposit)
- No Sovereign Risk
Australia
- Early stage development
Pre-JORC status & EV only $4m
- Minimal Market Awareness
Listing in Dec 2016 & only just commenced discussions with brokers via a mini-roadshow. It is clear there is no major market awareness of this stock given it is trading at an EV of $4m for what it has.

AS ALWAYS THIS IS ALL IMO & PLEASE DYOR

Additional Reading

The number of articles on this space is exploding in an exponential manner & for those interested, I've listed a few interesting links below:

https://investorintel.com/investorintel-video/demand-exceeds-supply-20-explosive-vanadium-market/

https://investorintel.com/sectors/t...vanadium-stealing-some-of-lithiums-limelight/

https://seekingalpha.com/article/4038919-vanadium-batteries-power-27-billion-grid-energy-market

http://www.valuewalk.com/2017/03/death-uranium-renaissance-vanadium-batteries/?all=1

https://seekingalpha.com/article/4031425-ride-vanadium-wave-lithium