Ferro-Alloy Resources plc (LON:FAR) Chief Executive Officer Nick Bridgen caught up with DirectorsTalk to discuss progress at the company’s vanadium project, FEED work, financing and US government engagement, carbon black substitute opportunities, rare earth elements, and the forthcoming leadership transition to Peter Secker.
Q1: Let’s start off by talking about the main vanadium project. Can you tell me about the progress that’s been made there and the market trends that you’re currently observing?
A1: Just to recap, we published our feasibility study in October last year, and that really was a very good result. It showed that the project was capable of delivering everything we had thought it would. The IRR came out at 22% and the NPV of phase one only, that’s out of several potential phases, at roughly 750 million US dollars.
Shortly afterwards, we got a revised capital quote out of our Chinese engineers, and using their capital cost numbers, but leaving everything else the same, we got to an IRR of an incredible 31% and NPV of just short of a billion dollars on phase one only. So, great success there.
Since then, of course, things go a bit quiet for a few months. We’ve been progressing with FEED, front-end engineering and design, which is really the first stage of more detailed engineering, which provides the basis for the engineers to give a price quotation for building the plant.
During that, of course, we’re looking at various improvements, first of all, reducing the capital costs, which we know is possible, and looking at improvements, different ways of doing things and looking at slightly different variations in the products. So, actually, that’s going to be quite an interesting exercise capable of adding a lot more value to the project.
We’re working to try and get offtake agreements. Vanadium is relatively easy, the buyers of it are known. CBS, what we call our carbon black substitute product, is what we’d really like to get some offtake on. The difficulty there is that we can’t actually make the product until we start mining and processing. Nevertheless, we’re working, as we’ve said in various announcements, with several companies who are very interested to take this further.
Of course, then there’s financing and that’s very interesting. There’s progress in several directions, and we’re deliberately not choosing a route to finance this; we’re trying to keep all our options open, so that we can decide the best.
Remember, the vanadium market is a very physical market. There are no forward markets and no speculators in the business, really. It’s very physical. When there’s more demand than supply, the price goes through the roof and vice versa and unfortunately, we’re in that vice versa at the moment.
The China slowdown has meant that there is more supply than demand and the price is roughly half today of what its average this century has been. On the other hand, everybody can see, all the forecasts agree that there is going to be a big shortage of vanadium coming.
That’s partly caused by the traditional market rectifying itself, and partly by vanadium redox flow batteries, which are forecast to consume pretty much as much vanadium in future as the current world takes for traditional steel purposes.
The question, of course, is timing. I think the Iran war has slowed down the timing of that recovery. I saw a forecast from one of the major forecasting units earlier this year that was predicting that the market would go into balance by around the end of this year.
Now, I suspect that’s been put back, but certainly it will move into balance, it will go into deficit, and a very large deficit towards the end of the 2020s. Of course, then the price can go back to its normal levels or historically, it’s gone very much further than that when there’s been a shortage.
The low prices have actually been quite good for us in that they’ve shaken out some of the higher-cost suppliers. The South African suppliers are largely shut down, Bushveld closed and, of course, that accentuates a problem for the Western world in that the supply is moving now into predominantly China and a little bit from Russia and very little primary production from anywhere else.
There’s a little bit of treatment, but the primary production is really a China story with a little bit of help from Russia and that’s why, of course, with the looming shortage, the growing need for traditional uses in steel, but particularly armaments, and then there’s the vanadium batteries. It’s on every country’s critical metals list, and everyone can see the shortage coming.
That, of course, has led to the interest in our project from the Americans and probably the Chinese too and it’s nice to be in demand.
Q2: The US engagement outlined in your recent announcement stands out as a key aspect. What more can you tell us about that?
A2: Well, not much at the moment. The American interest is driven by this criticality. It’s both the looming shortage and the concentration of supply in China and, to a lesser extent, Russia.
They can see, of course, what everybody can see, that there is a shortage and that stranglehold that China potentially has is very similar to what we’re already experiencing with rare earth elements.
So, we’re engaging at several levels with US government entities and the White House itself. The first step is an application for a grant from the DFC, which we’ve done but really that’s a drop in the ocean. That’s $5 million dollars to help with FEED, front-end engineering. Unless we have a route to getting further support, then it really doesn’t help very much, but that’s the first step.
The American government really has the capability to do a lot of things, which, if they have the political will, and it appears they do have, and so it’s certainly one very, very likely way forward that we’ll pursue that route.
We’re not closing any doors, all avenues for finance are still open.
Q3: Now, just moving to your carbon black substitute product. Can you give viewers an update on that area of the business?
A3: Yes, we’re continuing to work with two companies. Master Tyre, that we’ve already announced, and another agricultural tyre producer. Both of them are experimenting with our material, both of them have had very good results and both of them have expressed an interest to work with us in future.
We’re still working to work out the best way of using our material. Obviously, we can produce it in several different ways, at higher grade, lower grade, more milled, less milled. It substitutes for carbon black, of course, but also for the amorphous silica that is also a component of making rubber.
So, we’re working with these companies. We’ve already had a 20-tonne order and really, we could start on this business straight away. The difficulty we have is that we can’t actually make it because the original CBS, carbon black substitute, that was in our feasibility study is made from the tailings of the vanadium processing plant, which, of course, is not yet built. The second one comes from the waste, the high-carbon waste, while we mine our ore and we’re not mining yet.
So, we’ve received a grant from the Kazakhstan Science Fund, which will help us make more of this material. But we will not really be able to make large quantities of it until we go into production.
Q4: I know you’ve also been focused on diversifying the metals that you’re looking to produce at the project. In particular, what can you tell us about the opportunity with rare earth elements?
A4: Well, this is an interesting one. Those with long memories will recall that when we listed, we were planning to produce a rare earth element mix but during that period, the price of rare earth elements was quite low. All these shocks from China’s cutbacks hadn’t really happened, cutbacks on exports, I mean.
At the same time, we were optimising our recovery process on vanadium and so the recoveries we were getting, incidentally, of rare earth elements into leach were a little bit disappointing. So, even though we knew there was value there, it wasn’t the priority. We didn’t want to spend money and time, more importantly, on chasing it when it wasn’t really going to change the big picture. So, we focused on getting the feasibility study out.
Now, of course, two things have changed. One is the feasibility study is already out, and secondly, the pricing structure for rare earth elements has transformed, in particular, the value of yttrium has gone up hugely.
Yttrium just happens to be the component of our mix of rare earth elements that we have most of. The indications are that we have about 330 grams per tonne of rare earth elements in our ore, which, incidentally, is at the low end of primary REE projects. So, it’s not that great to have and up to a third of it, is yttrium.
So, the recent price changes have been extremely beneficial to us. Now we have time and it is time to focus on this, and with these changes in pricing, the potential, the prize for getting it right, could be huge.
Now, I don’t want to say too much about it. We haven’t got a JORC ore resource estimate yet, although we’re working to see if we can get one from the information we’ve got. We have already worked out a process, which we did, which actually we worked out in the pilot plant. We didn’t actually iron out all the wrinkles but fundamentally, we know the process to recover it.
Of course, it goes without saying, this is a by-product. We’re already mining, milling, leaching the ore so we’re already getting the rare earth elements into solution. The only additional capital and operating cost is recovering them out of solution, which, of course, is very small. So, a lot of the revenue that we expect to get from it will flow straight through to the bottom line without much cost.
Now, what we have to do is have to complete the test work that was ongoing and work out exactly what we can recover and how much it will cost and get a proper resource estimate, particularly of the yttrium. We can then really stamp it and put it into the next update of our economics.
Q5: With all of these areas in mind, why is now the right time for the leadership transition outlined in your strategy to take place?
A5: Well, it’s driven by two things. One, personal. I’ve been with the company for 20 years. The years are passing, and perhaps it’s time to look at the transition of management.
Secondly, the job is changing. Now we’re entering that engineering and construction phase and in Peter Secker, my replacement as CEO, we have somebody who’s done this five times, I think it is, taking projects through construction.
He’s an engineer, taking them through financing, construction, and building and commissioning and he has the perfect experience and the skills to take this project forward.
Now, I’m not leaving, of course, I’m moving to Deputy Chairman. I’m still a major shareholder, still heavily involved in the company and I think the team is very much stronger for having Peter involved.
