With aspirations to be the next Bushveld along with an experienced Vanadium management team, Vanadium Redox Flow Battery (VRFB) know-how and reach to hedge Vanadium steel swings, there is a lot to like.
He said all the right things. Now we need to see him deliver on those within the strictures of a tight treasury, the swinging Vanadium price, and a market still not back and focused on mining.
Vincent scans well and knows what he is doing. Working towards the Definitive Feasibility Study (DFS) and optimising his options as he goes. A good strategic partner with cash would be welcome signal. We feel he will get there with the vertical integration he strives for, but they are quite small at the moment (with some of the concerns that brings). Australian Vanadium could however be a very cheap addition to ones portfolio, especially when the market sees Chinese rebar regulations kick in and the right type of strategic partner step up. We see some discomfort and uncertainty from retail investors but institutions seem more confident on Vanadium.
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Matthew Gordon: We always get people to kick off with a two-minute summary on the business. Then we'll get stuck into some questions.
Vincent Algar: Australian Vanadium is developing a project, just South Meekatharra, in the State of Western Australia, which is a very well known and respected mining state globally. Actually currently number two on the platform of best places to invest in mining projects globally. The project is a Vanadium project. It's a primary ore Vanadium project, very similar in style to Bushveld and Largo Resources' projects. And we're looking to... we're currently finalising the Pre-Feasibility Study (PFS). We're in the middle of a pilot study, as part of a Definitive Study (DFS), to aim to go into production producing about 10,000t of V2O5 high-purity material in late 2021.
Matthew Gordon: Thanks for that. So let's just cover some technical components. You've done a PFS. You've started a DFS process and you're also running a pilot process at the moment. What do you think you've got at the moment?
Vincent Algar: So we've done our Resource work. We've actually put out a Maiden Reserve, which is about 17.5Mt, as our main reserve, just over 1% in grade, in head grade. And our deposit is particularly wide for Vanadium deposit. We have a particularly high mass yield to Vanadium concentrate which stands out on a global level by comparison. So those three factors give us quite a unique geology, and we have estimated... Our Resource estimate is currently running at over 90Mt of this high-grade feed material. So given that, we're going to be mining around 1.4Mt a year that gives us a fairly large long-life Resource there ahead of us.
Matthew Gordon: And the DFS process just started, so when is it due to be completed?
Vincent Algar: The completion date is set for late this year. The way we're doing this DFS is, we finished the DFS at the end of last year and we broke the DFS into three parts. One was the data collection. So as we went out and we drilled a few thousand meters of core, so we could use that for our pilot study. Actually we collected nearly 30t of our target horizon, which was no mean feat. We collected that so that we can actually really do a pilot properly. Then subsequent to that collection and characterisation, which started in January and finished in April, we have then set up a pilot study. The pilot study is currently underway and breaks the processing down into its three component parts: which is Magnetic separation and beneficiation of the concentrate through to Vanadium high-purity product. And those are the steps that are currently underway. They'll take us through until September. And then following that we'll integrate all the results of that pilot work into a Final Definitive Study (DFS) document towards the end of the year, which will set us up to move into a FEED Study and move to a very clear pathway into mid-2020.
Matthew Gordon: It's a tricky market at the moment. The prices are all over the place. You've been as high $17, as low as $3. Have you got the team on board who are capable of getting you through this dip at the moment? You've got some cash to take you through the next phase to DFS. But the market's not very forgiving at the momentWho's on board that's been through this before, that will help you get to where you need to be next?
Vincent Algar: We’ve got two people on our team with extensive Vanadium experience. A guy called Daniel Harris, who's been in the Vanadium business for over 40 years. He ran Vametco, the current operation of Bushveld. He ran it for a couple of years. He was the managing director in South Africa. He came through from the US, while working for Evraz and then he moved on to run Evraz's Russian business for 3yrs. He's a process engineer, but he's been involved with some pretty big corporates and corporate players over the years as well. He's been an MD of very large portions of Vanadium businesses for a long time. And been involved in process design and running the companies basically. He's our go-to guy in terms of his knowledge base and network. And our COO,Todd Richardson. He's been in the Vanadium business for 20 years, since graduation. He's operated on 3-4 Vanadium operations. He is a process design engineer, heavily focused on building and delivering. Then lastly, our technical team on the consulting side. We're using a collection of people who know the West Australian environment very well, and we're using Wood Consulting engineers. And we've got a couple of people within the Wood team, that have experience in Vanadium operations and design. They are helping us through this critical period of the process design and testing. We know that this is the key part. If we don't pilot properly the right material, and have an absolutely thorough honest understanding of the material we're dealing with. That is the risk that you face of failure. We know we have to be auditable and that is why we believe we've got exactly the right team in place. Of course we'll be adding people to the team as we go along. But our criteria for adding those people to the team will be that they've got the Vanadium experience in place. My own experience is a Resource base. I'm a Resource geologist. The geology here is obviously important. The geo-metallurgical side. The scheduling is right within my experience base. And I can add value in that respect. And obviously I'm very interested in all the other aspects of what we have to do here to deliver. But we want to build the right team to get this done. And we believe we've got most of it in place.
Matthew Gordon: You've got the right technical experience. And you got in position a globally significant Resource. But you are where you are, at the moment. You've got a market cap of circa $30M. You got $5M-$6M of cash, the junior mining space is very tricky, because of the amount of risk involved in mining. Vanadium price is being very volatile. Who are the guys on board who keep the show on the road while you are developing the DFS?
Vincent Algar: You mean in terms of the corporate side of things?
Matthew Gordon: Yes. What do you think the challenges are? And what are you doing to meet them?
Vincent Algar: The challenge is clearly to fund the project, absolutely. And I think we totally try to be transparent about needing to do that. We have to, on the technical side, our technical team has to make sure that we understand the costs of the project, and be very clear about what it is we think it's going to cost. And so therefore our central focus is that moving into that low-cost quartile, making sure we know our operating costs will be able to be delivered at the lowest possible place. But then the capital side, we have match the capital with what the equity markets will offer us, and start to deliver a really deliverable story to the equity markets. And then subsequent to those the debt markets as well.
Matthew Gordon: What do you think that story is? I mean what do they need to hear? What are they going to hear from you?
Vincent Algar: Well I think one of the things they need to hear about is our belief in the market itself. We haven't really discussed the market. What is the market for this metal? Why is it so interesting to people? Why is it so volatile? How do we knock the volatility out? Having seen and heard the discussions that you had with Bushveld for example. One of the aspects of reducing the volatility of the price is, why battery and the development of the Vanadium Redox Flow Battery (VRFB) market is so important. It's a large-volume market, that's disconnected from the Steel market. It offers a huge opportunity to level off this market.
Matthew Gordon: A lot of people listening to this are new to mining, let alone Vanadium. So let's talk first about the volatility component in the marketplace, because Vanadium has a huge relationship with the Steel market, Rebar etc.. It's 90% of the market for Vanadium. Do you want to give your view on why the volatility is there? And then we can get into the opportunities.
Vincent Algar: I think much of that market is based on the Chinese Rebar market, which is a very complex beast. It is a complex environment, but it is a growing environment nevertheless. And the application of Vanadium in that environment is a clear benefit to the people who employ it. There is a natural growth curve that we can take advantage of. That natural growth curve needs and requires additional tonnes of Vanadium to come online. Those tonnes have to be relatively cheap, so that those operations can get into play and stay in play for a long period of time. Newcomers to the market, need to be low-cost producers. The other thing that they're requiring is that those newcomers are responsible from an environmental point of view. If you're in China and you're a new producer, well you're not going to get up and running if you're going to be a dirty producer. You're going to have to produce a clean product. The banning of slags in China is a key example of that. You can't push waste products into China. So high-purity products are going to be ideal. There is definitely a growth market in the Chinese Steel market, not only in Rebar, but in other products as well, which the Vanadium industry hasn't fully exploited over time.
Matthew Gordon: Such as?
Vincent Algar: Such as high-strength beam steels. It's a very good market. It's quite a big market, and it hasn't really been exploited by the Vanadium producers. It has significant benefits to uses of that steel. Remember the more Vanadium you use in Steel, the less Steel you need to achieve a particular objective. And in the construction industry in China that's quite relevant. If we can build a strong, earthquake resistant building with less Steel, that's a great outcome for everybody, in terms of energy use, in terms of Steel use, in terms of cost. More Vanadium in Steel has a lot of downstream benefits for everybody. The fundamental thing is Vanadium is relatively easy to use to apply in the Rebar market and some other markets. And its cost is not that expensive, if its price isn't too volatile. But we've seen recently, whether it be speculation, substitution from Niobium, affect that price and also the non-implementation by some parts of the Chinese Steel industry of the standard that's been imposed on them. So that volatility, if you knock that out over time, you'll settle into an environment where more Vanadium is being used in the Chinese Steel market. And even at relatively modest projections, that still means additional tonnes, and additional new mines required, and additional expansions to existing operations. Such as we see being done by Bushveld and Largo.
Matthew Gordon: So in terms of the size of that market, Rebar, Steel market, you still see that growing. I think that's widely accepted. You've talked in your PPT about VRFB, Vanadium Redox Flow Battery. I think everyone in Vanadium is talking about that, because of potential rental component, that seems to be the story of the month at the moment. You're some ways from that, but you've still got to talk to that market, talk to investors about the opportunities there. Right now you're focused on working out what's in the ground. How you get it out economically, and at a margin which will allow you to be profitable and successful. Because you've got to hire the right skill sets on board to take advantage, and have the right partnerships take advantage of the VRFB space, and that's probably not something for now, for you guys. Or is it?
Vincent Algar: We're fairly active in that area. We've had a subsidiary similar to Bushveld Energy for the last two and a half years. We've been really developing that market in terms of looking for the niches within the Australian market, to place those batteries. We've seen the Vanadium battery market grow here in Australia, from 1, which was only installed at the University of New South Wales, by the inventor, to now having 6 batteries online, and one pretty large 1 coming online pretty soon. 3 of those are CellCubes. And there's a very real opportunity within the Australian market. Should the psyche work. We are very gifted by the amount of renewable energy we can put into the systems here. We have high energy costs, fringe of grid opportunities. The Vanadium Redox Flow Battery (VRFB) fits our market perfectly.
Matthew Gordon: You're going to have to take a view on how you vertically integrate the business, because you are not of any scale at the moment. I mean how much time and money have you spent on that aspect?
Vincent Algar: We've built and installed a pilot electrolyte plant at the University of Western Australia. We understand the production of electrolyte from raw materials. We understand the energy cost of that and how that flows downstream. We know that there's a step in between, making a product. We also understand the quality issues, through my work at the Energy Storage Committee with the other players in the Vanadium space. We understand the quality parameters around making Vanadium that needs to go into Electrolyte for example. So across the whole chain, we believe that within AVL we already have a very good understanding and set of data that we've been working with over a few years and we can take that into the plant design. Coming back to your question, how do we implement this in the plant? We've recently announced some work where we've produced a 99.4% product as part of our pre-pilot work. That'll be our standard product. Now the definition of an electrolyte-ready Vanadium product, is around that level sometimes higher, sometimes lower. But most Vanadium battery players will want you to produce something around that level. Now for us to target an electrolyte ready finished product, which is both ready for our Steel customers, and for our battery customers is what we want to achieve. That'll give us the total leverage to go into Steel and to take a portion of our production into the battery market. And that'll be built in to our very underlying principles of our design and our economics.
Matthew Gordon: So it's an important, but not necessarily fundamental, part to the business for the future. You’re investors have seen the price fall in the last year. Sitting around $0.02 at the moment. What's your message to them in terms of how you deliver a strategy for, much overused phrase, value creation for shareholders, meaning share appreciation?
Vincent Algar: We tell them that we understand what you're doing. We've got a very good asset. And we've got to demonstrate the value along the way. So some investors are going to look for the short-term hits on that. But at the same time, when you're looking at an investor that needs to see the long-term value, you need to demonstrate that. There's two ways we can demonstrate that. Do we have a project that's deliverable in production? Will it have a capital cost that is too high for a Junior? So if it is, then where are your partners? We need to find those technical partners that are going to participate with us. That is one of the strongest ways we can demonstrate our ability to deliver is get a partner involved.
Matthew Gordon: So does that mean dilution? Or does that mean an equity partner who will fund at a project level? How does that work?
Vincent Algar: I think you've got to take that from the partner that you choose. But ultimately it's going to be a project partner who you want to work together with. We believe we've got a very strong team that can deliver. But we want someone who wants to come in for the ride and can deliver their component. If it's a corporate, or if it's a Vanadium player who has got something to offer. We can build it from there. We really have to focus on what we can deliver for the investor. In terms of dilution that concept is quite interesting. The worst form of dilution is running out of money. You have to stay in the business. We've got a very robust story to tell. And I'm a 100% confident that as the project gets funded through to its logical conclusion of being built, it will reach the value it needs to reach. And then no one is going to be diluted by that because you're in production in a stable market. So getting into production is the best result. The hurdles of funding are always there.
Matthew Gordon: Sorry I interrupted you. You've mentioned the second thing you need to do?
Vincent Algar: Is to demonstrate that...when we're operating that we're going to be in that low-cost quartile. So that's a technical deliverable that we believe is one of our core objectives. We're currently at $4.15 in our PFS. We want to get that well below $4 and that we know would give us a sustained operational cost through the life of that initial 17 years.
Matthew Gordon: You talk in your PowerPoint about de-risking and improving project valuations and you just talked about trying to get the operational cost down. Is that marginal or is that going to be meaningful. If so how do you achieve meaningful difference from $4.15 down to...
Vincent Algar: Well I think you've got to innovate. We've said in our announcement two weeks ago in particular as a typical example of that. We've innovated by changing out one of the back-end processes in the standard process and also looking at pelletising the front. Both of which delivered a significant result for us. And implementing those in the final plant are the ways to innovate. The Vanadium industry using standard technology has been fairly bland in terms of that level of innovation. Also looking to produce electrolyte-ready products. Ones that are open for additional investment into other markets for example. A lot of people would just go out and produce a product that's ready for steel. Australia has a very conducive environment for R&D. We get $0.45 back per dollar of R&D money that we spend. And that is a fantastic opportunity for almost all Junior Resource companies to really push the trigger on their R&D, especially when it comes to process innovation. And we do that. We use it and it's a great opportunity for us to keep low-cost R&D in the actual design and build of our plant. So we'll been doing that. But all of that is driven from the fact that we need to get the operating cost to that point. Some are incremental, and some are significant.
Matthew Gordon: And are they going to have a big impact on your IRR. Because I noticed in your presentation you're using a variety of price points to give an inferred IRR number and enterprise value. I mean that's very price dependant on the market and not so much about what you're doing. Or is it?
Vincent Algar: We are sensitive to our operating cost. When we did our PFS we did about eight option studies. And each of those option studies in addition to a series of risk workshops, we looked at where we would be able to add the most in terms of bottom line revenue by changing certain things. And those are the things we focused on and we are focused on throughout our DFS. Where can we add... and those two innovations, I mentioned the modification of the back-end circuits to ABV and the pelletising. Other things we can do is looking at our capital cost. Where can we stage the capital costs so that we don't have to hit it all at once. There's a lot of work that we're doing through the course the DFS. But we're looking for those big hits as well. But the little ones will add up. We're taking a systematic approach to the process.
Matthew Gordon: What are investors worried about? What are you doing about it?
Vincent Algar: Well investors are worried about us being able to fund the project. All I can do on that front is to continue adding value to the project, and to continue to work with new investors and existing investors to show that the project value is there and the project is deliverable.
Matthew Gordon: And you're talking about institutional investors there or strategic investors? Are you talking about the retail? When you say investors, who do you mean?
Vincent Algar: Well my focus will be on attracting institutional investors to the company. Which is why we were in London. While we're looking at longer-term institutions, both in New York, London, Hong Kong, Singapore. The Australian institutions as well obviously on that list. But then we do have a lot of high net worth and retail investors within the stock as well. So I have to keep telling my story.
Matthew Gordon: What's resonating with them? You know the Vanadium market extremely well. Investors may not necessarily. What are they buying into, are they buying into the future of energy storage components of Vanadium? Are they buying into your particular story about how you're going to get into the marketplace?
Vincent Algar: I think there is a two-fold answer. I think for the more sophisticated investor knows the way the Steel markets work and how they grow and how Vanadium fits into that. That's obviously an education process. But when people have been educated they say 'I get that, that's what it's all about'. I had two responses in London at 121 that said exactly opposite things. Someone will come in and go 'yep it's all about the steel. I get it. I've been doing this for years, this is what works. You get this right. I see it works. We're going on the steel side'. That's the fundamental markets. 90% of the current market are not interested in anything else. Then you get the guys to come and say, 'this Vanadium battery market is absolutely amazing. It's got huge volume implications the world needs stationary storage we're going to switch to renewable's everything is going on'. And then you get the person who's going 'it's all about the battery'. So there's a very big swing there but AVL's had success with both of those investor groups. People will come in as long as we are showing that we will do something in both spaces, which we will do because that's the perfect hedge for a Vanadium company to be involved with this new sector and the existing sector.
Matthew Gordon: The strategic partners are not on board yet or there are conversations which are happening? What are the catalyst moments for the next 12 months for you? What are you targeting doing? Obviously the DFS. And the results from the pilot plant. What else is happening with the business to ensure its survival, to ensure that it's able to deliver the things that you think you want to deliver now, like vertical integration? What targets are you setting yourself and what are you measured on?
Vincent Algar: Well we're measured on the success of the share price. Growing our market capitalisation. And then closing those key deals with interested parties, whether they be investors or whether they be off-take partners. There are people that are interested in Vanadium, because they're really vested in it. And there's people that have looked at Largo and looked at Bushveld's success. They have looked at the price of Vanadium and the potential returns that it can give when it's really cranking, and they say, 'This is not a bad business to be in'. And a lot of it's actually aligned quite well with other steel businesses and other alloy businesses. There's a quite a number of natural partners, both in China and outside of China. But anyone making a deal has to go through the diligence process. You have to court each other and work closely with each other and become friends and trust each other. So all of that is an ongoing process which is what I and my team are doing with the confidence that the project at the back-end is solid as a rock.
Matthew Gordon: It's been a great introduction to the business. I think you're in a period of discovery with the things that you're doing. Sounds like you're having the conversations you need to be having. Give us five reasons for new investors to be looking at your business.
Vincent Algar: The fact that Australian Vanadium's project can be another Largo or another Bushveld, that's one reason. 1. Where is Australia Vanadium's project? It's in one of the world's best investable regions for mining projects generally, both the location and the state itself is very pro-mining. 2.The returns on the Vanadium industry are looking like something that people need to be involved in. I think people need to take close heed of what's happening in the Vanadium industry both from a Steel and an energy storage point of view and also the other applications that may involve Vanadium that can significantly increase its consumption globally. 3. A producer of high-purity material with a significantly long-life. 4. On a technical level, as an investor what is the best Vanadium project in the world to invest in? That's the one that's going to have the highest chance of success and is de-risked to the maximum and can come into production for a significantly long time.
Matthew Gordon: 5. At a good price today?
Vincent Algar: Cheap, cheap, cheap, cheap, cheep. Going cheap today! Not that we like that, but we won't be going cheap tomorrow.
Matthew Gordon: Thanks very much for your time. I do appreciate it. Keep us up to date with things as they develop. What's the next bit of big news?
Vincent Algar: We've got a fair bit of work around the concentrate production quality that we're producing from the pilot study. We've got some Resource results and drilling results coming out. Some Resource results coming out later probably early next month. And we'll be working on an updated Resource from those results. Then we're looking at some of the other... Then there's this obviously various discussions we're ticking away on. And them we're looking at getting the view on the actual, an update to the BFS, We've mentioned that in announcement recently. We want to take the new base case with all these changed parameters in, and squeeze it out so we can actually show people what we've done so far. Have we brought some stuff? What improvements have we made? So that investors can see we've made progress as we lead into end of the DFS itself.
Company page: https://www.australianvanadium.com.au/
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Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.