Had things gone as planned, Toronto-based Largo Resources (LGO-V) may already have begun shipping the specialty metal vanadium from its Maracas mine in Brazil to steel producers in North America and elsewhere. President and chief executive officer Mark Brennan points out that back in September 2008, the company had completed a positive feasibility study outlining a project with a 23-year mine life, and had lined up financing for the $250-million venture.
"Then the market fell out of bed, everything got hammered and we had to postpone the project," Brennan says. "But the steel market is recovering. That's led to a recovery in vanadium prices and we're looking to bring our property into production."
Brennan is confident that Largo will have the financing in place by the end of the summer and will begin pre-construction at its 76%-owned Maracas project by the end of the year. If the company can stick to that ambitious timetable, it will be well ahead of several other junior Canadian exploration companies, including Energizer Resources (EGZ-V) and Apella Resources (APA-V), among others that have taken a shine to vanadium in recent years -- and for good reason.
"Without doubt, vanadium is growing into one of the most important metals about which no one has ever heard," Jon Hykawy, clean technologies and material analyst with Byron Capital Markets, wrote in a November 2009 research report. "Soon everyone is likely to become a lot more knowledgeable about vanadium and investors can benefit by. . . owning companies that can benefit from rapidly increasing vanadium demand."
Hykawy may or may not be right about vanadium as an investment. But he is certainly correct on one account. It is a very obscure specialty metal that has rarely generated much interest or excitement among exploration companies. And that's understandable. More often than not, this soft, silvery grey substance is found in orebodies loaded with iron, uranium or titanium and is mined as a byproduct.
According to the U.S. Geological Survey, worldwide output in 2007 stood at just over 60,000 tonnes -- all of it from mines in China, Russia and South Africa. Close to 90% of that production was used as an alloy to strengthen the steel that goes into high-rise buildings, bridges, pipelines and automobiles, among other things. Vanadium will remain an indispensible component of high-strength steel for the foreseeable future, but it may be about to emerge from its obscure niche and play an important role in the rapidly developing business of renewable energy.
Governments across North America, Europe and elsewhere are subsidizing large investments in solar, wind and other forms of clean energy in order to reduce their reliance on carbon-emitting coal, oil and natural gas. But the sun and wind are unreliable sources of the energy required to produce electricity and that's a big problem for the utilities that deliver power to consumers. Their transmission grids need stable, predictable supplies of electricity. Utilities must ensure that supply and demand are closely matched. Otherwise, their systems can crash, causing widespread blackouts of the sort that left some 50 million people in Ontario, Quebec and the northeastern U.S. without power for a day or more in August 2003.
And that's where vanadium comes in. An emerging technology known as the vanadium redox-flow battery (VRB) may allow utilities to store the electricity generated by large-scale wind and solar farms until it's needed. VRBs were developed at the University of New South Wales in the 1980s. The vanadium in these batteries is actually dissolved in liquids stored in two tanks. One tank contains a positively charged solution while the other is negative. These solutions are pumped into a central chamber and flow through a membrane where their charges are exchanged, which generates electricity.
For those who are skeptical about demand for VRBs from alternative energy, Hykawy suggests in his report that the batteries could fill a more "pedestrian" but perhaps immediate and urgent need to augment existing energy grids that are struggling to keep up with demand -- thereby delaying the major capital spending that is required to upgrade them.
VRBs have several advantages over existing technology. They can absorb and discharge huge amounts of electricity in fractions of milliseconds whereas other batteries can take hours to recharge once all the stored energy has been consumed. Furthermore, the others tend to wear out and must be replaced after a few hundred charge-discharge cycles. With VRBs, that process can be repeated thousands of times.
Indeed, these properties are leading some companies, including China's BYD Corp., to experiment with lithium vanadium phosphate cathode material as a potential replacement to the conventional lithium cobalt oxide used in lithium ion batteries - particularly for use in the electric car. Suburu's G4e electric concept car uses a lithium vanadium phosphate battery and can travel about 200 km on one charge to the Nissan Leaf's 160 km.
One major concern that could prevent vanadium's widespread adoption in batteries is the volatility of its price, Hykawy points out. According to CPM Group's Vanadium Market Outlook released in April, the ferrovanadium price rose roughly eightfold between 2002 and 2008, from an average of US$7.73 per kg to US$61.94, due to supply disruptions and demand growth. While prices fell to a monthly low of US$18.96 in May 2009, during the recession, as of March 2010, prices had rebounded to US$32.44 per kg.
Battery technology may be the catalyst for a big increase in long-term demand for vanadium, but Brennan anticipates that the steel industry will be able to absorb Largo's output once its Maracas project comes onstream. The company expects to begin producing about 5,000 tonnes annually from an open-pit mine containing high-grade proven and probable reserves of 13.1 million tonnes averaging 1.34% vanadium pentoxide (V2O5). The orebody extends to a depth of 185 metres, where it is interrupted by a pegmatite dyke. Mineralization that lies beneath the pegmatite may hold potential for underground mining.
A 2008 feasibility study for Maracas, using prices of US$23.8 per kg FeV (or US$5 per lb. V2O5), estimated a pre-tax internal rate of return (IRR) of 43.9% and a net present value (NPV) of US$489 million at a 10% discount rate. The study predicted capital costs of US$270.6 million - although more recent work and currency fluctuations have trimmed that number to US$220 million -- a payback period of under two years, and a 23-year mine life. The feasibility study projected that Largo could produce 4,431 tonnes per year of vanadium contained in an 80% ferrovanadium alloy over the first eight years, when higher-grade material would be processed. After that, production would decrease. Vanadium recovery was estimated at 71.6% overall.
In late April, Largo announced it had conditionally secured $150 million in debt financing from the Brazilian investment bank Banco Itau. The company must raise another $100 million towards capital costs and US$35 million in working capital to begin construction.
Vancouver-based Apella Resources has three iron-vanadium properties in central Quebec, but for now is exploring its Iron-T project, located just west of the mining town of Matagami. Adrian O'Brien, Apella's director of business development, says the company has drilled 24 holes and indentified a mineralized structure that appears to be 10.5 km long by 100 metres wide and 100 metres deep. He adds that Apella hopes to drill another 315 holes and complete a prefeasibility study within 12 months.
The company's early drill results suggest a resource that could be large enough to support a low-cost, open-pit mine, with easy access to roads and a power supply. Recent drill results include 44.9 metres (26.5 metres true width) of 44.63% Fe2O3, 9.39% TiO2 and 0.57% V2O5 from 47.2 metres depth in hole MA-10-23.
"At the moment there are no major primary producers of vanadium in North America," O'Brien says. "Over 98 per cent of all our vanadium is imported. That seems ridiculous."
Newly listed on the TSX Venture Exchange, Energizer Resources (formerly Uranium Star) acquired its Green Giant property in Madagascar two and a half years ago, hoping to find copper-lead-zinc deposits. Instead, the company discovered significant quantities of vanadium at surface, running the entire length of a 21-km mineralized trend that ranges from 40 metres to 250 metres in width. Brent Nykoliation, Energizer's vice-president of business development, says the company has completed 16 km of trenching and drilled 85 holes. Two main zones, Jaky, with a strike length of 850 metres and Manga, which strikes for 500 metres and is open in all directions, are being defined and expanded with drilling. Drill result highlights include 43.5 metres of 1% V2O5 in hole J-09 from Jaky, and 85.5 metres of 0.98% V2O5 in hole M-20 from Manga, with both intercepts including shorter, higher-grade hits.
In May, Energizer released the first resource estimate for Green Giant, contained in Jaky and Manga, which are located 3 km apart from each other. At a cutoff grade of 0.5% V2O5, indicated resources total 21.7 million tonnes grading 0.759% V2O5 for 363.8 million lbs. V2O5, and another 4.2 million inferred tonnes at 0.655% V2O5 add 59.8 million lbs.
"Ours is a pure vanadium play and that makes it unique," Nykoliation says. "Ninety-five per cent of vanadium deposits are found in volcanic intrusives and are bound with iron, lead, titanium or other minerals. Ours is basically there all by itself. We anticipate that will make it much easier to extract and process."
Energizer completed a financing in April that brought in Dundee Corp. and Consolidated Thompson Iron Mines (CLM-T); both companies will nominate a director to Energizer's board.
-- The author is a Toronto-based freelance writer and former senior writer at Maclean's.
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