Someone famously once said, “The best qualification of a prophet is to have a good memory.” When trying to identify potential opportunities within the resource sector, it’s always handy to have some grasp of history. In the case of our vanadium call about 12 months ago, we utilised our awareness of existing trends to try and identify what might happen next.
So what drove the performance?
The strong performance of the vanadium sector over the past 12 months – where prices have trebled - is a direct consequence of the alternative energy revolution. Alternative energy is very much a mainstream theme these days, driven by a host of factors - including politics, the environment, energy prices and energy security.
As the sector has increasingly captured investor attention, a host of less-mainstream commodities have benefitted – with lithium, graphite and cobalt being the most newsworthy. The price performance of these commodities is directly correlated to their growing usage in new-age energy production and storage, particularly innovative new battery applications like lithium-ion batteries.
As the sector has increasingly captured investor attention, a host of less-mainstream commodities have benefitted – with lithium, graphite and cobalt being the most newsworthy
Whilst Elon Musk might have been a peripheral figure to many just a few years ago, his Tesla motor vehicle and battery business has become symbolic of the euphoria within the new-age energy space. As a consequence we’ve seen a host of battery-material hopefuls, both large and small, fighting for investor attention over recent years as they hope to ride on Tesla’s coat-tail.
Most investors have determined that some sort of exposure to the energy revolution is a good thing, with investments in equities exposed to lithium, graphite and cobalt providing varying levels of success over recent times.
But returning to our vanadium thesis, one key aspect of the energy theme from our perspective that had been largely overlooked was energy storage itself. It was logical therefore from our perspective to highlight the opportunity with respect to vanadium, due to its ability to store extensive amounts of energy.
One key aspect of the energy theme from our perspective that had been largely overlooked was energy storage itself
And unlike other more exotic metals that have generated headlines like scandium, vanadium already has a large existing market in its role as an additive for steel, with approximately 80% of vanadium going into ferrovanadium.
So there is a high level of transparency already in the world vanadium market, which provides an opportunity for all three of our suggested vanadium plays – Australian Vanadium (ASX: AVL), King River Copper (ASX: KRC) and TNG Limited (ASX: TNG).
So what can we look out for over the next 12 months?
I see a continuation of vanadium’s existing price strength. European prices have just hit fresh 10-year highs on the back of low product availability and increased demand, particularly from Chinese steel mills due to China’s revision to standards of tensile strength in rebar products.
With respect to our stock coverage, we expect a very busy period ahead for all three companies, as they all boast advanced project situations.
Australian Vanadium (ASX: AVL) is undertaking an initial base-case PFS for its Gabanintha project in WA where it has an existing resource base, whilst simultaneously undertaking enhanced resource drilling with the aim of outlining a process to produce high-grade vanadium.
King River Copper (ASX: KRC) is also working on a Concept Study to evaluate the production of high-grade vanadium from its Speewah project in WA, where it also maintains a large resource base.
TNG Limited (ASX: TNG) is the most advanced of our vanadium trilogy, having completed a DFS its Mt Peake project in the NT and looking to lock in project funding and remaining approvals in order to enable project go-ahead.
Gavin, what are your thoughts on Largo Resources? Largo is currently not only producing vanadium, but their balance sheet has net cash, and they're generating large amounts of free cash flow. The 3 names you highlight are very, very speculative in nature - hopes and dreams of production and who knows where Vanadium prices will be in 2 years? Risk/Reward seems to strongly favor Largo. What am I missing?
Largo Resources is a TSX-listed vanadium producer with a market cap of $1.6b. My research focuses only on ASX-listed juniors, typically with a market value under $100m with emerging projects. Largo has performed very well share price wise, so it's story is being well received in North America.
Triton has a large under valued source of Vanadium and massive amounts of high grade "graphite". While they are about to go into production with two off take agreements. Would this be a better way to own a vanadium stock in the high demand graphite sector ?
Hi Paul, the Triton story is an interesting story, but they have had their fair share of issues over recent years, but are looking to turn things around under new leadership.
Hi Gavin TMT states it has a higher grade Vanadium resource at Gabanintha along strike from AVL’ s resource with a PFS on the way. Like Jim, what is it I am missing?
Hi Joe, the bottom line is that there is a growing number of ASX-listed vanadium opportunities in the micro-cap space. There are risks associated with all of these companies, not so much in terms of their resource, but more to do with how their projects will ultimately be funded and where the vanadium (if it's mined), will end up. Furthermore, some companies like AVL are quite advanced in terms of a vertically-integrated strategy, as well as discussions with end-user groups of various types. Others aren't so well advanced. Some companies also promote themselves better than others too. It's a market, so there's always a discrepancy in respective values.