Ferro-Alloy Resources Group (FAR) is developing the giant Balasausqandiq vanadium deposit in Southern Kazakhstan and listed on the London Stock Exchange (LSE) in March 2019. The company had previously listed on the Kazakhstan Stock Exchange in 2017 as a precursor to floating on a major international bourse, due to a legal requirement which stipulates that companies with a majority of their assets in Kazakhstan must, when placing shares abroad, place at least 20% of the shares on the domestic market. Why did FAR choose the London market? CEO Nicholas Bridgen views London as a strong exchange with good liquidity and a convenient choice. “We are registered in Guernsey and have many British shareholders so there are obvious advantages to being listed in London. The LSE uses the CREST settlement system and London has a daytime overlap with Kazakhstan so communications are easier,” he says.
The London IPO raised £5.2 million which will be used to further develop and expand production at Balasausqandiq, with FAR already in production at the site through a small-scale treatment plant which processes secondary vanadium materials.
However, the major focus going forward will be the development of the large-scale Balasausqandiq vanadium deposit, along with the construction of a new standalone processing plant.
“The bulk of the London capital raise will go towards the expansion of the existing operation. To some extent you may think that is counter-intuitive as 95% of our value is in the main project,” Bridgen suggests.
“But, although most of the money from the float is for the small project, about half of it is on things which will be necessary for the big project as well, so in a sense we are starting the big project now.”
The US$10 million expansion project is already underway and it provides a quick and easy way to generate cash flow ahead of the big project, according to Bridgen. The expansion will allow the plant to treat a wider range of vanadium-containing feedstocks and to produce higher-value products.
Eyes on the prize
Nonetheless, the real prize for FAR centres on the successful development of the Balasausqandiq deposit, which has the potential to be one of the world’s largest and lowest cost sources of vanadium.
The scale of the deposit has previously been assessed using the local GKZ system, which estimated a reserve of around 70 million tonnes (Mt) of ore without going to full depth on most of the orebodies.
However, under the more commonly used JORC basis the resource for one orebody (OB1) was estimated at 24.3 Mt. The remaining four orebodies are classified under JORC as exploration targets which, taking the centre of the estimated range, would give a total resource of around 126 Mt.
“The scale is huge. We’ve only really scratched the surface of it with drilling and exploration so far. All of our orebodies outcrop to surface so if we start further exploration and drilling there may be an awful lot more,” Bridgen exclaims.
However, the deposit is world class not because of its size, but mainly due to the unique nature of its mineralisation compared with most other vanadium deposits. The majority of the world’s vanadium is found in vanadiferous titanomagnetite (VTM) deposits.
Containing high levels of iron oxide, ore from VTM deposits must be subjected to a complex treatment route to produce the vanadium product. The usual process involves making a magnetite concentrate before roasting the material at a temperature of around 1,100 °C.
“That is an expensive process in terms of both capital and operating costs. For capital costs you need a concentrator plant and then a roasting plant, which involves bringing in a huge amount of power further contributing to operating costs. After all those steps, the metallurgical recovery is typically only around 75%.”
Fortunately for FAR, the Balasausqandiq deposit is sedimentary and contains no iron, which means the ore can be treated directly with sulphuric acid in an autoclave to make a solution without the need for a concentrator or a roaster.
Overall recovery is expected to be over 90% and the acid consumption is low. This reduces capital and operating costs by around 60%, which should make FAR the lowest cost vanadium producer in the world.
“We have an orebody that is amenable to a treatment process which is in a different class from all other vanadium deposits. That is what’s special about us,” Bridgen proclaims.
Sweetening the deal
In addition, the project’s value is further sweetened by the presence of by-products including carbon-silica, uranium/molybdenum and potassium alum. These by-products will allow FAR to utilise 100% of the ore for saleable products, meaning the company will produce no tailings from the process plant.
“The by-products more than pay for the whole of the operation including mining and treatment. I’ve often commented that if there were no vanadium at all in the deposit, it would still be economic. Based on our long-term price assumptions, we expect a third of our revenue will come from by-products.”
Operating in Kazakhstan may once have been considered a risky choice by many Western investors, but this is no longer the case since the government has moved steadily to reform its business environment since the break-up of the Soviet Union 27 years ago, dismantling red tape, reducing bureaucratic procedures and making it easier to do business.
FAR’s CEO adds further weight to the view of Kazakhstan as an attractive investment destination, reporting that his company has experienced no difficulties operating in the central Asian nation, and has received a significant degree of government support over the years.
The company has a tax incentive agreement with the government, whereby it will pay 0% income tax on its processing operations until 2026 and has a property tax exemption until 2024. While Kazakhstan continues to face legacy issues from the authoritarian Soviet era, the political situation is described as stable by FAR.
“I think they have a system of government that suits the state of development of the country and has enabled them to reform at a very fast pace. From a business point of view it’s ideal.”
In addition, FAR is set to benefit from excellent regional infrastructure, including sophisticated road and rail networks linking to markets in China, Russia and Europe and ample sources of power and water nearby.
Doubling down on demand
The global steel market accounts for the lion’s share of vanadium demand, with some estimates suggesting that steel applications account for over 90% of total consumption. Demand from the steel sector is expected to grow strongly as a result of higher strength steels being mandated for construction purposes, but the real upward demand pressure could come from the burgeoning energy storage industry.
Vanadium Flow Batteries (VFBs) have been developed to support renewable energy facilities through storing large quantities of energy produced by solar and wind farms. The growth potential of this industry is demonstrated by a recent Adriot Market Research forecast, which stated that the VFB market would surpass a CAGR of 59.7% from 2018-25.
According to Bridgen, FAR is one of a select few primary vanadium producers that is well prepared for this potentially huge demand increase from the VFB industry.
“One of the good attributes of our ore and the process we use is that we naturally produce a very high purity product. It would take a little more work to reach a purity required by the battery industry, but it’s much easier to reach that standard starting with our product than from the typical magnetite-derived product.”
From here, a lot will hinge on how the VFB market develops in terms of FAR’s customers for its battery grade vanadium product. The company is talking to various battery manufacturers and although at this stage the channels to market remain unclear, Bridgen is confident that FAR will play a crucial role from the supply side.
“A battery industry could potentially double demand for vanadium and it’s hard to see where that will come from apart from us, because only we can turn on the taps quickly and cheaply and produce a large amount of vanadium at a price that keeps the vanadium battery market competitive.”
With the London listing ticked off the agenda and detailed plans in place for the smaller and main projects at Balasausqandiq, FAR is at the beginning of an exciting period which could culminate in the transformation of the global vanadium market.
“We certainly can ramp up our production quicker and far cheaper than anybody else. We will go from being relatively unheard of to a middle-sized producer over the next two years, and over the next three to four we will become one of the world’s largest producers.”