TIDMFAR
RNS Number : 7460W
Ferro-Alloy Resources Limited
13 December 2019
Dissemination of a Regulatory Announcement that contains inside
information according to REGULATION (EU) No 596/2014 (MAR).
Ferro-Alloy Resources Limited / Index: LSE / Epic: FAR / Sector:
Natural Resources
13 December 2019
Ferro-Alloy Resources Limited
("Ferro-Alloy" or "the Company")
Operational, Trading and Financing Update
Ferro-Alloy Resources Limited, the vanadium mining and
processing company with operations based in Southern Kazakhstan, is
pleased to announce an update on operations at its existing
vanadium concentrate processing operation (the "Existing
Operation"), trading and financing developments.
Overview:
-- Building expansion at the Existing Operation completed and
first phase of new equipment being commissioned
-- Work on connection to high voltage electricity line commenced
and equipment ready for installation
-- Appointment of SRK Consulting ("SRK") and Coffey
International, a Tetra Tech company, for upgrade to Western
bankable standards of the Feasibility Study for the development of
the large Balasausqandiq Vanadium Project
-- Sharp fall in vanadium pricing has impacted short term
profitability and cash flow, but long-term financial projections
still robust at today's low, and even at significantly lower,
vanadium prices
-- Advanced negotiations in progress for near term funding requirements
-- Positive decision from the Development Bank of Kazakhstan
after initial screening for funding of Phase 1 of Balasausqandiq
project
Nick Bridgen, CEO, commented, "The expansion of the existing
operation, the first phase of which will be operational by the end
of December, and the advances we have made with our main project,
give reasons for an optimistic outlook for 2020. The recent fall of
the vanadium price from the frothy levels of last year can be
viewed as a positive for the industry as it will allow demand to
continue growing, particularly in the nascent flow battery
industry, and will lead to the shut-down of high cost opportunist
production. Furthermore, it highlights the clear advantage of the
Balasausqandiq Project, which is expected to become the world's
lowest cost primary supplier."
The Existing Operation
The extension of the plant building has been completed and the
main equipment for the initial stage of the expansion of the
existing processing plant has now been installed and is being
commissioned. The Company has succeeded in keeping the plant in
production throughout the installation period although the need to
move and replace existing equipment meant that not all equipment
was working at all times. As a result, there has been no production
from the new high-grade concentrate line since July 2019 but this
is now about to restart. Notwithstanding these interruptions,
production in October was a record 18.2 tonnes (vanadium pentoxide
basis) and although November was lower, the new equipment is
expected to be fully operational from the middle of December
resulting in a significant increase in monthly production.
The new equipment includes a second roaster oven for the
treatment of high-grade concentrates, with the feed from this and
the former oven feeding by conveyor into a new larger capacity
leaching line. Commissioning of two of the three new press filters
was delayed by the manufacturer's delivery of incorrect parts but
all are expected to be in operation by the middle of December. The
first press filter is essential to allow the restart of production
from high grade concentrates and the second will have a positive
impact on product quality, potentially allowing the production of
higher purity premium products. Greater and more effective
filtration capacity will also increase the recovery of vanadium
from each tonne treated.
The contract for the construction and equipment for the
connection to the adjacent high voltage powerline has been signed
and work has begun. The Company has been notified that the main
transformers and control equipment are now ready. Normal winter
conditions are likely to delay the actual line construction but
completion is expected around the end of the first quarter of
2020.
Although the new equipment brings the plant's production
capacity to over 50 tonnes of vanadium pentoxide per month, the
main infrastructure items are currently unable to support this
level of production. In particular, we expect continuing
interruptions from the existing unreliable power-supply until the
connection to the high-voltage power supply is completed and the
Company is negotiating to procure railway sidings which will
greatly improve the logistics of inward supply of raw materials and
shipment of products. Both of these infrastructure projects are
also essential for and form part of the development plan for Phase
1 of the Balasausqandiq project so they represent the first steps
towards the realisation of this major project. In spite of the
infrastructure shortcomings, a significant uplift in production is
expected from the second half of December onwards.
The second major phase of the expansion of the existing
processing operation has already begun with the completion of
detailed engineering, the award of the contract, and initial
payments made to the manufacturers for the construction of an
electric arc furnace which will take production capacity up to the
targeted 1,500 tonnes per year of V2O5 and beyond.
Vanadium prices
The price of vanadium pentoxide has fallen from around $16/lb at
the start of 2019 to around $5/lb today. Although the fall was
widely forecast, it has fallen further and faster than expected and
has impacted the profitability and cash flows of the Company during
the year to date, particularly during the period when production
has been limited by the implementation of the expansion.
The precipitate fall has been attributed to the initial lack of
enforcement by China of their new higher standards for construction
steel and by a rapid increase in Chinese vanadium production,
stimulated by the exceptionally high prices of 2018 which reached
nearly $30/lb. There has also been some substitution of vanadium by
niobium. Chinese enforcement is now thought to be much stronger and
much of this increase in production and substitution is likely to
reverse as prices stabilise at more normal levels. In the longer
term the outlook for vanadium demand growth is very strong from its
traditional market to steel-makers, putting upwards pressure on
prices and necessitating the building of new supply which, other
than by Ferro Alloy, is unlikely to happen until prices rise to
considerably higher levels than today's. The advent of vanadium
redox flow batteries remains a tantalising opportunity for the
industry, the roll-out of which was delayed by the unusually high
vanadium price in 2018.
The Company continues to use a long-term forecast price of
$7.50/lb which is around the historic average and conservatively
reflects the cost required to incentivise new production
capacity.
That said, the current low prices are not a threat to the
Balasausqandiq project which is expected to have the world's lowest
cost of production but there has been an impact on the Company's
recent cash flows from the existing operation. Raw materials are
typically acquired at prices determined as a percentage of the
value of the vanadium content at the time of ordering but product
sales are priced at the time of delivery to the customer. Owing to
long lead times for the delivery of raw materials and the several
months it takes for shipments to reach customers, a prolonged
period of falling prices means that the prices received are much
lower than those used in the raw-material pricing, greatly
affecting the Company's operating margin. In the long run, periods
of rising and falling prices are likely to even out, but when
prices are consistently falling as they have been in 2019, the
effect is wholly negative. For these reasons trading so far in 2019
has been disproportionately affected and the Company is not
expected to return to profitability until the planned production
increases in 2020 have been realised.
The Company's previous forecasts, based on a slower fall in
vanadium prices over 2019 and 2020, would have been sufficient to
meet the capital expenditure requirements for the completion of the
expansion of the existing operation out of operating cash flows but
the reduction in vanadium prices, compounded by the timing
differences described above, have reduced the cash flows available
to the Group in the short term.
Balasausqandiq project
Ferro-Alloy has appointed SRK to work with the Company to carry
out the upgrade of the feasibility study to Western bankable
standards. The existing study was carried out according to
Kazakhstan standards, supplemented by a full Western resource
estimate according to JORC 2012 guidelines and the construction and
operation of the pilot plant. As previously announced, the Company
carried out a "gap analysis" to determine areas where the standards
differ and has identified several areas where supplementary work is
required including some limited drilling for geotechnical (pit wall
stability) and hydrogeological purposes (water supply). In both of
these instances former Soviet work has already provided
satisfactory conclusions but a lack of retained records and
auditability means that the work has to be repeated. In addition,
Coffey International (Tetra Tech group) have been appointed to
carry out some further testing of the autoclave leach process to
confirm and potentially improve the pilot plant operation. It is
expected that this upgrade of the study will be completed around
the end of the third quarter of 2020.
Financing
The Company is currently debt free and has no significant
options or warrants outstanding. As part of its near-term funding
requirements for the expansion of existing operations and working
capital needs, the Company is in advanced discussions regarding a
loan of up to $1.3m and the Board is considering other sources of
capital including the issue of equity.
The Company expects to raise a significant part of the finance
required for the implementation of Phase 1 of the Balasausqandiq
project from project finance, supplemented by royalty sales or
streaming (a means of raising initial finance in return for
discounted future sales). Royalty sales and streaming can involve
initial payments prior to full project initiation which would,
combined with other project finance, reduce or eliminate the need
for further equity issues, thus minimising or eliminating
shareholder dilution. As part of this Phase 1 project funding, the
Company has held discussions with a number of organisations
including banks, sovereign wealth funds, export credit guarantee
departments and other specialist providers. In particular,
application has been made to the Development Bank of Kazakhstan who
have taken a positive decision after initial screening to advance
to the next stage of analysis of the project.
For further information, visit www.ferro-alloy.com or
contact:
Ferro-Alloy Resources Nick Bridgen (CEO) info@ferro-alloy.com
Limited
Shore Capital Stockbrokers
Limited Corporate Jerry Keen / Toby
(Broker) Gibbs +44 207 408 4050
St Brides Partners
Limited
(Financial PR & IR
Adviser) Priit Piip +44 207 236 1177
Further information about Ferro-Alloy Resources Limited
The Company's operations are all located at the Balasausqandiq
deposit in Kyzylordinskaya Oblast in the South of Kazakhstan.
Currently the Company has two main business activities:
(a) the Balasausqandiq Vanadium Project (the "Project"); and
(b) a vanadium concentrate processing operation (the "Existing Operation")
Balasausqandiq is a very large deposit, situated in
Kyzylordinskaya Oblast in Southern Kazakhstan. The ore contains
vanadium as the principal product, together with by-products of
carbon, molybdenum, uranium, rare earth metals, potassium, and
aluminium.
A reserve on the JORC 2012 basis has been estimated only the
first ore-body number which amounts to 23 million tonnes, not
including the small amounts of near-surface oxidised material which
is in the Inferred resource category. On the locally required
basis, the reserves have been estimated to be over 70m tonnes in
ore-bodies 1 to 5 but this does not include the full depth of
ore-bodies 2-5.
Development of the Project is planned in two phases. Phase 1
will produce 5,600 tonnes per year of vanadium pentoxide, and Phase
2 will bring the total to 22,400 tonnes per year plus approximately
one third of revenue from by products. Owing to the particular
characteristics of the ore which enables a much lower cost process
to be used, the Company expects to be the world's lowest cost
producer.
The vanadium concentrate processing operation is situated at the
site of the Balasausqandiq deposit. The production facilities were
originally created from a 15,000 tonnes per year pilot plant which
was then adapted to treat low-grade concentrates and is now in the
process of being expanded and further adapted to treat a wider
variety of vanadium-containing raw-materials. The Company has
already completed the first steps of a development plan which is
expected to result in annualised production capacity increasing
gradually to around 1,500 tonnes of contained vanadium pentoxide.
The development plan includes upgrades to infrastructure, an
extension to the existing factory and the installation of equipment
to increase the throughput and to add the facilities to convert AMV
into vanadium pentoxide.
The strategy of the Company is to develop both the Existing
Operation and the Project in parallel. Although they are located on
the same site and use some of the same infrastructure, they are
separate operations.
This information is provided by RNS, the news service of the
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END
MSCGGGAGPUPBGRP
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