The Conversation (2)
Earlier this week, Evraz Highveld Steel and Vanadium filed for voluntary business rescue. While that’s bad news for the company, other players in the vanadium space could benefit.
The majority of Evraz Highveld’s issued shares are held by a subsidiary of Evraz (LSE:EVR), a vertically integrated steel, mining and vanadium business. Evraz is one of the largest entities in the vanadium industry, and with Evraz Highveld closing its doors the vanadium market could see a major impact.
Looking at just how important Evraz Highveld was, Roskill states in its Market Outlook for Vanadium to 2025 that the company’s production of feedstock was estimated to contain 7.1 kilotonnes of contained vanadium. With global production in 2014 at 96.6 kilotonnes, that means Evraz Highveld accounted for 7 percent of the world’s vanadium feedstock. Evraz Highveld also owns the majority of the Mapochs mine, which has an estimated 11 kilotonnes contained vanadium.
Evraz Highveld’s filing for business rescue is not necessarily a surprise given the operational issues it has endured. Those include ongoing energy supply interruptions, a problem that has impacted many South African producers. Rising energy costs have also impacted ferrovanadium export prices, and that has led to a gradual decline in exports of the material from South Africa since 2009.
Those issues have prompted attempts from Evraz to dispose of its stake in the business. Last August the company signed an agreement to sell a 34-percent stake in Evraz Highveld to Macrovest 147 Proprietary; at this point, however, the deal is no longer valid.
Though Evraz Highveld’s board hopes the business rescue will allow it to implement a turnaround plan, considering the oversupply in the vanadium market it’s uncertain whether that will ultimately come to pass. That’s especially true considering that according to Roskill, more supply is due to enter the weakened market.
Upside for other companies?
As mentioned, Evraz Highveld’s exit will remove a good chunk of vanadium supply from the market, and that could bode well for other producers and juniors. That might sound odd considering the vanadium market is oversupplied, but perceived supply shortages generally result in at least a short-term hike in equities.
Roskill’s report mentions Largo Resources (TSXV:LGO), which has been hitting new records in production and lowering production costs at its Maracas Menchen mine project in Brazil, as one company that is making moves in the space.
Meanwhile, on the North American front there is VanadiumCorp Resource (TSXV:VRB), which has two vanadium projects in Quebec. The company is focused on converting high-purity vanadium pentoxide into high-purity vanadium electrolyte, which is critical for vanadium redox batteries. VanadiumCorp’s Lac Dore deposit has an inferred resource of 99,104,00 tonnes (not only concentrate) grading 0.43 percent V2O5, and once in production, VanadiumCorp believes it will represent the most significant supply of vanadium in North America.
Over in Australia, TNG (ASX:TNG) has been making moves lately as well, most recently announcing plans to divest its non-core assets in a bid to focus more on its Mount Peake vanadium-titanium-iron project.
While the future of the vanadium price — and of Evraz Highveld — remains to be seen, the fact that a major producer is exiting the space will likely serve to create a little excitement moving forward.
Securities Disclosure: I, Kristen Moran, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: VanadiumCorp Resource is a client of the Investing News Network. This article is not paid-for content.
Related reading:
Vanadium Outlook 2015: Stability and Balance in Store
VanadiumCorp’s Lac Dore Resource Estimate Highlights Expansion Potential