Vancouver mining entrepreneur John Lee took a significant step forward in his plan to start a vanadium mine in Nevada as the results of a preliminary economic assessment (PEA) showed attractive economics amid a red hot streak in prices.
Prophecy Development Corp.‘s (TSX: PCY) Gibellini project indicates an after-tax net present value (NPV) of $338.3 million and an internal rate of return (IRR) of 50.8%, based on a study by AMEC Foster Wheeler. That’s based on a capital expenditure requirement of $117 million, and a base price scenario of $12.73 per pound for vanadium. The metal is currently trading at $14.20 per pound as of May 29, and every indication is that prices will rise after the Chinese government introduced new laws requiring more vanadium be added to steel rebars used in construction.
“It’s very unusual to have capex requirements much lower than the NPV,” Prophecy Chairman John Lee told InvestorIntel. “There won’t be any new vanadium deposits coming online in the next 18 months, so there’s an enormous amount of interest at the moment.”
The marketplace is dominated by two main sellers – China’s Pangang Group and Glencore – and buyers are desperate to get their hands on alternative supplies, Lee said. Gibellini is one of the few projects that can be brought online in a reasonable timeframe, he said.
The sensitivity analysis carried out by AMEC really highlights Gibellini as a play on the price of vanadium. At the bottom end of the scale, 30% lower average vanadium prices to the base price at $8.91 a pound still provide an IRR of 26% and NPV of $104 million. On the other end of the spectrum, a 30% higher price averaging $16.55 a pound ratchet the IRR up to 69% and the NPV to $996 million, just shy of a billion dollars. That’s all based on a discount rate of 7%.
Prophecy estimates that Gibellini can produce 9.65 million pounds a year of vanadium oxide over a mine life of 13.5 years and an operating cash cost of $4.77 a pound, with breakeven prices at $7.76 a pound. In terms of the life-of-mine bell curve, first year production would surpass of 10 million pounds and hit an apex of 15.2 million pounds in year 4, before receding in latter years. Cash costs are considerably lower in those first few years of higher output. Using a heap leaching process, the end product will be vanadium pentoxide.
Besides the Chinese steel rebar regulatory enforcement, vanadium is being considered a suitable metal for large-scale power storage generation facilities, and China in particular is testing the vanadium batteries in their bid to find the holy grail solution for the renewable energy industry — namely, the ability to store power generated from solar and wind energies.
Outside of China, the government of Donald Trump has listed vanadium as a strategic metal, and the U.S. is also testing the efficacy of vanadium storage batteries. Globally, the execution of Gibellini would increase global supply by 3.5%. But critically, the project would add 15% of supply located outside of China, Russia and South Africa.
Lee is hoping that the growing interest in vanadium will help the company fast track the final permits required to develop the project. The company filed an operating plan to local authorities. After a consultation process, the Bureau of Land Management will likely issue a Notice of Intent (NOI) document in 2019, at which point the company can proceed with an environment impact assessment.
This area of Nevada is mature gold mine territory, and indeed Gibellini is located close to the historic Eureka gold mine, so U.S. regulations while tough are not overly complex in Nevada. The project would become the only operating vanadium mine in North America, and on the doorstep of futuristic tech hubs in California. A Eureka for the 21st century, no less.
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