Date: Feb 11, 2019
Delrey Metals Corp.’s (DLRY:CSE; 1OZ:FSE) mandate is to create shareholder value by sourcing, financing and developing undervalued strategic energy metals properties and projects through staking ground or making accretive, prudently and creatively financed acquisitions and joint ventures/farm-ins. It’s off to a good start and has a clean balance sheet with just 34 million shares outstanding and cash of ~C$1.5 million. The market cap is about C$8 million = US$6.1 million. The company is aggressively pursuing additional strategic energy metals assets, and have homed in on two or three in particular.
Delrey Metals has acquired five highly prospective properties in Canada. Four are prospective for vanadium, for a total of 9,482 hectares, and one is a cobalt–copper-zinc opportunity that Cobalt 27 Capital Corp. acquired a 2% NSR on. All four vanadium assets will be receiving airborne magnetic surveys and geophysics in February. Subject to results, management will determine which properties to focus on. Both the Porcher and Blackie properties have unique features that if confirmed, will likely make them top priority targets for the next phase of exploration.
Early Days for the Canadian Vanadium Opportunity
Interest in vanadium has grown along with the price. Demand from China continues to be the key driver. While the rest of the world grows at 2%–3% per year, a bad year for China is +6%, and it’s the second largest economy on the planet. Not only does China use a tremendous amount of steel, it uses huge quantities or rebar, which is used in construction and infrastructure building (and rebuilding).
Regarding vanadium pentoxide pricing, there’s been a lot of angst over the recent dramatic decline, but Chinese prices seem to be settling in around US$17/lb. The chart above shows a price closer to US$15/lb, but the price was US$16.90/lb as of February 3rd. It topped out at nearly US$35/lb in November, so the price has been halved from a 13-year high. Importantly, US$17/lb is still a strong price, up from a low of US$2.35/lb on 12/31/15. From $2.35/lb, the Chinese vanadium pentoxide price has risen at a 3-year CAGR of ~93%. A price between US$15–US$25 is a sweet spot, too high a price and VRBs get priced out of the market.
Perfect Storm of Demand & Supply Fundamentals
Vanadium is primarily used (91%) to strengthen steel rebar (two pounds of vanadium added to a tonne of steel doubles its strength); last year China came out with new regulations for Chinese rebar makers– use more vanadium! However, reportedly, 30%–40% of Chinese rebar producers did not follow the regulation implemented in November, which was likely a big factor in the vanadium price crash. The increased demand from this initiative alone is estimated at 10,000 tonnes per year. That’s on a global market of about 90,000 tonnes. 10,000 tonnes/year is what Largo Resources’ main mine in Brazil produces, one of the largest mines in the world.
