Can the Ferro-Alloy Resources share price move #FAR far away from its current level?
“…with a recent £1.71 Broker target price, a CEO who holds over 20% of the stock, the company recently announcing a successful funding round, revenues forecast of over £200m a year and with a share price hovering around 9p is #FAR worth a look?..”
The Ferro-Alloy Resources Group (FAR.L) is developing the giant Balasausqandiq vanadium deposit in Kyzylordinskaya oblast of southern Kazakhstan. The ore at this deposit is unlike that of nearly all other primary vanadium deposits and is capable of being treated by a much lower cost process. It is planned that output will be increased in stages to reach 22,400 tonnes of vanadium pentoxide per year, mostly in the form of ferro-vanadium. Balausa could emerge as one of the world’s largest primary vanadium producers.
FAR is already in production processing purchased vanadium-containing secondary materials to produce vanadium in the form of ammonium metavanadate (“AMV”). FAR is currently installing equipment which will enable it to increase production and convert its AMV into the more commonly traded vanadium pentoxide.
Already an established producer of vanadium in southern Kazakhstan, FAR was admitted to the Main Market of the London Stock Exchange in March 2019. As far as a mining jurisdiction, Kazakhstan has now become a ‘well-run country,’ and while Kazakhstan isn’t necessarily an ideal jurisdiction, CEO Nick Bridgen appears confident it is an area FAR can flourish in.
Further differentiating itself from the vanadium pre construction peer group, FAR has the significant advantage of existing production, having adapted and expanded its pilot plant to treat third party material. FAR recently confirmed a tripling in capacity to 480tpa with a further increase planned to 1,500tpa during 2020. Despite a profitable 2018, this aspect of the business suffered last year due to falling vanadium prices and constrained capacity, however, with an achievable plan to increase near term output, it appears that earnings recovery through this year will lead to positive EBITDA in 2021 of around US$4m, which will of course provide additional cashflow to the company during the main project development.
With global supply side disruption from lockdown impacting vanadium supply in general, the vanadium price is up over 25% this year. The price of Vanadium has fallen around 70% through 2019 but it now looks like the price has stabilised offering an attractive entry point for investors.You may see upside potential from both China’s post-coronavirus stimulus, which is expected to incorporate steel intensive infrastructure projects, and also the growth of the vanadium redox flow battery market over the medium to longer term.
Although the shares are now down over 85% since March 2019, this of course driven largely by the vanadium price correction following the near 400% spike from 2017-19 (driven by a change in Chinese rebar standards) the company is now valued at only about £30m. Furthermore, the shares are down around 50% this year while in 2020 the vanadium price is up, as mentioned previously, 25% despite the volatility surrounding coronavirus. Although this highlights a near term opportunity in the shares, the key point is that FAR’s main project is projected to have lowest quartile unit costs of US$1.50/lb over the LoM indicating strong operating margins at the current price. Buying the shares is therefore not hinged only on the vanadium price. The start of the development programme and recent successful financing should see the shares rerate significantly. Furthermore, whilst the take-off of the Vanadium Redox Flow Battery industry could be the catalyst for the next period of high pricing, FAR’s low incentive price does not rely on this market.
The company recently announced that it raised a total of approximately £733,000. The Fundraise comprises a direct subscription for cash into the Company of £500,000 and an issue of the Company’s bonds listed on the Astana Stock Exchange in Kazakhstan totalling $300,114. The company have been quite open and suggested more capital is required, but will they really raise again lower than the last placing? Really?
The proceeds from the recent Fundraise, together with the £500,000 subscribed on 2 September 2020, will be used to build the connection to the high voltage power line, complete the installation of the equipment to convert ammonium metavanadate (AMV) to vanadium pentoxide, make several improvements to the existing process plant and complete the fit-out of the newly built on-site accommodation for senior technical staff.
The connection to the adjacent high voltage power line is of major importance to the Company. A significant amount of work has already been done in spite of delays caused by the Covid-19 state of emergency. Specifically, the proceeds of the Fundraise will be sufficient for the completion of the two-kilometre spur line, the installation of the transformers and automated control, the relay protection and the high frequency communication systems. The remaining work, which will be to install the open switchgear and the low-voltage line from there to the operations, will be completed in spring of 2021 out of operating earnings. So lots going on for possible news flow!
Nick Bridgen, CEO, recently said: “We have already completed a great deal of good work towards increasing production from existing operations but the limited and unreliable power has held us back. The plant improvements and new converter for the AMV will yield quick benefits to production and therefore revenue, and we look forward to even better production upon the completion of the new powerline in Spring 2021.The new power connection is also a step towards the planned development of the Balasausqandiq project, one of the world’s largest and lowest cost vanadium mines, which will draw power from the same line.”
So, with a recent £1.71 Broker target price, a CEO holding over 20% of the company, the company recently funded with expected revenues of over £200m a year and a share price around 9p is #FAR worth a look?
Click here for the latest Investor presentation from Ferro-Alloy Resources
Click below to view this very interesting Interview with Nick Bridgen, CEO of Ferro-Alloy Resources Group and the excellent guys from @CruxInvestor