Positive news for Jangada gets a harsh reaction
“…Last year’s forecasts for Jangada regarding the dates for the completion of the DFS and commencement of production, and the project economics, became cemented in the market’s mind. Now that the dust is settling investors may begin to take more note of the Report’s positives…”
Prospective battery metals miner Jangada Mines (AIM:JAN) has had to weather a stormy couple of weeks after the market responded negatively to a keenly anticipated Technical Report on the company’s Pitombeiras Vanadium Titano-Magnetite (VTM) Project. But a share price rally late last week suggests that the initial reaction may have been too harsh.
JAN is working towards production at the fully-owned Project, covering just over a thousand hectares in north-eastern Brazil, where exploration indicates vanadium mineralisation analogous to that of the Bushveld Complex (South Africa), the Skaergard Intrusion (Greenland), Maracas Menchen (Brazil), the Panzhihua layered intrusion (China), the Kachkanar massif (Russia) and the Windimurra Complex (Australia). Routes to market include Brazil’s Companhia Siderurgica de Pecém refinery and two major Chinese ports.
JAN spent 2021 clarifying the extent of the Project’s VTM mineralisation, which at the start of the year had a resource estimate of 5.70Mt at an average grade of 0.51pc vanadium pentoxide (V2O5), 10.09pc titanium dioxide (TiO2) and 50.42pc of ferric oxide (Fe2O3). Exploratory work over the spring and summer focused on defining VTM mineralisation over a structural trend underlying three targets, Pitombeiras North and South, and Goela. By July Jangada was was able to upgrade the Project’s Total Mineral Resource Estimate (MRE) by 45pc to 8.26Mt, with 62pc of the resource now classified at the higher confidence Measured & Indicated Mineral Resources category. The Mineral Resource classification stated Measured & Indicated Resources of 5.10Mt at 0.46pc V2O5, 9.04pc TiO2 and 46.06pc of Fe2O3, and an Inferred Resource of 3.16Mt at 0.44pc V2O5, 9.00pc TiO2 and 45.86pc of Fe2O3.
A Preliminary Economic Assessment (PEA) offered promising evidence for the Project’s robust economics, forecasting a post-tax Net Present Value (NPV) of $106.5m, a 317.8pc post-tax Internal Rate of Return (IRR), and three-month payback. The company said it was hopeful of proceeding to mine development and first production ‘as early as H1 2022’. JAN went on to announce ‘excellent’ metallurgical test results, bench and pilot scale test works using magnetic separation producing a ferrovanadium-rich concentrate containing a minimum of 62pc Fe, the benchmark for saleable FeV-rich magnetite concentrate. An update on the study’s progress last December said the Project’s titanium dioxide resource was of a sufficient extent to offer significant additional value. The company commissioned a Definitive Feasibility Study (DFS) with a view to proceeding ‘to mine development, with first production mid 2022’.
Last month JAN published an important staging post towards the final DFS, a Technical Report prepared by Brazilian based GE21 Consultoria Mineral which the company said had de-risked the project, identifying ‘no legal, technical, or geological impediments to proceeding to mine development, construction, and production’. The Report, which, as a DFS could only include the 5.10Mt in the Measured and Indicated resource categories, and not the 3.16Mt in the Inferred category, forecast a ‘robust economics’ encompassing a 100.3pc post-tax IRR, a $96.5m post-tax NPV, CAPEX of $18.45m, and a payback time of 13 months. It estimated annual production of 186,000t of Fe/V2O5 and 66,000t TiO2 at a production/processing rate of 600,000tpa. A life of mine of approximately nine years would generate $415.2m total gross revenue.
The Report did not qualify as a full DFS due to ongoing work to integrate the Project’s titanium dioxide resource into the evaluation. The assessment of the Fe/V2O5 62pc has been completed to a DFS standard, but the 9.85pc TiO2 component remains at a PEA level. GE21 is finalising the Study to include the TiO2 resource, and thereby set out a comprehensive development route to a direct shipping ore mining operation embracing all three commodities. JAN says increasing global demand for TiO2 will strengthen the Project’s economics further, acting as a hedge against likely variations in the iron ore price. The company expects to release the final DFS ‘in the coming months’, but the defined route to production outlined in the Technical Report allows for ‘full offtake discussions’ to begin now. JAN expects to secure ‘in-country’ offtakers, reducing operations and transport costs further.
Managing expectations
The market’s initial reception of the Report, however, was rather less positive than JAN would have hoped. Concerns about further delay to the publication of the full DFS and revisions to the economics in last year’s PEA pushed the share price down from 10.25p to 5.6p, taking the company’s market cap to just under £15m.
In an interview with TMS last month JAN Executive Chairman Brian McMaster offered a robust defence of the Report, pointing to ‘some really compelling economics and really compelling sentences in that RNS which any reasonable review could give people encouragement that things are on track.’ Confirming that ‘there are no legal, technical, or geological impediments to proceeding to mine development, construction, and production’, the Report highlighted ‘the Project’s robust economics and excellent potential to become a profitable producer of Ferrovanadium concentrate and Titanium dioxide.’ Speculation that the company was considering an imminent placement was ‘fiction’.
Last week the company published a shareholder Q&A seeking to clarify certain concerns raised by investors. Echoing Mr McMaster’s conversation with TMS, the Q&A insisted that with ‘a market cap of under £17m, a strong treasury, a defined mining asset with an NPV of US$96.5m and IRR of 100.3pc, a scalable resource, a proven team operating in a stable jurisdiction and the potential for additional value accretive acquisitions … There are few projects with such a strong IRR, which show no geological, economic, or legal impediment to proceeding to production.’
The update acknowledged that evaluation of the Project’s titanium component to DFS standard ‘takes time’, and said the Technical Report had to use a different pricing model from that used in last year’s Mineral Resources Statement, generating a discrepancy which had ‘unfortunately proven confusing’. Technical information disclosure rules required the Statement to use conceptual pricing parameters, which had been updated for the Report. Another reason for the difference between the figures in the Statement and the Report was the Report’s finding that production would require more expensive ‘wet’ rather than ‘dry’ separation processing. The tests on which the Statement had been based ‘indicated that the mass recovery and product content would be high, meaning a dry ore processing rout via magnetic separation was chosen’. But the Report found that further testing indicated wet processing would be more viable, a process that would reduce mass recovery rates and push equipment, energy, and transportation costs up somewhat.
The Q&A also took the opportunity to restate that JAN had no plans for a fundraise, and that the company continued to review opportunities in the ‘technology money space’ in addition to Pitombeiras. Regarding fundraising, the company had ‘a strong treasury with the last reported cash position of $5m as at 30 June 2021. There are few companies on AIM with a comparative economic project with and NPV8 of $96.5m, cash and a market capitalisation of under £17m. The Board also controls 42.7pc of the equity and would not want to dilute its position.’ JAN’s ‘extensive in-country contacts and positioning’ allowed it to continually review ‘additional projects and … opportunities’ that may complement its existing assets. Indeed the company supplemented its Pitombeiras interest just last year by taking a 3.6pc stake in Fodere Titanium Limited, a UK green tech startup seeking to commercialise the production of titanium dioxide and vanadium from waste materials. Fodere has secured capital to begin building its first industrial production facility, with a capacity of more than 22,000 tonnes, and is currently in discussion with industrial offtakers.
The vanadium megatrend
JAN is seeking to break into a market serving a well documented economic mega trend: the development of storage batteries able to compensate for the intermittency of renewable power sources.
Vanadium has long been used to strengthen steel, making its price somewhat dependent on China and other fast growing Asian economies. But more recently it has acquired a new identity as a key ‘green mineral’ due to its suitability for use as an electrolyte in redox flow batteries, which offer the revolutionary promise of electricity grids wholly powered by means of non-carbon energy sources, allowing surplus power generated by solar and wind to be stored and released when required.
The company is hoping to join a relatively select set of vanadium suppliers, including Bushveld Minerals, Glencore and Largo Resources, all of which are ramping up production in a sector that currently depends for two-thirds of its supply on Chinese steel slag. Pitombeiras’s titanium, which has grades JAN believes bear comparison with those recorded by established VTM miner Largo Resources at its flagship Maracás Menchen site, also has potential. Titanium alloy’s use in the aviation, industrial and medical sectors is forecast to drive a market worth more than $5m by 2024.
Outlook
JAN’s path over the past couple of weeks seems to have been spiked by a classic case of AIM expectations (mis)management. Last year’s forecasts regarding the dates for the completion of the DFS and commencement of production, and the project economics, became cemented in the market’s mind. Now that the dust is settling investors may begin to take more note of the Report’s positives. In a nutshell, the Project’s path to production is on firmer empirical ground, without much change to the essentials of the investment case. As JAN insists, an NPV of US$96.5m, an IRR of 100.3pc and $415.2m total gross revenue are still positive numbers. Pitombeiras, located in an established mining jurisdiction, has the potential to surf one of the energy transition’s key markets.
The company’s share price has stumbled, but viewed within a wider timeframe is still just under 6p, back to its level at the beginning of the year. The price rallied somewhat late last week, perhaps signalling a shift in the market’s perspective. JAN will have to exercise due caution in setting expectations, but with a full DFS incorporating the Project’s titanium component on the horizon, and the prospect thereafter of a detailed roadmap to production, we continue to believe this is a story well worth following.
