(Alliance News) - Ferro-Alloy Resources Ltd on Friday said its profitability and cash flows have suffered as vanadium prices fell more sharply than expected.
Shares in the miner were down 23% at 12.00 pence in London in afternoon trading.
The miner operates the Balasausqandiq vanadium project in Kazakhstan. It also has a vanadium concentrate processing operation at the same site.
The drop in the price of vanadium pentoxide to its current level of around USD5 per pound from around USD16 per pound at the start of 2019 has hurt Ferro-Alloy's profitability as well as its cash flow. Despite being widely forecast, the price decline was steeper and more rapid than expected, the company said.
According to Ferro-Alloy, the reason for this fall was largely China's initial lack of enforcement on its new higher construction steel standards and an abrupt increase in China's vanadium production.
However, this enforcement is now considered to be "much stronger" and China's vanadium production is likely to slow as prices stabilise. Ferro-Alloy's long-term price forecast for vanadium pentoxide is USD7.50 per pound, around the historic average.
"In the longer term the outlook for vanadium demand growth is very strong from its traditional market to steel-makers, putting upwards pressure on prices and necessitating the building of new supply which, other than by Ferro Alloy, is unlikely to happen until prices rise to considerably higher levels than today's," said Ferro-Alloy.
The negative impact of short-term drop in vanadium prices was worsened by Ferro-Alloy's limited production while it implemented the expansion of its vanadium concentrate processing operation. The building expansion is now complete and the first phase of new equipment for the operation are being commissioned.
Ferro-Alloy said work to connect the operation to a high voltage electricity line has begun as well, with equipment ready for installation.
The firm has also appointed SRK Consulting and Coffey International to upgrade its feasibility study to Western bankable standards.
Further, while Ferro-Alloy is presently debt-free, it is in talks to obtain an up to USD1.3 million loan as well as considering financing options such as an equity issue. The money would help implement phase 1 of the Balasausqandiq project.
The Development Bank of Kazakhstan has taken a positive decision on funding phase 1 of the project and advanced Balasausqandiq to the next stage of project analysis.
Ferro-Alloy Chief Executive Nick Bridgen said: "The expansion of the existing operation, the first phase of which will be operational by the end of December, and the advances we have made with our main project, give reasons for an optimistic outlook for 2020. The recent fall of the vanadium price from the frothy levels of last year can be viewed as a positive for the industry as it will allow demand to continue growing, particularly in the nascent flow battery industry, and will lead to the shut-down of high cost opportunist production. Furthermore, it highlights the clear advantage of the Balasausqandiq project, which is expected to become the world's lowest cost primary supplier."
By Anna Farley; annafarley@alliancenews.com
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