SP Angel BMN6 Oct 2021 17:23
Vanadium price: We have reduced our vanadium price assumption for this year to $35/mtV but have maintained our price assumption for 2022 onwards at $40/mtV.
We see vanadium prices as being driven by new demand for construction in the US, India and Europe where new infrastructure and housing programs should require increased production of rebar and structural steel bearing higher vanadium content.
We also expect the construction of a number of Vanadium Redox Flow Batteries to add to demand with two new VRFBs being built in China following on from earlier tests and a new test VRFB is also planned in the UK to work alongside a Li-ion battery. The VRFBs serve to store and stabilise power from inconsistent renewable energy sources.
Demand for primary vanadium was suppressed in the year by high iron ore prices which encouraged traders to blend magnetite ores bearing vanadium with hematite ores. Bushveld expects this practice to slow as iron ore prices continue to fall. Iron ore prices have fallen from >$200/t to $117/t today in China for high grade 62% iron ore making the use of lower grade magnetite and iron ores which fetch a significant discount to the 62% grade price less attractive to use.
Production: We forecast production and sales of 3,416mtV of ferrovanadium for the year vs guidance of 3,400-3,600mtV.
Production should rise to around 4,455mtV next year driven by the commissioning of Kiln 3 at Vanchem in the second half.
The addition of Kiln 3 should further raise production to 5,320mtV in 2023.
Feasibility Studies due around the year end indicate potential to raise production to 6,400-6,800mtV in the medium term (2023). We will look at adding this production into our model on further definition of these studies.
Longer term the group continues to target steady state production of 8,400mtV.
Forex: We have adjusted our assumption on the South African rand to ZAR15/USD. The rand strengthened from May 2020 last year driven by strengthening commodity exports and higher prices as China increased imports.
While we expect the rand to weaken from here convention and difficulty of forecasting currency rates compels us to use a stable rand rate in our modelling.
Total sustaining costs TSC: We note the effect of the stronger rand added $4.8/kgV to total sustaining costs at Vametco in the first half vs H1 2020. This was second only to the impact of lower production volumes which raised TSCs by $6.5/kgV.
Lower production led to a ~US$9.4/kgV cost increase which will unwind as the production rate recovers. We see the H1 cost of $38.3/kgV falling to $33.5/kgV for the full year at Vametco and to $29/kgV in 2022 depending on the rand, local inflation and production volumes. Vametco ‘Cash Costs’ are guided to fall to $23.7-24.2/mtV for 2021.
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