Ferro-Alloy Resources (LON:FAR)

Ferro-Alloy Resources plc (LON:FAR) Chief Executive Officer Nick Bridgen caught up with DirectorsTalk for an exclusive interview to discuss increased production figures, how this fits in with the wider context of the business and what’s to come in the rest of the year.

Q1: Production figures for the first half of 2023 now published which show a significant increase in all products, what’s been driving this increase?

A1: This is really the fruition of the big programme that we’ve been undergoing for the last year or so, where we’ve increased the capacity and, probably more importantly, we’ve increased the recovery of all the different contents of the materials that we buy in.

Just to repeat what’s in the announcement, tonnes processed are 95% up on the average, I’m talking about the last quarter, not the whole year so April-June quarter, 95% up in tonnes processed, 85% up in v205 recovered, that’s vanadium pentoxide and molybdenum up 57%. So, yes, we’re delighted really that the hard work we’ve put in and the investment is starting to pay dividends.

The quarter wasn’t without problems, we’ve signed a lot more contracts for buying in these concentrates so a lot of them were disrupted by COVID and Ukraine and we’ve had shortages.

So, we signed a lot more contracts and, in that quarter, they were starting to come in but not fully so there is more good news to come, I hope and we’re expecting to have the full amount that we need from August onwards. So, things should be good.

Q2: How does this fit into the wider context of Ferro-Alloy Resources’ business?

A2: The biggest part by far, of course, is our project, the Balasausqandiq project, which accounts for about 96% of our projected NPV.

This small project is important for financial and non-financial reasons but not part of the big picture, obviously it’s what feeds us, it should make decent profit that will pay for the ongoing work that we have now. It also gives us 300 employees who are ready to help with the feasibility study, help with the construction and a team of people who know what they’re doing, ready for commissioning of the big project.

The big event at the moment is the feasibility study for the project which should be done by the end of thus year, and that will let us move into financing and start of construction next year.

Q3: What’s the prognosis for the rest of this year?

A3: Like I said, there’s probably more good news to come because although we’ve been signing these new contracts, as they come to fruition, we’ll get more concentrates in, we’ll be able to use our production capacity better in the second half of the year.

We’re expecting really a good second half for the existing production and, as I said, the feasibility study of the main project coming in this year too. Somewhere along the line, we’ll get the results of the exploration of ore bodies two to four which will actually feed into phase II of our development plan but that also should be a significant event.

So, a good interesting second half year to look forward to for Ferro-Alloy Resources.

Ferro-Alloy Resources plc (LON:FAR) Chief Executive Officer Nick Bridgen caught up with DirectorsTalk to discuss their trading update, a step change in 2023, grant to make VRFB and the progress of the feasibility study.

Q1: This RNS, it’s mainly about the existing operation, how important is this to the big picture of Ferro-Alloy Resources?

A1: It’s important and not important. In broad numbers, it’s insignificant because 96% of our projected value, according to our projections, comes from the main project and only 4% from this existing operation.

On the other hand, it’s very important as it feeds us, it’s going to be making money which means that we don’t have to raise more money to do the feasibility study and frontend engineering, and it’ll reduce the money we need to raise.

Even more importantly, it gives us the knowhow, the experience. We’ve got 200 employees that all know what they’re doing and they will switch seamlessly into the big project as we build it. So, it greatly de-risks the big project.

So, it is important but in the grand scheme of things, perhaps it’s not so important financially.

Q2: The RNS says that 2023 is likely to be much better than 2022, can you tell us what’s going to change?

A2: 2022 was a pretty dismal year for us for a number of reasons.

First, mostly to do with the world politics, at the beginning of the year we were recovering from COVID and all the transport links we disrupted and everything was expensive and delayed. Then, of course, we had our own riots in Kazakhstan which produced a bit of a delay, and then we’ve had the Ukraine invasion which has upset all our transport routes. All in all, we’ve had a pretty bad year.

2023 is going to be a step change really, chalk and cheese change. Not only do I hope that the world political situation will recover, it is already recovering and it’s a horrible thing to say but the world is learning to live with Ukraine transport routes, the costs are coming down. Because we know our existing suppliers have problems, we’ve doubled up, we’ve got a new contract with a new supplier so the concentrate shortages should be a thing of the past, and we’re recovering a lot more value from each tonne treated.

Coincidently, almost all the big projects came on line at the end of last year, or very early this year, in that we’ve doubled up the moly circuit so we’re capable of recovering up to the double the amount of moly, obviously it depends on what’s in the concentrates. Moly, the price has gone through the roof, it’s about 2.5 times where it was at the beginning of the year. We’ve got a new press-filter which means we can do a second pass recovery of vanadium, get a few more percent recovery and we’ve got what we call a dissociation oven which means we can convert the AMV to V2O5 which gets us slightly higher price. We’ve also got the nickel project on line, the residues from all that we’ve done already is low grade nickel concentrate and we’ve now put the kit in to raise it and get a much higher value for it.

So, really, in very round simple terms, doubling the amount of concentrates and doubling the revenue from each tonne we treat so it really is a radical change and I’m very optimistic for 2023.

Q3: You’ve received a grant to make electrolyte for vanadium redox flow batteries, first of all can you tell us what these batteries are, and then what this means for Ferro-Alloy Resources?

A3: This is interesting. First of all, there is no market at present for this material in our area so this is all about positioning. We announced some time ago that we had the technology to make the oxides of vanadium that are used to make electrolyte, in other words to make electrolytes.

What vanadium redox flow batteries are, to give them their full title, is a form of battery that is suitable for bulk and long term energy storage, they’ll never be used in cars or mobile phones, that’s all lithium-ion territory. They’re big heavy things with liquid sloshing around in them but they are the front running technology for this bulk energy storage so if a grids is dependent on solar or wind, it needs battery storage to make it available 24 hours a day.

It is the front running technology, there are other technologies, there’s no guarantees in this but what we’re doing is positioning ourselves to take advantage of this market. We’ve got the technology, we’ve proven that previously, and now we’re doing a project with a local university department to make the electrolyte, sell it and get ourselves ready.

Because electrolyte has got vanadium in it but it’s also got a lot of water and sulfuric acid, there’s no point in shipping water and sulfuric acid around the world, that’s a dangerous cargo. So, as this technology takes off, I envisage that we’ll become a regional supplier for all those batteries that come within our range.

I could be a huge market, there’s no guarantees, people have been forecasting this for a long time and it’s taking longer to take off than people thought but it’s very exciting for vanadium and therefore for us if it does take off. So, we’re positioning ourselves ready to take advantage of that market. Of course, the big benefits will come when the big project is on stream, we’ll have much more capacity, but this way we get all the knowhow and we can develop the market ahead of time.

Q4: Where are you up to with the feasibility study?

A4: Of course, this is the important question. As I said, 96% of our value projected is in the big project, really, things take a long time but we’re getting there.

We’ve finished the drilling, we’ve completely finished ore body one so that is now with SRK, our consultants who will do the new reserve and that will come out around the end of next month, may be the next one if they’re slow about it. Ore bodies two, three and four, the drilling has been done all bar an area that’s difficult to access so we’re going to see what the results are to date. If that gives us enough ore reserve then we’ll stop but we have the option to drill a bit more of ore bodies five or six instead. We’ve got lots of ore bodies, we’ve got huge amounts of vanadium, more than we’re projected to use up in our phase I and our phase II developments so that’s in hand.

That will prove what we already know, that there’s a huge deposit here, and of course the metallurgy is progressing, that’s quite long winded nowadays, you need to do all the basic testing, the variability testing and that’s in progress. That will be announced over the next 2-3 months, I guess so we’re getting there, projected to be in the last quarter of this year, to be announced.

Ferro-Alloy Resources Ltd (LON:FAR) Chief Executive Officer Nick Bridgen caught up with DirectorsTalk for an exclusive interview to discuss interim results, progress of the feasibility study, producing bi-products, existing operations, effects of the Ukraine invasion, the £8.2 million placing and what we can expect in the future from the company.

Q1: Nick, Ferro-Alloy Resources released interim results yesterday. Could you talk us through the period under review and the operating highlights?

A1: Well, the first thing to say of course, is that the main activity and the main driver of the value of our company is the feasibility study on the Balasausqandiq project. So, to that extent, the operating results are not so very interesting, but nonetheless, we’ve made good progress.

We made 95% increase in vanadium production, 150% increase in turnover compared with the same half last year, both of those really reflect the additional capacity we’ve put into the plant. We started making ferro-molybdenum for the first time, which gets us much, much more value for our molybdenum and I have to say there’s a lot more to come on the tweaks in the fourth quarter of this year but nonetheless, good progress.

Nevertheless there were some headwinds that made us a little bit disappointing and disappointed in the year. Raw material supplies were affected by the tail end of COVID and there were lots of transport delays, really as the world came out of COVID and put pressure on the transport systems and shortage of containers and such like. Ukraine caused that to change route on various of our routing and gave us some payments delay.

So, there were altogether quite a lot of headwinds that mean we didn’t quite achieve what we wanted to achieve, but in terms of the plant, it really is almost there. We’re waiting on a couple of deliveries from suppliers that will really unlock the value of this current business.

Q2: Now, you mentioned the feasibility study. What is the latest there and when can we receive any results from the study?

A2: Of course, feasibility studies in their nature tend to be backend loaded and you get all the results towards the end, but we’ve almost completed the drilling programme, there’s a little bit left that’s difficult to access that we’re pondering what to do, but it’s nearly completed.

We’ve got some assaying to do, which will take quite a while but by around the end of the year, we should have the results and the new resource estimates which shall be exciting because we’re drilling for the first time ore bodies, two, three and four. So there’ll be a very large increase on the resource and reserve that we’ve already been quoting.

Metallurgy, we’ve done enough of it to know what the recovery into leach is, that’s how much gets dissolved into the liqueurs and that’s the main recovery number, that’s 93%  plus, which of course we knew because we’d operated a pilot plant, but it’s good to have it confirmed independently.

So, the two biggies, the resource and metallurgy will be coming out around the end of the year and those are the main determinants of the value of the project.

There one other exciting thing to look forward to, and that is the carbon. We’ve been doing a lot of work on the carbon, now about 14% of our ore is made up of carbon and it seems to be a potentially high value form of carbon in that it’s physically and chemically the same as carbon black. Now, carbon black is a very valuable, expensive form of carbon, it’s characterized by having a very small particle size and large surface area, and it normally is used as a filler in making rubber, it’s what makes tires black and it’s a $20 billion industry worldwide.

What we’ve proven now with a specialist rubber university and some work of our own is that we can make a concentrate of that carbon and that concentrate can be used as a substitute for carbon black. Obviously, ours is about 40% carbon, and it has other things in it, but nevertheless, we’ve proven that it can be used in substitution with no degradation in performance of the rubber. So, that opens the door to us to a much higher value outlet for this carbon than we were previously assuming and, in fact, if you value it on a substitution basis, for the value of the carbon black that it replaces, it is a co-product and worth the same or more as the vanadium. It’s oil price dependent so it doesn’t fluctuate quite a lot but it is a high value form of carbon.

So, so that’s the only material change and that’s significantly upwards from what we already knew about the project.

Q3: The statement talks of valuable by-products that will be produced, what does this mean for the company?

A3: Like I say, we haven’t had any commercial negotiations on the carbon. Carbon is by far the most significant of what we used to call by-products, but as I say, we may have to rename as a co-product. We’re also going to recover a little bit of uranium, molybdenum, aluminium and potassium in the form of potassium alum, that will all be coming out in the wash, but they’re relatively insignificant.

Q4: What developments have been made in the period on the existing operations and how is it impacting production numbers?

A4: Well, as I said at the beginning, we have a very big increase in throughput compared with the last year in spite of those headwinds so I think when we are forecasting, we assume that without these head headwinds, life is settling down, I know Ukraine is still going on, without those headwinds, we are looking forward to another say 50% increase in throughput compared with the first half of this year.

The main things that we’ve been working on, a new molybdenum recovery circuit, which will greatly increase the amount of molybdenum that we can recover from each tonne we treat and a nickel concentrate line, which will enable us to get much closer to the full value of the nickel content of the raw materials that we’re treating. I should say that as part of the nickel project, we will repulpate the material and that will give us a second stab at a vanadium recovery so we’ll will increase the vanadium recovery as well.

So, what we’re talking about is more than doubling the amount of valuable metals recovered from each tonne that we treat so with very little increase in cost of sales, we double our revenue, which is why the plant suddenly becomes a lot more profitable after these tweaks.

We’ve done all this work, but unfortunately, we’re waiting on a couple of bits of kit, more resin, and that’s holding things up but we expect to be away sometime in the fourth quarter. So, by the end of the year, we’ll have this plant on song, doing everything we wanted it to do and look forward to good results from the end of this year onwards.

Q5: You mentioned Ukraine, how have operations been affected by there?

A5: Of course Ukraine is a long way away so there’s no direct effect at all. The issues have been our larger bank payments have been held up, really as banks check on all the reasons, and of course, some of our payments have convoluted routing so we have our own bank asking questions, the correspond bank asking questions and the recipient bank asking questions. So, that did delay as one of our very important payments for raw materials was held up by more than a month.

The main worry is on transport routes because if you look at the map of Kazakhstan, you can see there’s mountains between Kazakhstan and China with limited passes through to the south of the other ‘stans’ if you like, the Himalayas and to the west is the Caspian. So, the bulk of transport in and out of the country goes through Russia, now those other routes are being expanded so the danger is not significant and, in any case, there has never been any sanctions to stop goods transiting Russia, and then entering Europe. It’s more of a worry than a reality, certainly there were some delays and certainly transport costs have risen significantly although how much of that is due to Ukraine and how much of that is due to the world economy starting to get going after the COVID shutdowns, it’s hard to say.

No direct effects, certainly Kazakhstan plays a very good political game, being friendly with everybody, with China, with Russia, and with the West so we don’t expect any repercussions directly, but transport is the one to watch. That I suppose is underlying why we’ve done this capital raise.

Q6: So, it was placing yesterday of £8.2 million, what are the funds to be used for and how far will the funds get you?

A6: The rationale is this, we’ve had these headwinds this year on the small plant, which means that we’re slightly behind on our cash flows to pay for the feasibility study and we don’t really want to delay the feasibility study. The Balasausqandiq project is 96% of our value, we don’t want the tail to work the dog, we want to make sure we have enough money to do a really first class study on time and get on with this project. So, we could have gone slowly and slowed down the feasibility study to suit the cash flows that we have, but we decided to properly fund it so that it can get going whatever headwinds, whatever geopolitics can throw at us and that gets going.

Of course, the money that we make from the small plant, we still do expect to make a lot of money out of this small plant, $10 million a year is the target for when these last tweaks have been implemented. That money will go onto front end engineering and perhaps early lead time, it would allow us to really accelerate the project. If we can get this project in six months earlier, it will have been worth the raise so that’s our objective and that’s the reason.

Of course, the money is going on to the expanded feasibility study and will enable us to staff up and get the right people on board, ready for the project and some things like that. The main objective is to ensure us against whatever headwinds might afflict us on this small plant so we are not held hostage fortune by the outcome of this small plant, which is only 4% of our projected NPV.

Q7: Finally, what can we expect from Ferro-Alloy Resources in the future?

A7: We’ve got a really quite exciting 12 months ahead of us. We’ve got all these tweaks to the small plant, that I talked about, they’ll all come on and we’ll be announcing them as they happen in the fourth quarter. The feasibility study results on the metallurgy and the new resource estimate which should be a big increase on the old one and then the feasibility study itself is due out around the middle of next year.

So, quite an exciting time for the next 9/10 months and then of course the project to come after that.

Ferro-Alloy Resources plc (LON:FAR) Chief Executive Officer Nick Bridgen caught up with DirectorsTalk for an exclusive interview to discuss the $7 million further investment from Vision Blue, feasibility study, main developments over the past year & new developments going forward and the movement of vanadium prices.

Q1: Nick, you’ve received a further $7 million investment from Vision Blue on an accelerated time scale. What does accelerated mean and why did Vision Blue do it?

A1: We announced the investment agreement with Vision Blue in March and it was envisaged in that there was an initial amount which added up to $3.1 million and then there was a subsequent amount. It was an option of Vision Blue, to invest a further $7 million within three months after us obtaining certain formalities in Kazakhstan, which we thought would take three months to get. So, we envisioned it taking six months from then.

We got our formalities done very quickly and Vision Blue decided not to wait to the end of their period, but to invest straight away, we have a commonality of objectives, everyone’s happy with progress so no reason to delay.

Q2: So, what does it mean for your development?

A2: Well, it means we can get moving with all the things that we want to do faster than we would otherwise have been able to which is fundamentally good news.

The main objective is the feasibility study, the project is what we’re in business for, 95% of our NPV as we’ve said many times before, and this money will let us do a much better feasibility study. It’ll have a broader scope, it’ll cover phase one and phase two, and very importantly, it’s going to let us drill.

We have enough resource to do phase one and we’ve got another four ore bodies after the first ore body that we always knew would be there to do phase two, but those other ore bodies haven’t been drilled to a JORC standard. We’ve already got a reserve on a Kazakhstan basis, but on a JRC basis, the rules are slightly different in we haven’t had it so we’re going to be able to drill those out and do the infill drilling and get those five ore bodies, or certainly four of them, onto a JORC basis as a declared resource with a reserve after the mine plan. Everyone knows we have a huge resource, but it will get it stamped on a piece of paper and that will be big news. So, that’s the main thing we want to get going on.

We’re then going to do some tweaking on the small plant. The small plant is not important in the grand scheme of things, it’s only about 5% of NPV but it’s very important as a steppingstone and will provide cash to help develop phase one. So, it’s really very hopeful, and of course the main purpose as I’ve said before is building the expertise and we’ve now got a really, quite sophisticated operation going in the middle of the wilds of Southern Kazakhstan in the step.

We’ve got now a very professional team, very advanced processes and we want to capitalise on that and then that will provide all the expertise going forward when we develop the big project.

Q3: Now, you’ve also issued your annual report. Obviously, you’re still very much in development mode rather than a steady state, can you just talk us through the main developments over the year?

A3: Like I say, development mode, we’re focusing on the project but the small plant is feeding us, we got a very solid 56% increase in production over the year, it sounds good and it is good but we could have done an awful lot better if we hadn’t had certain headwinds against us. The main one being COVID, which restricted our raw material supplies and we had power interruptions early in the year, we’ve now built the power line that will fix all that and of course prices were very low throughout the year so we had a lot of headwinds but solid progress.

On the ground, actually not coming through in the results is some really significant improvements. Production capacity is very much higher than the production we actually achieved because of those restrictions on raw material supplies, we introduce a new roasting line to treat a different type of raw material so it gives us a lot more flexibility what we can produce. We’ve introduced a molybdenum by-product, which is a by-product coming out of the same raw materials and therefore it’s just incremental revenue, about 25% of our revenue, so that’s very effective. We’ve increased the leaching and filtration capacity and, as I said, we’ve put this power line in place, that’s a $2.5 million project that’s completed, we’re just waiting to switch it on which will happen fairly soon.

So, we’ve done a lot of the hard work on this plant and it’s ready to make hay now that the prices come back, raw materials are now arriving and are on site, we’ve now got quite a stockpile and the plant’s in extremely good shape. Last year was really the hard work and from now on, we should be reaping the benefit.

Q4: Just thinking about the future, what are the next developments you expect over the next year?

A4: I think from a news reporting point of view, the share price drivers, the big news will be the drilling programme and that’ll happen over the next six/nine months and we’ll be announcing that as we go along.

We already know pretty much what’s there, the ore bodies are extremely regular, we know the outlines of them, there’s just not quite enough in depth information to plot the geometry. So, as that gets confirmed and reported on a JORC basis, will be a big driver because it will prove, we already say it, but it will absolutely prove that we will have a giant, huge world-class resource. Of course, for all the reasons I’ve told in previous interviews, it’s a very low cost resource to develop in terms of capital and operating costs so it’s not only big but it’s got the cost advantages too so that will come out.

The developments on the small plant will come out, they’re less important in the grand scheme of things but nice to talk about. We’re working on lots of things to increase the scope of what we can produce, increase the difference by-products so we’ll get more value out of each tonne treated.

We’re going to put an electric arc furnace in which will mean we can make ferro-nickel and we’re getting going on making ferro-vanadium and ferro-molybdenum.

So, there’s a lot of incremental good news on the small plant and the feasibility study results as we go along on the big project, which is of course the main game.

Q5: Now, you touched on the vanadium price, how do you see that price moving?

A5: Its well-known two big drivers, both in a way related to the greening of the economy and reduction of fossil fuels. The traditional one, steel, add a kilogram of vanadium to a tonne of steel and you can almost double its strength which means use half as much. Making steel is a huge user of fossil fuels, a huge single pit on world energy is making steel so much of the world economy depends on steel, it’s very, very important. So, vanadium has a big part to play in reducing that amount of steel, reducing fossil fuels and of course it’s an economic no-brainer because if you can half the amount of steel you use in a given application, then you’ll save money because saving half the cost of the steel is a lot more expensive than that kilogram or two of vanadium that that’s needed to achieve it. That has been a growth factor for many years now and the intensity of vanadium used in the world per tonne of steel used in the world has been rising and driving the vanadium industry.

On top of that, we’re now layering another factor which could – estimates vary – at an outside double the amount of vanadium the world needs and that’s Vanadium Redox Flow Batteries. They’re just getting going, but they seem to be getting going very strongly and in the vanadium industry, because it’s small, isn’t much stock holding, a little increase in demand can greatly affect the price, as we found 2018.

The price is going to be strong, the pressure is upwards but vanadium is in abundant supply in the world but it’s all in the form of magnetite, which is very high cost to develop. If you look where the world is going to get its vanadium from, it can get it from these high cost magnetite projects which need a price of $10/$12/$15 per pound to support it, or it can get it from us. We’re very happy with today’s prices which are $8.5/$9, in fact, our forecast production cost is down at not much over $1.5.

The world needs us to supply this vanadium without making it prohibitively expensive for flow batteries and all that demand is going to underpin the price of vanadium. I think it’s in everybody’s interest that they should be stability in the price of vanadium so that the flow battery industry can get going without having the stop start caused by the 2018 peak when vanadium went up to $30 a pound, compared with its usual price of $6/$7/$8.

So, I’m looking forward to stability, I’m very happy with today’s price, the pressure is going to be upwards and we have a deposit that can really be expanded, that there could be a phase two, phase three, phase four, and we will run with whatever demand there is.