Editorial: Vanadium shines bright amidst the gloom

While the world’s commodity markets and the broader stock markets weather a jittery season of lower lows and seething dread, there is one relatively obscure metal that is doing just fine, thank you: vanadium.

The minor metal that is a key ingredient in advanced steelmaking is seeing record price highs as we go to press in mid-November.

Three-year chart of vanadium pentoxide price in US$ per pound. Credit: vanadiumprice.com

A three-year price chart of vanadium pentoxide (V2O5) 98% flake at www.vanadiumprice.com (a website sponsored by Prophecy Development) shows a classic exponential rise from multi-year lows around US$3 per lb. V2O5 in January 2016 to an all-time high of US$33.40 per lb. on Nov. 20, 2018, for a 10 bagger that happened quietly on the sidelines of the mining industry.

And prices were below US$20 per lb. as recently as September. Apparently what has driven this latest step up in price is a new requirement in China that — as of November 2018 — steel rebar used in the country must have at least some quantity of vanadium to increase the rebar’s stiffness and improve building quality in the country, where building standards have lagged behind those in the West.

In short, vanadium-free, grade-two rebar is being phased out in China.

While 90% of vanadium mine production ends up in steel, the metal also has a role in large-scale battery storage technology, and can be lumped in with the other “battery minerals” lithium, cobalt and nickel.

Vanadium battery-storage technology is in its early stages, though, so the long-term impacts on vanadium demand are unclear.

Toronto-based Largo Resources is one of the world’s lowest-cost vanadium producers at its Maracas Menchen mine in Brazil’s Bahia State, where it produces high-purity vanadium flake and powder.

While some years in the recent past have been a struggle, the junior is beautifully positioned to reap the current vanadium windfall. In its latest third-quarter results before the fourth-quarter V2O5 price spike, the company reported net income of $71 million and record revenues and operating cash flows of $149.5 million and $113.4 million, plus record production of 2,563 tonnes of V2O5 — a 4% increase over the second quarter — or 3% of global vanadium mine production, which comes mostly from Brazil, China, Russia and South Africa.

Largo’s revenues are up 179% year-over-year, and it took an average US$19.66 per lb. V2O5 for its output during the third quarter.

Perhaps most impressive of all is Largo’s stock price chart, which dovetails with the V2O5 price chart. Largo shares bottomed around 18¢ in early 2016 and peaked at $4.62 per share on Nov. 14, for a 25 bagger over the two and half year period. Its market cap is now an astonishing $2 billion.

Five-year stock price chart for Largo Resources on the TSX. Credit: Google Finance.

The bane of investors in minor metals such a vanadium is that exponential rises in the metal’s price inevitably bring back online a flood of idled primary production capacity; by-product production at operating mines gets ramped up; and newly economic, low-grade deposits get hurried into development just at the moment the metal’s price collapses due to the sudden oversupply.

Vanadium is as vulnerable as any other minor metal to these kinds of sudden downcycles, with plenty of now-idled capacity in China standing at the ready, and lots of vanadium showing up as a by-product in a variety of uneconomic, low-grade uranium deposits.

So while investors who have made good money during vanadium’s remarkable run-up in November can enjoy a well-deserved moment of smug satisfaction, taking a bit of money off the table as the year comes to a close might be a wise move, too, in case vanadium’s 2019 is like cobalt’s 2018.