Vanadium: metal of future and present.

Lithium has grabbed much of the headlines over the last few years when the subject of key metals of the future comes up. But more and more investors are paying attention to vanadium for the metals unique attribute of fitting in with two future growth stories.

First there is the metal’s application as a steel strengthener. Currently experts estimate that anywhere between 85% and 95% of vanadium demand comes from the steel industry. So if the global economy continues on its comeback trail, vanadium offers a good way to play increased steel production.

But looking into the not so distant future, the demand story could begin to shift from steel to the battery.

That’s because vanadium is increasingly being used in new types of batteries that experts expect to be taking a more prominent role in our electric storage needs.

Currently, the larger size of the vanadium redox batteries makes them less favourable to car applications than lithium ion, but the technology has been proving itself on the larger-scale energy storage front.

With faster recharge times, and significantly longer cycle lives vanadium redox batteries are being used as storage units for power generated by renewable energy sources such as wind and solar.

“On the grid storage front (for large scale applications) vanadium is making more than name for itself,” Jon Hykawy, head of global research at Byron Capital Markets. “We could see applications such as a sub-station in a downtown area that is augmenting power for a few hours a day in the not so distant future.”

Another application Hykawy is keeping an eye on is a battery that pairs vanadium with lithium which would have some advantages for batteries in hybrid cars.

But there are notes of caution in the air around the metal as well – one of which emanates from one of the world’s foremost experts on vanadium batteries.

Dr. Maria Skyllas-Kazacos, a professor at the University of New South Wales, was part of the team that invented the vanadium redox battery. Skyllas-Kazacos says, however, that the price of vanadium is critical to its long term usage in the battery industry.

Because the cost of vanadium currently makes up a large portion of the cost to produce vanadium batteries, she argues, pricing in the US$5 to US$8 per lb range would be ideal.

Vanadium pentoxide (V2O5) is currently trading in the US$7 per lb range.

But in order for the battery technology to really take off, greater amounts of secure supply will have to start coming on-stream.

Currently the bulk of supply comes from three areas: South Africa, north-western China, and eastern Russia. In 2007, the three countries mined more than 95% of the 58,600 tonnes of vanadium produced.

Of the three, China is the biggest player as it is both the largest supplier and consumer of the metal, accounting for 50% of global production.

But with much of China’s production goes into domestic consumption Russian steelmaker Evraz has emerged as the key supplier to the western world.

The company, which is part-owned by Russian billionaire Roman Abramovich, is already one of the largest vanadium producers, and was looking to get even larger with some key vanadium acquisitions before it was deemed to be trying to corner the market and reigned-in by the European Union trade commission.

Despite being thwarted on some key acquisitions Evraz is still the dominant player on the seen, and holds an especially tight grip on the supply of higher grade vanadium pentoxide which is used by battery manufacturers.

Given such a scenario It should come as little surprise that a growing list of Canadian junior miners have stepped in and are looking to develop the world’s next generation of vanadium mines.

Their projects range in geographies from Quebec to South America to Africa.

The Northern Miner takes a closer look at three names that investors could well be hearing more from in the coming months.

Apella Resources (APA-V)

While Canada is currently a marginal producer of vanadium, that could soon be changing thanks to Quebec’s significant stores of the metal.

Apella has emerged as the key way to play vanadium in Quebec by virtue of its two significant projects in the province.

Ironically, perhaps, it is the less developed of the two, Lac Dore that has gained more attention.

The deposit was discovered in 1955 and while no compliant resource has been released, it has been labeled as potentially the second largest vanadium deposit behind Xstrata’s Rhovan mine in South Africa based on historical drilling.

Despite that prospectiveness Apella has had to hold off on exploration due to a legal dispute with Quebec’s crown corporation, Soquem.

While Apella currently has nine claims to Soquem’s two, there are a further ten key claims in limbo.

Apella is looking to secure nine of the ten and hopes that a court ruling on the matter slated to come down in March, will go in its favor.

The claims it already has account for 65% of the prospective area, and the extra nine claims would give it control over 95% of the ground.

If it wins, Apella will have won for itself the rights to a zone that stretches over 10-km and is roughly 100 metres wide. Over that distance there are three key zones of interest, with the P2 zone considered to be the richest.

And while the company waits for a verdict, it is not sitting on its hands.

Around the same time that it was meeting with Soquem over the Lac Dore claims, another Quebec project came into management’s focus and in January of 2008 it acquired the Bell River project, which it since re-named Iron-T.

Free of legal hassles, Apella has been able to prove up an inferred resource of
11.6 million tonnes grading 26.5% Fe, 6.33 Ti02%, 0.40% V205 or 0.73% V205 equivalent.

Apella’s president and chief executive, Patrick O’Brien, says one of the key attributes of the deposit is the iron content.

“Chinese steel manufacturers blend vanadium with iron anyway, so to make a ship ready ore we would only have to separate out the titanium,” he says.

Early cost estimates put production of a ship ready vanadium-iron product at US$48 a tonne with a selling value of US$78 per tonne.

As for future plans at the site, the company plans to spend $5.7 million on infill drilling and step out holes that will test targets as far away as 3-km from the known deposit. It also plans to do geophysics over a western extension anomaly.

“From Apella’s perspective, we want to get two projects off the ground and into production.” O’Brien says. “The power and water, the rail is there and we’ll be producing ship ready ore.”

Largo Resources (LGO-V)

Another emerging player in the story is Largo Resources, which is developing the Maracas project in Brazil.

Acquired in 2006 the project has a measured and indicated resource of 23.2 million tonnes grading 1.27% V2O5, and reserves of 13.1 million tonnes grading 1.34% V2O5.

The current resource would be enough to run a mine for 22 years at 10 million tonnes of ferro vanadium production per year with capex of $212 million.

And Largo’s president and chief executive Mark Brennan believes those numbers could all be in for a significant shift upwards.

That’s because the deposit has an aeromagnetic strike length of 8-km by 2.5-km and is made up of three distinct trends each of which is roughly 3 km long.

“Our expectation is that we could double the resource with drilling by early in the second quarter,” Brennan says.

His confidence partly built on the fact that up until recently the company’s objective was not to find a huge resource, but to to define a reserve and bring the project into production quickly as one of the lowest cost vanadium producing mines in the world.

That development story is unfoldi
ng nicely as the company has progressed further than any other junior on the financing front.

In December of last year Largo announced it had signed a letter of Intent with Brazilian-based Vinci Partners that would see Vinci acquire the remaining 20% of Maracas for US$120 million in funding.

The company also has an off-take agreement in place with Glencore that covers 100% of production for six years based on prices from the metal bulletin.

As for where Brennan sees future production going?

“Largo has not focused on the battery market,” he says. “That’s not to say that we don’t like what we see, we do, and it gives us lots of hope about the future. But our focus is the steel market. Since 95% of vanadium production goes into steel that’s all we’re concerned with.”

Energizer Resources (EGZ-V)

Further afield, Energizer Resources is looking to push its Green Giant project in Madagascar into production.

The company released an estimate in January that outlined an indicated resource of 49.5 million tonnes at an average grade of 0.693% vanadium pentoxide (V205) and an inferred resource of 9.7 million tonnes at an average grade of 0.632% V205.

The deposit sits on a 21-km vanadium trend, of which Energizer has only drilled only 25%.

Unlike the magnetite deposits at Apella’s Lac Dore, Largo’s Maracas, and Xstrata’s Rhovan, Green Giant is a sediment-hosted vanadium deposit — a fact that has ignited some conversation around the project.

Energizer says the deposit gives the company a distinct edge over its rivals in that it can more easily produce a high quality end product.

“Our natural end product is a high purity vanadium pentoxide,” Julie Lee Harrs, president and chief operating officer of Energizer says. “A large deposit like this can provide the security of supply that the battery industry needs to bring new technologies into production.”

Since the kind of high purity vanadium product that Energizer hopes to be producing by 2014 is difficult to come by right now, Energizer could well enjoy a distinct advantage.

Higher purity V2O5 is currently being sold for anywhere between US$10 to $30 per lb with the wide range in price being due to Evraz controlling the market under the Stratcor banner.

“Right now battery manufacturers are prisoners to high quality producers and there’s not that many of them,” Lee Harrs says.

Green Giant, however, is not without its detractors. Byron Capital Markets currently has a sell recommendation on the stock because of concerns on the metallurgy side.

Jonathan Lee, a battery material analyst at Byron, isn’t convinced that the company has found a way to separate out non-vanadium materials from the vanadium in a cost effective way.

With alkaline roasting being the most expensive part of producing vanadium it is important to have a high grade and easily separable ore, Lee says.

Harrs disputes such conclusions.

“It’s a different metallurgical process than what others are doing,” she says. “People are not comparing apples to apples. They are saying magnetites need a certain process and that sediment-hosted deposits are not following that process so they must be having problems. But it doesn’t mean there’s a problem. It just means it’s a different rock so the process will be different.”

Harrs contends the company has had metallurgical success, with up to 82% vanadium recovery. The company plans to do additional metallurgical work within the next six months.