Vanadium Resources Limited

Highlights:

• Arrowhead is initiating its coverage on Vanadium Resources Limited (Vanadium Resources, VR8 or the company) with a fair value bracket of AUD 0.16 per share to AUD 0.46 per share (Share Price on January 22, 2024: AUD 0.047) based on Relative valuation methodology.
• Vanadium Resources is an Australian company based in South Africa and Australia, specializing in the production and processing of vanadium. The company is currently focused on developing its flagship project – the Steelpoortdrift Project (Steelpoortdrift) and the Tweefontein Project (Tweefontein), located 15 km apart within the Eastern Bushveld Igneous Complex, Limpopo Province, South Africa.
• Steelpoortdrift is a Tier 1 project that is 86.49% owned by Vanadium Resources (Pty) Limited, a wholly owned subsidiary of Vanadium Resources. It is located in the Eastern Limb Bushveld Igneous Complex, Limpopo Province, South Africa, which is rich in advanced titaniferous magnetite deposits. Most of the technical work related to the project such as drilling, metallurgy, hydrogeology, and plant design has been completed and necessary development permits have already been secured.
• In April 2022, the Project’s mineral resource estimate (MRE) was updated to 680 million tonnes (Mt) at an average in-situ grade of 0.70% V2O5 at a cut-off grade of 0.45% V2O5, including measured mineral resources of 145 Mt, at an average of 0.72% V2O5. Additionally, the indicated and inferred resource amount to 327 Mt, averaging 0.70% V2O5, and 207Mt, averaging 0.68% V2O5 respectively.
• The ore reserves for Steelpoortdrift stand at 77Mt at an average grade of 0.72% V2O5. Of this, 30Mt are proved ore reserves at an average grade of 0.70% V2O5 and 47Mt are probable ore reserves at an average grade of 0.72% V2O5. The project will be executed in two phases:
  • Phase-1 (Years 1-4): It will be operational for the first four years at a mining rate of 1.6Mt of vanadium ore per year at an average in situ grade of 0.83% V2O5 which will be processed in the concentrator and SRL plant to produce c. 12ktpa of V2O5 flake. Pre-production capex will be around USD 211 mn.
  • Phase-2 (Years 5-25): It will include expansion and increment of mining rate 3.5Mtpa of ore at an average grade of 0.71% V2O5, increasing production to 3.5Mtpa of ore by an additional USD 188 mn, funded through a combination of free cash flows and available cash.
• The project is expected to produce a vanadium concentrate of 2.1% V2O5, which is one of the highest-grade vanadium available globally. The project’s definitive feasibility study (DFS), conducted in October 2022, showed strong economic results with Net Present Value (NPV) of USD 1.05 bn (at 86.49%) at a 7.5% rate, an Internal Rate of Return (IRR) of 42%, the life of mine (LOM) EBITDA of USD 5.2 bn, 27-month payback and an initial 25-year mine life.
• VR8 aims to become one of the world’s leading producers of vanadium pentoxide. It is targeting annual production of 10,700-21,000 tons of V2O5 flake per annum. The company is in discussions with several potential offtake parties and strategic equity investors for the project. Moreover, the company has also received several non-binding indicative term sheets from commercial banks, export credit agencies (ECAs), development banks, and non-bank financiers.
• The company is focusing on Steelpoortdrift development activities intending to commence production in H2 2026. The aim is to develop the project till the final investment decision (FID) (with an H2 CY2024 target) on the construction of a mine and concentrator facility at Steelpoortdrift and an SRL facility at Tweefontein.
• In May 2023, VR8 completed an AUD 5.91 mn strategic placement and agreement with Matrix Resources (Zhejiang) Co., Ltd (Matrix), allowing Matrix to negotiate an offtake, aimed at the Asian markets, of 40% of vanadium products produced from the Phase 1 operations of the Steelpoortdrift Project over a 10-year term.
• The company is listed on the Australian Securities Exchange (ASX) under the ticker VR8 and on the Frankfurt Stock Exchange under the ticker TR3.

This is an executive summary of Australia-based mining company Vanadium Resources from CEO John Ciganek, who will run you through Vanadium Resources’ slide deck.

Investment Highlights:

• Strong financials with attributable NPV of US$1.05bn, IRR of 42% and payback period of 27 months
• Competitive capex (US$211m) and lowest quartile opex (Cash cost US$3.24/lb)
• Long life project with excellent production profile – 25 years at an average of 19.4ktpa
• Established mining jurisdiction with significant infrastructure and expertise nearby
• Debt advisors appointed, positive engagement and discussions advancing with banks and other financial institutions
• Securing offtake and strategic equity – secured strategic equity & Offtake MOU from Matrix Resources
• Building a strong project development and execution team
• Significant upside potential with a range of opportunities and initiatives identified to increase value
• Securing debt financing
• Targeting first concentrate and flake production in H2 CY2026

Highlights:

• VR8 increases its interest in Steelpoortdrift by 4.59% to 86.49% (up from 81.90%) through completion of transaction with Math-Pin (Pty) Ltd (Math-Pin) 1, in terms of which Math-Pin sold its interests in subsidiary Vanadium Resources (Pty) Ltd (VanRes) to VR8
• Consideration for the transaction comprises a combination of cash (ZAR 2,930) and 8,092,810 Share Options to acquire VR8 Shares, which on exercise, will represent 1.48% of the issued share capital of VR8
• VR8 shares acquired by Math-Pin are subject to a voluntary escrow of 12 months and are also subject to a block trade arrangement to be managed by VR8
• The increase in the ownership interest to 86.49% has raised the Company’s attributable Post Tax NPV7.5% to US$1.05B (or A$1.62B2)

Highlights:

• Front-end engineering design (“FEED”) commenced, with a focus on the final detailed designs of the plants in preparation for tenders to be drawn up
• Planned Project delivery model expected to comprise multiple Engineering, Procurement and Construction (“EPC”) contracts over core elements of the operation, with oversight by experienced project managers to mitigate interface risks
• Project development workstreams progressing well with environmental and water applications advancing through approval process, Social and Labour Plan submitted to regulators, solar power design work and rope conveyor assessment underway
• Matrix and VR8 have reaffirmed commitments to enter into agency and offtake agreements, with negotiations continuing with potential financiers as the Company seeks to engage lead arrangers of construction funding solutions
• Strong interest in the remaining product from North American, European and Asian groups has seen the Company continue discussions with a view to securing an agency and/or offtake agreement, together with a strategic investment
• Global corporate advisory firm GC Partners Limited, headquartered in Hong Kong, appointed to assist with offtake and strategic equity processes underway
• Appointment of highly experienced financier Tim Feather as CFO to assist with offtake, debt and EPC discussions, which are key developmental milestones towards construction

POST QUARTER HIGHLIGHTS

• VR8 increased its interest in subsidiary Vanadium Resources (Pty) Ltd (“VanRes”) to 81.90% (up from 73.95%) following completion of the transaction with Obeec (Pty) Ltd (“Obeec”) – Remaining 4.59% held by MathPin Trust (“Mathpin”) under option, awaiting SARB approval (If approved VR8 will increase ownership to 86.49%)

Highlights:

• VR8 increases its interest in Steelpoortdrift by 7.95% to 81.90% (up from 73.95%) through completion of transaction with Obeec (Pty) Ltd (Obeec), in terms of which Obeec sold its interests in subsidiary Vanadium Resources (Pty) Ltd (VanRes) to VR8
• Consideration for the transaction comprises a combination of cash (ZAR 5,800) and 14,031,220 Share Options to acquire VR8 Shares, which on exercise, will represent 2.54% of the issued share capital of VR8
• VR8 shares acquired by Obeec are subject to a voluntary escrow of 12 months and are also subject to a block trade arrangement to be managed by VR8
• Transfer of a further 4.59% of VanRes Shares held by Math-pin2 to VR8 (increasing VR8 project interest to 86.49%) awaits approval from the South African Reserve Bank and the fulfillment of other conditions precedent, which transaction was renewed between Math-pin and VR8 with the aim of completing it on or before the 22 December 2023

HIGHLIGHTS

• Environmental authorisations and water use licence applications progressing well with approval expected H1 CY2024
• Social and Labour Plan amendments submitted to regulators for review after receiving clear community encouragement and support
• Front-end engineering design (“FEED”) commenced with designs and tender packages to be finalised ahead of Final Investment Decision (“FID”)
• Both VR8 and Matrix have reaffirmed their commitment to enter into agency and offtake agreements to achieve the outcomes envisioned in the memorandum of understanding concluded in May 2023
• Agreements to increase the Company’s interest in the project to 86.49% remain conditional with one awaiting South African Reserve Bank (“SARB”) approval and both being conditional upon the Company deciding, in its discretion, to proceed with the transactions.
• Environmental Impact Assessment for construction of Rope Conveyor between Steelpoortdrift and Tweefontein operations initiated
• VR8’s engineering and support team to be expanded to include a Concentrate Manager, Salt Roast Leach (“SRL”) Manager, Infrastructure (Power & Water) Manager, Contracts Manager, Mine Manager and HR Manager
• Various power and water solutions under investigation for provision to both the
• Steelpoortdrift and Tweefontein operations