The Vanadium Resources Ltd (ASX: VR8) share price jumped to a two-year high after announcing a bullish pre-feasibility study (PFS) on the Steelpoortdrift project.
The Vanadium Resources share price shot up 29.6% to 7 cents at the time of writing when the S&P/ASX 200 Index (Index:^AXJO) slumped 0.4%.
The junior miner excited the market as it reported that Steelpoortdrift could be worth US$1.2 billion ($1.6 billion). The valuation is done on a net present value basis using a discount rate of 8%.
Vanadium Resources share price jumps on $1.6bn project
Vanadium Resources owns 50% of the project, but that increases to 73.95% ownership pending final S11 governmental approval. The ASX junior does not have to pay anything extra for the increased ownership.
The company said that the PFS confirmed Steelpoortdrift's potential to be a large scale and low-cost vanadium producer. It also has competitive opex and capex metrics. The PFS has an accuracy of -15% to +25%.
Appealing fundamentals
The project requires US$200 million in capex at the start with a 25 month pay-back period. Operating costs are estimated at US$3.08 a pound of vanadium (V205) and annual production is forecast at 39 million pounds.
The current price of V205 is a little harder to work out as it isn't freely traded on an exchange, like copper.
But some experts are forecasting the mineral to fetch US$6 a pound on average this year (European prices, nominal) before increasing to US$6.80 per pound. This leaves the miner with room to make a decent margin.
What is vanadium used for?
Vanadium is used to strengthen steel and is prized for its toughness. This makes vanadium steel alloys ideal for nuclear reactors, aircraft carriers, industrial grinders and construction tools and equipment.
The metal is also leveraged to the surge in demand for batteries as the world moves towards greener energy sources. Vanadium redox flow batteries are generally used for storing grid power.
Vanadium Resources share price plugged in to renewables
This is a hot space for investors. You only need to look at the Pilbara Minerals Ltd (ASX: PLS) share price and Galaxy Resources Limited (ASX: GXY) share price to see that.
These lithium miners have surged by between 300% to 500% over the past year. In contrast, the Vanadium Resources share price has jumped by 250%.
But price volatility for Vanadium Resources can be quite extreme given its market cap of around $20 million and general lack of liquidity.
On the other hand, this is sometimes seen as a positive by some investors.
