Valuing vanadium with Largo Resources CEO Mark Smith

Canadian mining company Largo Resources specialises in rare metals, in particular increasingly vanadium ore. Largo Resources CEO Mark Smith discusses vanadium’s green energy applications, the company’s Brazilian mine operation and the allure of rare metals with Molly Lempriere.


Rebar

The mining of specialist resources is a rare choice, with few vanadium mines in the world. Largo Resources believes that its Maracas Menchen mine in Brazil has the best ore grade of vanadium in the world and is excited about its success so far.

With an increasing demand for the resource, largely due to the success of the vanadium redox battery, the company is gearing up and determined to try and make this green alternative battery a success. But with the environmental cost of mining, can these batteries really be called green?

Molly Lempriere: Lots of people don't know much about vanadium; can you tell me a little bit about what it's used for? 

Mark Smith: I think the best thing to think about vanadium is rebar, because that's where 50% of the vanadium is used today. Rebar is of course used to strengthen buildings, roads and bridges, and give them much better seismic strength. So that is the thing I like to tell people about, so they can think about it and almost feel it.

The other thing would be tools. Vanadium is an element that makes steel harder, and so things like chisels and what-not that are made by tool manufactures a lot of the time have quite a bit of vanadium in them as well.

So those are probably your two largest uses, tools and rebar. I should mention though that it's used in numerous, numerous applications, those are two of the main ones but it’s almost ubiquitous in the economy because it’s used in so many places. Silverware would be another big thing.

It’s a very important compound and an alloy that is used in a vanadium-aluminium-titanium alloy used in the aerospace industry, and without that alloy planes can’t fly. It’s that simple. So vanadium is very important in some cases and just a real steel strengthener in others.

ML: It has been suggested that vanadium is as a strategic metal with green energy applications; could you expand on this?

MS: Vanadium would be considered relatively strategic in any countries that don't produce vanadium. If you think about the supply side of vanadium, you get Brazil, where we are, South Africa, China, Russia and those are your places where vanadium is produced in quantities large enough to get into the supply chain. Venezuela sometimes from an oil standpoint, although that's down by about 50% right now. So for any country that's not a producer of vanadium by definition it would be a strategic alloy.

But in terms of green energy, and this an exciting area for vanadium actually, it’s the vanadium redox battery [VRB]. It is a very large battery but it’s also a very efficient battery and it can absorb the energy from power storage, and it can also release the energy very quickly.

The reason that this is pretty exciting right now is a lot of governments around the world are asking for their power companies to get upwards of 20% in terms of renewable energy, of their total energy production. So this is very exciting because of all the renewable energy that's coming online, and the request for proposals for vanadium redox batteries is really skyrocketing right now. We've used more vanadium in vanadium redox batteries this year than the entire total amount combined for all the prior years. So it's really starting to take off.

"We've used more vanadium in vanadium redox batteries this year than the entire total amount combined for all the prior years."

Then as a supplier of vanadium like Largo is, we get very excited about this application because if you take a look at the vanadium redox battery industry and their forecasts for how much vanadium they're going to need for these applications it's going to be upwards of 25-30,000 tonnes V205 equivalent by 2020/2021. That's about 30% or 40% of the total supply of vanadium right now.

I think it's extremely exciting, because of the demand growth that comes with this VRB application, but I also think it’s imperative for us as suppliers – and Largo is very committed to this – that we have to figure out how to produce enough to make sure that industry is successful and can be competitive with lithium.

ML: The prices of vanadium and of steel in general are currently quite low; is Largo optimistic for its recovery?

MS: Well we are, and we use third party and independent consultants to help us understand the market. The big issue here is demand continues to grow, and even we'll say worst case it stays status quo, but the big issue is supply has really gone off a cliff. There's probably, we're going to guess, 15-20,000 tonnes per year less that'll be produced in 2016 than there was in 2015, and we think that number will probably actually go even lower in 2017.

So when you get that big a difference in supply and demand, I'm not an economics expert but I took enough economics in college to know what happens when that happens. All the trends are in the right direction.

ML: Earlier this year your Maracás Menchen mine hit a record amount of production and I think you did it again last month didn't you? 

MS: Yes we just did it in September, that's right, 806 tonnes.

ML: What do you put this down to?

MS: I'll start out with the people. Our operations people are as committed and passionate about success as you'll find in any operation in the world, and I'll compare them with anyone. I'm so proud of them.

But it all starts with a world-class resource. We have an outstanding resource, it's the world class resource for vanadium. It's got an ore grade that two to three times higher than the next best. So it's truly an amazing resource, it's very large and it's very rich. It's also very low in the contaminates that usually cause problems with vanadium processing.

ML: Vanadium is a very rare resource; do you have much competition?

MS: I'd say that we have good competition out there, the Chinese are the biggest producers of vanadium in the world, and they’re a very low cost producer. So that's our goal, we want to make sure that we are the lowest cost producer in the world. They've set a very high standard for low-cost production; we're beating that so we're very proud that that is our competition.

Glencore is also a competitor in South Africa; their ore grade isn't nearly as good as ours. But they have a very good process management team that produces their material, and they have experience. If they had better ore grade their cost would be much more competitive as well, but they've got a very good process team down there that really knows how to produce this material. 

ML: Has Largo benefited from its recent listing on the Toronto Stock Exchange? 

MS: There's no question it has, there's more people taking a look at the company because it's a bigger exchange. There are so many private equity funds and venture funds and sources of capital that could not invest in companies that were listed only on the Toronto Venture Exchange [TSXV]. So by graduating from the TSXV to the TSX we now are being seen by a lot of  people, and we're eligible to be purchased or people can participate fundraising because we have graduated up to the TSX, so it's opened up a lot of new sources of capital. Particularly in the United States because a lot of the United States institutional funds really have policies and rules where they couldn't purchase or participate in fundraising for venture exchange funds. Now we're big board TSX, they can participate. 

ML: Because you've got such a big, open cast mine, how are you dealing with the spoil and trying to make sure it is as environmentally responsible as possible? 

MS: That's a very important thing to us, we consider our ability to operate to be a form of a social license and we want to do our part to maintain that license. But by having a rich ore grade you naturally don't need to produce as much, or process as much material to produce the same pound of vanadium that anybody else in the world does.

"We end up only processing probably a third to 40% of what most people produce to ultimately produce one pound of V205."

Just because of the outstanding world-class resource we have, we end up only processing probably a third to 40% of what most people produce to ultimately produce one pound of V205. So we end up with a smaller footprint, we end up not having to move as much material so our use of diesel and gasoline usage is much lower.

Of course we follow all of the rules and regulations in Brazil and they are quite substantial, it's a very regulated but a very predictable permitting process you go through in Brazil. They have all the normal rules and regulations concerning how you build ponds to store things and double line them and we abide by all of that.

ML: Vanadium is not the only rare metal that Largos is focused on. Why do you focus on rare metals as opposed to tin or steel or others? 

MS: I've made my career in these types of metals and I like these metals. They're smaller metals that a lot of the bigger mining companies are not very interested in because of their size; they're just not big enough for the big companies to get interested in.

I like that size; I like the generally opaque markets for these metals. I mean we have prices that you can get through various subscription services and what not, doesn't really reflect what's going on in the market that well because most of these metals are contracted for on an annual basis and none of those contracts are of course reported by those subscription services. I like that, because I like being able to sit down with a customer and say, 'What value are we adding to your steel? What value are we adding to your aeroplane? What value are we adding to your rebar or your tools?' and talk about things from that perspective. [With commodities like copper and iron ore] it’s always a “What’s your cost to produce that pound and we're only going to give you a certain profit on top of that.” This is a much more value add business, and I like value add business.