Sir Mick Davis is the man who made Xstrata a colossus during the mining boom of the first decade of this century.
He was in the running for the top job at Glencore but lost in a power struggle with the recently retired Ivan Glasenberg. Davis never left, however.
After leaving Xstrata, he put together a huge private equity war chest and continued to be heavily involved in the mining scene.
Background: Sir Mick Davis, the man who made Xstrata a colossus during the mining boom of the first decade of this century, invested in Ferro-Alloy Resources
Now he’s stepped back out of the shadow of private equity and made a very public investment in Ferro-Alloy Resources.
The reason? Easy. Ferro-Alloy Resources is betting on what is probably the most cost-effective vanadium project in the world, and global demand for vanadium is growing as its use in steel and new generation batteries continues to grow.
And while there is still a lot to be done at Ferro-Alloy, this is not exactly a company that is starting from scratch.
The company has been producing vanadium on site in Kazakhstan for several years. Given the current pricing environment, the company is projected to generate annual free cash flow of $ 10 million per year.
As for junior miners in and of itself, this is a pretty solid foundation to work on.
However, the cash flow does not come from primary mining, but from the treatment of secondary vanadium-containing raw materials such as the loaded catalysts with which vanadium is extracted in oil refineries.
Even so, there is also a lot of vanadium in the soil where Ferro-Alloy resides and plans to extract it are well advanced. The project is known as the Balasausqandiq Project and is large.
Even the fully explored first ore body is large by vanadium standards, and there are at least four others large enough to have a net present value of $ 2 billion, as determined by completed pre-feasibility studies.
What really sets Balasausqandiq apart is not the size or the existing cash flow, but the uniqueness of the ore.
This ore is believed to be an order of magnitude cheaper to process than the standard vanadiferite-titanium-magnetite ores from which most vanadium deposits are made.
While the cash value is conveniently billions of dollars, it looks like it would only cost Ferro-Alloy about $ 100 million to set up a manufacturing operation in Balasausqandiq, once production costs are up – under $ 2.00 – Dollars per pound – is at the lower end of the lowest quartile.
None of this is new, mind. Nick Bridgen, CEO of Ferro-Alloy Resources – a man with a lot of experience running mining companies in Kazakhstan – has been campaigning for this for some time.
What is new is that the arrival of Sir Mick Davis gives the project an irrefutable seal of approval.
In demand: The vanadium requirement is used in steel batteries and batteries of the new generation
“The Ferro-Alloy Resources investment case is compelling, has an attractive risk profile, and has many properties that are difficult to find in other mining investment opportunities,” said Sir Mick after announcing up to $ 12.6 million in investment Ferro-Alloys to invest.
“The Balausa Project has the potential to become the lowest cost vanadium producer in the world and deliver extremely attractive returns to its shareholders.”
Unsurprisingly, stocks on the news didn’t go up just a few percentage points to 41.5p, or £ 141million.
Of course, the strength of the share price isn’t just about Sir Mick confirming the quality of the project. Its arrival also has tangible benefits.
For one, the new money means Ferro-Alloy will be able to conduct a full, high quality, feasibility study without facing further funding pressures.
If all goes well, Sir Mick will move to Ferro-Alloyboard as chairman, which in turn will have its own implications for raising the capital needed to build the project.
Not that Ferro-Alloy was going to be the Mick Davis Show.
“The initial investment brings him to just over 20 percent,” says Nick Bridgen.
‘That is one of the attractions. We don’t give away the whole company. But we now have enough money and good credibility and can proceed without saving and saving. The future is in our hands. ‘
In about six months, the full feasibility study at Balasausqandiq should be completed to allow for a little give and take for the whims of the mining industry in the world of the virus.
During this time, the existing treatment operation will continue to drop cash, and Ferro-Alloy will do pretty well financially.
“Time is on our side,” says Bridgen.
‘There is no black hole. We don’t have a burn rate because the operation makes money. ‘
This dynamic means that Ferro-Alloy will not face any pressure in any financial negotiations, but rather its own expectations of good business.
And with Mick Davis on side, the chances of getting one look very good indeed.
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