Peter Epstein Blog | Delrey Metals, An Attractive, New Vanadium Player In Western Canada | Talkmarkets
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Delrey Metals, An Attractive, New Vanadium Player In Western Canada

Date: Monday, February 4, 2019 6:19 PM EDT

Delrey Metals Corp.’s (CSE:DLRY, FSE:1OZ) mandate is to create shareholder value by sourcing, financing & developing undervalued strategic energy metals properties & projects through staking ground or making accretive, prudently and creatively financed acquisitions & joint ventures / farm-ins. They’re off to a good start and have a clean balance sheet with just 34 million shares outstanding and cash of ~C$ 1.5 million. The market cap is about C$8 M = US$6.1 M. The Company is aggressively pursuing additional strategic energy metals assets, and have honed in on 2 or 3 in particular.

Delrey Metals has acquired 5 highly prospective properties in Canada. 4 are prospective for vanadium, for a total of 9,482 hectares, and 1 is a cobaltcopper-zinc opportunity that Cobalt 27 Capital Corp. acquired a 2% NSR on. All 4 vanadium assets will be receiving airborne magnetic surveys and geophysics in February. Subject to results, management will determine which properties to focus on. Both the Porcher and Blackie properties have unique features that if confirmed, will likely make them top priority targets for the next phase of exploration.

Early Days for the Canadian Vanadium Opportunity 

Interest in vanadium has grown along with the price. Demand from China continues to be the key driver. While the rest of the world grows at 2%-3% per year, a bad year for China is +6%, and its the 2nd largest economy on the planet. Not only does China use a tremendous amount of steel, it uses huge quantities or rebar which is used in construction & infrastructure building (and rebuilding).

Regarding vanadium pentoxide pricing, there’s been a lot of angst over the recent dramatic decline, but Chinese prices seem to be settling in around US$17/lb. The chart above shows a price closer to US$15/lb., but the price was US$16.90/lb. as of February 3rd. It topped out at nearly US$35/lb. in November, so the price has been halved from a 13-yr. high. Importantly, US$17/lb. is still a strong price, up from a low of US$2.35/lb. on 12/31/15. From $2.35/lb., the Chinese vanadium pentoxide price has risen at a 3-yr CAGR of ~93%. A price between US$15-US$25 is a sweet spot, too high a price and VRBs get priced out of the market.

Perfect Storm of Demand & Supply Fundamentals

Vanadium is primarily used (91%) to strengthen steel rebar, (2 pounds of vanadium added to a tonne of steel doubles its strength), last year China came out with new regulations for Chinese rebar makers– use more vanadium! However, reportedly, 30%-40% of Chinese rebar producers did not follow the regulation implemented in November, which was likely a big factor in the vanadium price crash. The increased demand from this initiative alone is estimated at 10,000 tonnes per year. That’s on a global market of about 90,000 tonnes. 10,000 tonnes/yr. is what Largo Resources’main mine in Brazil produces, one of the largest mines in the world.

Global demand for vanadium is also being enhanced by other internal moves in China, most notably a total ban on the import of slag and scrap (waste products) that contain vanadium. These waste streams had been used as feedstock for vanadium producers in China. The ban is expected to reduce domestic Chinese production by ~5,000 tonnes/yr

Quickly on the supply side there have been mine closures dating back to 2015 that are impacting the market. In 2015 a major Brazilian company liquidated, closing the Evraz Highveld mine, representing 10%-15% of global vanadium production. However, at the time the inventory of vanadium was high, so there was a limited price reaction. 

Fast forward 2-3 years, there have been other smaller mine closures in China & Brazil, and the above mentioned increase in demand, causing vanadium inventory to be drawn down substantially. Therefore, both sustained demand drivers and ongoing supply constraints help explain the price move from $2.35/lb. at the end of 2015 to a peak of nearly US$35/lb. in 4th qtr. 2018.

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