We can usually count on Dr. Kent Moors to come up with a bombastic big-picture tease for his latest favorite energy stock, and this one’s no different — though it’s less an energy stock and more a steel-industry stock.
The spiel for his Energy Inner Circle ($2,000/yr) tells us that this “dull gray powder” is critical to skyscrapers, jet engines, modern highways, power plants, hydroelectric dams, etc. etc. … and that “our strategic reserves of this gray powder are just about zero.”
And apparently there’s yet another catalyst coming… here’s a taste of the ad:
“Today, worldwide production of this mysterious powder is about 80,000 tons per year.
“Without a single additional ounce available anywhere.
“But on November 1, a new law called GBT-1499 will trigger a potential 40,000-ton shortage in supply.
“This 40,000-ton shortfall is half of what can be produced today.
“And it’s set to trigger a massive disruption in the global energy market, on par with the oil embargo of 1973….
“The price of this mysterious gray powder could hit the stratosphere.
“Today, a single pound of this powder sells for $18.50.
“But starting on November 1, prices could rise to as much as $182.
“A few years back, a much smaller shortfall of this gray powder – a mere 8,100 tons – sent prices soaring 881%.”
What else does he tell us? That this powder doesn’t trade on any commodity exchange, so you need him to tell you “how to get in on the action” … and that there are some massive demand drivers — he notes that Boeing’s Dreamliner, for example, uses “up to 22,000 pounds of this mysterious powder” and that Ford uses 6,000 pounds a day.
So with demand increasing and supply dropping, Dr. Moors thinks we have an opportunity to turn $1,000 into $29,940 “starting on November 1.”
And yes, he does eventually spill the beans and disclose that he’s talking about vanadium… which is indeed used in very small amounts to strengthen steel.
And yes, China is expected to demand a lot more vanadium in the future because of its new building code enforcement, which will reportedly require vanadium-reinforced rebar for future construction (I haven’t examined the original law, and I don’t know how strictly it will be enforced or if there are non-vanadium alternatives that could be used, but the vanadium demand story because of this rule change is widely reported).
Vanadium has also started to become an energy story in recent years, thanks to the appeal and possible future growth of vanadium flow batteries — and that is sucking up some of the production of the highest quality/highest purity vanadium… but vanadium is still very much a steel story at this point when it comes to real demand, and pretty much all steel stories right now begin and end with China — no one else is building new cities and infrastructure at anywhere close to the rate of the Chinese government, and those skyscrapers and bridges and dams are the marginal demand for steel in the world, which creates the demand for iron ore and vanadium and nickel and everything else that goes into making that steel. That’s why the bull/bear cycles for most metals have gotten so wild and volatile this century, the pricing for most metals was on an extremely long “keeping up with inflation” trend for decades before becoming whipsawed by bubble/bust China stories over the past 15 years or so.
So be careful what you wish for when you build your company’s production capacity because of “Chinese demand,” sometimes that demand isn’t as obvious and predictable as you thought.
But that’s not the point — we’re looking for a vanadium stock here, what else does Kent Moors tell us about his favorite secret stock pick? More from the ad:
“… current worldwide vanadium production is just 80,000 tons per year.
“Less than 1/10th of what China will need every single year!
“And production isn’t likely to go up any time soon.
“In fact, the most promising U.S. source of this critical mineral won’t come online until at least 2021.
“And even if every new mine works out, there STILL won’t be enough vanadium to meet booming demand.”
That “most promising U.S. source” reference is almost certainly to Prophecy Development (PCY.TO, PRPCF), though that doesn’t seem to be the stock he’s touting — Prophecy is looking to develop the Gibellini Vanadium Project in Nevada, which looks pretty appealing based on the preliminary economic analysis they released a few months ago but, of course, is not yet permitted or financed (which means even 2021 would be quite optimistic). They might find it easier to get financing thanks to rising vanadium prices, or could be bought out at some point, but Moors is primarily teasing someone else, an actual vanadium producer.
“By conservative estimates, vanadium prices could go up 300%… 400%… even 500%.
“But my number one vanadium play could do even better.
“For example, when vanadium prices rose 513%, this one play went up 2,164%….”
And then the hints get dropped about this particular vanadium miner that Moors is teasing…
“Deep in the South American jungle, just outside of the tiny town of Maracas…
“You’ll find a massive deposit of the most desirable form of vanadium – 99.6% pure vanadium pentoxide.
“Steel makers love this high-quality vanadium because it’s far easier to process – and delivers superior strength.
“V-redox battery makers need this 99.6% pure vanadium to create the grid-level energy storage we desperately need.
“And one tiny miner owns every ounce….
“Today, you can pick up shares for about $3.”
So that’s all the Thinkolator needs — this is, as you might have guessed by now, Largo Resources (LGO.TO in Canada, LGORF OTC in the US), which owns and operates the Maracás Menchen mine in Brazil and is probably the only readily available and producing “pure play” vanadium stock around (as with other key “strategic” smaller-market metals like cobalt, most vanadium is produced as a byproduct from other mines — primarily iron ore mines).
I mentioned this project a couple weeks ago when I was looking into another royalty company, Anglo Pacific Group (APY.TO, AGPIF), though I didn’t buy Largo or Anglo Pacific at the time (Anglo Pacific owns a 2.5% NSR royalty on the Maracás mine, which has been one of their better performers thanks to vanadium’s soaring price in recent years — I like the potential of that royalty, but wasn’t as crazy about the Aussie coal royalty that is by far Anglo Pacific’s most important asset).
Moors also cites something that I wasn’t aware of for this company, he implies that their offtake partner is paying a discounted price:
“In 2014, this miner signed a contract to sell 100% of their vanadium to a single buyer.
“At the time, vanadium sold for about $5.50 per pound. But the buyer agreed to pay a premium price of just over $8 per pound.
“That was a fantastic deal back then. Especially since production was just beginning to ramp up.
“But today, vanadium trades for almost $19.
“So this miner is leaving about $10 on the table for every pound of vanadium they pull out of the ground…
“Which keeps revenues artificially low – and the stock dirt-cheap.”
I don’t know if that’s true, and can’t find reference to it anywhere — the only references I see are to the “take or pay” offtake agreement Glencore made with Largo back in 2008, which was indeed for 100% of production for the first six years, with a six year renewal possible, but that didn’t specify pricing.
Production started about four years ago, so there’s a little less than two years to go on that offtake agreement — I don’t know what would trigger a renewal or a failure to renew, but, more importantly, I don’t see any indication in Largo’s documentation that Glencore is paying a wildly low price for that vanadium. It could be that $8 was the minimum “take or pay” price that Glencore agreed to get control of 100% of production, not the maximum. Largo’s revenue has gone up by about 150% in the past year, which is partly due to production increases but mostly, I expect, is from the increasing vanadium price… which must mean they’re not selling at $8/lb.
But still, Maracás is indeed one of the major vanadium suppliers in the world, reportedly accounting for something like 10% of global production, and some big suppliers have shut down in recent years while Maracas has been expanding production… and they do have at least 10 years of mine life expected, so it’s an interesting project. What makes it highly speculative is the share price, which has already reacted explosively to rising vanadium pricing and the excitement about Chinese demand and the anticipation of much more demand for vanadium flow batteries in the future.
Largo is valued at $1.6 billion now, and at a pretty crazy-steep price/sales ratio of 8 — not so typical for a boring old steel-industry miner… but if vanadium prices do keep rising, or even stay at these high levels, they will be extremely profitable with their operating costs of $4-5/lb. That could lead to earnings of close to C$0.50 this year, perhaps higher in the next couple years if they’re able to expand production while prices are high — or if they’re able to use the expiration of their Glencore offtake deal as leverage in some way. So it’s highly speculative because of the rich valuation and the wildly volatile vanadium price, which could turn on a dime with any changes in the Chinese steel market, but it’s an interesting speculation that is, for once, an operating company that is actually turning a profit.
So you know what? I’ll nibble a little. I’m looking past the fact that Dr. Moors has a pretty spotty record in predicting these huge macro moves in commodity prices (remember his uranium certainty from 2014-2016? Me, too), mostly because I see enough vanadium chatter to think there’s a decent chance that we’re still in the pretty early stages of a little speculative mania in the vanadium stocks. So, as I did with cobalt and rare earth minerals in years past, I’ll put a little bit of money into the two projects that I think are most likely to get sustained investor attention over the next six months or so, with the caveat that it could all fall apart quickly so I’ll keep my speculation small.
The upshot is that I’ve bought small tranches of both Prophecy Development and Largo Resources, with more in the latter — it could be that we’ve already seen the crazy speculative peak in vanadium (there have been several of those in the past), and that November 1 will be more of a “sell the news” event, in which case this would be a dumb time to buy… but usually these kinds of “rare resource” manias have some legs, and I am encouraged that Largo, at least, is turning a nice profit now.
That’s just me and my money, though — what matters to your portfolio is what you think, so let’s hear it… ready to speculate on vanadium? Are you way ahead of me and ready to sell into the mania now? More excited about batteries or about rebar? Let us know with a comment below.
Disclosure: As indicated above, I now own shares of both Prophecy Development and Largo Resources. I do not own shares of any other company mentioned above, and will not trade in any covered investment for at least three days after publication, per Stock Gumshoe’s rules.