Ferro-Alloy Resources goes to discount on first day

Ferro-Alloy Resources (LON:FAR) is the first new mining company to float on the standard list this year and it has a dual listing on the Kazakhstan Stock Exchange. It is already generating revenues and the cash raised will help to increase production and generate some cash.

Balasausqandiq is different to other vanadium projects because it is a sedimentary deposit with no iron included so the grades do not have to be as high as most rival projects in order to be commercial.

Balasausqandiq is estimated to have more than 100 million tonnes of resource, but only limited work has been done with the feasibility including a figure of 24.3 million tonnes. That will last a long time even if phase 2 of the development is completed and production rises to 22,000 tonnes a year.

Vanadium prices can be volatile and increased demand has sparked a recent price rise to $28/lb, followed by a sharp dip to around $16/lb in the middle of March. That still means that it is higher than March 2018 and double the levels for the previous nine years. A price of $7.50/lb is being used for long-term planning, but it is set to be higher than that in the medium-term.

Steel demand is growing, and the Chinese authorities have raised tensile strength standards so more vanadium is being used. Steel uses around 90% of vanadium produced.

On top of that is the potential demand for vanadium redox flow batteries for grid support. It is a type of battery that would be suitable for storing wind and solar energy.

The placing price looks a little full, so it is not entirely surprising that the share price fell to 55.5p (54.5p/56.5p) on the first day. There appear to have been at least ten trades with a total value of just over £43,000. Two trades account for the majority of this.

Ferro-Alloy will need to raise cash to start phase 1 of the full development and, although some will come from debt, a share issue is expected to raise around $27m (£20m) to contribute to the total cost of $100m. The volatility of the vanadium price could hamper this, depending on when the cash is required.

It is also important to note that the processing operations have only been proved in a pilot plant and there could be problems with scaling up.

Let the share price settle down before assessing the opportunity.


Ferro-Alloy Resources Ltd (FAR)


Vanadium miner and processor


Standard listing

Flotation date:  28 March 2019  

Issue price: 70p

Amount raised: £5.25m

Expenses: £595,000

Market capitalisation: £219.1m

Brokers: Shard Capital / Tengri Capital


What does it do?

Ferro-Alloy is domiciled in Guernsey but its operating activities are in Kazakhstan and centre around the Balasausqandiq vanadium deposit in Kyzylordinskaya oblast in south Kazakhstan.

The company floated on the Kazakhstan Stock Exchange in June 2017. On the Kazakhstan Stock Exchange website under the heading trades is the date 26/9/17, which suggests there has been little trading activity.

Balasausqandiq is estimated to have more than 100 million tonnes of resource. As well as vanadium, this includes carbon, molybdenum, uranium, rare earths, potassium and aluminium. However, there are five ore bodies but only the first has been significantly explored, so the resource estimate in the feasibility study is 24.3 million tonnes.

There is a concentrate processing pilot operation that is being used to test the proposed process to extract vanadium from the ore.

The steel industry is the main user of vanadium, but that is likely to change because renewable energy sources that are intermittent, such as wind and solar, require energy to be stored and vanadium flow batteries are a likely candidate for this.

Kazakhstan is a mining country, so infrastructure is good, and the project is near to a highway and electricity power lines. Ferro-Alloy is dependent on getting the government approvals and permits, although rules have been changed to attract more international mining companies.

The risks in the prospectus state that taxation regulations are evolving which could lead to problems. However, Ferro-Alloy has negotiated a nil corporate income tax charge until 2026 and there are no property taxes until 2024. Taxes on mining profit are still payable, but royalties are relatively low because they are based on the value of what comes out of the ground and not end products.

Balasausqandiq is currently producing 150 tonnes of V2O5 vanadium pentoxide and the plan is to expand this to 1,500 tonnes by the first quarter of 2020. This will take around one year. Longer-term, it is planned to increase production to 5,600 tonnes in phase 1 and then in phase 2 to 22,000 tonnes.

Phase 1 is a $100m project with $14m funded from internal sources and the rest from share issues and debt. There is enough cash to finance the initial development until the second half of 2019.

Phase 2 would take production to four million tonnes per annum. This is not expected to commence until 2022 and would cost $225m.


Small scale production is generating revenues and they have risen from $127,000 in 2015 to $1.13m in 2017. Overheads were much greater than any gross profit generated. In the nine months to September 2018, revenues were $3.26m and a pre-tax profit was declared.

In that period, there was $1.09m of cash generated from operating activities but nearly all this was taken up by higher trade receivables. There was $274,000 in the bank at the end of September 2018 and NAV was $1.66m.

The money raised in the flotation will fund expansion of the current operations and the initial costs of phase 1 of the mine. The total costs are $100m. A further $26m (£20m) will need to be raised via share issues, while $58m could come from debt and $14m from retained earnings.

Phase 2 will cost $225m on current estimates and management believes that it can generate enough cash from sales to fund this.

Of course, what cash is generated from operations will depend on the price of vanadium, but a conservative price level of $7.50/lb is being used in calculations. The costings assume everything goes to plan and the cash can be raised when required.


Nicholas Bridgen is chief executive and he has been a director since 2006. He trained as an accountant before going to work for Rio Tinto. He was finance director of Bakyrchik Gold, which had problems with its innovative extraction technology, and founder of Hambledon Mining.

Annual salary: $240,000

Andrey Kuznetsov is director of operations. He has been a director of one of the main subsidiaries since 2006. He was chief executive of the Kazakhstan subsidiary of Alfa Bank in 1995-96 and then there is a ten year gap in his details.

Annual salary: $160,000

Non-executive director Christopher Thomas is a former executive at advertising and marketing group BBDO and he was also a non-executive of Hambledon Mining.

Annual fee $30,000

Non-executive director James Turian has an accounting and trust background and he has been involved with several mining companies.

Annual fee: $30,000


The directors own nearly 43.2% of the company, with Nicholas Bridgen owning 20.7% and Andrey Kuznetsov 22.4%. The other major shareholders are Citadel Equity Fund with 13.4% and AM2 (Bermuda) Ltd with 4.99%. These shareholders maintained their stake at the time of the flotation.