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Commodity Investing

Investing in Vanadium


Vanadium (V)

The Metal That Inspired Henry Ford

In 1905, Henry Ford came across a remarkable metal that helped him to single-handedly revolutionize the budding American car industry.

After a car race in Florida, Ford examined the wreckage of a French racecar. He realized that many of the French car’s parts were made of a peculiar metal.

It was much lighter, and stronger, than the metal being used to build American cars. So Ford – seeing the opportunity to drastically cut material costs in his automobiles – rushed a specimen back to his laboratory. And it didn’t take long for Ford to learn that the French alloy steel contained one truly unique element: Vanadium.

Thrilled with the potential for using this low-weight, high-strength steel in his products, Ford rushed to finance and set up his own steel mill to make vanadium-alloy steel. And then, in 1908, he began using the new vanadium-alloy steel in the chassis of the time-honored Ford Model-T – reducing its weight to about half that of contemporary automobiles.

There’s no doubt that Ford’s assembly line process enabled the mass production and consumption of the Model T. But it was Ford’s use of the vanadium-alloy steel that gave American consumers a superior product – lighter, stronger and more affordable.

The fine even distribution of the elements – the uniformity of structure indicate the superior quality of vanadium.” – Henry Ford, 1910

Metallurgical technology has rapidly advanced since Ford’s time. New processes are continually being developed to improve the effectiveness and benefits of using vanadium as an alloying agent in steel.

And today, this exotic metal has become of the best steel strengtheners known to man. With modern processes, just 0.1% vanadium content in steel can double its strength.

Lightweight, high-strength alloy steels allow producers to build superior products with less steel, saving significant material costs. And in the coming years, significant increases in vanadium-alloy consumption are forecast as global industrial producers fiercely seek costs-saving measures while retaining quality.

Vanadium isn’t a significantly rare metal – being about two or three times more abundant than copper. But like many other minerals, high concentrations that are economically feasible to mine are only found in a few places. Most of the world’s vanadium reserves are isolated in only three countries: China, South Africa and Russia. Less than 3% of the world’s resources of vanadium is located elsewhere.

Investing in Vanadium

Vanadium: Raging Opportunity for Growth

Vanadium demand is directly linked to global steel consumption – with 90% of world vanadium production consumed by the steel industry, which is poised for strong growth in the future.

Last year, all major steel-producing countries showed increased steel output. The World Steel Association recently reported that global crude steel production reached 1,527 million tonnes in 2011 – a record for global crude steel production.

World Steel Production

This year, the World Steel Association forecasts global demand will increase an additional 6% to reach a new record over 1.6 billion tonnes. And the demand for vanadium should be rising with it.

In its 2012 Mineral Commodity Summary, the USGS agrees, saying, “Given the increase in steel demand, especially in China, it appears likely that, in the near term, vanadium demand will be strong.”

Increasing Global Vanadium Demand

Over the past decade, the demand for vanadium in the United States has increased 56%. And estimates suggest that vanadium demand is expected to continually grow at a compound annual rate of 7.8% through 2015, fueled by increasing demand for stronger and lighter steel alloys.

U.S. Vanadium Consumption and Prices

With increasing demand and relatively low current prices, vanadium shows interesting investment fundamentals. But, unfortunately for us as investors, getting exposure to this strategic metal can be a bit tricky.

Unlike many other commodities, there are no specialized vanadium ETFs, pool accounts, futures trading, or other funds dedicated to vanadium. Instead, buyers and sellers of the product negotiate privately, leaving only a small handful of alternative investments for us.

Investing in Vanadium

Believe it or not, vanadium bullion is available from private individuals. But there are no reputable minters that produce vanadium coins or bars. Moreover, vanadium bullion will be very difficult to sell – so I would strongly advise against owning vanadium bullion as an investment.

With no physical bullion or direct fund or pool account access, investors looking for vanadium exposure have to look to the equity markets for companies that mine the metal. And even there, exposure to vanadium is usually overlapped with other metals.

However, there are a handful of small public companies with good vanadium exposure. Here are a few:

Atlantic Ltd. (ASX: ATI) is an Australian-based junior mining company that recently began vanadium production at its 100% owned Windimurra vanadium project.

Atlantic Ltd.

Located in Western Australia, the Windimurra project is a world-class vanadium and haematite iron ore project that currently has 334,200 tonnes of vanadium reserves plus 546,800 tonnes of vanadium resources.

Once brought up to full capacity in 2013, production is expected to reach 6,300 tonnes of contained vanadium per year – 7% of the world’s vanadium supply.

EVRAZ plc (LON: EVR) is a large integrated steel, mining and vanadium business with operations on four continents.

EVRAZ steel, mining, and vanadium

The company is ranked the fifteenth-largest steel producer in the world based on crude steel production of 16.3 million tonnes in 2010.

EVRAZ’s international vanadium business comprises EVRAZ Highveld Steel and Vanadium (OTC: HGVLY.PK) in South Africa, Russia and the Czech Republic, and Strategic Minerals Corp. in the United States and South Africa. EVRAZ produces various vanadium products, including its own registered alloy, Nitrovan, which is produced the company’s process of simultaneously adding vanadium and nitrogen to steel, creating a very high-strength product.

American Vanadium (CVE: AVC) is a Canadian-based vanadium-mining firm that’s currently developing its 100% controlled Gibellini project in Nevada – along with several adjacent vanadium properties.

American Vanadium

The Gibellini project holds a NI 43-101 compliant resource of 131 million pounds of vanadium in the measured and indicated category, plus an additional 47 million pounds in the inferred category.

Permitting and detailed engineering are currently underway at Gibellini. Production is ultimately expected to reach an average of 11.4 million pounds of vanadium pentoxide per year. This could potentially supply approximately 5% of current global vanadium demand. Once production begins, Gibellini will be the only producing vanadium mine in North America.

Wrapping it Up

Lighter, stronger steel means better products and significantly lower costs for both producers and consumers.

With the demand for lighter, stronger steel on rise, powerful steel alloying agents like vanadium will be increasingly sought after.

For speculators, this could mean good potential for significant profits from the right investment vehicle.

Good Investing,

Luke Burgess

*The views and opinions expressed in this article are those of the author and do not necessarily reflect the official position of Wall Street analysts.

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