The Rise of Prophecy Vanadium
Prophecy Development Corp. (TSX: PCY) (“Prophecy”) has recently confirmed that it intends to follow through on development of its Gibellini deposit, aiming to be the first operational primary vanadium mine in North America. The resource, acquired in June, became an immediate priority since a Feasibility Study had already been prepared by the previous operator. Gibellini’s prior explorer invested approximately US$20 million in permitting, engineering, and feasibility studies from 2009, only to relinquish the project in 2016 due to low vanadium prices. The vanadium pentoxide (V2O5) price has since increased by around 400% from its 2016 low.
The company initially caught my attention as a result of its excellent financial position. Only 10.66 million fully diluted outstanding, $5.5 million cash on hand and 17% owned by John Lee, CFA, CEO and Chairman. Mr. Lee’s personal cash investments in Prophecy to date total more than $3 million. Impressively, the company became debt-free at the end of November. Further back, before commodity markets tanked, Prophecy shares have traded above CAD$150, and it’s worth noting that the company is basing many of its decisions on the idea that the relevant markets bottomed in 2016; an analysis with which I’d have to agree.
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The rise in vanadium prices and the associated decline of stockpiles was, in part, made possible by 2017’s ‘black swan’ of minerals, China’s environmental crackdown. Commodity prices have rallied throughout the state’s environmental enforcement checks, and the resultant supply disruption is an opportunity for new mines to come online globally. To take advantage of the Chinese production cap, competitors would have to be, at the very least, near-term, but a low-cost operation is a significantly less risky venture, especially in the early days of market recovery.
All of the Gibellini’s measured and indicated resources (129.28 million pounds V2O5) are in the oxide and transition zones of the Woodruff Formation black shale, and the mineralisation is amenable to open pit mining, a major cost reducing factor. Prophecy’s Gibellini site also features few enough deleterious elements to negate the need for intense fires, and so high-purity 99.9% vanadium pentoxide can be produced at extremely low cost. Environment and energy concerns exist outside of China, of course, and operations are increasingly feeling the pressure to find an ore body that doesn’t require extensive heat treatments.
The grade found at Gibellini makes the product suitable for high end markets, such as vanadium-based battery technologies and aeronautical engineering, and so attracts a premium. Only 10% of vanadium produced is from black-shale primary mines, and only certain black-shale vanadium resources are low in undesirable elements, so this project is indeed a keeper. As a bonus, it is located in the Battle Mountain region of Nevada, which featured in the 2016 Fraser Institute survey of mining companies as the 4th most attractive jurisdiction for mining investment globally.
Leading with Gibellini was almost inevitable, all things considered, but Prophecy do have one more serious offering on the burner. The company is awaiting mining approval for its Pulacayo silver/lead/zinc deposit in Bolivia, which a resource estimate recently showed to have indicated and inferred resources of 36.7 million ounces of silver, 122.0 million pounds of lead and 187.9 million pounds of zinc, as well as a further 20.9 million ounces of silver, 57.7 million pounds of lead and 61.6 million pounds of zinc inferred 7km North of Pulacayo. The company is currently working with the Bolivian mining ministry and Corporacion Minera De Bolivia (COMIBOL) to facilitate mining operations there, but Gibellini will likely proceed much more quickly. The vanadium turnaround was, and still is, a notable event of this year, and Prophecy are superbly positioned to ride the next wave of commodities confidence.