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Windimurra Vanadium On Track For Production Within 12 Months


By Charles Wyatt



When Michael Kiernan took over as chairman of what is now known as windimurra vanadium – previously Precious Metals Australia – he gave the impression that at some stage he might roll it up into a combination with the other companies in which he is involved, with Territory Resources in the lead, to create a single entity supplying a variety of commodities to the Chinese steel industry. Riding alongside him ever since the early days at Consolidated Minerals has been Richard Elman of Noble Group, the US$20 billion company with offices overlooking Hong Kong harbour which buys, sells, ships and supplies whatever it is that mainland China wants. And one thing China does want is ferrovanadium, so who else would Windimurra form a strategic alliance and off-take agreement with but Noble? Noble has agreed to buy the total output from Windimurra’s mine throughout its life at prevailing prices. This removes any risk from credit or marketing, and cash is paid FOB at Fremantle.
This off-take agreement was crucial to the development funding package, the last part of which is now falling into place via an ongoing A$54.8 million rights issue, fully underwritten by broker Euroz and major shareholder Territory Resources. As around 30 to 35 per cent of Windimurra’s shares are held in the UK, managing director Iain Scott and finance director Garry Korte ignored Indaba and instead visited London this week aiming to encourage shareholders to take up their rights. They want to emphasise just what a strong position the company now finds itself in - production is scheduled for early 2009 at a rate of 6,200 tonnes of ferrovanadium per annum. And that represents around 8 per cent of the world market.

The price of vanadium has been driven up from US$40 per lb to US$60 per lb as increased demand from the Chinese steel industry impacts an already tight market. Marketing studies commissioned by Windimurra indicate that demand for vanadium ought to increase further, at an average annual rate of 7.8 per cent over the next seven years. The price should also be well underpinned by the likely shortfall in South African production due to the ongoing power problems down south in the Rainbow Nation.

All of which ought to provide an excellent pricing environment for Windimurra to start producing in. It’s worth noting that a price of US$30 per lb was used in the documentation that accompanied the recent US$127 million debt financing, so according to recent models the Windimurra operation would be profitable at half the current price. The debt financing itself was completed last month, which was hardly the best timing given the chaos in the world’s banking system, but it still met strong demand and both Merrill Lynch, who advised on the financing, and Noble Group dipped deep into their pockets. That vote of confidence both in the project and in the new management team combined with the likely profitability of Windimurra are the major reasons why UK investors are giving Messrs Scott and Korte a strong message that, Michael Kiernan’s plans notwithstanding, they want windimurra vanadium to keep its independence.

Not only has this team sorted A$200 million of funding for the project, but it can also point to other crucial successes in the past six months. For a start a supply of natural gas has been agreed from the John Brookes field in the Carnarvon Basin for an initial three years. This will be used not only to fire the existing rotary kiln left behind by Xstrata, but also to power a gas turbine power station. Second, a deal has been signed with Mineral Resources, which will build, own and operate the beneficiation plant. That relieves Windimurra of a major financial burden. Third, environmental approvals have been obtained. Fourth, a ten year supply of soda ash has been agreed.

The mine itself contains 79 million tonnes at a bulk grade of 0.47% vanadium pentoxide, one of the largest reported vanadium reserves in the world. This gives a mine life of at least 20 years, at the proposed mining rate of 3.9 million tonnes per year. And it could be mined for a lot longer than that, as a total of 1,248 million tonnes has been modelled at a bulk grade of 0.46% vanadium pentoxide. Windimurra looks as if it could be one of the lowest cost producers in the world. That would be a credit to Western Australia and the company, but Garry Korte and Iain Scott go specifically out of their way to praise Rod Smith who has now resigned as a director, sold his shares to Noble, and has come to London to start a new business.

Rod is the maverick who was running Precious Metals Australia in a joint venture with Xstrata when the major closed the Windimurra operation back in 2002 and started to dismantle it. Rod fought back through the courts and won a cheque for A$24 million. He also stopped Xstrata from removing the kiln and a lot of other equipment. This equipment is worth several hundred million dollars and was probably key to the resuscitation of the mine. So good on the new team who are now on the brink of success, and good on Rod for fighting well above his weight.