Attractive PEA results for Prophecy as vanadium prices soar
Vancouver mining entrepreneur John Lee took a significant step forward in his plan to start a vanadium mine in Nevada as the results of a preliminary economic assessment (PEA) showed attractive economics amid a red hot streak in prices.
Prophecy Development Corp.‘s (TSX:PCY | OTCQX:PRPCF) Gibellini project indicates an after-tax net present value (NPV) of $338.3 million and an internal rate of return (IRR) of 50.8%, based on a study by AMEC Foster Wheeler. That’s based on a capital expenditure requirement of $117 million, and a base price scenario of $12.73 per pound for vanadium. The metal is currently trading at $14.20 per pound as of May 29, and every indication is that prices will rise after the Chinese government introduced new laws requiring more vanadium be added to steel rebars used in construction.
“It’s very unusual to have capex requirements much lower than the NPV,” Prophecy Chairman John Lee told InvestorIntel. “There won’t be any new vanadium deposits coming online in the next 18 months, so there’s an enormous amount of interest at the moment.”
The marketplace is dominated by two main sellers – China’s Pangang Group and Glencore – and buyers are desperate to get their hands on alternative supplies, Lee said. Gibellini is one of the few projects that can be brought online in a reasonable timeframe, he said.
The sensitivity analysis carried out by AMEC really highlights Gibellini as a play on the price of vanadium. At the bottom end of the scale, 30% lower average vanadium prices to the base price at $8.91 a pound still provide an IRR of 26% and NPV of $104 million. On the other end of the spectrum, a 30% higher price averaging $16.55 a pound ratchet the IRR up to 69% and the NPV to $996 million, just shy of a billion dollars. That’s all based on a discount rate of 7%.
Prophecy estimates that Gibellini can produce 9.65 million pounds a year of vanadium oxide over a mine life of 13.5 years and an operating cash cost of $4.77 a pound, with breakeven prices at $7.76 a pound. In terms of the life-of-mine bell curve, first year production would surpass of 10 million pounds and hit an apex of 15.2 million pounds in year 4, before receding in latter years. Cash costs are considerably lower in those first few years of higher output. Using a heap leaching process, the end product will be vanadium pentoxide.
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