Tuesday, November 19, 2013

American Vanadium: Story with a Happy Ending?

Management from American Vanadium (AVCVF:  OTCQX) made the rounds among New York City investors in early November, telling the story of how their developmental stage mining company is transforming itself into an energy storage company.  This story starts in the deserts of Nevada where the company controls the only vanadium deposit in the U.S.

The element vanadium has structural strength going for it.  That makes this somewhat rare metal popular for producing steel alloys that end up in axles, crankshafts, gears and tools.  It is also used in titanium alloys for jet engines and high-speed air frames.  It behaves well under high heat and nuclear power plant designers like its low neutron-absorbing abilities.

Most of the vanadium in the ground is located in South Africa and Russia.  About 45,000 tons gets produced each year, mostly as by-products of mining other ores.  Production of the metal itself comes only to about 7,000 tons per year.  As an aspiring miner of vanadium in the U.S., American Vanadium is in a small-community.

A technical report and feasibility study on American Vanadium's Gibellini Hill deposit in Nevada was completed in 2011.  The estimated combined reserve and resource mine life is ten years.  The company plans to turn that hill into crushed ore and put it through a heap leach process.  Two products will come out of these steps:  solid vanadium and electrolyte.

This is where the plot thickens in the American Vanadium tale.  Vanadium oxide sells for prices in a range of $6.50 to $12.00 per pound.  The company estimates that operating cost for its vanadium products will run around $5.00 per pound.  That math works.  What works even better is vanadium electrolyte that sells for $20 or more per pound. 

Some smart Australian’s at the University of New South Wales demonstrated rechargeable flow batteries using vanadium in the mid 1980s.  Apparently, vanadium can exist in solution in four different oxidation states and this makes it possible to make a battery with just one electrolyte rather than the usual two.  The Australians got a patent for their all-vanadium battery even though a few other even smarter folks at NASA had been tinkering around with flow battery technology a full decade earlier.  Since then a number of companies have jumped in with commercial vanadium batteries.  DMG Mori Seiki AG (formerly Gildemeister AG) in Germany is one of them.  Sumitomo in Japan is another.

Earlier this year American Vanadium signed an agreement with Gildemeister, to sell Gildemeister’s CellCube redox flow battery system in the North American market.  In return, Gildemeister will source vanadium electrolyte from American Vanadium once the company begins mining operations.  It is a finely crafted arrangement.
Gildemeister's CellCube is targeted at electric power grid owners.  For example, these batteries work well to store power generated by wind or solar power sources.   These ‘redox’ flow batteries can capture energy as it is generated, store it and then release it later when needed. 

Storage of energy generated in by renewable sources is not the only application grid owners have in mind.  Most utilities are very concerned about the high cost of building adequate infrastructure to meet peak demand requirements.  Vanadium redox batteries like Gildemeister’s CellCube are also well suited to meet the scalability needs of grid owners.  Capacity can be increased by using larger electrolyte storage tanks.  What is more vanadium batteries can be completely can be completely discharged for long periods with no damage to the battery and then recharged by simply by replacing the electrolyte.

Flexible, scalable, rugged!  It should be an easy sale even for a mining company that has taken on an extra job in battery sales.  American Vanadium has made a proposal to the New York State Energy Research and Development Authority (NYSERDA) to demonstrate Gildemeister’s CellCube vanadium redox battery at a power facility in lower Manhattan.  The CellCube will be used for back-up power for emergencies and play a part in daily grid demand management.  ConEd, NY-BEST and Stony-Brook University will help out.

American Vanadium management is on pins and needles waiting for the NYSERDA decision.  A successful demonstration at such a plum location would be a great reference for future sales and marketing.  Nearly every major metropolitan area in the U.S. faces the same emergency storage and demand management issues that New York City is trying to fix with its demonstration project.  It will probably also make a big difference for American Vanadium shares. 

AVCVF is trading just over four bits a share.  This is well below the 52-week high near a dollar that was set in early 2013.  Since then the stock has been on a long, slow grind downward.  All along it has seemed like stock would be a good buy.  A thumbs up signal by NYSERDA would make a great new chapter in the American Vanadium story and a good reason to expect the shares to stage a turn around.    

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.


1 comment:

Anonymous said...

When will they expect to start mining?