Ferro-Alloy Resources Group#: 2020 Full Year Results

Progression Despite COVID

Ferro-Alloy Resources Group (LON:FAR) recently reported 2020 results where benchmark V2O5 prices averaged 39% lower YoY at US$6.47/lb and the company increased production by 56% YoY to 237t. Although COVID-19 related disruption prevented the company from operating at capacity, this was significantly expanded through the year which meant that revenue was up 33% to US$2.4m. However, spending on raw materials and plant improvements which were largely expensed meant that losses persisted with net income of US$3.9m. The company finished the period with US$0.7m in cash, and strategic investment post period end has enabled the power connection to be completed and additional raw materials to be procured, meaning we expect tangible improvements this year.

Transformational Investment

Along with the results, Vision Blue Resources (VBR) announced an additional US$7m in funding to advance FAR’s development. This will mostly enable a more in depth feasibility study to be carried out (due mid-2022) on the flagship large scale black shale deposit, which was the main attraction for VBR due to its potential for industry leading capital and operating cost metrics. With much of the work already underway, the investment will enable drilling to upgrade resource confidence and this greater certainty will likely derisk project execution and financing, all underpinned by VBR’s financial support and technical expertise. Our analysis of the prior study projected initial capex of US$101m, annual output of 5.6ktpa V2O5 rising to 23.5ktpa, cash costs of US$2.30/lb excluding by-products and negative US$-1.2/lb on an inclusive basis resulting in an NPV10 of US$1.4bn.

Recommendation and Target Price

Our revised DCF valuation now reflects lower risk factors and also full dilution owing to the planned, stepped VBR investment programme. This should not only provide investors with confidence but a clear pathway to derisking of the company and a share price rerating.

We reiterate our BUY recommendation and increase our target price to £1.80/sh.

 

Oliver O’Donnell, CFA, Natural Resources Analyst | T: +44 (0)20 3617 5180 | E: oodonnell@vsacapital.com

VSA Capital Limited, New Liverpool House, 15-17 Eldon Street, London EC2M 7LD | www.vsacapital.com

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