22 January 2014
TNG Ltd (ASX:TNG)
New Vanadium Demand Imminent As TNG Courts Power
Brokers In The Great Game of New Energy
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www.tngltd.com.au
Description: Large vanadium-titanium-iron mine in
development with a patented hydrometallurgical
process and a copper exploration program in the
Northern Territory of Australia
After being awarded Major Project status for its Mount Peake
development, TNG (ASX:TNG) has been working with the Northern
Territory government and diplomatic corps to promote the mine across
Asia. In a field of strategic supply chains and a premium product that
could be the basis for national grids around the world, geo-politics is
never far away.
In the purely geological frame, recent news from on-going field
exploration proximal to the 160Mt Mount Peake resource has thrown up
a massively enriched surface expression of what could be a repeat of that
resource. Initial surface grades of 24.6% TiO2, 0.634% V2O5 and 48% Fe
strongly suggest that long exposure to the elements has led to an
enrichment of underlying titano-magnetite mineralisation indicated by
geophysical mapping. If proven up in any volume this additional resource
could spritz up an already substantial pre-tax IRR of 38.7% on 17-year
LOM revenues of A$13.8bn, for total CAPEX of A$779m.
Discussions are underway with commodities trading houses and
consumers with regards to direct off-take agreements, steel producers
across Asia including direct shipping sales of magnetite concentrate,
potential investors and financiers in the Gulf and the China Development
Bank. In addition, the pat pending TiVAN® hydrometallurgical process
appears to be garnering interest for potential third-party licensing.
These are tough times for an Australian junior mining sector dominated
by gold exploration and still haunted by the previous generation of CEOs.
Gold-hungry investors are yet to see the full fall-out as gold price drops
hit producer’s reserve books and the tried and tested hedging strategies
re-emerge alongside the en-vogue streaming agreements. But in strategic
metals like vanadium and titanium, the calculated minerals policy of
interested nations can be a positive for juniors with promising geological
resources, if they are willing and able to engage at a political level.
All signs are that government-level commitment to utility-scale energy
storage is now under way, most prominently in China and Japan, but also
in California and the EU. Using IEA scenarios we project new demand of
between 12,420tpa and 46,038tpa of V2O5 to 2035, attributable to
vanadium redox batteries alone, as Rongke Power build the first factory
dedicated to the technology in Liaoning, China.
Ian Falconer
+44 (0)20 7929 3399
[email protected]
company has reviewed
TNG is in the right place at the right time, doing the right thing. They
need to deliver the DFS, but in tough times are progressing better than
most through a combination of innovation and political engagement.
22 January 2014
The State of Play
TNG’s prime asset, the 160Mt Mount Peake project is at a crux point. The
project has demonstrated the geology, the economics and innovative processing
technology to a pre-feasibility level on a 20-year mine plan.
Awarded Major
Project Status by
Northern Territory
of Australia
Based on the current resource and our own view of the geophysical trace we
believe that TNG’s contiguous land package has 50-year potential at the
currently planned mining rates. Recent news of a very high grade surface
exposure 5km to the east of the defined resource would seem to confirm the
validity of this view, and it is a view that appears to be shared by the Northern
Territory’s government.
In September 2013 the project was awarded Major Project Status by the NT
Chief Minister, and the Department of Business appointed as the lead agency in
“a whole of government approach”, facilitating both internal and external
government-level relationships.
Taking part in
ministerial –level
trade missions
through Asia
The Department of Business’ ministerial-level facilitation recently resulted in a
trade mission through Asia with other NT business leaders. The CEO and senior
managers of TNG met with major steel producers in China, Japan & Korea,
commodities trading houses and commodity-specific consumers. A return visit
to Australia by a Korean ambassadorial delegation and a delegation from the
China Development Bank have followed and the company has confirmed that
discussions are on-going with several parties regarding both off-take and project
finance.
Though it is certainly not typical for a junior miner to engage to this degree at
the political level, there are several good reasons why Mount Peake is peeking
political interest, and they are mainly to do with the wholesale re-alignment of
global energy systems.
The Reasons for Political Interest
Governments
seeking a new
supply chain
independent of
ferrovanadium
Rising industries
seeking lower price
volatility and lower
environmental
impact
The vanadium trade is dominated upstream by South Africa, Russia and China
and downstream by the steel industry and trades are mainly undertaken in the
form of ferrovanadium (FeV). With more than 90% of both the value and the
volume residing within that supply chain, other consumers of other forms of the
metal are impacted by rapid changes in steel production and volatility of the
vanadium price. This volatility in price and subsequent rapid changes in
availability impose an element of unnecessary risk to any new or growing uses
for vanadium. Those new and growing uses include utility-scale energy storage
and aerospace, with potential new demand in lower tonnages coming from
electric vehicles and other electronic devices.
Both utility-scale energy storage and aerospace are considered by most
industrial nations as strategic and in some cases economically critical. Not
withstanding the high energy and environmental cost of conventional
ferrovanadium production, establishing resilient supply chains, independent of
the old economics of steel, is becoming a necessity if these new industries are to
form the basis for modern sustainable economic systems.
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22 January 2014
Simply put, if policy-makers have an option most wouldn’t choose to plan a 40year energy or transport policy on a 5-year mined supply, stop-start production
or from a constituency that may turn the export taps off on a whim. A long-term
switch away from coal in the energy system doesn’t change the need for
security of supply.
Politicians funding
energy innovations
are seeking stable
supply chains to
lock in value
The vanadium supply chain is seen by some observers as semi-functional, based
as it is on a creaking South African mining infrastructure, aging Russian mines
and a tariff-happy Asian trade. But the root cause of this instability is largely
because its main consumer has options, most directly through substitution of
vanadium by niobium in steel. The energy technologies and advanced alloys
being proposed and developed do not have that same interchangeability. This is
seen as a challenge to the supply chains, of both vanadium and TNG’s other
main product - titanium, but one that governments can legitimately intervene
in, through investment in processing technologies and through market support
structures, such as loan guarantees or streamlined permitting processes.
What the politicians need is guaranteed supplies of the new materials if they are
to throw their hats in the ring and shift policy further towards a low emissions
regime favouring vanadium and titanium consumption. It is this guarantee of
supply chain security that is encouraging a resurgence of interest in strategic
stockpiles of non-fuel minerals.
Increasing global
interest in
stockpiling and
materials flow
tracking
Stockpiling as a Signpost of National Interest
Only four governments in the world are known to maintain strategic stockpiles
of non-fuel mineral commodities; China, Japan, South Korea and the USA. TNG
recently accompanied the NT’s Minister of Business delegation on a tour of the
first three.
The State Bureau of Material Reserve, an agency of the NDRC, has responsibility
for stockpiling in China, KORES (Korea Resources Corporation) and PPS (Public
Procurement Service) in South Korea and JOGMEC (Japan Oil, Gas and Metals
National Corporation) in Japan. Both Japan and South Korea are known to
maintain government-held stocks of vanadium. South Korea is known to hold a
stock of titanium.
Japan and South
Korea maintain
strategic stocks of
non-fuel minerals
primarily for
commercial use
during periods of
supply chain
disruption
Japan’s standard for strategic metals is 42 days industrial domestic
consumption, plus 18 further days private contingency in high volatility or ‘at
risk’ metals. The vanadium stockpile has this 18 day private supplement.
The Republic of South Korea is also known to maintain stocks of vanadium, the
mandated quantity and form is unknown, but judging by its policies towards
other steel additives (niobium & ferrochrome) the stockpile is likely to be 60
days domestic consumption to be built to full tonnage by 2016. A similar
stockpile of titanium is held and we understand that too, to be mandated at 60
days domestic consumption.
Russia is also thought to retain Soviet-era stock in several non-fuel minerals,
diamonds and palladium are of particular note, but its policies are opaque. The
USA’s outlook in mineral stockpiles is in the process of being re-examined after
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22 January 2014
Bush-era sell-downs, but generally that they should be maintained primarily in
support of military rather than commercial requirements, onshore and through
local supplies where possible.
EU non-fuel
minerals policy not
well defined but a
comprehensive new
position is in the
process of
development
The EU is in the process of developing a new policy towards non-fuel mineral
commodities, but it is unlikely to explicitly include maintenance of stockpiles
unless the research group responsible finds that existing supply chains are
insufficient to support European manufacturing capacity. The EU’s research
focus is on closing the supply chain of critical materials through efficient and
effective recycling, but may treat embedded materials as a functional reservoir
for critical resources to be liberated through targeted policy initiatives (think
aluminium pans in WWII, no good to base an economy on but OK in a pinch).
Outside of China and the USA these stockpiles are not great in terms of tonnage,
but they strongly signal political intent and a focus on supply chains that goes
beyond that typically seen in recent years in the liberalised free market
economies of the west.
The Global Push For Energy Storage
The fundamental nature of grid electricity to the operation of all aspects of
industrial and domestic life has never been more apparent than in today’s urban
economies. Whether it be through rapid growth of urban demand centres, an
ever more energy intense lifestyle, aging infrastructure or simple supply chain
insecurity, the provision of stable, safe and affordable electricity has not been as
high on the political agenda for more than a (temporal) generation.
Pumped Hydro
Power – Old
reliable, but limited
scope for growth
Grid operators, renewable energy generators and utilities around the world are
now installing bulk energy storage technologies to increase the efficiency and
stability of national grid systems. The majority of dispatchable energy storage
installed to date has been Pumped Hydropower or PHES, but with a limited
number of suitable rivers and valleys and some areas reaching ‘saturation’, even
including radical (but technically and geographically limited) solutions like tidal
pens and barriers, PHES only has a limited degree of growth available.
Fully dispatchable energy storage, i.e. that which can be tapped on demand at
any time of day or night in response to expected demand peaks (such as the
iconic kettle spike) or unexpected circumstances (such as the shut down of a
nuclear power plant or cut out of a large wind farm), is seen by many as the
grease that keeps national grids turning. Without it, and efficient management
of it, voltage sags and spikes, brownouts and even blackouts can, and
sometimes do, happen. It is a measure of the success of the UK’s own National
Grid that most Londoners no longer have candles in their bottom drawer, ready,
just in case. Of course in an emergency we light the way with an iPhone app
these days, but that too is a sign of just how reliant we, in the urban industrial
centres, have become on a reliable grid power supply.
So with PHES difficult to site, what other options do grid operators have ?
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22 January 2014
Interconnection - Rely on friends and neighbours ?
Connecting
national grids
works well but
carries risks
The first option is simply to cable in energy from outside the ‘local’ grid. The UK
currently has two interconnectors to continental grids, one to France and the
other to The Netherlands. On the continent the proposed Super Grid is more of
a reality with many neighbours trading electricity under bi-lateral agreements,
but the broader implementation still requires substantial work for it to enable
continent-wide trading.
Of course this technology is dependent on the ‘external’ connected grid having
excess capacity at times when it is needed or commercial terms being reached
for energy export to take priority over local consumers. It also depends on there
being a sufficiently robust commercial case and regulatory environment at both
ends of the new infrastructure.
Tying grids together certainly has potential to address short-term supplydemand imbalances, when enabled by an efficient market mechanism that
crosses borders and where available, but it also has technical risks.
The cascade failure experienced by the NE USA and Southern Ontario in 2003,
which resulted in around 55 million people being left without power for several
days, is an extreme example of the potential for failure to spread in a system
reliant on interconnections. So where supply chain problems in fuel or minerals
can be visible for several weeks or years in advance, building a national grid on
the basis of interconnection opens it to supply chains that are not under
national control and the potential for electricity supply failures arising at very
short notice.
Excess Capacity vs. Peaking Plant
Excess spinning
reserve generating
capacity no longer
economic
The potential for national grids to carry large amounts of excess generating
capacity as spinning reserve is no longer economic in most circumstances. With
emissions penalties as well as operating costs rising, the incentive for generators
to run a capacity margin, above that technically and legally required, has all but
disappeared. In some regions there is a remaining obligation, but in reality the
days of building large combustion plants with excess capacity synchronised and
standing ready and waiting ‘just in case’ are over.
To a large part this is due to better plant management, more intense duty cycles
for large Combined Cycle gas plant and more reliable supply chains, but the
economic support for excess capacity is no longer present. Mothballed plants do
exist around Europe and around the world, but they are generally maintained
strategically, and on a basis that would take several days or even weeks to fully
activate.
Gas-fired peaking
plant benefitting
from aerospace
innovation
Over the last two decades headline capacity margins around the world have
fallen and the super-scale combustion plants have been supplanted by smaller,
gas-fired peaking plant. Usually operating in relatively inefficient open-cycle
format, these gas turbines can react to peaks and troughs of demand and supply
in a matter of minutes. However, in order to cope with the intense on-off dutycycle they must be engineered to extremely high specifications. These power
plants are effectively variants of aerospace engines optimised for static use,
with manufacturers such as Rolls-Royce and GE dominating the market.
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22 January 2014
Peaking plant
break-even roughly
double equivalent
generating capacity
operated as
‘baseload’
The relatively short periods of revenue generation, coupled with the high CAPEX
per unit power, mean that the break-even for peaking plant is around double
what the equivalent plant designed to operate continuously would be.
Push and Pull Towards Energy Storage Systems
The increasing commercial and policy-driven costs of supplying electricity using
conventional plant, coupled with the risk of over-reliance on external supply
chains (whether grid connected or mineral-based) provide a strong independent
push towards the implementation of Energy Storage Systems (ESS). This push
exists both as a means to increase the resilience of existing infrastructure to
disruption and of increasing the systemic efficiency, and so maintain available
margin.
There is, of course, the policy-led push away from combustion plant and its wellknown performance and emissions characteristics. The growth in renewable
power generation of all kinds places an additional burden on the voltage
management function in national grids through the two prongs of ‘distribution’
(in terms of multiple energy sources of diverse characteristics) and
‘intermittency’.
Strong push and
pull factors leading
to global need for
Energy Storage
Systems
While ‘distribution’ can be dealt with relatively easily through a program of
product standards, trained and qualified generators, grid re-enforcement and
enhanced bi-directionality, ‘intermittency’ is more difficult to integrate. The
fundamental short-term supply risks associated with intermittency in
renewables can be remediated using a class of devices called Energy Storage
Systems, but they add an economic load on top of that of the generating device
itself.
Figure 1: Schematic describing the use of utility-scale energy storage in smoothing grid voltage
across a 24 hour period. Source Prudent Energy website
A technological pull towards a more reactive and flexible grid infrastructure also
exists with opportunities to match generating capacity with loads in time, and so
decrease costs associated with peaking plant.
So-called ‘load-shifting’ and ‘peak-shaving’ are negotiated actions agreed
between generator and consumer to match generation with demand but the
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22 January 2014
more drastic ‘load-shedding’ is an arbitrary shutdown of supply to specific
consumers, though it is usually stipulated within the terms of commercial
supply.
So opportunities exists to match flexible consumers with flexible generators or
mediate inflexible consumers against the actions of intermittent suppliers
through what has become known as the ‘Smart Grid’ concept.
Key to ameliorating both push and pull factors are Energy Storage Systems
acting as both a reservoir for excess supply and a buffer for excess demand.
Types of Energy Storage System
Different modes of
operation in Energy
Storage Solutions
have different
technical and
economic
challenges
In broad terms the US Department of Energy separates energy storage into
three functional categories;
Power Quality & Regulation – Those applications where voltage sags or spikes
are a risk, or short-term switching between sources could be disruptive i.e. the
storage is required to condition the electrical signal more than replace the
primary grid source. Usually installed as a demand-side solution, this type of
storage often needs to be reactive within fractions of seconds and its use could
last several minutes.
The key concepts that PQ&R-focused energy storage addresses are; short-term
uncertainty and the need for voltage stability.
Typical application – Computer Server Farms, High Tech Manufacturing
Bridging Power – Those applications where the energy storage is used as
contingency or during lag times while other sources power up in response to
sudden demand. More predictable than PQ&R applications, Bridging Power is
required for up to an hour while, for example, a spinning coal-fired power plant
fires up to capacity or while the grid switches from one plant to another. Gridattached Bridging Power is generally insufficient to cope with blackout, but sitespecific bridging solutions are common in critical infrastructure and emergency
planning.
The key issue that Bridging Power-focused energy storage addresses is risk
management for medium-term uncertainty.
A typical non-utility application would be a battery pack sitting in the basement
of a hospital next to the emergency generator set, able to run the building’s
critical functions, such as operating theatres, for the few 10s of minutes it takes
for staff to swap to a longer-term emergency power mode.
Energy Management – Used to provide load levelling, reduce or remove
dispatch risks (so reduce potential penalties on generators) or provide
Transmission and Distribution Deferral (T&D Deferral), otherwise known as load
shaving and shifting. This type of storage strategy is currently policy-driven and
tends to be supply-side, though that may change as the economic models
associated with it become more refined. In a high renewables penetration
scenario EM-type storage essentially runs continuously.
The key concept that storage focused on Energy Management addresses is
increasing systemic efficiency in response to variability within known bounds.
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22 January 2014
Applications – Though the Smart Grid concept would require a range of EM
solutions throughout the grid, initially this would be a utility-scale function to
reduce the costs associated with peaking plant.
California as a test-case for ESS Sizing
California has
recently legislated
to force utilities to
install 1.325GW of
ESS by 2020
California recently passed a law requiring utilities to back-up their own
generating capacity with a minimum of 2.25% of their peak generating capacity
with static grid-attached energy storage, excluding hydropower. This move is
motivated by a mix of economic development (to push the state’s credentials in
emerging Smart Grid technologies), crisis management (in the recent past
California suffered from brown-outs and was gouged by out of state utilities)
and as a means to cope with the growing proportion of intermittent electricity
sources on a deregulated grid (mostly solar and wind).
At present California has around 72GW of active generating capacity ‘in state’,
as well as several interconnectors to ‘out of state’ grids, notably to the north
and north-east. California even has a significant amount of dispatchable
(available on demand) hydroelectric power able to address short-term voltage
requirements, in the same way that the UK uses Dinorwig in North Wales or
New South Wales uses Tumut-3, and plans to install almost 10GW more.
This means that further increasing intermittent renewables market share is
perceived, by policy-makers, as introducing a risk for California’s tech-heavy
economy, especially as its aging nuclear fleet reaches end-of life and regulatory
pressure increases on its conventional generators in terms of emissions, a
situation not unlike the one present in much of Europe. As a result California’s
Public Utilities Commission (PUC) has enacted its energy storage requirement. In
practical terms this means that Californian generators will need to install the
rough equivalent of one Dinorwig every two years so that a minimum of
1.325GW of electrical storage is active by 2020.
So this new legislation presents an opportunity to interrogate what policymakers are seeing as a realistic penetration for non-hydropower grid-attached
energy storage.
The 2.25% peak
generating capacity
mandate is equal to
around 25% of the
intermittent
renewable
nameplate capacity
The IEA uses 20% of
all renewables
nameplate for its
ESS reqirement in
its own modelling
Voltage regulation by ESS is not needed for base-load suppliers such as nuclear,
gas, geothermal or large-scale hydro except for those particular sites with
critical short-term voltage stability requirements. So the only case that exists for
regulatory pressure on utilities to install and pay for an ESS as part of the grid’s
core functionality, is on the basis additional voltage regulation needed to
compensate for intermittent energy sources i.e. solar and wind but also
potentially wave and tidal. So while California’s law states a 2.25% of all
nameplate capacity as its requirement, it doesn’t state that this is only required
to be able to compensate for the intermittent renewables component of
generation. In California’s case this works out so that the requirement for
energy storage systems is roughly 25% of the current peak intermittent
generating capacity.
The IEA World Energy Outlook uses a figure of 20% peak renewables generating
capacity which, when the pumped hydropower is stripped out (because
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22 January 2014
otherwise it would be counting against itself), equates to a very similar energy
storage requirement to that legally enshrined by California.
Californian
legislation defines
what amount of
energy storage will
be required where
in the grid and to
do which job
But the legislation goes further than that by defining where in the grid the
storage will be and what functions it must undertake. This effectively limits the
amount and size of new hydropower that can be considered as satisfying the
law, but also prevents the utilities from handing the majority of the storage
requirement off to the private individual.
Only 12% of storage capacity is to be located in the ‘Consumer’ domain with the
remaining capacity split between the ‘Transmission’ domain, at 53% state-wide,
and the Distribution domain, at 32% state-wide. The Transmission domain
roughly equates to the DoE’s Power Quality & Regulation function and the
Distribution domain to the Energy Management function.
This is an important piece of data because later it will allow us to predict how
much of the market each technological solution may approach. For later
purposes stripping out the proportion of storage mandated at the Consumer
level provides a Transmission to Distribution ratio of 62%:38%.
The IEA’s World Energy Outlook 2013 Scenarios
In November the OECD’s respected energy think tank revised its energy supply
and demand scenarios for the widely read annual publication; World Energy
Outlook or WEO.
If we use the IEA’s projections of renewable generating capacity from this
document and the Californian model of energy storage for a modern ‘national’
grid we can calculate an energy storage requirement of between 210GW and
251.3GW by 2020, depending on the policy scenario and the amount of
intermittent renewables installed as implied by those policies.
At current rates of
renewables
installation the ESS
requirement is
rising at 9.5GW per
year
Current globally
installed
dispatchable
Energy Storage is
136GW with 29GW
under planning or
construction
For comparison we show data from the BP World Energy Outlook 2013. The oil
giant’s data is slightly less rigorous because it doesn’t have to get agreement
from each OECD government to publish, but it is 2 years more up to date. This
provides an independent measure of the speed of intermittents installation and
so a measure of how quickly the requirement for energy storage is rising.
At present rates of installation the global requirement for ESS is rising at 9.5GW
per year.
If we then switch to looking forward, the current global installed utility-scale
energy storage capacity peak delivery is approximately 136GW, almost all of
which is pumped hydropower (PHES). In addition to this capacity around
another 29GW of pumped storage is planned or proposed globally before 2020,
bringing an estimated 165GW of dispatchable energy storage online before the
IEA scenarios start in 2020.
This leaves somewhere between 45 and 86 GW of additional dispatchable
storage required globally by 2020 installed at a rate of between 7.5GW and
14.3GW per year, with significant further rises required after that date.
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22 January 2014
Source
Current Data
IEA WEO 2013
2011 data
BP World
Energy Outlook
2013
2 Year Progress
Future Outlook
2020-2035
IEA WEO 2013
Current
Policies
Scenario
IEA World
Energy Outlook
2013
New Policies
Scenario
IEA World
Energy Outlook
2013
450 Scenario
Global Solar PV
Energy
Production
Capacity
(GW)
Global Wind
Energy
Production
Capacity
(GW)
Combined
Intermittent
Renewables
Capacity (GW)
Estimated
Storage
Required at
25% Peak
Intermittent
Capacity (GW)
Calculated
Average
Annual
Addition over
Whole Period
(GW)
69.0
238.0
307.0
76.8
100.1
284.2
384.4
96.1
30.1
46.2
76.3
19.1
9.5
2020 – 290.0
2030 – 443.0
2035 – 511.0
2020 – 551.0
2030 – 812.0
2035 – 926.0
2020 – 841.0
2030 – 1,255.0
2035 – 1,437.0
2020 – 210.0
2030 – 314.0
2035 – 359.3
10
2020 – 312.0
2025 – 437.0
2030 – 564.0
2035 – 690.0
2020 – 612.0
2025 – 797.0
2030 – 960.0
2035 – 1,130.0
2020 – 924.0
2025 – 1,234.0
2030 – 1,524.0
2035 – 1,820.0
2020 – 231.0
2025 – 308.5
2030 – 381.0
2035 – 455.0
14
2020 – 342.0
2030 – 760.0
2035 – 990.0
2020 – 663.0
2030 – 1,368.0
2035 – 1,684.0
2020 – 1,005.0
2030 – 2,128.0
2035 – 2,674.0
2020 – 251.3
2030 – 532.0
2035 – 668.5
28
Table 1: Modelled global requirements for grid stabilization to account for intermittent
renewables. Based on data from the IEA’s World Energy Outlook 2013. BP WEO 2013.
As previously stated the current rate of requirement increase is 9.5GW per year.
Under the Current Policies scenario that rate would continue with an additional
10GW per year required every year from 2020 until 2035. With policies that
encourage higher intermittent renewables installation this rises to 14.3GW per
year and with an aggressive global policy on carbon emissions could reach
27.8GW per year. It should be noted that the aggressive 450 scenario falls well
short of calls by environmental groups for 100% renewables generation.
IEA modelling
suggests new
energy storage
capacity of
between 223GW
and 533GW
required by 2035
A total new energy storage requirement of between 223GW and 533GW is
implied to compliment new intermittent renewables. How that is delivered (at
between 7.5GW and 27.8GW per year over the next 21 years) will be location
specific.
Technological Options for Bulk Energy Storage
Though there are environmental and geographical limitations on some of the
technological options for energy storage (as opposed to the synthesis of fuels
from mineral or biological sources, or the storage of heat), in general these are
flexible technologies available to be installed on basis of economic performance.
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22 January 2014
Energy Storage
Systems have
technological,
economic and
environmental
niches
The exceptions are;
CAES – Compressed Air Energy Systems are generally proposed as underground
or underwater installations, as the structural component is capital intensive and
safety requirements well regulated.
Pumped Hydro – Restricted to suitable topography and geology, PHES is more
demanding than conventional, static head hydro because of the rapid cyclical
hydrogeological pressures. In its ‘Open Cycle’ format there can also be
environmental pressures downstream as agricultural and ecological systems can
be impacted by intermittent river flows.
Most battery-based systems have optimal operating temperature ranges,
outside of which cycle efficiency drops substantially or the battery ceases to
function entirely. These are easily addressed through engineering means but
place an overhead on each system with regards to heat management.
Figure 2: Costs per unit of energy and power for different storage technologies.
CAES=Compressed Air Energy System. ‘Flow Batteries’ comprises the technology class and is not
chemistry specific. Source Energy Storage Association.
Why Is This Important for TNG ?
Vanadium Redox
Batteries now
reaching the point
of production after
a decade of testing
Two technologies within this class of system incorporate or could incorporate
vanadium as part of the functional or active materials. Vanadium Redox/Flow
Batteries (VRBs) and some forms of Lithium ion battery are widely expected to
increase the vanadium demand attributable to the emerging Energy Storage
sector.
Any vanadium (and indeed titanium) consumption arising from non-active
materials such as tanks, housings and superstructures will most likely be already
factored into widely available steel and super-alloy consumption projections,
but the high purity vanadium used in the active materials is another matter.
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22 January 2014
Vanadium Redox Batteries
VRBs are a game changer for the vanadium supply chain. As it is currently
structured there can be little doubt that it simply will not cope with all but the
most cursory demand from VRBs. The reason is the upfront tonnage of the
strategic metal required to build a utility-scale energy storage system of this
type.
Two, or possibly three, utility-scale (>1MW power) VRB systems are currently
being built or operated; one in Japan as a fully-grid integrated final test-bed, and
one in China dedicated to operation integrated with a 50MW wind farm. The
Chinese renewable energy lab, the CEPRI, in Zhangbei apparently has a third
(2MW/8MWh), installed by Prudent Energy, but this is not well documented and
we only discovered it through Prudent Energy product brochure.
Sumitomo is
building a
15MW/60MWh
system to test
against a similar
scale Li-ion battery
bank in a live grid
Sumitomo has
been up-scaling the
technology since
2001 and is
receiving $200m
government
funding for this
final test-bed
Sumitomo Electric Industries – Yufutsu District, Hokkaido, Japan
Part-funded by the Japanese government and being built in partnership with
Hokkaido Electric Power Company (HEPCO), this $200m installation is the final
step in the pre-commercial development of a fully commercial product.
Sumitomo Energy Industries’ (SEI) fully grid integrated utility-scale installation is
to be built by the end of FY2014 and will have 60MWh of storage capacity with
15MW peak dispatch. Though its main aim is to carry out final real-life testing of
utility-scale application within the Yufutsu District of Hokkaido, that testing is
only scheduled for 3 years and appears mainly an optimization process for
future installations, probably at a similar scale.
Figure 3: Sumitomo Electric Industries/Hokkaido Electric Power (HEPCO) large-scale energy
storage system. Artist’s impression. Ground to be broken early 2014. Source; Sumitomo Electric
Industries.
This demonstration project follows a decade-long up-scaling of project
components from load-levelling a 30kW PV system on a golf course in 2001,
through a 170kW wind turbine, a university building, an office building (2002), a
semiconductor factory (2004) and a 4MW wind farm (2007) (Kear et al 2011).
12
22 January 2014
The final product design and systems integration phase of SEI’s VRB system was
carried out at the company’s Yokohama Works with a 5MWh capacity system
connected to 200kW nameplate capacity of Concentrating Photovoltaic (CPV).
The learning that remains to be done to hone this product line for export must
be carried out in a grid scenario where energy trading pressures will provide a
fully realized economic model for a ‘Distribution’ domain solution (under
Californian terminology).
Being built alongside the VRB in Hokkaido is a utility-scale 20MW peak capacity
Li-ion battery system aimed at testing real-time voltage regulation in the same
grid segments. The projects are set to compete and subsequently combine
findings to define where the economic and technical balance lies between VRBs
and Li-ion technologies. In other words where does PQ&R end and Energy
Management begin in the very real world of the post-Fukushima Japanese
national grid. After the three-year period it appears likely that the site will go
into full production mode at the end of FY2017 rather than be decommissioned.
Dalian Rongke
Power has built its
first 5MW/10MWh
system to smooth
the output from a
50MW wind farm
Dalian Rongke
Power is building a
$400m VRB factory
with capacity to
manufacture
4.3GW of VRB
capacity each year
Dalian Rongke Power - Shenyang, Liaoning Province, China
Dalian Rongke Power reports that it has successfully installed a 5MW/10MWh
VRB system to compliment a 50MW wind farm in Shenyang, Liaoning Province,
NE China. Where SEI’s installation is at a cross-roads in the grid, the Shenyang
installation is dedicated to a single intermittent generator and, with a lower
storage to peak power delivery ratio, is clearly designed with Power Quality and
Regulation in mind, rather than Energy Management. So this installation is what
California would term a ‘Transmission’ domain solution.
Dalian Rongke also reports that a new industrial park to manufacture up to
4.3GW of VRB capacity per annum, in Puwan New District, Dalian, Liaoning
Province. The factory complex is estimated to be costing around $400m to build,
so represents a formidable investment in this emergent technology. This is by
far the largest commercial investment in the VRB supply chain and represents a
transformative step in the technology’s development.
Rongke Power has been working with Dalian University and Goldwind, the wind
turbine manufacturer, and over several years has scaled up its designs from
10kW to the 5MW installation in Liaoning,
Hardman Comment on the projects;
These two utility-scale installations are built to do different jobs.
The Japanese installation, under the Californian terminology, is a Distribution
domain solution, built to stabilise the voltage across several grid segments in an
area where increasing amounts of wind and solar power is being installed in
relatively small units and dispersed over a wide area. In short this is an area
where an emergent Smart Grid could be enabled.
13
22 January 2014
The two systems
are built to
different jobs in
different contexts
but both imply a
large new demand
for vanadium
The location is next to a major substation and we anticipate that the systems
being tested will include support for real-time energy trading, in effect using the
VRB as a virtual generator in its own right. The large amount of storage capacity
(60MWh) will allow ‘peak shaving’ and ‘load shifting’ functions to be tested, and
so allow SEI to build a real world economic model of the system for use in a
liberalised electricity grid. In terms of the US DoE definitions of energy storage,
this is an Energy Management System suitable for industrialised nations and use
as an alternative to peaking plant.
SEI appear to be the Japanese corporation most advanced along the road to
commercialisation of a utility-scale VRB and the long period of learning already
carried completed is clearly aimed at developing an export-oriented product. It
would appear that Sumitomo views utility-scale VRBs as broadly equivalent to
other utility-scale energy systems it manufactures and the significant
government funding of this final test phase is a strong demonstration of a
willingness to support a new export capacity.
The Chinese installation is a Transmission domain solution, dedicated to a single
wind farm, so under US DoE definitions will operate as Power Quality and
Regulation as well as providing a small amount of Energy Management to the
local segment of the grid. As far as we can tell this system is currently the
world’s most powerful operational VRB, but the location within the grid and the
relatively small amount of storage capacity mean that the supporting systems
are not being tested in the same manner as the Japanese installation.
Consequently the economic model is much simpler and more oriented to a
domestic market.
Western utilities
will be watching
closely, especially
towards the
Japanese system as
it could slash the
need for expensive
peaking plant
In several western nations this function, an ESS dedicated to a specific wind
farm, has been fulfilled by modular Li-ion battery systems with several MW peak
power delivery, but again with grid location and limited energy storage limiting
the end functionality.
However, both these VRB systems are of a different scale entirely to those
currently on the market in the North America and Germany, and policy-makers
interviewed in preparation of this note have stated that there are no western
VRBs on the market big enough to do the job that they require of them.
Whether that will change with attention being drawn to the technology last year
by President Obama, or whether this will become an Eastern speciality remains
to be seen, but as we will show VRB’s don’t necessarily need to have a global
consumer-base to radically shift dynamics in the vanadium supply chain. The
pent-up demand in China is quite enough to reshape vanadium demand on its
own.
Vanadium Consumption by VRBs
Approximate
vanadium
consumption is 6
tonnes of V2O5 per
MWh of energy
storage
1MWh of energy storage capacity requires roughly 6 tonnes of V2O5 dissolved in
dilute sulphuric acid. The electrolyte solution can be pumped faster or slower
through a greater or lesser number of parallel exchange cells to tune the peak
power delivery, but we estimate that the Hokkaido installation will require
somewhere around 360 tonnes of V2O5. The system in Liaoning Province will
have required an initial charge of electrolyte containing around 60 tonnes of
V2O5.
14
22 January 2014
Current annual
V2O5 demand from
energy storage is
810t
An additional V2O5
demand of between
12,420tpa and
46,038tpa is
estimated by
Hardman based in
IEA data and
Californian
legislation
If the 5MW/10MWh Chinese system were taken as a standard ‘modular’
solution, the Dalian Rongke manufacturing facility operating at full 4.3GW pa
production capacity would imply an annual V2O5 demand of 51,600t. Obviously
that demand is not going to materialise overnight. The supply chain would
collapse under the pressure.
The current annual vanadium market is 81,000t and 90+% of that tonnage is
consumed by the steel industry. According to Roskill only 810t is currently
consumed by the energy storage sector.
If the IEA’s WEO energy scenarios play out as projected with somewhere
between 7.5GW pa and 27.8GW pa of nameplate energy storage capacity
required, an additional vanadium demand of between 18,000 tpa and 67,000
tpa can be expected until 2035 if just 10% of the globally required utility-scale
energy storage capacity is satisfied by VRB technology of the scale being tested
in Japan.
If we apply the Californian ratio of 62% Transmission domain solution to 38%
Distribution domain solution i.e 62% Chinese installation to 38% Japanese
installation we get to a broadly realistic and scaled estimate for vanadium
demand of between 12,420 tpa and 46,038 tpa V2O5, with VRBs gaining 10%
market share of non-hydro ESS globally.
There is also the potential for additional demand arising from the Consumer
domain, but that would be under a different technology pathway and probably
a relatively small tonnage.
Clearly Vanadium Redox Batteries will change the global dynamic of the
vanadium market is anything like the capacity of the Dalian Rongke factory
reaches production. The Chinese stance towards energy policy strongly suggests
that it will be encouraging VRB installation, if only to cope with PQ&R
requirements arising from the 10-15GW of additional wind power installed
every year.
Chinese domestic
market rising at 11.5GW pa due to
wind power alone
At the 10% power scaling used by the Liaoning windfarm (5MW backing up a
50MW nameplate windfarm), again at 10% market penetration, this would
imply a domestic Chinese market of 1-1.5GW pa of ESS capacity or 12,000 –
18,000 tpa V2O5, but this would be within the Transmission domain format
alone. Any additional Distribution domain energy management functionality
would be additional to that.
The additional vanadium demand attributable to Distribution domain format
VRBs will be significantly higher per unit of nameplate capacity (24t V2O5/MW
nameplate vs 12t V2O5/MW nameplate for Transmission domain).
So while there are difficulties pinning down exactly what vanadium demand will
be from VRBs, even the smaller format Chinese systems and sold only in China
to be used in the Transmission domain would appear ready to add 15-22% to
the global demand for vanadium and use vanadium in the chemical form that
Mount Peake should be producing.
15
22 January 2014
Other Vanadium-consuming Technologies
VRBs are not the only growing market for vanadium. Several other areas have
been identified as showing promise.
Some widely-used
Li-ion battery
formulations can or
do use vanadium
The auto sector
provides possible
but uncertain
demand via hybrid
and electric vehicle
batteries
Other Battery Technologies
Other battery-types can and do use vanadium as an active material. Three major
recipe families of rechargeable battery can or do use it; in the case of SVO (Silver
Vanadium Oxide) and LVP (Lithium Vanadium Phosphate) the metal is used as
the main carrier of electric charge, and in the case of LFP (Lithium Iron
Phosphate) as a dopant to enhance certain performance characteristics (when
replacing the iron it can make the cathode more resistant to degradation over
time and increase the speed of charging).
However, in terms of total tonnage these battery technologies seem to have a
relatively small requirement at present where electronic devices are concerned.
Even at high technology penetration rates the vast majority of these consumerscale batteries are used in such small size factors that only a fraction of a gram
of vanadium is required per battery.
In the modular Li-ion utility-scale ESS solutions we don’t see a requirement for
the performance enhancements imbued by the use of vanadium, except in
some niche markets such as the military and other weight critical or Fly-In/FlyOut environments. The only market that we can see, at present, that has new
mine-scale potential is the auto-sector.
Modelling the Auto-sector Demand
In order to assess the potential for the auto-sector to increase demand for
vanadium through battery technologies, Hardman & Co has developed a model
based on US Department of Energy data, current auto market segmentation
profiles and data from National Academies of Science publications. It is a
relatively simple model with 5 different car types, that use different levels of
enhanced battery capacity, based on the divisions using standard battery pack
sizes, plotted against the most and least positive policy scenarios modelled by
them to 2020.
Our model is based on an assumption that premium marques will use the best
available battery technology for the job (Li-ion with cathode formulations that
contain vanadium) and that this demand will result in 10% of all non-SLI
batteries containing vanadium in new cars only. It assumes no demand arising
from like-for-like replacement of lead-acid by Li-ion or aftersales battery
replacement (typically every 2-4 years in stop-start vehicles). We then use the
hypothetical technology uptake for vanadium-containing batteries, and scale
the US model up to a global model using the OICA’s global car sales figures
projected forward over the same period.
16
22 January 2014
Additional demand
of between 230tpa
and 4860tpa V2O5 is
estimated by
Hardman but
growth potential is
strongly influenced
by government
policy
We find that in the lowest penetration scenario, vanadium consumption
attributable to energy storage in the auto sector rises from 230tpa in 2013 to
plateau at around 500tpa. However this scenario is predicated on all US policies
current encouraging the uptake of advanced efficient drivetrains in light vehicles
being allowed to lapse on schedule in 2016. It is unlikely that this will take place.
The ‘Positive Policies’ trajectory is not an aggressive scenario but based on a set
of policies that effectively continue today’s generally positive stance towards
promoting vehicle electrification, but little more. These are middle-American
rather than Californian policy expectations. So bringing CAFE standards up
towards current EU levels (especially in the urban duty cycle), not banning the
internal combustion engine.
Vanadium Consumption (t V2O5)
6000
5000
No
New
Policy
4000
3000
Positive
Policies
2000
1000
0
2013 2014 2015 2016 2017 2018 2019 2020
Figure 4: Chart showing a hypothetical range of vanadium consumption attributable to energy
storage in the automotive sector, based upon EV market penetration, EV market segmentation
analysis and authors own estimates for vanadium-containing technologies. Data sources; US
DoE modeling, US NAP.
The most likely
additional demand
of around 3,000tpa
V2O5 is estimated
for auto-sector
batteries alone
Assessment of the Model
The biggest structural weakness in the model’s construction is that it is a global
model based in the vicissitudes of US politics. It is possible that a Republican
president could roll-back all the positive policies that are promoting the uptake
of advanced batteries in the auto-sector, but that would impact domestic automakers who have been developing new product lines and supply chains over the
last decade. The rest of the world will not necessarily follow US trends
(especially true for fuel economy), but with the major markets of the EU and
Japan ahead of the US model in terms of technology and the rest of the world
behind, it seems a relatively good median position.
In our view the ‘Positive Policies’ scenario is more likely than the ‘No New
Policies’ scenario. But the most likely position is in the upper half of the demand
trajectory, of the order of 3,000tpa V2O5 by 2020.
Comment On The Potential For Demand From The Auto-sector
Clearly 3,000tpa is not the projected 12,420tpa low end demand arising from
VRBs, and the auto-sector is a global infrastructure that will take time to shift
whatever the policy scenario being played out, but the vanadium demand most
17
22 January 2014
likely to arise from the autotrade is already here and the vertiginous rise of
stop-start and mild hybrid technologies appears to be the area most likely to
provide it.
Immediate demand
is likely from
premium marques
using stop-start or
mild hybridisation
Vanadium demand from advanced vehicles does not require Tesla-style full
electrification or even Prius-like full hybridisation. Just adding the
supplementary battery technology required to harvest energy arising from
regenerative breaking and deliver it back to a car’s interior systems while an ICE
is stopped ‘at the lights’ provides 1,605 tpa out of our modelled vanadium
consumption maximum 4,860tpa in 2020, or almost exactly one third. This
demand is not delivered by radical technology. This technology is consumer
driven and available in most European mass-market product lines right now, and
manufacturers producing vanadium-containing battery technologies are
targeting it with current product lines.
The market is currently dominated by advanced lead-acid batteries, but the
technical performance of vanadium-containing Li-ion battery formulations
match very well the intense duty-cycle required by stop-start and regenerative
braking, and weigh less than half their lead-based competition. However, short
of buying new cars and performing assays on their battery packs it is impossible
to confirm that vanadium is being used as an active material in this extremely
competitive and highly secretive technology sector.
Lightweighting Road Vehicles and Super Alloys
Auto-sector
lightweighting
trend is also likely
to contribute to
additional
vanadium and
toitanium demand
via increased use of
aerospace
materials and
manufacturing
We’re not going to delve too deeply into the relatively well-trodden road with
regards to increased titanium and vanadium use in super-alloys for aerospace
applications. There is a well-established trend towards a higher proportion of
each aircraft being comprised of titanium-vanadium alloys, and a higher number
of total passenger and freight air miles travelled each year.
Instead we will suggest that the auto-trade should be the next area where
vanadium and titanium-vanadium supply chains will be focussed.
The aerospace staple Ti-6Al-4V or Grade 5 alloy and its close cousins look set to
become partner materials for a range of carbon and polymer composites as the
lightweighting trend spreads through the autotrade over the next decade.
The most extreme example of the movement is the Volkwagen LX-1 the
futuristic new production car from the German group, albeit a production run
limited to 250 initially. Just 23.3% of the car’s 795kg kerbside weight is in iron or
steel componentry. But we don’t need to look that far along the trend to see
potential for an increase in demand for high purity vanadium and titanium in
alloys due to lightweighting. In 2012 Jaguar Land Rover launched its all-new
Range Rover using an aluminium monocoque chassis, claiming a 39% weight
saving over previous designs. JLR recently announced record sales of 425,000
vehicles for 2013. Ford recently unveiled its new version of the F150 truck with
all-aluminium panels, reducing kerbside weight by 12-15% depending on model.
The holding issue in the widespread substitution for vanadium-containing
titanium-aluminium alloys is not the engineering, or the acceptance of the
desirability of weight reduction to increase vehicle performance, but the cost of
18
22 January 2014
the titanium and the relative fragility of its supply chain. Titanium is usually
identified as a strategic metal due to its use in military assets such as
submarines and fighter jets, but in trader economies such as the UK’s its
economic role in advanced manufacturing and critical infrastructure mean that
it is has long been a focus of intense scrutiny, and indeed innovation spending.
Titanium supply
chain is currently
being re-worked to
cope with increased
demand, especially
from transport
TiVAN® looks well placed to contribute to a wholesale re-working of the
titanium supply chain too, as 50 years of searching alternatives to the Kroll
Process appear very close now. We’ve been watching Sheffield-based, part
BHPB-funded Metalysis for some time now and in December it announced that
working with the local university it had produced titanium car parts using 3D
printing technology. If ever there was a fusion between digital and physical
innovation it is this.
To bring those threads together, recently the FT reported that Metalysis were in
discussions to construct a $500m titanium refining plant, using its patented FFC
process. It also reported that Jaguar Land Rover were party to talks over
commercial terms for that plant.
Rio Tinto’s projections show titanium dioxide (a feedstock for both titanium
metal and white pigment) demand doubling by 2030 and the intensity of
pigment use (kg per capita) in Eastern Europe and China especially looking set to
rise steeply. Rio is predicting titanium use to follow the trajectory seen in the
intensity of steel use already experienced in the mature industrialised nations.
Figure 5: Pigments and TiO2 consumption patterns. Source; Rio Tinto chartbook, December
2013.Slide 35
Iron Oxide as a ‘Free’ Product
The acid regen circuit being designed by TNG’s German-Austrian engineering
partners should produce 620,000tpa of extremely pure iron oxide, and the point
should be re-enforced that this is not an iron ore. It is a refined product at 99.9%
purity and as such it could simply be bagged and sold ‘as is’ to several different
high value markets.
19
22 January 2014
Very high purity
iron oxide has a
range of high value
uses in pigments,
magnetics and
chemicals, as well
as uses as grade
control in the
volume iron and
steel market
The volume markets are pigments and magnetics, both conventional and rare
earth. There are lower volume markets in chemicals and food additives and
lower value markets as a grade control in conventional iron ore mining and
feedstock for the Indian specialities of DRI and HB iron. There is also an up and
coming consumer in advanced manufacturing through powder metallurgy.
The Pre-Feasibility Study uses an average of $200/t revenue attributable to this
product. Bagged Type 130 Fe2O3 at 90% purity FOB China, was quoted by
Industrial Minerals December 2013 Issue 555 at US$1,434-1,637/t.
There is an incredible potential in this product, whether it is in upgrading it to
increase revenue per tonne or further processing it to access the higher volume
steel markets via HBI or pellets.
Even if it were to be sold as super pure iron ore, rather than refined iron oxide,
it should command a premium. On iron grade alone it contains 7% more iron
than the Pilbara standard 61.5% Fe fines benchmark. While we don’t expect the
Type 130 bagged price to be sustained for the whole of Mount Peake’s iron
production, the $200/t average looks eminently accessible, if not downright
conservative.
Conclusions with Respect to Demand
So, within the Energy Storage sector, VRBs are the Great White Hope for
vanadium miners. The relatively modest increase in attributable vanadium
demand arising from the auto sector, the uncertainty due to relatively quick and
easy swap-outs and substitutions in this application means that VRBs are
substantially more likely to form a foundation of demand upon which new
mines can be built. And we do mean mines, plural.
The Chinese demand arising from the Dalian Rongke factory alone, when acting
at full capacity, would be sufficient to justify 3 or 4 mines of the scale of Mount
Peake’s higher 15.3ktpa output after 4 years operation. At its 8.8ktpa start-up
scale, that number becomes 5 or 6 new mines.
Our model uses only a 10% global market penetration for VRBs as they will be
competing with Li-ion, PHES, lead-acid and other energy storage technologies,
but the performance characteristics when operated at a grid-integrated utilityscale mean that a relatively few new installations per year will support new
supply-side investment.
The broad trend of
energy efficiency is
bringing new
markets to the fore.
These have
different resource
requirements and
TNG looks very well
placed to service
those new markets
Where the Supercycle was all about coal and steel, the Energy Revolution is all
about technologies that link physical systems in just the same way that the
Digital Revolution is all about linking information systems. But where the
enabling tools in the Digital world are by definition, informational, the linking
technologies in the Energy world are physical. They are ways to capture, store
and transfer energy, ways to supply and move materials in efficient ways and
the means to differentiate and track those materials.
TNG’s pat pending low energy process, TiVAN®, should enable traceable and
attributable savings across a range of Energy Revolution-related products but
20
22 January 2014
also provide policy-led industries the certainty they need to avoid the dramatic
shifts in vanadium prices that we have seen in the past.
We would expect the majority of production to be covered by long-term offtake agreements by the nature of the consumers, but for the time being our
eyes will be looking east towards Dalian Rongke’s new VRB factory and
Sumitomo’s final grid-integrated demo.
Closer to home as the auto-sector shifts its considerable weight to slimmer,
trimmer supply chains and materials, battery technologies may provide an extra
surge of acceleration to the vanadium price, but we put more store in the
combined use of titanium and vanadium in alloys to provide a secure long-term
demand upon which to build new mines.
Three ‘in demand’
products provide
diversification
compared to
current vanadium
producers
With the Energy Sector appearing to be on the brink of materialising new
demand for vanadium and the auto industry showing every intention of joining
aerospace in the titanium-vanadium alloy supply chain, two of TNG’s prime
products are on the menu in large amounts around the world.
The ‘joker in the hand’, the very high purity iron oxide product, could find itself
as the bookable difference between TNG and the old-style vanadium producers.
This is a very real pay-off from the shift from pyro to hydro and could well fund
the $55/t forecast mining and processing cost of all three products on its own.
The question then is can TNG deliver for investors ?
The TNG Value Proposition
Limited potential
for short term
increases in
tonnage but
transition from
advanced
development to
production should
provide significant
uplift
Every junior miner has a different strategy because every mineral resource is
unique. But generally non-precious metal juniors structure their development
programs with a pre-production exit in mind. This generally limits their
willingness to engage with long-term consumers and political classes that have
the ability to structure the long-term consumption trends of the materials they
intend to mine.
Local permitting issues aside junior miners tend to avoid state and national
capitols because there is little to be gained by the senior management if the
intention is to sell rather than operate. TNG wish to carry the resource right
through into production, so have been engaging much more deeply that would
typically be undertaken.
So with that in mind there are several different lenses through which value
could be added, but unless the major shareholders get an offer they cannot
refuse we should expect the company to work all the way to realising revenue
from product sales.
A Growing Resource Book & Capital Appreciation ?
The Mount Peake resource is sufficiently well defined for almost three quarters
of it to be classified as Measured, so realistically there is little by way of
‘exploration-style’ drilling left to be done on this particular geological body.
Proving up of geotechnical and metallurgical variability will be needed to
21
22 January 2014
construct a definitive mine plan, and that will result in better defined grades and
tonnages of mineralisation, but in this type of differentiated igneous intrusive
body there really shouldn’t be any sudden gaps or dramatic faults to disrupt the
continuity. If these were present the geophysics should have picked up their
impacts.
Category
Measured
Indicated
Inferred
Total
Tonnage (Mt)
118
20
22
160
V2O5 (%)
0.29
0.28
0.22
0.28
TiO2 (%)
5.48
5.33
4.41
5.31
Fe (%)
23.64
22.05
19.06
22.81
Table 2; The current (March 2013) Mount Peake resource estimate to JORC 2012 standards.
Source Company & ASX filing.
The Mount Peake body is well suited to open pit mining on a relatively large
scale. Its not Pilbara iron ore size, but it is a large industrial-scale mine of the
style that Australia knows very well and excels at operating. So the mining risk
should be relatively small.
Excellent potential
for long term
increases in
tonnage with
current 20-year
mine plan
addressing only a
fraction of the
potential resource
There should be significant geological upside. We mentioned our belief that the
licenses have a 50-year potential. This is mainly on the basis of the geophysical
exploration already carried out. However, recent discoveries proximal to the
defined resource have demonstrated an excellent prospect for resource
increases. The December 6th announcement of the identification of the surface
expression of the East target, with a strike length almost double that of the
current Mount Peake resource and surface grade broadly equivalent to those
expected from the magnetite concentrate described in the Pre-Feasibility Study,
strongly supports the idea that the resource could be replicated.
There are four further, and very large, geophysical targets to be explored on the
licenses so we believe that there is potential to define a district-scale resource
book within 15km or so, of at least 500Mt, and possibly significantly higher.
Recent discoveries
5km from the
current resource
are of a very similar
tenor but with
double the strike
length
No drilling has yet been carried out on the Eastern target and full lab-based
assays are yet to be released for some of the samples, but field measurement
surface deposits taken by MAGLAG sampling have provided some excellent
encouragement. Rock chips show a tenor comparable to the existing resource
and regolith (soil) samples show that the eroded remnants of the upper part of
the bedrock appear very similar to the magnetite concentrate that TNG have
been in discussions regarding direct sales.
NOTE – MAGLAG sampling is a simple means of gathering magnetic material
from loose chips or soil samples. A strong rare earth magnet is placed in a plastic
housing and used to gather material attracted to it. The magnet and sample are
bagged and the magnet removed from the housing without disturbing the
sample. MAGLAG sampling is effectively the same operation as a post-crush
magnetic separation, so the sample is broadly equivalent to a grade that could
reasonably expected to come from a concentrate.
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22 January 2014
Figure 6: Geophysical map of the Mount Peake area. The red line marks the exploration license
boundary. Source Company.
Recent discovery
shows field –
assayed surface
samples up to
0.635% V2O5,
24.6% TiO2 and
48.03% Fe
The Eastern Target MAGLAG sampling returned maximum grades of 0.635%
V2O5, 24.6% TiO2 and 48.03% Fe.
TNG’s Mount Peake magnetite concentrate is forecast to grade 1.2% V2O5, 18%
TiO2 and 55% Fe.
Figure 7: Photo of the surface over the Eastern geophysical target (left) and MAGLAG sample
taken from that soil. Source Company.
23
22 January 2014
Comment With Regards To Expanding The Mount Peake Resource
So can we expect a higher vanadium-titanium-iron resource book in the near
future ?
It is unlikely that multiples of the Mount Peake resource will be added to the
book before the first resource completes its Definitive Feasibility Study. That is
unless a strategic investor steps forward and explicitly funds further exploration
to meet internal goals. That’s not impossible and we have seen increasing
willingness from industrial consumers to get involved with long-term resource
projects in recent years, but we feel that 160Mt and a 20-year mine plan is
enough to be going along with.
The proximal
exploration is
proving up the
multi-decadal
potential of the
district but we
don’t expect the
new discoveries to
be included in the
DFS
Its a great confidence-builder for potential long-term partners that the next step
up in resource tonnage towards a 50-year mine life is being tested, but
realistically the current resource will be the one to go through DFS. After
financing that mine development, the company is on a completely different
footing as a self-sustaining developer/producer, and while technically still a
junior it would be swimming in a relatively small vanadium pond.
There is vague potential for a shallow extraction of the regolith over the Eastern
target. At this very early stage it appears reasonably well suited to a simple
magnetic separation, possibly without crushing and could be used in some form,
but the additional complication of co-development alongside the existing
resource may well knock that tentative thought back purely by virtue of the
additional permitting.
So in conclusion while there will be increased certainty in the currently defined
resource in terms of geotechnical and metallurgical continuity as the DFS
progresses, we don’t expect a sudden leap in the resource tonnage at Mount
Peake before it is delivered. In our opinion the next fundamental value step
change for Mount Peake will be at the DFS delivery.
The TiVAN® Advantage
Pat Pending TiVAN®
process shifts the
goalposts from
‘hot’ to ‘wet’
slashing energy
costs and
potentially R&M
overheads too
The company’s 100% owned hydrometallurgical processing technology, TiVAN®,
has been shown to extract vanadium from the Mount Peake titano-magnetite
and produce it in a high purity pentoxide form (V2O5). The acid regeneration
circuit required to minimise the processing cost has been shown to produce
very high grade iron oxide as haematite (Fe2O3) and the titanium-rich residue
appears ripe for upgrade into an export grade ilmenite (TiO2) concentrate.
The pilot plant test work completed so far as demonstrated the following;
>80% recovery of V2O5 at 99.6% purity
80% recovery of Fe2O3 at 99.9% purity
>75% recovery of TiO2 with maximum grade of 55%
All three products should meet or exceed current trade expectations in terms of
deleterious elements, and in the case of the vanadium pentoxide and iron oxide
product should trade at a premium to the usual export benchmarks.
The real TiVAN® advantage though is that it is a hydrometallurgical process, not
a pyrometallurgical one. This means that it represents a step change in the
24
22 January 2014
current energy costs attributable to all other vanadium production. The
company has previously stated that it expects around a 40% reduction in total
energy costs when compared to current production technologies. We expect
that the switch from ‘hot’ to ‘wet’ will also reduce the Repair & Maintenance
bills that plague those producers who play with fire. By how much we will only
be able to tell once in production.
Low-key GermanAustrian partners
showing confidence
in the technology
from both buy and
sell angles
TNG has brought in a highly respected (but typically low key) German-Austrian
industrial manufacturer to design and build the innovative plant. This company
has written in an option on both equity and project participation as the mine is
developed, as well as requesting rights to replicate the Mount Peake plant
designs across the world if TiVAN® gets licensed to a third party. We haven’t
seen this from a plant manufacturer before, but as a risk-averse vanadium and
titanium consumer itself it is an eminently logical and pragmatic move.
Processing Risk
TiVAN® is innovative and as with all new processes the scaling up of bench-scale
processes to industrial-scale ones can throw up the unexpected, however TNG is
working with CSIRO (the Australian government’s business technology agency)
to minimise that risk and do so in a way that meets the high standards required
by a potential world-leader.
CSIRO conducting
the full pilot-scale
plant assessment
further
demonstrating
government
commitment
Once more the involvement of a government agency, in this case to facilitate
and validate the core innovation, is key in providing confidence in what has
previously been a volatile commodity. The question really is not whether
vanadium processing using TiVAN® is risky or not, but whether it is any riskier
than current technologies ?
We would suggest that as well as the step change in energy costs, the move
away from pyro and into hydro represents a step change in the processing risk,
and for the better.
However, TiVAN® still needs that German-designed/CSIRO operated multi-tonne
pilot plant to operate over the weeks of the proposed test plan to provide the
definitive data on recoveries and efficiencies that it promises. That process
should also provide trade samples of sufficient volume to start to market the
product in earnest and nothing focuses the customer’s and the investor’s mind
like a tub full of the end product sitting on the conference table.
International
licensing offers
potential revenue
stream
independent of the
physical resource
Licensing Potential
TiVAN® has patents pending in 12 major vanadium producing or consuming
economies, so once proven reliable and economic, current producers will face a
direct choice. In China and South Africa energy and resource policies both point
strongly towards lower systemic energy intensity in the resources sector.
With the IP protected in all the major vanadium-concerned economies there is
certainly potential for licensing to third parties. We understand that at least one
discussion to this end has already taken place or is still taking place.
25
22 January 2014
Comment on TiVAN®
The vanadium industry badly needs a more efficient and reliable processing
technology and, while supply shocks are not limited to processing plant failure,
lessening the impact of the refining process in terms of energy consumption is a
major focus for at least two of the main upstream supply chain participants.
Licensing the technology could diversify the revenue streams for TNG and at
close to zero capital cost, but the more participants in the supply chain, the
more competition. So it will be a fine line to be trodden between risk and
reward in the vanadium market.
Mount Peake would
be a vanadium
mine but also a
world-class
titanium mine
Titanium supply
chain is also
switching processes
as it gears up for
significantly higher
volume and lower
cost production
The titanium market is a little different. A significant factor that often gets
forgotten is that TiVAN® is going to enable the production of an export-grade
ilmenite concentrate in very high tonnages. The potential for the process to
increase the volume of available titanium ore has the potential to contribute to
the global reworking of the titanium supply chain. Based on the Pre-feasibility
study TNG expects to start TiO2 production at the rate of 223,000tpa rising to
375,000tpa. At this scale the mine should be considered world-class, in terms of
titanium alone.
Other companies such as the Canadian junior Argex Titanium Inc and the
aforementioned Metalysis are working further down the supply chain to refine
the ore (Argex) and then smelt it into metal (Metalysis) using innovative
processes that make the expensive and dirty Kroll Process seem antiquated.
There has been no significant, high volume, innovation in the titanium supply
chain for the last 50 years.
Its certainly an option for TNG to take the titanium conc to the next level and
refine it to a ‘pigment grade’ of 99% TiO2, but that would probably require
another stream of innovation and that is perhaps best left until production is
underway and the project can be funded internally.
TNG has announced that it is in discussion with a titanium end-user with regards
to an off-take agreement.
Summary Opinion on the Potential for Capital Appreciation
Strangest potential
for capital
appreciation is in
completion of DFS
but IP licensing
could also provide a
stimulus for rerating
In the shorter term there certainly appears to be potential for a re-rating of the
company as it delivers the Mount Peake DFS, and at way-points within that
process. There is also the potential for realisation of the TiVAN® process as a
separate revenue stream. This appears to be largely ignored by the market at
present despite its potential to help re-work two critical supply chains.
We don’t expect further capital appreciation arising from a resource increase in
the near future, at least at Mount Peake, but that would be to ignore the fact
that TNG has several other advanced exploration programs focussed on copper.
Most non-gold junior miners of any quality are currently under-priced on a
fundamental analysis, but as the auto trade starts to show signs of a widespread
recovery and China starts to re-enforce its national grid you have to wonder
how long that will last when, not if, the vanadium price starts to shoot up again.
26
22 January 2014
Summary Statistics from the Mount Peake Pre-Feasibility
Study
The following is a direct copy of the fundamental statistics upon which the PFS is
based and is provided for readers to construct their own models. Having
discussed this with both professionals and enthusiastic amateurs over the years
we understand that this raw data, more than our own calculations is what
mining investors are seeking.
Please note that the omission of revenue and valuation forecasts included in the
original PFS is deliberate.
The engineering and financial modelling contained in the Mount Peake PFS was
conducted by Sinclair Knight Metz and Snowden.
Mine Production
Pre-Production Period
Plant Throughput Years 14
Plant Throughput Years 5
on
Ore Processed
Processing Life
Average V2O5 Recovery
V2O5 Product Purity
Total V2O5 Product
Produced
Product Moisture
Average Annual
Production Years 1-4
Average Annual
Production Years 5 on
V2O5 Product Price
Average TiO2 Recovery
TiO2 Product Grade
Total TiO2 Production
Product Moisture
Average Annual
Production Years 1-4
Average Annual
Production Years 5 on
TiO2 product Price
Average Fe Recovery
Fe2O3 Product Purity
Fe Grade in Product
Total Fe2O3 Production
Fe2O3 Product Moisture
Average Annual
Production Years 1-4
Average Annual
Production Years 5 on
Total
Unit
2
2.5
years
Mt
5
Mt
75.9
17.2
79
99
236,000
Mt
years
%
%
t
1
8,800
%
t
15,300
t
19,814
54.6
50
5.822
12
223,000
A$/t
%
%
Mt
%
t
375,000
t
400
59
99.9
69.2
17.4
15
0.62
A$/t
%
%
%
Mt
%
Mt
1.13
t
27
22 January 2014
Fe2O3 Product Price
Mining Cost
Processing Costs PFS
Processing Costs Revised*
Transport Costs
200
5.49
52.21
~32.21
17.76
A$/t
A$/t of ore mined
A$/t of ore processed
A$/t of ore processed
A$/t of product
transported to Darwin
V2O5 Equivalent COG
Total Material Mined
Waste
V2O5 Mined Grade
TiO2 Mined Grade
Fe Mined Grade
Initial Capital Cost
Deferred Capital Cost (Year
5)
0.47
176
83
0.36
6.49
26.32
583
159
%
Mt
Mt
%
%
%
A$m
A$m
Table 3: Summary of relevant statistics from the Mount Peake PFS of Nov 2012. Source;
Company. * Revised costs on the basis of crushing & grinding optimisation post-PFS.
DFS Progress
The Mount Peake DFS got under way in earnest at the end of 2012 under the
management of Australian mine services company, Arccon. Part of the Allmine
Group (ASX:AZG).
A full review of the financial modelling process in February 2013 showed that an
error had been made in the initial PFS, and the iron oxide product was modelled
as elemental or contained iron rather than a saleable high purity metal oxide.
LOM Revenues of
A$13.8bn
NPV8 of A2.65bn
IRR of 38.7%
Recalculation showed that NPV8 rises to A$2,646m, IRR to 38.7% and LOM
revenues to A$13.8bn.
The environmental baseline studies are on-going and being conducted by
respected Australian group GHD. So far they have found no blocking issues.
The pilot plant, designed and built by the company’s German-Austrian partner,
to be run in a continuous mode by METS and overseen by CSIRO is well
progressed.
Crush & grind
optimisation shows
A$20/t saving or
A$50m pa
In May 2013 the design process has resulted in a significant operational cost
reduction of A$20/t is possible as a direct result of crushing and grinding
optimisation. Initial modelling suggests that this will result in a saving of A$50m
pa in OPEX.
Unfortunately shortly after this announcement the mining slump bit and the
rapid progress towards production was slowed as the project manager’s parent
Allmine Group, went into receivership and project management reverted to
TNG. Allmine Group has subsequently been liquidated.
28
22 January 2014
In July 2013 TNG delivered a low-cost option against its PFS. Effectively this
scoping study examines the returns possible through a direct shipping of
magnetite concentrate without the TiVAN® processing plant.
While encouraging from the perspective of rapid generation of revenue, this
would not realise the capital expenditure of developing the TiVAN process, and
a subsequent capital raising and acquisition of the full rights to TiVAN® reaffirmed TNG’s commitment to innovation as well as production.
Additional cash will
be required for DFS
delivery
TNG currently has sustaining cash of A$5.6m against a three monthly
expenditure of A$1.6m, so will require additional cash to deliver the DFS.
We understand that discussions are underway with a major mining company
with regards to funding the completion of the DFS and licensing TiVAN®, so an
additional call on the wider market may or may not be required but we couldn’t
speculate on what the terms of any deal might be if struck. Obviously IP has
value as well as equity, and having just bought the rights to TiVAN® outright
TNG is likely to wish to realise some of its investment if at all possible.
Conclusions and Opinions
For us the original proposition is still the more promising one, with the direct
shipping of magnetite ore having quick but relatively low revenue potential in
comparison. We understand that investors may see continuing dilution as
deleterious to value and see the direct ship option as desirable.
Junior mining is risky and typical investors are seeking multiples from companies
like TNG. Direct shipping of ore will certainly prevent some equity dilution, but it
will also deplete their company’s in-ground resource at the lowest possible
return. These are straightened times in junior mining, but innovators have a
responsibility to avoid diluting the impact of their innovations as well as dilution
of their newer shareholders interests. There is certainly an amount of data that
can be gathered and learning that the company can do by undertaking smallscale direct shipping of magnetite ore, but there is a balance to be struck
between the interests of different shareholders and consistency is a value in
itself.
For us the main question for investors today regards the materialisation of the
long predicted vanadium demand from new energy technologies and the means
to realise capital appreciation from their company’s investment in the
development of TiVAN®. This would appear to provide the highest long-term
revenue potential when considered in combination with the Mount Peake
resource, but also provide access to a resource-independent revenue stream
through the sale or licensing of intellectual property.
We believe that the reality of the new Chinese Vanadium Redox Battery
manufacturing capacity and pent-up demand for voltage stabilisation due to its
massive roll-out of wind and solar power, mean that the step change in
vanadium demand is imminent, irrespective of any demand from outside China.
29
22 January 2014
In the medium term, Sumitomo’s VRB system will be more attractive to western
utilities, as it is focussed on enabling the Smart Grid concept. However, the
immediate roll-out of power quality management systems co-located with
intermittent renewables is already a competitive new international market,
currently dominated by modular Li-ion systems of limited scale and technical
capability and distinctly ‘old tech’ lead-acid systems. A containerised modular
VRB could compete in this market and the smaller North American and German
systems may well do so.
As that market develops we believe that VRBs will occupy a significant
proportion of the total energy storage market, mostly at larger scales and
occupying technical positions to compete with small to medium-scale pumped
storage. Using a market penetration of just 10% of the forecast demand for new
energy storage capacity implies a new demand for V2O5 of between 12,420tpa
and 46,038tpa to 2035, based on IEA projections, and in a current market place
of 81,000tpa. This is clearly a transformative potential for a metal often plagued
by volatility and instability.
TNG’s resource/processing technology combination is a very strong proposition.
The diversity of products, the reduction in processing risk and energy costs, the
high value of its products, together all point towards a more sustainable supply
chain for vanadium and titanium. With that should come a reliable income for
investors, something that vanadium miners have not supplied in the past.
With respect to the political involvement, the more ‘big hitters’ that are on your
side the better the optics, but in the end the whole play comes down to
completion of a DFS that confirms the economics of the Mount Peake
resource/processing technology combination.
We understand the political interest in a deliverable project with a visible supply
chain and agree that proving up a hydromet process for vanadium and titanium
from titano-magnetite is an important project, not only for TNG, but also
Australia and the global Energy Revolution.
30
22 January 2014
31
22 January 2014
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