Australian Vanadium Limited (AVL) and Technology Metals Australia Limited (TMT) have agreed to merge via a proposed scheme under which AVL will acquire 100% of the TMT Shares on issue.

Under the terms of the scheme, each shareholder of TMT will receive 12.00 AVL fully paid ordinary shares for every fully paid ordinary TMT share held at the record date. If the Scheme is approved and implemented, existing AVL shareholders will hold ~58% of the combined group and existing TMT Shareholders will hold ~42% of the combined group (prior to any dilution associated with the proposed placement). The combined group will continue to trade as Australian Vanadium Limited on the ASX.

The Projects

AVL’s Australian Vanadium project consists of a high-grade V-Ti-Fe deposit in the Murchison Province approximately 43km south of Meekatharra in Western Australia. The project envisages open-cut mining and a crushing, milling and beneficiation plant south of Meekatharra and a concentrate processing plant will be located near the port city of Geraldton.  

A BFS was published in 2022 envisaging average annual vanadium production of 11,200tpy vanadium pentoxide (6,272tpy V) as a 99.5% V₂O₅ high purity flake and 900ktpy of ferrotitanium coproduct. CAPEX was put at US$435M.  

TMT’s Murchison Technology Metals project (MTMP) consists of the Gabanintha and Yarrabubba projects. A DFS was completed on the former but not yet the latter, with work underway to integrate the two deposits into one overall project. The Gabanintha project is located 40km south of Meekatharra.

A DFS was published in 2019 and set out plans for an open-pit mine and plant for the production of approximately 12,800tpy vanadium pentoxide (7,170tpy V). Gabanintha CAPEX was put at US$318M. 

In a press release, AVL set out its strategic rationale including enhanced project economics and material synergies, improved funding capabilities, increased market relevance and compelling fundamentals. Below we set out Project Blue’s view on some of these points. 

The Blue View

There are certainly synergies brought about by location with the projects being contiguous. AVL notes that the new combined mineral resource base represents a >25-year mine life with an opportunity for further expansion. 

There will likely be some synergies with regard to infrastructure development and various factors of production, although there will doubtless also be operational challenges to overcome with regard to integration.

AVL notes that improved funding capabilities are a key rationale of the merger – and it is likely that this larger entity will benefit from scale and enhanced profile when raising finance in a crowded market. 

Regarding market relevance, AVL points to a pro-forma market capitalisation of ~US$140M with a pro-forma cash position (post-placement completion) of ~US$33M. While the combined entity is reportedly well-funded for the next phase of project development activities, it will be banking on its improved funding capabilities to meet total future CAPEX requirements. 

In terms of market fundamentals, Project Blue considers there to be a need for vanadium project development over the coming years and that, in an increasingly ESG-compliant world, ex-China producers of high-purity pentoxide could be in high demand.

This is because we expect continued commercialisation of vanadium redox flow batteries (VRFBs) in our base case. Our current projection is for a 16.7% CAGR between 2022 and 2033, with the sector accounting for 16.8% of vanadium consumption in 2033, with demand being primarily driven by China. This demand will need new supply. Demand for vanadium in steel is also set to increase, supported by HSLA output and higher intensity of vanadium use, although at a moderate pace due to China's declining rebar production volume.  

Our expectation is that the market could almost be supported by existing assets over the next few years, but that ultimately new sources of supply will be required after the middle of the decade. This new supply will come from primary, secondary or co-producers, with both existing players and new operators looking to bring new projects into production.

Project Blue considers the move to be a strong statement of intent from AVL to become a significant player in the vanadium market and reinforces our view that it is one of the most advanced vanadium projects targeting near-term production. Project Blue is tracking 16 ex-China projects at various stages of development which have the potential to support additional demand growth over the next decade.