VSA Morning Miner, 16/09/20
Ferro Alloy Resources (LON:FAR)
Ferro Alloy Resources (LON:FAR) has announced further funding via equity and bonds totalling c£733k. The equity subscription took place at 8p raising £500k and follows the recent fundraising of the same quantum and price earlier in the month. For this tranche 6.25mn shares were issued. In addition, FAR issued cUS$300k in bonds with an effective interest rate of 7%pa paid semi-annually. The bonds mature on March 23 and the investors have the right to request early repayment after twelve months.
FAR has therefore raised significant funds in recent weeks which will support increased production and revenue. The company in a recent operational update described a target of 60tpm of vanadium for H2 2020 and the funding will enable the company to achieve that through spending on operational equipment to improve filtration and washing which will increase throughput and product quality. FAR will also complete the installation of the equipment to convert ammonium metavanadate to V2O5. The latter is a substantially value add product; AMV sells at a c15% discount to V2O5. This will therefore, enhance the top line and earnings outlook over the balance of the year.
The power line has been consistently highlighted as a key bottleneck and the additional funding will enable the completion of the 2km spurline, installation of transformers and automated control, really protection and high frequency communication systems. There is however, some remaining work which will be to install the open switchgear and the low voltage line from there to the operations will be completed in spring of 2021. That said, some of the improvements will have an immediate impact reducing power costs by half and increasing reliability and reducing intermittent outages which has thus far held production back.
FAR with this additional funding will be able to make substantial progress, in our view, with a direct and quick positive impact on operational efficiency and performance which we expect to feed into improved earnings performance.
We reiterate our Buy recommendation and target price of £1.71/sh.
VSA Capital Limited, New Liverpool House, 15-17 Eldon Street, London EC2M 7LD | www.vsacapital.com
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