VSA Morning Miner, 13/09/21
Ferro Alloy Resources (LON:FAR)
Ferro Alloy Resources (LON:FAR) has announced the receipt of a patent for the technology it has developed to produce electrolyte suitable for vanadium flow batteries (VFBs) directly from ammonium metavanadate (AMV). This is a timely announcement, in our view, as VFBs are gathering momentum with governments and utility providers who are increasingly considering their adoption following a flurry of high profile lithium-ion battery fires including on a Chinese shipping container, at the Victorian Big Battery project and at an installation in Beijing; the FT reports 38 such incidents since 2018. Whilst we expect lithium-ion technology to improve to prevent thermal runaway the recent incidents have provided developers of VFBs the opportunity to showcase their products highlighting the real benefits and advantages that VFBs have for grid scale storage. We believe this will be a key trigger for the VFB market, the growth of which was a major part of the investment case of Vision Blue Resources into FAR earlier this year.
VFBs do not experience thermal runaway and therefore do not present the same fire risk as lithium-ion, they do not deteriorate after many cycles and can be fully charged and discharged repeatedly without impacting the battery life. Furthermore, and crucially for grid scale projects the energy can be scaled independently of power simply by increasing the volume of electrolyte meaning that VFBs have significant economies of scale advantages over lithium-ion. For these reasons we believe that for grid scale storage, VFBs offer the strongest solution for grid scale storage. A potential outcome is projects using both as in this format the advantages of VFBs can be harnessed for long duration cycles with those of lithium-ion for short duration cycles.
Although the receipt of the Kazakhstan patent is a strong step for FAR and recognition of the successful development of this process, we also note that FAR has signed an agreement with the Frauhofer Institute for Chemical Technology, in Germany, a leader in VFB research to jointly advance the development of the process. This will all in likelihood prove beneficial to FAR and help the company realise the economic potential of the technology.
FAR already produces AMV from its existing operations and typically receives a 15% discount to the benchmark V2O5 price; producing high purity electrolyte would command premium pricing. It appears that by directly producing electrolyte from AMV rather than the usual route from more refined vanadium products is cheaper, safer and FAR believes that greater consistency on removing impurities can be achieved and is therefore some way ahead of its competitors.
We reiterate our Buy recommendation and £1.80/sh. target price.
Oliver O'Donnell, CFA, Head of Research & Natural Resources Analyst | T: +44 (0)20 3617 5180 | E: oodonnell@vsacapital.com
Paul Renken, Senior Geologist | T: +44 (0)20 3005 5011 | E: prenken@vsacapital.com
VSA Capital Research | T: +44 (0)20 3005 5000 | E: research@vsacapital.com
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