Exploring the Pilbara: Tando Resources

Bill Oliver is the CEO of Tando Resources. Tando is a Perth based mining exploration company, basically a common ore garden, copper, lead, zinc explorer in the Pilbara. They’re a dime a dozen, let’s face it, and I was going along just doing that, looking for some copper or lead or zinc or something up there in the Pilbara. Until last month it bought a vanadium deposit in Northern South Africa, not far from Johannesburg. It’s paying for it through a series of share issues and the share price basically doubled and is now approaching $1 and the thing’s capitalised at about $34 million.

I thought it would be a good idea to ring up Bill Oliver and see what’s going on and see what the strength of this is and what’s vanadium all about because what it is, it’s all about energy. It’s another lithium in a way. Vanadium is used in flow batteries. It’s also used to strengthen steel and that’s what it’s always been used for for 100 years or more but now it’s starting to be used in batteries and that’s why everyone’s kind of suddenly interested in it and that’s why Tando Resources bought it.

Here’s Bill Oliver, the CEO of Tando Resources. 

Bill, tell me about how the vanadium acquisition in South Africa came up?

It was one of those Perth network things.  Myself and a couple of other guys have been very keen on vanadium, knew about it and we got introduced to the asset by some guys who obviously had a fair few assets in Africa and saw this one and thought it might be a good fit and yeah, got together and worked out a deal pretty quickly.  Discussed with the vendors and yeah, I think we’ve landed into a real win-win sort of deal structure.  If the project performs as we expect it to and meets all the milestones, they obviously reap the benefit and equally we’re not paying a heap up front.  We’re allowing the project to dictate the value both in the market and to the vendors.

Was there an auction?  Did they put it on the market and seek buyers?  How did you end up being the only buyer?

I think moving pretty quickly.  I mean it’s been around for a little while.  I think the opportunity of the vanadium market is something we’ve noticed perhaps earlier than others, and been keen to seek out sooner than others.  And of course, people in Australia still looking at African assets, may or may not have the comfort with Africa itself.  Whereas, personally I’ve been involved in projects in Ghana and Namibia and all around Africa and you’re able to evaluate the risk profile a bit more effectively than perhaps some other groups.

There wasn’t a formal process, you were just introduced to them.  Had other people looked at the deposit in the past and turned it down, or what?

I believe a couple of people had looked at it and certainly some of the operators in South Africa had looked at it as a mine gate sale opportunity but obviously there was a bit of restructuring with Everest going out of the market there and the vanadium industry in South Africa has undergone a bit of a renaissance in the last sort of 18 months or so.  Certainly, recently nobody had really looked at it and I think, as I said, we were very keen on the vanadium space. We were one of the first people to go out and actively source projects in that space and I think that’s why we probably – other people may have seen it at the same time, but we certainly acted on it a lot quicker than some others, I guess and at the end of it we came up with a deal.

Fair enough.  Who are the vendors and why didn’t they develop it themselves?

They’re a private group of individuals in South Africa and look, they have their own chrome mining operations etc in country.  I think, again, it’s that opportunity.  We see it as a project we can take through to potentially supplying the battery market.  Whereas, really similar to the iron ore market in Western Australia and Australia, if you have a small deposit you’re really only looking to dig it and either a mine gate sale or ship it.  I think perhaps the bigger picture has really come on in the last six months or so.  Again, financing for these sort of projects is only really kicking in now.  You see guys like Bushveld on the LSE, their share price has appreciated substantially this year from sub 10 PE at the start of the year up to highs of 20 PE on Friday.  That’s the recognition in the market, in the investor market, of where the vanadium demand is going this year and in future years. 

I think again, it’s been a very quick appreciation in the price and therefore I think you go back a year, two years it was a very different landscape.  That’s certainly why some of these projects have been on the sidelines until recently.

I’m just looking at the deal that you’ve done with the vendor.  I think you’ve got existing about 30 million or just a bit less than 30 million shares on issue, but you’re issuing 35 million shares to the vendors at a deemed price of 30 cents.  It’s kind of almost a reverse takeover of Tando isn’t it?  Because they’re going to own more than the existing shareholders?

I think after we did the initial placement we’re up to 34.5 million shares, we’ve also got about 12 million listed options on issue.  Fully diluted we’ll be up to 46 and I think the important thing is the deal is structured around milestones.  So 4.25 million on the initial DD completion, following that 7.5 million on delineating a measured indicator resource, another 4.25 million on scoping study, 8 million on completing a pre-feasibility study and then 11 million on a feasibility study.  I think by the time we get through all those milestones the capital structure will be slightly different.

Again, it’s a win-win deal.  If the project does go through all those milestones I think the company will be a very different value proposition at the end of that. No, I wouldn’t…

No fair enough, that’s okay.  I’m just trying to get at – so you’re also raising another $2 million through a 5 million share placement.

Already done and banked, Alan, actually.

That’s already done and banked, and that money is to be used to just kind of do the deal, to do the due diligence and get the deal done.  Is that right?

And get into drilling.  That will pay for our first drill program which we’re very keen to get on the ground and get started as soon as possible.  Yeah, that money will take us a fair way because obviously we had our existing fund that we earmarked for exploration around our Pilbara project and so that’s topped up the coffers and meant we can move quickly into drilling and we don’t have to hang about.

A lot of drilling has already been done on the resource in South Africa hasn’t it?

Yeah, right.

You’ve got more than 500 million tonnes delineated now?

Correct.  They’re delineated under the SAMREC Code which is an internationally respected Code, but it’s not JORC, so we do have to be very clear about that but it is a robust defendable code, but for the ASX we’ll need to do some drilling to confirm that SAMREC Code and bring it up into JORC.  There’s been 51 drill holes already, 23…

Bill, would you mind spelling those words, SAMREC and what was the other word?

SAMREC Code is the South African Mineral Resource Estimation Code which is obviously just a code around the estimation of resources and reserves, whereas in Australia and on the ASX we use the JORC Code, which is the Joint Ore Reserve Committee Code which is our standard.  Now the two standards are similar but obviously it’s like Accounting Standards, you can’t apply UK standards in Australia, and vice versa.  Part of our initial work is to do sufficient drilling to enable that SAMREC Code to be re-coded under JORC, which is really just a check and verification drilling.  Then following that we’ll seek to infill and expand the resource for further drilling.

How much do you expect it to cost to turn the thing into a mine?

That’s a rather far-sighted thing at the moment.  I think the key for us is probably about $1-1.5 million initial spend to do the drilling and do a substantial amount of metallurgical work, that will get us through a scoping study which will be quite a detailed scoping study.  We plan to do a fair bit of metallurgical work because we want to try it, not just the established tried and tested salt-waste pass, but also trial a few leech profiles and see what that does with the recovery especially looking towards our battery grow product if we can achieve that.  That will be the initial spend and then from there, really the size of the deposit and the economics will dictate how much of it we drill out and the further costs to go through PFS and the feasibility study.

Any intention to flip it or are you going to take it through to mine?

Well, look, I think flipping it is one thing, but really with where we are, I think we’ll have different options with the product.  If you’re in Australia you’re not an established vanadium processing hub, so you don’t have processing plants around you.  We’ve seen in the gold space from recent years, processing plants are used as a standalone operation, a lot of toll treating, a lot of deals between miners and operators and guys that are just miners and that’s reduced the capex hurdle substantially.  I think more we’ll look at options, you know, mine gate sale versus building our own plant versus other options and I think that will be a key economic advantage for us.  If we don’t have to spend the capex of building a new processing plant and we can get an attractive mine gate sale with an established processing plant and we can deliver into their site, that will obviously be a much faster track to production.  But having said that, no conversations are underway at this speak.  It’s just one of those options that we’ll look at certainly.

Our key at the moment is really to add value to the project and to bring it up the curve and put it into a study that people can see the economics of it and can see the viability and then from there, we’ll just work in the best interests of shareholders, as all companies do.  Whether that’s partnering with somebody, whether that’s offtake, whether that’s whatever, you know, you just have to sort of take the opportunities and see what’s out there.

Let’s talk a little about vanadium, obviously it’s been around a long time as a steel additive to make steel stronger and lighter, but obviously now it’s part of the energy revolution as an input for flow batteries.  The price has doubled in the past 12 months I think. 

Correct.

Is that because it’s already going into batteries?  Are they building these vanadium batteries or not?

I think the first point is actually no, so the price and the demand is underpinned by steelmaking still.  90% of all vanadium produced in the market today goes into steelmaking.  I’ve got some stats for you Alan.  In North America they use 95 grams per tonne of vanadium.  Europe it’s 75 grams per tonne of vanadium in your average steel.  In China and India, China is 45 grams per tonne and India is 35 grams per tonne.  So as regulations tighten in those countries there will be more and more vanadium required to add to steel to strengthen the steel they use in building and construction.  As global regulations do tighten, we’ve seen a number of instances around the world where construction has been sub-par.  That demand will increase in the steelmaking industry and that’s before we get to batteries.  There’s currently an 800 megawatt power station being built in China, there’s a 500 megawatt station currently in use. 

Now that 800 megawatt station at Rongke, that will use around 7,000 tonnes of vanadium in its construction which is about a quarter of global production, so you can see that if one or two of these are being built a year, all of a sudden the demand increases substantially.  But to answer your question, no, there’s only a small portion going into batteries currently but the people who are seeking to build these batteries in the future we understand are quite concerned because with the demand of the steelmaking industry, that global supply is becoming quite constrained.

Is the view that vanadium flow batteries will take over from the zinc bromide batteries that RedFlow is making now?  I mean obviously there are various types of batteries but the one that’s regarded as being the likely stationary used battery for power plants and mobile phone towers and so on, are these zinc bromide ones.  Do you know about them?

Well I think the technology is evolving and bromide is not really a nice chemical to have flowing around your house and your neighbourhood.  I think what you’re seeing is the technology is developing.  Vanadium is certainly a more steady-state battery, is safer as it’s only a single electrolyte.  It’s got obviously that industrial usage, it’s got over 20 years of potential life, 25,000 cycles of charge and again discharged down to zero.  Also hold its charge for over a year, which is obviously very attractive in those industrial applications.  Personally, I think the technology is emerging and developing, I think that’s the key thing.  We can’t forecast accurately which batteries will be best in which situations.  A lot of the technology is still developing, a lot of the people building these power and energy storage are trying to work out the best battery mix for each specific use, which makes sense.  I mean you don’t want the battery that’s in your mobile phone to be trying to charge your house.  That doesn’t seem to make sense to me intuitively.

That’s right.

We’ll start to see different types of batteries being focused on different usages and certainly vanadium flow batteries offer some pretty attractive features especially for industrial and household scale applications.  I can certainly see there’ll be increased usage.

I understand a lot of vanadium, possibly 70% of the world’s supply is above ground in mine tailings and steel slags and so on.  Is there any risk there, because as I understand it, the technology for extracting that vanadium from the above ground dumps is not really there yet, but obviously someone’s going to work on it.  Are you kind of at risk to some extent from that?

Again, the pick up in demand.  I mean if it’s in steelmaking slag that’s naturally going to feedback into the steelmaking industry first, which is almost good in a way, because that may free up a bit of new supply into the battery space and allow that to develop.  I think, again, the take up in energy storage over the globe is going to be so substantial I think really the amount of material taken from slags is not going to completely feed that projected demand.

Again, you’re going to need 7,000 tonnes per 800 megawatt hour battery.  Plus you’ve got the steel industry requiring that much again to feed into its own product.  I think, sure, it will help, it will ease some of the demand, but I don’t think it’s going to replace the requirement for new supply into the market.

I’m going to have to leave it there, Bill.  Thanks very much.

No worries, Alan, thanks for the chat.

That was Bill Oliver, the CEO of Tando Resources.