VSA Capital Market Movers – Ferro Alloy Resources

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VSA Morning Miner, 07/10/20

Ferro Alloy Resources (LON:FAR)

Ferro Alloy Resources (LON:FAR) has announced further positive production, reporting 188t V2O5 in the first 9mo20, up 72% YoY. A record of 90t of V2O5 was produced during Q3 2020 up 135% YoY as recent enhancements have had a rapid impact on production. With the recent additional funding that was secured we expect the company to make further progress in raising production towards the year end.

As previously highlighted the installation of a decomposition oven will enable conversion from AMV to V2O5 erasing the current c15% discount on benchmark pricing. This is expected to be achieved by year end. The final work to connect FAR to the high voltage power line is now due in Spring 2021and will enable sufficiently reliable and low cost power for the installation of an electric arc furnace capable of taking FAR to 125tpm.

We highlight that the recent injection of capital has allowed the company to make rapid progress towards realising its development plan. Our positive view on the stock is largely based on the fact that modest investment rapidly unlocks higher production which we in turn expect to translate to stronger earnings performance.

In addition, the company has also made advances in relation to vanadium electrolyte where a flowsheet has been developed internally to directly produce this premium product. FAR now has an agreement with the Institute of Metallurgy and Enrichment in Almaty to continue testing.

We also note that the company is working to commission a process line to extract molybdenum. Although a significant by-product from the Balasausqandiq ore, the company has not yet opted to extract it from third party materials. However, it is commonly contained within the raw materials which FAR already purchases and the establishment of this additional spur to the process line will enhance revenue and margins from existing operations, in our view. Molybdenum currently trades around US$8.3-5/lb.

We reiterate our Buy recommendation and target price of 171p/sh.

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