The Smart Investor: Warren Buffett Backs BYD Company Limited. So Should You.

Will electric cars spark a run on the battery additive vanadium?

Jan 1, 2010  

by Fabrice Taylor

There are signs that vanadium may be the leader in terms of battery additives. BYD is among the leading-edge battery makers looking at the metal and is building a plant in the vanadium-producing region of China. Subaru, meanwhile, has a prototype, the G4e, that will use a lithium-vanadium-phosphate battery. It has twice the range of a prior prototype.

As Hykawy, a PhD, puts it: “Batteries containing lithium vanadium phosphate cathodes [have] the greatest ability to store electricity. Ultimately, these cells should prove to be of lower cost than the conventional lithium cobalt oxide cathode-equipped cells, commonly used in cellphones and laptops.”

Off the road, so to speak, there’s what’s known as vanadium reduction-oxidation batteries, also known as redox batteries. This is a very promising existing technology that works at the grid level and allows for the storage of a lot of power, which can be drawn for long periods of time. They’re ideal, among other things, for wind and solar farms, which produce power when it’s not necessarily needed.So demand appears to be going up. What about supply? Vanadium is very common but deposits that can be mined economically are very rare; there are few quality deposits in the world. That suggests that if demand rises, prices could move up quickly too, making deposits economical in a hurry. Hykawy expects a tight market if things unfold as he predicts.

So how to profit if this argument makes sense to you? There are no big pure-play producers. But there are smaller companies trying to develop their plays.

One is Apella Resources Inc. (TSXV:NVE), which I know a little because they’ve hired me to do some valuation work for them. Apella says it has a lock on pretty much all of the decent vanadium resources in North America. It seems to have a lot of it underground, and all in safe jurisdictions. Recent results are encouraging too. Management is solid and aligned. If vanadium really takes off and they prove up their properties, it could be another Voisey’s Bay.

Largo Resources Ltd. (TSXV:LGO) is another promising play with two very high-grade vanadium assets in Brazil and a tungsten play in the Yukon. I spoke with CEO Mark Brennan and got the sense that things were about to happen, although he was pretty tight-lipped.

Still another is Sino Vanadium Inc. (TSXV:SVX), based in Calgary. Management is in China and has invested heavily in the assets, which are in China near where BYD is building its plant. The plan is to consolidate, which, if they can raise money, makes sense.

There’s no way of knowing for sure if or when or by how much batteries will drive vanadium demand. But the story has a good feel to it. Don’t forget about the risks though. They are not to be ignored.

Prairie Trader is an independent overview and assessment of investments available to Albertans. Alberta Venture assumes no responsibility for the accuracy of any stock recommendations. You can send letters about this column to feedback.

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