Phenom Resources Corp (PHNMF)

[ThSeeker]

Less favorable commentary

When vanadium prices went vertical earlier this year, I warned that the spike was not sustainable. In October, I said:

I’m skeptical that a 30% increase in use in Chinese rebar justifies a 500% increase over recent vanadium price lows. I’d still think this way, even if China were not in an escalating trade conflict with one of its biggest trading partners. With an average price in the [long term] chart near $5/lb., I’d say that $10/lb. would be a reasonable level. But that’s less than half of today’s prices—closer to a third.

I was right. Perhaps someone was listening, because the hot vanadium stocks of a couple months ago began correcting—hard—before the metal itself did. But that has now started as well.

An important point to make here is that if vanadium prices rebound in the immediate future, nothing changes. Vanadium prices have a history of spiking and retreating. The 2008 price peak looks flat at the top at a certain scale, but in fact, vanadium prices fluctuated near the top for some months before heading down for almost 10 years. You can see this in a longer-term chart.

Don’t be fooled. I was right to suspect that the near-term catalyst (the new Chinese rebar standard) was already priced in in advance. If I’m also right about $10/lb. being a good level for vanadium prices to settle at, pure vanadium plays have a very painful few months ahead of them.

On the other hand, I’m bullish on vanadium over the longer term. The metal has an important and potentially very large role to play in the new energy paradigm.

You see, while not (yet) practical for smaller applications like phones, cordless tools, or even cars, vanadium flow batteries are great for storing power on an industrial scale. You can power a town with a vanadium battery installation. This makes solar and wind power more practical for such large-scale applications. They’re relatively cheap too, and last decades.

This could—and I think likely will—become a major new source of demand for many years to come. What I’m less sure of is how quickly that demand will build. It has started, but it’s a slow start, with only a handful of projects announced so far. This market is going to take time to develop.

This is why I haven’t bought any pure play vanadium stocks yet.

Fortunately, vanadium often occurs in nature alongside other metals. Happily, uranium is one of the metals vanadium occurs with—and uranium looks likely to go much higher in 2019. Buying into a uranium play with a vanadium credit means we can gain exposure to possible near-term upside in vanadium if prices rebound, without much risk of harm if vanadium prices plunge instead. We get free upside if vanadium keeps going higher, with no downside if it doesn’t. I like trades with such asymmetrical risk and reward.

As for pure vanadium plays, I’m not a buyer these days. For those interested, the two I interviewed while vanadium was on its way up have much more going for them than just a good story. Here’s the First Vanadium interview, and here’s the Prophecy Development Corp interview. Both are down sharply in recent weeks, and could become bargains again during the final trading days of this year.

However, there’s absolutely no point in trying to catch a falling safe here. Let it smash. Plenty of time to pick over the wreckage then. We should be able top buy valuable, deeply oversold companies at stupid cheap prices when vanadium stabilizes.

https://www.kitco.com/commentaries/2018-12-24/Vanadium-How-to-Profit-from-Falling-Prices.html