American Vanadium targets 2012 for Gibellini production (March 10, 2011)

SITE VISIT: Eureka, Nevada – A little ways off a quiet highway in eastern Nevada, freshly re-branded American Vanadium (AVC-V) is working to bring a vanadium heap leach operation to life.

Located 400km east of Reno, 520 km north of Las Vegas and about the same distance west of Salt Lake City, the Gibellini project sits near the town of Eureka in what is certainly one of the more remote parts of the continental United State. Highway 50, which runs near the project, is actually referred to as ‘the loneliest highway in America’.

While the project is relatively remote, it is of course in mining country, and more specifically gold country. Alan Branham, vp of exploration for American Vanadium, pointed out that it is in part because Gibellini is a vanadium project in a gold state that it has remained undeveloped so far.

Because otherwise, the company sees the project as relatively straightforward and is targeting late 2012 for production.

The most obvious advantage when at the site is just how accessible the deposit is. The vanadium enriched rock forms the top of a hill, with a resulting 0.2:1 strip ratio.

Driving through a road-cut on the edge of the hill one can see that there is no basically no overburden. The mineralized rock is right in front of you.

“We’re basically mining a hill” says Branham, “It’s about as good as you can get for open pit mining.”

As of a 2008 scoping study, the hill is thought to contain 18 million indicated tonnes grading 0.339% Vanadium for 122 million lbs. Within the resource there is 6.5 million tonnes of oxide at 0.265%, 8.7 million tonnes in the transition zone at 0.426% and 2.8 million tonnes in the sulphide grading 0.244%. There are also 2.8 million tonnes in an inferred resource grading 0.282%.

Environmentally, the project looks quite encouraging, with no red flags. The area, like much of Nevada, consists of dry scrub land and rolling hills with a few trees scattered about. There are no known wildlife or plant issues, nor archaeological for that matter.

With the project a several miles off a remote stretch of Nevada highway, the company doesn’t anticipate any problems with visual or population disturbances, despite plans to somewhat flatten the hill.

The water table is far below the deposit, with the company finding it hard at times to drill holes deep enough to do water-quality testing.

While there is little risk of water contamination, the trade-off is lack of water supply.

Bill Radvak, chief executive and president of the company, however, notes that the water demands for the heap leach operation will be quite low. He said water use will be about the same as a circle pivot of alfalfa.

So few are the apparent risks that the Bureau of Land management is talking of only doing an environmental assessment and foregoing a full environmental impact assessment.

“They just don’t see enough sensitive issues to warrant an EIS,” says Branham, though the Bureau has not yet made a final decision.

Heap leaching, however, presents its own uncertainties. While the method has been used in other base metals such as copper, this could be the first time the process is used to recover vanadium.

It would also be a first mine for American Vanadium, which recently changed its name from Rocky Mountain Resources as its focus became more clear. The company originally started looking for platinum assets, and turned $30,000 into $2 million on a phosphate play to carry it through the downturn, but now the company is focused on a metal that seems to be getting lots of attention.

Radvak came onto the company about a year ago after a long stint in the biotech industry. He can now put its mining and mineral process engineering degree to good use. He is backed up on the mining side by Branham, who was most recently president of Midway Gold and before that a senior geologist at Newmont Mining.

The company recently added Mike Doyle to the team as executive vp of operations to develop the Gibellini project. Doyle comes from being vp of operations at Allied Nevada Gold and before that Kinross Gold.

The company had initially investigated milling options, but a bottle roll test in the early days showed promising recoveries using heap leaching.

As of a 2008 scoping study, recoveries were estimated at 60% for the oxide, 70% for the transition and 52% for the sulphide.

Part of what makes the rock suitable for heap leaching is that it is extremely fractured.

“It was pre-crushed” says Branham. “Mother nature formed this.”

He told the story of how he sent a batch of samples to the lab, and was asked why he sent them sand. The rock had largely disintegrated on the drive over.

With the deposit almost exposed at surface, it’s easy to pry off a few samples with bare hands, and not much more work to crush it further.

Factoring in the breakable rock, the company recently eliminated plans for a secondary crushing process because it made the ore too fine. A single crush actually resulted in better recoveries and less sulphuric acid use.

It is especially crucial to reduce acid use as much as possible because the reagent is expected to make up roughly 70% of process operating costs. In the scoping study, demands for sulphuric acid were estimated at roughly 100,000 tons a year, which would require two delivery trucks to operate 24 hours a day, seven days a week to supply the operation.

The scoping study did not take into account the possibility of acid recycling, nor the improved crushing plans, but the operation will still need significant amounts.

In working to refine its metrics, the company recently sent about 40 barrels full of sample material to the lab for further metallurgical tests and potential optimization.

The testing forms part of an effort to have a feasibility study ready for the second quarter of 2011 to upgrade the 2008 scoping study.

That study established a base case of 2 million tons per year in throughput with a heap leach operation. The study estimated that it would cost US$2.25 per ton to mine and US$8.71 per ton processed.

The scoping study looked at mining just under 17 million tonnes of product at a grade of 0.351% for 119 million lbs of vanadium from the oxide and transition zone, excluding the sulphide zone.

The after-tax cash flow works out to US$117 million. The after-tax internal rate of return comes in at 27.3%, the net present value at US$55.6 million, using a 7% discount rate, and payback of the US$88 million capital expenditures should take 5 and a half years.

The company has made a number of alterations to the plan since then, including the elimination of the secondary crushing, and a move of the leach pad location.

American Vanadium moved the leach pad down from the low hillside location originally planned to the open near-flat plains below. The area is still angled enough for leaching, and also has several metres of limestone below it for peace of mind.

The new location, however, should not change the financial because the money saved in building the leach pad is offset by higher trucking costs.

The location is important instead because it allows for much simpler expansion in the future.

For while the deposit the company currently plans to mine could be considered modest, American Vanadium sees significant growth potential in the area through further exploration.

The company used last summer to conduct extensive sampling in its increased land package. Making use of an SRF gun, field hands were able to quickly mark potential targets through GPS, which the company then followed up with sampling.

“That’s been a huge cost saver for us” said Radvak.

With the early exploration in, the company is looking at several prospective zones along a linear trend. The company has identified the anomalies of Middle Earth, Big Sky and further along Del Rio.

“Work this summer showed we had a lot more growth potenti
al” says Branham.

Far closer to the existing Gibellini project sits Louis Hill, which the company has identified as also containing strong potential. That target, however, falls within the current environmental permitting area, so the company will have to wait until it is approved before drilling or risk disrupting the process.

Instead, the company will start drilling the Del Rio target later this summer. The shallow nature of the mineralization should make adding tonnes easier.

“The amount of drilling you need to do to add resources is small,’ says Radvak.

Establishing a much larger resource base in the area could really change the fundamentals for American Vanadium, but a bigger market could change things even more.

The company sees the renewable energy market as a potential game changer, with lithium-vanadium batteries radically altering the vanadium market. It has been on the horizon for many years now, never really delivering, but the company thinks that may finally be changing.

Of course, it is not banking entirely on that potential, with the feasibility study focusing of vanadium and ferrovanadium, but it does introduce an interesting dynamic to the American Vanadium story. With no operating vanadium mines in North America, the company looks poised to soon take advantage of any spike in demand.

The market seems to be taking note too, with the stock having climbed from about 60¢ in November to a high of $1.80 in January before settling down somewhat to $1.50 recently. The company also managed to weather the downturn well, boasting just over 20 million shares outstanding.