FERRO-ALLOY RESOURCES LTD INVESTMENT MEMORANDUM · 2017-06-08 · INVESTMENT MEMORANDUM FERRO-ALLOY...
Transcript of FERRO-ALLOY RESOURCES LTD INVESTMENT MEMORANDUM · 2017-06-08 · INVESTMENT MEMORANDUM FERRO-ALLOY...
Translated from the original version in Russian.
FERRO-ALLOY RESOURCES LTD
INVESTMENT
MEMORANDUM THE INCLUSION OF SHARES IN THE OFFICIAL LIST OF SECURITIES OF
JSC "KAZAKHSTAN STOCK EXCHANGE"
INVESTMENT MEMORANDUM FERRO-ALLOY RESOURCES LTD
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IMPORTANT INFORMATION
THIS INVESTMENT MEMORANDUM CONTAINS INFORMATION ABOUT SHARES AND BUSINESS ACTIVITIES OF
FERRO-ALLOY RESOURCES LIMITED (HEREINAFTER THE ISSUER). THIS INVESTMENT MEMORANDUM WAS
PREPARED BASED ON FINANCIAL AND MANAGEMENT INFORMATION OF THE ISSUER, THE CONCLUSIONS OF
THE INDEPENDENT AUDITOR AND BASED ON INFORMATION RECEIVED FROM OFFICIAL STATISTICAL REPORTS
AND OTHER OFFICIAL SOURCES. THE ISSUER AND TENGRI CAPITAL MB JSC (HEREINAFTER THE FINANCIAL
CONSULTANT) HEREBY CONFIRM THAT TO THE BEST OF THEIR KNOWLEDGE AND BELIEF THIS INVESTMENT
MEMORANDUM CONTAINS AND REFLECTS ALL MATERIAL INFORMATION ABOUT THE ISSUER AND ITS BUSINESS
ACTIVITIES. THIS DOCUMENT IS PROVIDED FOR INFORMATION PURPOSES ONLY. THIS DOCUMENT CANNOT BE
USED AS A DOCUMENTARY BASIS FOR JUSTIFYING ANY DECISION TO INVEST OR NOT INVEST AND SHOULD
NOT BE CONSIDERED AS AN OFFICIAL RECOMMENDATION OF THE ISSUER OR THE FINANCIAL CONSULTANT.
INVESTORS SHOULD MAKE THEIR OWN INDEPENDENT EVALUATION AND THE INVESTMENT DECISION. THIS
INVESTMENT MEMORANDUM WAS PREPARED BY THE FINANCIAL CONSULTANT BASED ON THE INFORMATION
PROVIDED BY THE ISSUER.
INVESTMENT MEMORANDUM FERRO-ALLOY RESOURCES LTD
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CONTENTS
SECTION 1. GENERAL INFORMATION ABOUT SECURITIES ............................................................................................................. 3
SECTION 2. GENERAL INFORMATION ABOUT THE ISSUER ............................................................................................................ 8
SECTION 3. MANAGEMENT AND SHAREHOLDERS (PARTICIPANTS) ........................................................................................ 15
SECTION 4. BANKS, CONSULTANTS AND AUDITORS OF THE ISSUER. ................................................................................... 20
SECTION 5. DESCRIPTION OF THE ISSUER .......................................................................................................................................... 21
SECTION 6. FINANCIAL ............................................................................................................................................................................... 31
INVESTMENT MEMORANDUM FERRO-ALLOY RESOURCES LTD
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Note: Throughout this Investment Memorandum, Ferro-Alloy Resources Ltd may be referred to as “Ferro-Alloy
Resources”, “FAR”, the “Issuer” or the “Company”, Firma Balausa LLP may be referred to as “Firma Balausa”, and the
group consisting of Ferro-Alloy Resources and its subsidiaries may be referred to as the “FAR group”, “Ferro-Alloy
Resources group” or the “Group”.
SECTION 1. GENERAL INFORMATION ABOUT SECURITIES
1. Description of the ordinary shares and conditions attaching
Type of securities: Ordinary shares
ISIN GG00BD3DTC15
CFI ESVUFR
Authorised share capital 5,000,000 ordinary shares
Issued share capital 1,504,456 ordinary shares
Nominal value of one share US$0.01 (one cent)
Number of shares planned for placement 150,000 ordinary shares
Expected placement price range KZT32,000-37,000 per share
Conditions and procedure for the payment
of dividends and taxation thereon
To date, the company has not declared or paid any dividends or
profit distributions on ordinary shares. Payment of dividends or
distribution of profits in future depend on the Company's earnings,
financial condition and other factors that the Board of Directors
deems appropriate. Since the Company’s main project is at early
stage of development, the Company has no plans to pay dividends
in the near future.
Guernsey legislation does not require the deduction of
withholding tax from dividends paid but taxes will be payable by
shareholders according to the rules of their country of residence.
Pursuant to tax legislation of the Republic of Kazakhstan the
following types of income shall be excluded from taxable income
of individuals, both residents and non-residents of the Republic of
Kazakhstan (for personal income tax purposes):
− Dividends and bonuses on securities that are on the date of
accrual of such dividends and bonuses officially listed on the
stock exchange, operating on the territory of the republic of
Kazakhstan (Tax Code, Article 156, sub-clause 5 of clause 1
and Article 200-1, sub-clause 6 of clause 1);
− Capital gains from open sales on the stock exchange,
operating on the territory of the Republic of Kazakhstan (Tax
Code, Article 156, sub-clause 16 of clause 1 and Article 200-1,
sub-clause 9 of clause 1).
− Dividends, except for the dividends paid by closed unit risk
investment funds and incorporated risk investment funds, are
exempt from total annual income of taxpayers (Tax Code,
Article 99, sub-clause 1 of clause 1).
Rights of owners of securities The holders of ordinary shares are entitled to vote at shareholders’
meetings, to receive an equal share of any dividends and to receive
an equal share in any distribution of surplus assets. Rights of the
shareholders are also provided in the Issuer’s Articles of
Association.
Conditions and procedure for redemption
of shares by the Issuer
The Issuer has no buyback procedure, but in accordance with
clause 2.4 of the Articles of Association, subject to the provisions
of Guernsey company law, the Company may, by way of market
INVESTMENT MEMORANDUM FERRO-ALLOY RESOURCES LTD
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purchase or otherwise, acquire its own shares (including any
redeemable shares) and with respect to those shares, cancel them
or hold them as treasury shares.
Other information concerning the shares The Issuer has not issued any shares secured on assets. The
Company's shares are not listed or traded on any other stock
exchanges.
2. Information about the placement procedure.
Placement procedure Shares will be placed on the organized market in accordance with
internal rules of KASE. Private placement could be also used as an
alternative method of share placement (i.e. outside KASE).
Placement period Shares will be offered during an unlimited period of time depending
on market prices and demand as well as the Issuer’s need in
additional capital.
Placement location Shares will be placed on the organized market through KASE
trading system located at the following address: 280 Baizakov str.,
Almaty Towers, 8th floor, Almaty 050040, Kazakhstan
Procedures for public dissemination of
information on placement of securities,
including results of placement
Information on placement of shares, including publication of the
results of share placement, will be publicly disseminated via the
official website of KASE - www.kase.kz and the corporate web site
of the Issuer – www.ferro-alloy.com.
Procedures and terms of payment for
shares
Individuals and legal entities shall pay for the shares by bank
transfer. The placement of shares on the organized market will be
carried out through the KASE trading system and payment for the
shares will be done in accordance with the internal rules of KASE.
Procedures and possible limitations for
exercising pre-emptive rights by existing
shareholders
Existing shareholders do not have any pre-emptive rights or other
means of limitation on the issue of shares.
3. Information on the registrar, the representative of the holders of securities and payment agent.
Information on the registrar Computershare Investor Services (Guernsey) Limited
The Pavilions, Bridgwater Road, Bristol, BS99 6ZY, United Kingdom
Tel.: +44 (0) 370 702 0003
Fax: +44 (0) 370 703 6101
Information on the representative of holders
of securities
Not applicable
Paying agents Not applicable
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4. Goals and reasons for listing and placement of securities
FAR, through its principal operating subsidiary, Firma Balausa LLP, currently carries on a processing
operation for the production of vanadium products from concentrates and other secondary materials and holds
the development and mining rights to the Balasausqandiq vanadium deposit in Kyzylorda region via a subsoil-use
contract.
The Company initially built an experimental pilot plant with a processing capacity of 15,000 tonnes of ore
per year to test the proposed treatment process for ore mined at the Balasausqandiq deposit. The pilot plant
testwork showed a mineral recovery of over 90% and favourable operating characteristics that will provide the basis
for the planned operations. After completion of the test-programme, this plant was adapted to treat purchased
concentrates and spent catalysts in order to raise output to a commercial level. The operation of first the pilot plant
and subsequently the adapted plant has enabled the Company to refine many of the processes that it will be using
in the larger plant, to train the workforce, and to understand the cost structure of the business. To date, investments
of around US$25m have been made in the development of the Company, which have been financed exclusively by
equity contributions from shareholders.
The Company is currently treating purchased concentrates and spent catalysts with a production capability
of around 200 tonnes per annum of vanadium pentoxide (V2O5) in the form of ammonium metavanadate (AMV).
Having reached a steady state of operations and thereby proven the operating effectiveness, the Company now
plans to increase output of the existing processing plant up to 2,000 tonnes of V2O5 by doubling the size of the
plant building, purchasing suitable additional equipment and improving infrastructure at a total capital cost of
US$12m. However, by focusing on the treatment of higher grade spent catalysts, output can be increased
significantly at a small capital cost, with the first step, estimated to cost some $1.7m, which could lead to production
of around 1,500 tonnes per annum of V2O5 and give operating cash flows of over $9m per year, some of which will
be utilized for essential infrastructure in line with the overall plan. The plant can then be expanded in increments
without a major shutdown and with the benefit of increasing work-force experience and steadily increasing cash
flows. The expanded plant will be designed to make high-purity V2O5 suitable for sale at a premium price into the
vanadium chemicals industry or as electrolyte for energy storage batteries.
In parallel with the existing processing operations, FAR intends to develop the Balasausqandiq mine and to
build an additional processing plant, which will be entirely separate from and operate independently of the existing
processing plant. The Company will use a phased approach for the project execution, with a 1 million tonnes (ore)
per annum (Mtpa) processing facility being constructed initially (Phase 1), followed by an expansion to 4 Mpta
(Phase 2). Upon completion of Phase 1, the Company will be able to produce 5,600 tonnes of V2O5 from 1 Mtpa of
ore, while after Phase 2 FAR should be able to produce an additional 16,800 tonnes of V2O5 and bringing total
production from its own mine to 22,400 tonnes of V2O5 per year or 24,400 including the production from the
expanded current operations. Moreover, the Phase 1 and 2 developments to mine and treat the Company’s own
ore will also produce several valuable by-products.
Past
Pilot Primary Producer
US$15m unique experimental pilot plant with annualised
output of 100t V2O5 built and tested successfully.
Production not meant to be economically feasible due to
lack of scale
Present
Secondary Producer
Pilot plant now converted into a semi-commercial plant
with annual output of 200t V2O5 from purchased concentrates and other
secondary materials. Expansion to 2,000t after
KASE IPO will bring annual earnings to US$14m.
Future Primary and Secondary
Producer
Full project development aiming annual output of
24,400Mt V2O5. The US$100m first phase aiming at an additional 5,600t V2O5 annual output will be funded by earnings as a secondary producer, debt and equity
offering on the London Stock Exchange.
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By listing its shares on KASE, the Company plans to raise the capital necessary to finance the projects
described above. Listing shares on KASE will also provide a platform for trading and create liquidity in the Company’s
shares. Once the full expansion has been completed, the earnings of the expanded current processing operation
are anticipated to be around US$14m per year and will enable the Company to substantially fund the equity
requirement of Phase 1 which will have a capital cost of around $100m, with the remainder expected to be raised
from debt or a corporate bond, supplemented by a further small equity raising if necessary. The earnings of the
two initial operations, amounting to around US$92m per year, will substantially fund the equity requirement of
Phase 2. Potential equity dilution after the first raise will thereby be minimized.
The table below provides summary financial and operational information for all expansion stages as well
as the economics of the combined projects.
Combined projects:
Base case post tax asset IRR 69 %
Base case post tax NPV (10 %) US$1,385m
NPV (10%) / IRR (processing expansion only) US$77m / 121%
NPV (10%) / IRR (phases 1 and 2 mining and processing) US$1,307m / 62%
Expansion of current processing operation
Capital costs including working capital and contingency US$12m
Financing sources 100% equity
Concentrate treated per annum 120,000 tonnes
Annual output V2O5 1,870 tonnes
Annual revenue US$27
Annual costs US$11m
Net operating cash flow after tax US$13m
Construction Second half 2017
Commissioning First half 2018
Phase 1 - 1 Mtpa mining and processing
Capital costs including working capital and contingency US$100m
Financing sources
23% equity
55% debt
22% net operating cash flow
Ore treated per annum 1,000,000 tonnes
Annual output V2O5 (additional to above) 5,603 tonnes
Annual revenue US$116m
Annual costs including royalty US$33m
Annual operating cash generation after tax US$78m
Detailed engineering and other preparatory work period Second half 2017
Construction period 2018 - 2019
Commissioning period Second half 2019
Phase 2 – additional 3 Mtpa mining and processing
Capital costs including working capital and contingency US$225m
Financing sources 36% debt
64% net operating cash flow
Ore treated per annum (total incl. Phase 1) 4,000,000 tonnes
Annual output V2O5 (total incl. Phase 1) 22,414 tonnes
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5. Forecasts of total assets, net assets, total equity (excluding the long-term (subordinated) liabilities and
redeemable preference shares), net sales or operating profit, profit (loss) from operating activities Profit (loss) from
continuing operations , net profit (loss) for the period, other indicators characterizing the activity of the issuer, the
next three years.
(US$ thsd)
2017 2018 2019
Total assets 8,065 93,378 112,523
Net assets 6,543 91,856 111,001
Total equity 7,673 37,986 57,131
Revenue 2,923 16,131 56,052
Operating profit before interest, depreciation and taxation 873 7,146 31,968
Net profit (loss) for the period after interest tax and depreciation 469 5,313 19,145
Note: there is no plan to discontinue any operations
Annual revenue (total incl. Phase 1) US$463m
Annual costs including royalty (total incl. Phase 1) US$114m
Annual operating cash generation after tax (total incl. Phase 1) US$288m
Detailed engineering and other preparatory work period 2021
Construction period 2021 - 2022
Commissioning period Second half 2022
INVESTMENT MEMORANDUM FERRO-ALLOY RESOURCES LTD
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SECTION 2. GENERAL INFORMATION ABOUT THE ISSUER
1. Issuer’s name and legal form.
Language Full name Short name Legal form
English Ferro-Alloy Resources
Limited FAR Limited Liability Company
The company is registered in Guernsey with registration number 63449. The Company operates in
accordance with the provisions of Companies (Guernsey) Law, 2008 (as amended).
2. Address and contact details of FAR:
Address Noble House, Les Baissieres, St. Peter Port, Guernsey, GY1 2UE
Contacts Tel: +44 1481 740335
E-mail [email protected]
Web www.ferro-alloy.com
3. Background and main activities.
Ferro-Alloy Resources Limited was formed on April 18, 2000 to be the holding company of a group planning
to invest in mining projects. Upon formation, it issued a single share with a nominal value of USD1.00. On 13 June
2000 a further 999 shares were issued as payment for the acquisition of 100% of the participatory capital of Firma
Balausa LLP, a Kazakhstan company which holds the exploration and mining rights to exploit the Balasausqandiq
vanadium bearing deposit in Kyzylorda province, Kazakhstan. 90% of the participatory interest in Firma Balausa LLP
was transferred to the Company immediately and the remaining 10% was transferred on February 27, 2009.
In 2006 the authorized share capital of the company was split from being 50,000 shares with a nominal
value of USD1.00 into 5,000,000 shares of US$0.01 (one cent) each. The 1,000 shares with a nominal value of US$1.00
each that had been issued were consequently split into 100,000 shares of US$0.01 each. From 2006 to year-to date,
the Issuer placed an additional 1,404,426 shares and the total number of issued ordinary shares was 1,504,456. The
main purpose of share placements was to raise financing for the development of the Company.
Since the acquisition of Firma Balausa LLP, the Company has raised funds for the development of the
Balasausqandiq project by issuing shares at a total value of US$25.4m. This investment was used to develop
processing technology, mine 15,000 tonnes per annum of ore, build a pilot plant at Balasausqandiq using autoclave
leaching technology to recover vanadium and by-products, build a crushing operation to produce gravel for sale
and a fleet of trucks for delivery and, more recently, to adapt the pilot plant to treat higher grade purchased
concentrates.
On 25 August 2006, Vanadium Processing LLP was registered in Kazakhstan, 100% owned by Ferro-Alloy
Resources Limited. The company is currently dormant but it is planned that it will be the sales and marketing
operator for Group production in future. On 10 September 2007, Ferro-Alloy Resources acquired 100% of the share
capital of Ferro-Alloy Products Limited, a British Virgin Islands registered company which provides banking services
for and makes loans to the Group and in April 2017 it acquired the dormant UK company Energy Metals Limited
which is planned to be the intermediate company that will own the future processing assets of the group.
4. International and domestic ratings
At the date of this Investment Memorandum the Issuer had no ratings from international or domestic rating
agencies in relation to itself or its securities.
5. Information on licenses and subsoil use contracts confirming the right of the Issuer to undertake subsoil
operations.
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The Issuer is the 100% owner of Firma Balausa LLP, a subsoil user in Kazakhstan in accordance with the
production licence number 1278D for the mining of vanadium ore from December 18, 1997 and the subsoil use
contract number 270 of November 30, 1998 for the extraction of vanadium ore from Bala Sauskandyk, Kyzylorda
region of the Republic of Kazakhstan. As amended by Working Documents, the approved period of exploitation is
until 2043, with a priority right to renew, for 70.8 million tonnes of mining of reserves (categories B, C1 and C2) at
an average grade of 0.75%, containing approximately 528,000 tonnes of vanadium pentoxide. Key terms of the
Contract:
- The Company will pay towards the cost of social infrastructure an amount equal to 1% of the ore extraction
costs
- The Company will pay the expenses for training Kazakh specialists in the amount of 1.5% of the ore
extraction costs
- The Company is required to mine the following quantities of ore (tonnes) as agreed with the Committee
of Geology and Subsoil Use under the Ministry for Investments and Development of the Republic of Kazakhstan:
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Until
2043
15,000 15,000 15,000 1m 1m 1m 1m 1m 1m 1m 1m
- The Company will pay expenses for research and development costs amounting to 1% ore extraction
costs
- The proportion of local workers should be at least 95% of the total
- The local content of equipment, materials and finished products should be at least 25%
- The local content of contract work – 85%
- The subscription bonus – US$20,000 has been paid already
- The Company should reimburse historical costs – already paid in full
- The contract with the Government No. 270 guarantees the stability of the Contract throughout its duration
Description of the deposit and planned operations
The licenced area forms a large part of the Balasausqandiq vanadium deposit. This deposit is based on a
geological resource which has progressively been delineated by a number of exploration phases since its discovery
in 1940 by Soviet era geo-scientists. More recently, FAR have carried out further exploration drilling, trial open-pit
mining operations and pilot plant optimisation studies using alternate metallurgical and mineral process treatment
technologies.
Currently, the Company is operating a processing plant treating bought-in concentrates with a production
capability of around 200 tonnes per annum of vanadium pentoxide in the form of ammonium metavanadate (AMV).
This plant was based on the former pilot plant, suitably adapted to treat concentrates and thereby increased output
to a semi-commercial level. Having reached a steady state of operations and thereby proven the operating
effectiveness, the Company now plans to increase output approximately ten times by doubling the size of the
building, purchasing suitable additional equipment and improving infrastructure at a total capital cost of some
$12m. This expansion can be accomplished in steps, the first of which will be to spend approximately $1.5m to
enable the plant to produce around 1,500 tonnes per year from high grade spent catalysts.
In parallel, FAR intend to develop the Balasausqandiq mine and associated processing plant using a phased
approach, with a 1 Mtpa processing facility being constructed initially (“Phase 1”), followed by a 4 Mtpa expansion
(“Phase 2”).
Note that within this Investment Memorandum, the term “ore” is not used in the strict JORC definition of
the term as a “mineable reserve”, but instead indicates potentially mineable material, and is used as it is a direct
translation from the former Soviet-era interpretation of the word in historical documents related to the project.
Similarly, the term “reserve” is not used in the JORC defined sense of the word and is instead used in the context of
INVESTMENT MEMORANDUM FERRO-ALLOY RESOURCES LTD
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the Kazakh State Reserves Committee (GKZ) system of classifying mineral deposits.
Geology
There is an extensive history of geological exploration, especially during the former Soviet-era, since the
vanadium was first discovered in 1940. However, as part of this project, research into the expansive complex
geological processes that affected the Balasausqandiq deposit, from 1,000 million years ago to 1.5 million years ago,
especially in the field of geo-tectonics, has provided a sound basis for supporting the assessment and modelling of
this deposit and has allowed a much higher confidence level in the results. This deposit has geological characteristics
in common with vanadium deposits in South China, when in primordial times, the Karatau mountains were
juxtaposed within the same supercontinent.
The stratiform vanadium layer is associated with five very large orebodies and their surface expression can
be traced for about 40 km. These orebodies are mostly confined to deep synclinal folds, where the primary
carbonaceous vanadium rocks at depth are protected from weathering and oxidation processes. From historical
data and from FAR’s drilling results, the global grades within these orebodies are relatively similar, and this
uniformity is testament to the broad stable conditions during mineralogical deposition in a marine basin some 510
million years ago (mid-Cambrian).
Resources
Potentially, the primary resource is huge, as expressed by the surface continuity of the vanadium
mineralisation along strike. The reflection at depth of such observable surface mineralisation has been confirmed
by FAR’s drilling of Ore Body 1 (OB1) and also confirmed from the more limited drilling of Ore Body 2 (OB2) and
Ore Body 3 (OB3). Currently, based on the OB1 JORC resource, plus JORC-based Exploration Targets for OB2 to
OB5, a total vanadium JORC resource of over 100 million tonnes of vanadium ore is considered to be a rational
prediction.
Schedule of Mineral Resources
JORC Vanadium Resource OB1 By-Products OB1 (primary ore only)
JORC
Class
V₂O₅ %
Cut-off
V₂O₅ %
Mean
Tonnes
[m]
JORC indicated JORC inferred
Total
C%
Mean
JORC
inferred
MoO₃ %
mean
JORC
inferred
U₃O₈ %
mean
C%
Mean
Tonnes
[m]
C%
Mean
Tonnes
[m]
Indicated 0.0 0.67 21.43 14.08 10.68 13.09 10.75 13.59 0.0300 0.0090
Inferred 0.0 0.67 1.56 13.43 1.56 13.43 0.0297 0.0085
Combined 0.0 0.67 22.99 13.58 0.0300 0.0090
Oxide cap
inferred 0.0 0.89 1.33
Total 0.0 0.68 24.32
JORC Based Exploration Target (JORC 2004 Guidelines)
Orebodies 2 to 5 Strike Length (km)
Tonnes [m] V₂O₅ Grade Range [%]
From To From To
Primary Zone 20.9
73 98 0.65 0.71
Oxide Zone 4.25 5.75 0.85 0.98
Combined 77.3 103.8 0.66 0.72
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JORC Based Exploration Target (JORC 2004 Guidelines) - By-Products applied to Ore Bodies 2 to 5
(Primary Zone Only)
Target Global Grades based on
OB1
Grade Range ± 5 %
From To
Carbon 13.58 % 12.9 14.26
MoO₃ 0.030 % 0.029 0.032
U₃O₈ 0.009 % 0.009 0.009
REM 335 ppm 318 352
Total Tonnes (millions) 73 98
A GKZ reserve of 70 M tonnes was confirmed in 2014 as shown in the table below. This GKZ reserve is used
as the basis of mine planning and financial analysis in the Competent Person’s Report except that the lower ore
grade set out in the JORC resource estimate has been applied to the technical parameters and financial model.
2014 GKZ Reserve Summary
Category Reserve
(1000 t)
Mean grade V₂O₅ [%]
B 832 1.00
C1 15,649 0.75
C2 54,366 0.74
B+C1+C2 70,847
Metallurgy and Mineral Processing
The metallurgical pilot plant installed at the project site shows that the vanadium mineralisation is amenable
to conventional comminution and autoclave processing techniques to produce a suite of saleable products. The
pilot plant testwork shows a mineral recovery of over 90 %. The mineral process plant will use conventional industrial
chemistry processes, standard equipment and machinery.
Run of mine ore will be crushed, milled and classified before thickening. The thickened material is
decarbonized in an acid solution and re-thickened and filtered. The solid material is leached in autoclaves to
produce a carbon silica by-product, which is then washed and dewatered.
The solution from the decarbonization stage contains the main product elements. The recovery of
vanadium, uranium, molybdenum and rare earths is undertaken using three separate adsorption circuits. In each
stage the target element is preferentially adsorbed onto ion-exchange resin, allowing the solution to flow on to the
next stage. The target elements are desorbed from the loaded resins periodically and precipitated out of solution
before drying and packaging.
The proposed operational mineral process plant will produce a suite of saleable products, including
Vanadium, Carbon Black, Rare Earth Elements (“REE”) and others as defined in this report.
Following completion of the test programme, the pilot plant was adapted to treat concentrates and spent
catalysts. This operation does not require several sections of the former pilot plant including the crushing and
milling, autoclave leaching, and the by-product recovery sections, but the production process is otherwise similar
and the output of vanadium is higher.
Mining Operation
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Small scale mining is being carried on at a rate of 15,000 tonnes per year from open pit and the ore is
currently stockpiled. Subject to demand, some of the waste from this mining is crushed and sold as gravel for road-
building and construction. The future mining operations will be on a much larger scale but will use similar methods,
a conventional open pit employing standard equipment for drill, blast, load and haulage of the material to the
process plant from the open pit.
The equipment used will be western standard equipment augmented by regional manufacturers where
appropriate. Industry standard grade control techniques will be used to ensure the grade of the material for
processing is in accordance with the business plan.
Infrastructure
The current operations and project benefit from a significant amount of regional infrastructure, including
high voltage electrical lines nearby, well-made access roads, local telecommunications and a regional railway. There
is also site-specific infrastructure developed for the purposes of the initial trial mining and mineral processing
operations.
The site has a reliable water supply, labour force accommodation block, engineering workshops, welfare
facilities, an office and telecommunication facilities, which are suitable and sufficient for the current operation and
typical for the region. All facilities are in accordance with local regulatory requirements.
The proposed operations will require connection to the adjacent High Voltage 110 kV power line, enhanced
electrical reticulation, a new accommodation block, new railway siding facilities in Shieli and the existing
infrastructure onsite will be augmented and refurbished to a higher operational condition.
Environmental
The site is situated in a plain landscape, typically desert type of raised and lowered steppe. The climate in
the area is typically sharp continental, with a hot, dry and prolonged summer with temperatures commonly
exceeding 40 °C. The winter is relatively short with little snow. Ground frost permeation during the winter is
approximately 0.3 to 0.4 m, the coldest month being January, with an average temperature of -6.9°С, but capable
of reaching as low as -25°С.
The winds in the area are strong and frequent with a prevailing north, northeast and northwest direction.
Annual precipitation in the northern slopes of the Great Karatau Range total approximately 151 mm.
There no known designated habitat area nearby. The site is in full compliance with the national OVOS
scheme for environmental stewardship.
Logistics
The products from the operation are of high value and relatively low in volume so transport to customers
is not difficult or expensive by either truck or rail. The most usual routes will be by truck to the railway at Shieli, 70
km from the plant, where there is a railway station along the main East-West road and rail transit linking the Russian
Baltic, through Kyzylorda, Shymkent and Almaty, into China and on to the East coast, or by truck to the port of Riga
from where it can be shipped. There is therefore good access to Europe, Russia and China as well as the local region.
Sales have been made in the past to Russia and China, but more recently to a UK customer for onward
shipment to Taiwan. This latest customer has indicated its willingness to take up to 100% of output from the
expanded current processing operations for use in specialty chemical production. In future, when the 1 Mtpa mine
output is achieved, the majority of output will be sold in the form of ferro-vanadium to steel producers or in the
form of vanadium electrolyte for use in vanadium flow batteries.
6. Details of branches.
At the date of this Investment Memorandum, the Issuer has no operating branches or offices in Kazakhstan.
INVESTMENT MEMORANDUM FERRO-ALLOY RESOURCES LTD
13
7. Details of the equity share capital
Total number of authorized shares 5,000,000 (five million) ordinary shares
Total number of outstanding shares 1,504,456 (one million five hundred and four thousand four hundred and
fifty six) ordinary shares
Nominal value of shares US$0.01 per share
Shareholder rights The holders of ordinary shares are entitled to vote at shareholders’ meetings
(one vote per share), to receive an equal share of any dividends and to
receive an equal share in any distribution of surplus assets. All shares rank
equally with regard to the Group’s residual assets. Rights of the shareholders
are also provided in the Issuer’s Articles of Association.
Share capital (incl. additional paid-
in capital)
US$25,381,671 has been received from the issue of new shares to
shareholders since 24 October 2006
Share placement information for the
last 3 years(1)
From 1 January to 30 April 2017, the Group issued 660 shares for a gross
amount of US$71,940 at a placement price before expenses of US$109 per
share.
During 2016, the Group issued 7,561 shares for a gross amount of
US$824,149 at a placement price before expenses of US$109 per share.
During 2015, the Group issued 720,152 shares for a gross amount of
US$2,369,357 at the average placement price of US$3.59 per share. This
included 716,719 shares issued to existing shareholders as a rights issue at
US$2.50 per share
During 2014, the Group issued 361,408 shares for the total amount of
US$1,469,806 at the average placement price of US$4.07 per share. This
included 361,343 shares issued to existing shareholders as a rights issue at
US$4.00 per share.
Number of treasury shares The Company has no treasury shares
(1) Existing shareholders of the Company, in order to support the business, have regularly participated in the rights issues of the Company at
significant discounts, which somewhat distorted the historical average share placement price downward.
All issued shares have been paid in cash or in lieu of cash obligations, except for 100,000 shares that have
been issued as the consideration for the acquisition of LLP Firma Balausa. The price of the shares has been
determined and agreed by the parties involved in the transactions. At the date of this Investment Memorandum
the Issuer has not issued shares that are not included in its share capital. At the date of this Investment
Memorandum there were no shares that had been repurchased by the Issuer or held by any of its subsidiaries.
8. Selected financial data.
(US$ thsd)
Item 31-Dec-2014 31-Dec-2015 31-Dec-2016
Total assets 6,528 4,073 3,669
Net assets 4,820 2,853 3,452
Contributed capital (excluding long-term
(subsidized) obligations and redeemable preferred
shares)
21,876 24,245
25,055
Number of shares 776,063 1,496,235 1,503,796
Revenue 177 127 475
Operating profit (loss) (3,297) (1,665) (1,534)
INVESTMENT MEMORANDUM FERRO-ALLOY RESOURCES LTD
14
Item 31-Dec-2014 31-Dec-2015 31-Dec-2016
Net profit (loss) for the year (3,340) (2,347) (1,236)
Operating profit (loss) per share (4.2) (1.1) (1.0)
Net profit (loss) per share (4.3) (1.6) (0.8)
Diluted earnings (loss) per share (4.3) (1.6) (0.8)
Dividend per share - - 0.0
USDKZT (average) 179 222 342
USDKZT (end of period) 182 339 333
All of the above amounts calculated per share were determined according to the Issuer's accounting policies used
for the preparation of its financial statements.
INVESTMENT MEMORANDUM FERRO-ALLOY RESOURCES LTD
15
SECTION 3. MANAGEMENT AND SHAREHOLDERS (PARTICIPANTS)
1. Management structure.
The business of the Company is managed by the board of directors which may exercise all the powers of
the Company that are not reserved to the shareholders. The board may confer on any director or subcommittee of
directors any of the powers exercisable by it. In general, the Board of Directors is responsible for, and has the
authority to determine, all matters relating to the polices, practices, management and operations of the Company.
It is required to do all things that may be necessary to be done in order to carry out the objectives of the Company.
2. Members of the Board of Directors (Supervisory Board) of the Issuer.
Name Date of birth Position Other current positions Share in %
Bridgen, Nicholas
John 17.03.1953 Chief Executive - 21.5
Kuznetsov, Andrey
Urievich 6.11.1958 Operations Director
Director, Vanadium
Processing Company LLP
Director, Firma Balausa LLP
23.3
Thomas, Christopher
James 15.06.1962 Non-executive director
Chairman & CEO,
BBDO (Batten, Barton,
Durstine & Osborn) Asia,
Middle East & Africa
1.4
James Turian 25.01.1970 Non-executive director
Director of Mineks
International Ltd (UK); GP
(Alderney) Ltd (Guernsey);
Wood & Co (Guernsey);
Blossom Fields Care Home
Ltd (UK)
Nil
Remuneration paid to members of the Board of Directors of the Issuer.
Salary and bonus paid in 2016 (US$) Accumulated pension (US$)
Executive directors
Non-executive director
Nil
$30,000 (by issue of shares)
Nil
Nil
3. The executive body of the Issuer.
The sole executive body of the Issuer is the board of directors which has delegated the management of
the company to the Chief Executive Director and the Operations Director.
Name Date of birth Buisiness positions in last
three years Other business positions Share %
Bridgen, Nicholas
John 17.03.1953
Chief Executive, Ferro-
Alloy Resources Limited - 21.5
Kuznetsov, Andrey
Urievich 6.11.1958
Operations Director,
Ferro-Alloy Resources
Limited
Director, Vanadium
Processing Company LLP
Director, Firma Balausa
LLP
23.3
Remuneration paid to members of the executive body of the Issuer.
Salary and bonus paid in 2016 (US$) Accumulated pension (US$)
Executive directors Nil Nil
INVESTMENT MEMORANDUM FERRO-ALLOY RESOURCES LTD
16
4. The organizational structure of the Issuer.
4.1 Subdivisions, committees, branches and representative offices of the Issuer
As at the date of this Investment Memorandum, the Company didn’t have branches or representative
offices.
4.2 Total number of employees including employees of branches and representative offices of the Issuer as at the
date of this Investment Memorandum
Place Number
Shieli (office and depot) 23
Almaty (office) 8
Balasausqandiq (mine and process plant) 114
Other countries 3
Total 148
4.3 The average list of the Issuer’s employees, including employees of the representative office and branches
As at the date of this Investment Memorandum, the average list of the Group’s employees comprised of
143 people.
4.4 Information on managers/heads of the Issuer’s key divisions as at the date of this Investment memorandum
The details of the directors and senior management of each subsidiary of the Group are presented below:
№ Company name Full name Position Short data
1 Ferro-Alloy
Products Limited
Nicholas John
Bridgen
Director 1953, over 30 years of experience in the
international mining industry
2 Firma Balausa LLP Kuznetsov
Andrey
General Director 1958, General Director of Firma Balausa LLP since
1996
3 Firma Balausa LLP Rustem
Tolegen
Mine Director 1954, works at Firma Balausa since 2006, over 30
years of experience in mechanical engineering
4 Firma Balausa LLP Alexander
Murashev
Chief
Mechanical
Engineer
1961, works at Firma Balausa since 2006, over 30
years of experience in mechanical engineering
5 Firma Balausa LLP Andrey Stovbun Chief Power
Engineer
1951, works at Firma Balausa since 2006, over 30
years of experience in energy engineering
6 Firma Balausa LLP Batyrkhan Span Chief
Mechanical
Engineer of
Processing Plant
1964, works at Firma Balausa since 2006, over 15
years of experience in mechanical engineering
7 Firma Balausa LLP Olga
Rybalchenko
Chief
Accountant
1966, works at Firma Balausa since 2006, over 15
years of experience as chief accountant
8 Firma Balausa LLP Leonid Shabliy Head of Shift 1958, works at Firma Balausa since 2012
9 Firma Balausa LLP Mukhamedzhan
Nalibayev
Head of Shift 1961, works at Firma Balausa since 2012
10 Firma Balausa LLP Nataliya
Lubimova
Head of
Production
Facility
1959, works at Firma Balausa since 2016
INVESTMENT MEMORANDUM FERRO-ALLOY RESOURCES LTD
17
11 Firma Balausa LLP Nataliya
Lubimova
Acting Deputy
Head of
Laboratory
1960, works at Firma Balausa since 2006
12 Vanadium
processing
Company LLP
Kuznetsov
Andrey
General Director 1958, General Director of Vanadium Processing
Company LLP since 1996, over 30 years of
experience in mechanical engineering
5. Shareholders.
5.1.1. Information about shareholders holding five percent or more shares of the total number of outstanding shares
of the FAR as at the date of this Investment Memorandum:
Name of shareholder Address Number of shares %
Kuznetsov, Andrey Urievich Apt. 28, House 16, 1st Microdistrict, Almaty,
Kazakhstan 350,920 23.3
Bridgen, Nicholas John 10 Calle Ripoll, Altea, Spain 323,694 21.5
Citadel Equity Fund Limited
c/o Maples Corporate Services Ltd.,
PO Box 309, Ugland House, Grand
Cayman, KY1-1104
209,568 13.9
AM2 (Bermuda) Limited c/o MQ Services Ltd, Victoria Place, 31
Victoria St., Hamilton HM10, Bermuda 77,907 5.18
5.1.2. Ultimate beneficial shareholders
The only ultimate beneficial shareholders who have more than 5% of the ordinary share capital are as
follows:
Full name Address Equity stake
(number of shares)
Kuznetsov, Andrey Urievich Apt. 28, House 16, 1st Microdistrict, Almaty,
Kazakhstan 350,920
Bridgen, Nicholas John 10 Calle Ripoll, Altea, Spain 323,694
Citadel Equity Fund Limited
c/o Maples Corporate Services Ltd.,
PO Box 309, Ugland House, Grand Cayman,
KY1-1104
209,568
AM2 (Bermuda) Limited c/o MQ Services Ltd, Victoria Place, 31 Victoria
St., Hamilton HM10, Bermuda 77,907
5.2. Affiliates of the Issuer
Guernsey law does not have any requirement to list affiliated companies or individuals. There is no definition of
affiliation in Company law. Despite of this, the Issuer discloses in the table below information about legal entities
affiliated with the Company.
Full name Basis for affiliation Date of affiliation Country
Firma Balausa LLP
Subsidiary company
Ferro Alloy Resources
Limited
13 June 2000 Kazakhstan
Ferro-Alloy Products Ltd
Subsidiary company
Ferro Alloy Resources
Limited
10 September 2007 British Virgin Islands
INVESTMENT MEMORANDUM FERRO-ALLOY RESOURCES LTD
18
Full name Basis for affiliation Date of affiliation Country
Vanadium Processing
Company LLP
Subsidiary company
Ferro Alloy Resources
Limited
25 August 2006 Kazakhstan
Energy Metals Limited
Subsidiary of Ferro-
Alloy Resources
Limited
31 March 2017 United Kingdom
5.3. Information on all transactions over the past three years leading to a change of shareholders owning five
percent or more of the total number of its outstanding shares.
There were no transactions over the past three years which lead to a change in the shareholders holding shares
amounting to five percent or more of the total number of its outstanding shares.
6. Information on organizations in which the Issuer holds five percent or more of the total share capital.
Full name Participation
interest
Basis for
affiliation
Date of
affiliation Other information
Firma Balausa LLP 100%
Subsidiary of
Ferro Alloy
Resources
Limited 100%
owned
13 June
2000
Company activity:
Production and sale of vanadium and
associated byproducts
CEO/General manager:
Andrey Kuznetsov
Country of registration:
Kazakhstan
Address:
Kyzylorda province, Shieli region, Shieli
village, GRP 2,1, 120700, Kazakhstan
Ferro-Alloy
Products Limited(1) 100%
Subsidiary of
Ferro Alloy
Resources
Limited 100%
owned
10
September
2007
Company activity:
Carries out treasury and finance
activities for the Group
CEO/General manager:
Nicholas Bridgen
Country of registration:
British Virgin Islands
Address:
P.O. Box 4714, Road Town, Tortola,
British Virgin Islands
Vanadium
Processing
Company LLP
100%
Subsidiary of
Ferro Alloy
Resources
Limited 100%
owned
25 August
2006
Company activity:
Not operational
CEO/General manager:
Andrey Kuznetsov
Country of registration:
INVESTMENT MEMORANDUM FERRO-ALLOY RESOURCES LTD
19
Full name Participation
interest
Basis for
affiliation
Date of
affiliation Other information
Kazakhstan
Address:
86/108 Masanchi, apt. 8, 050022
Almaty, Kazakhstan
Energy Metals
Limited 100%
Subsidiary of
Ferro Alloy
Resources
Limited 100%
owned
31 March
2017
Company activity:
Not operational
CEO/General manager:
Nicholas Bridgen
Country of registration:
United Kingdom
Address:
5 Townsend Mews, London, SW18 3QD,
United Kingdom
(1) This Company does not trade but it makes intra-group loans to Firma Balausa LLP. It maintains a bank account in which money beneficially
owned by Ferro-Alloy Resources Limited is deposited and paid out. The only assets which it has are loans which it makes to Firma Balausa
LLP. These loans are interest free and do not generate any income. The loans are financed by the deposits in its bank account from Ferro-
Alloy Resources Limited. Because all the balances and loans are between 100% group companies no separate financial statements are
prepared for Ferro-Alloy Products Limited and there is no requirement under BVI law to prepare such financial statements.
Main financial indicators of Firma Balausa LLP
(US$thsd)
2014 2015 2016
Assets 6,519 3,864 1,267
Equity (14,214) (17,885) (6,253)
Revenue 177 127 100
Net income (5,549) (15,654) (190)
7. Industrial, banking and financial groups
The Issuer is not involved in any industrial, banking and financial groups, holdings, concerns and associations.
INVESTMENT MEMORANDUM FERRO-ALLOY RESOURCES LTD
20
SECTION 4. BANKS, CONSULTANTS AND AUDITORS OF THE ISSUER.
1. Banks
Full name Address Name of director Type of service Major transactions
The Hong Kong and
Shanghai Banking
Corporation Limited
Hong Kong Central
District, HSBC Main
Building, 1 Queen’s
Road Central, Hong
Kong
Not applicable
Banking services to
Ferro-Alloy
Products Limited
None
Kazkommertsbank
JSC
28a Abay
Kunanbayev str.,
Shieli, Kazakhstan
Turmantay B.N. Banking services to
Firma Balausa LLP None
Kazkommertsbank
JSC
127/99 Abay str.
corner of
Zharokovstr str.,
Almaty, Kazakhstan
Makhambetshina
K.S.
Banking services to
Firma Balausa LLP None
2. Financial advisors involved in preparing the documents of the Issuer for the purposes of registration of its
securities and the listing procedure
Full name Address Name of
Director Type of service
Tengri Capital MB JSC Kazakhstan, Almaty,
050059, 17 Al-Farabi Avenue Jose Luiz Gaviao Financial consultant
3. Auditors
Full name Address Director Type of service
KPMG, Kazakhstan Kazakhstan, Almaty 050051, 180,
Dostyk Avenue Assel Khairova
Financial audit for the
calendar years 2009 to
2016
INVESTMENT MEMORANDUM FERRO-ALLOY RESOURCES LTD
21
SECTION 5. DESCRIPTION OF THE ISSUER
This Investment Memorandum may contain certain forward-looking statements concerning the financial
conditions and results of operations of the Issuer and its subsidiaries included in the group of Ferro-Alloy Resources
Limited, as well as on associated plans, intentions, expectations, assumptions, goals and opinions of the Issuer.
These statements include all the matters which are not factual and which in most, but not all, instances can be
identified by the use of words such as "expect", "expected", "anticipate", "believe", "estimated", "should", "will",
"may", "plan" or similar expressions, including expressions derived from them and the negatives or similar
terminology.
Prospective investors should be aware that the forward-looking statements are not guarantees of future
performance and that actual results of operations, the financial position of the Issuer, and the state of the industry
in which the Issuer operates may differ materially from the forward-looking statements set forth hereafter in this
Investment Memorandum.
1. General trends in the industry
Global market for vanadium
Currently, there are several sources of raw materials which are used in the production of vanadium.
Vanadium-containing metallurgical slag is produced at steel mills in China, Russia, South Africa and New Zealand,
which process titanium-magnetite ore where the primary component is iron used for steel making. This source of
raw materials accounts for approximately 71% of the total world production of vanadium. In addition, small amounts
of vanadium are obtained in North America from uranium ores during the production of uranium. Vanadium
produced as the main product from primary ore represents 17% of the world production of vanadium. Primary ore
is mainly comprised of vanadium-containing titanium-magnetite deposits in South Africa and Brazil. Secondary
products such as fly ash, boiler slag, spent catalysts and other secondary materials constitute the source materials
for 12% of the global production of vanadium.
During the commodities boom of the 2000s, which saw prices of vanadium and iron ore increase
significantly, Chinese producers (notably Chengde and Pangang) instigated extensive capacity expansion projects.
Chinese expansion led to record global levels of vanadium production, which peaked in 2014 and amounted to
90,465 tonnes (TTP Squared data). Increased supply was mainly a result of growth in co-production at existing
operations, mainly in China, but also because of ever-increasing levels of secondary production. According to TTP
Squared, the total world production of vanadium in 2016 was 76,088 tonnes. China remains the world's largest
vanadium producer, which accounted for over 56% of the total production in 2016.
Name 2011 2012 2013 2014 2015 2016 2017
(Forecast)
Vanadium
production 75,087 73,223 87,662 90,755 84,858 76,088 74,433
Vanadium
consumption 75,812 79,536 86,605 96,735 90,655 80,192 90,419
Source: TTP Squared Inc.
Demand for vanadium has remained sluggish since the global financial crisis, which impacted demand for
steel and, therefore, for vanadium. According to TTP Squared, the total world consumption of vanadium in 2016
was 80,192 tonnes. China is the largest vanadium consuming country in the world accounting for close to 42% of
global consumption. Europe, North America, Japan and other major steel producing countries are also significant
consumers of vanadium.
At present, approximately 90% of vanadium consumption occurs in the steel industry. About 60% of total
consumption of vanadium is in the production of high strength low alloy (HSLA) steels, and 30% in the production
of special steels (high speed and tool steels, special alloy steels). About 4% of consumption occurs in the titanium
INVESTMENT MEMORANDUM FERRO-ALLOY RESOURCES LTD
22
alloy industry and about 3% in various chemical applications.
Vanadium prices have shown a relatively high degree of volatility over the last 20 years. The industry has
moved through several cycles of oversupply and undersupply that have had a dramatic and rapid effect on price
movements. Vanadium has seen a rapid price recovery during 2016, after hitting its lowest point at the beginning
of the year and could see a price surge in the next few years, supported by the rising interest in vanadium redox/flow
batteries.
Source: Bloomberg
Projected production of vanadium pentoxide (V2O5) by Firma Balausa LLP:
Name 2018 2019 2020 2021 2022 2023 2024
V2O5 tonnes per
year 935 3,271 6,353 7,473 15,879 24,284 24,284
Equivalent in
vanadium metal
(tonnes)
525 1,838 3,570 4,200 8,913 13,648 13,648
% of 2016 world
production 0.6% 2.4% 4.7% 5.5% 11.7% 17.9% 17.9%
Source: Company data
Competitors
Name Project / deposit name
and location
Annual production
capacity (V2O5 tonnes) Description
Pangang Processing facility in China 22,000
(fully operational) Titano-magnetic slags
Chengde Processing facility in China 5,000
(fully operational) Titano-magnetic slags
EVRAZ Vanady Tula Processing facility in Russia 7,500
(fully operational) Titano-magnetite slags
INVESTMENT MEMORANDUM FERRO-ALLOY RESOURCES LTD
23
Name Project / deposit name
and location
Annual production
capacity (V2O5 tonnes) Description
Glencore Xtrata Rhovan vanadium mine in
South Africa
10,000
(fully operational) Primary
Largo Resources Maracas Menchen mine in
Brazil
9,600
(fully operational) Primary
TNG Mount Peake deposit in
Australia
17,560 (undeveloped
project) Primary
Australian Vanadium Gabanintha vanadium
deposit in Australia
10,000 (undeveloped
project) Primary
Bushveld Minerals
Mokopane deposit and
interest in Vametco in
South Africa
9,525 (undeveloped
Mokopane project and
Vametco operation)
Primary
The company has significant advantages over potential competitors. The Company’s deposit,
Balasausqandiq, is extremely large and outcropping, allowing for easy and low cost open pit mining. Moreover, it
is unlike other producing and planned deposits in that it is not comprised of vanadiferous-magnetite and is
therefore amenable to much lower cost leaching methods that achieve high recoveries and do not require pre-
concentration and high temperature roasting. The Company has developed new technology and has tested it on
an industrial scale in an experimental plant to produce over 90% recovery of vanadium. This lower cost of mining
and processing, together with the relatively high grade of recovered vanadium and the presence of valuable by-
products, is likely to make Firma Balausa the lowest-cost primary producer.
Outlook for the vanadium industry
The main growth in demand for vanadium is based on the practical needs of the construction industry. On
July 1, 2011, the Chinese government enacted a law requiring the use of grade 3 steel, containing vanadium, in new
buildings. Similar changes are expected in many other countries that do not currently use vanadium, leading to an
increase in the intensity of use of vanadium in steel. The global demand for vanadium is also supported by steady
demand for titanium alloys containing vanadium for use in aircraft manufacture and similar applications (vanadium
is practically irreplaceable in this application area). There is possible growth in demand for vanadium from
production of energy-efficient vanadium redox batteries. For fixed installations, vanadium redox batteries are ideal
for the storage of large amounts of energy due to the possibility of increasing energy capacity independently of
power by adding greater capacity electrolyte tanks and because the there is no degradation over time as there is
with lithium-ion batteries. For mobile use, lithium vanadium phosphate batteries provide more voltage for a given
weight, for example, for items such as cars and laptops.
The recent drop in steel prices as well as the long sustained period of low vanadium prices has resulted in
the closure of some of the co-product vanadium producers where vanadium is produced in association with steel
from magnetite iron ore. The anticipated growth in vanadium demand will therefore have to be met more from
pure-play vanadium production companies.
The planned staged expansions will allow the company to increase production of V2O5 to the level of over
24,000 tonnes per year which will bring the Company into the ranks of the world's largest players in the market for
vanadium.
Group structure and activities
INVESTMENT MEMORANDUM FERRO-ALLOY RESOURCES LTD
24
Ferro-Alloy Resources Limited was established on 18 April, 2000 as a group holding company. The Company’s 100%
owned subsidiaries are Ferro-Alloy Products Limited, Vanadium Processing LLP, Energy Metals Limited and Firma
Balausa LLP. The main activity of this group is the provision of finance, processing of vanadium-containing
secondary materials and the development of mining, processing, and sale of vanadium-containing products
produced at Balasausqandiq, located in Shieli, Kazakhstan.
2. Acquisition bids
There have been no attempts to acquire the Issuer by a third party, and the Issuer has made no attempts
to acquire another organization.
3. Important contracts and agreements entered by the Issuer with significance for its future operations.
The key contracts and agreements which directly affect the Issuer’s operations are the following:
Agreement on cooperation concluded on 22 November 2016 with the Ministry for Investment and
Development of the republic of Kazakhstan and Akimat of Kyzylorda region on implementation of the
investment project “Autoclave conversion of black shale on the field Balasausqandiq”;
Decision of the Akimat of the Kyzyl-Orda region to include the project “Autoclave leaching of vanadium
ore of Balasausqandiq deposit” in the regional list FIID Roadmap 2020, a government scheme which gives
preferences to innovative projects which benefit the surrounding region;
The subsoil-use contract number 270 of November 30, 1998 with related additions;
The work program for the subsoil contract number 270 dated November 30, 1998.
4. Information about the main capital investments carried out by the Issuer for the last three years with the indication
of financing sources.
Presented below is the breakdown of the main capital expenditures of the Issuer at the date of preparation
of this Investment Memorandum. All the expenditures have been paid by loans from Ferro-Alloy Products Limited,
a fellow subsidiary of the Issuer.
(US$ thsd)
Name 2014 2015 2016
Equipment 4,211 43,802 12,413
Transport - 24,617 -
Reconstruction of the sludge pit - - 6,439
5. Volume of products sold for the last three years and the current year.
Ferro - Alloy Resources Limited (Guernsey)
Ferro - Alloy Products Limited
(British Virgin Islands)
Vanadium Processing LLP ( Kazakhstan )
Firma Balausa LLP ( Kazakhstan )
Energy Metals Limited (UK)
100% 100% 100% 100%
INVESTMENT MEMORANDUM FERRO-ALLOY RESOURCES LTD
25
Sales of finished products in physical terms by Firma Balausa LLP in 2014-2016 were as follows:
Name of product 2014 2015 2016
Crushed waste (gravel), cubic meters 24,996 12,500 21,112
Ammonium metavanadate, tonnes - - 132
Hydrated vanadium pentoxide
(V2O5), tonnes - - 39
Vanadium pentoxide (V2O5), tonnes - - 91
6. Analysis of changes in sales volume.
The pilot process plant was not operating in 2014 and 2015, having been closed after completing the test
programme for which it was designed. In 2015 and 2016 it was converted into a semi-commercial production plant
treating purchased concentrates in order to demonstrate the commercial feasibility of this type of operation, leading
to small production levels in 2016 and the current expansion plans. Waster from mining operations is crushed and
sold for local use according to local demand for road-building and construction.
7. Factors positively and negatively affecting the profitability of sales of the Issuer's principal activities.
The Balasausqandiq project is in the development stage. At the time when this Investment Memorandum
was prepared, the Company was operating a small-scale semi-commercial processing plant treating purchased
concentrates and spent catalysts with a production capacity of around 200 tonnes per annum of V2O5. As soon as
the necessary funding is secured, the Company will start implementing the projects, consisting of expansion of the
existing semi-commercial processing plant and the first phase of development of the Balasausqandiq mine and
associated processing plant. Upon completion of the planned expansions, the Company will have a significantly
increased capacity and profitability.
The most significant factors that will affect the profitability and sales of both the existing small-scale
operation and the planned future expansion include the following:
The world market price for vanadium-bearing products (principally, vanadium pentoxide and ferro-
vanadium);
The world price of other by-products (molybdenum, uranium, potassium alum and carbon-flux);
The grade of vanadium and other components in the ore mined;
The process recovery of vanadium and other components;
The processing capacity of the plant;
The cost of reagents, particularly sulphuric acid (the company plans to make its own sulphuric acid as part
of the next expansion)
Stable supplies of materials (concentrates) for the expanded semi-commercial processing plant
8. Arrangements for sales.
The Issuer has held various discussions with metals trading organizations with regard to arrangements for
the sale of its principal vanadium products. However, the Issuer is reserving its position until the future source of
finance for the expansion projects has been decided.
Previous sales of vanadium-containing products have been made to buyers in China, Russia, and Taiwan.
INVESTMENT MEMORANDUM FERRO-ALLOY RESOURCES LTD
26
Discussions have been held with several trading organizations who have expressed a willingness to buy 100% of the
expanded processing operation or to market the products on the Company’s behalf. The production from the
expanded processing operation is likely to be of high purity suitable for sale for chemical and electrolyte purposes.
Production from the Balasausqandiq deposit is also likely to be of high quality but the greater volume will dictate
that a large proportion will be sold into the steel industry, which accounts for a much larger share of world demand.
Whilst the characteristics of the vanadium market are well-known, market research has been carried out on
various down-stream products that, if implemented, will greatly increase the profitability of the overall operations:
The Issuer, together with the Kazakh Chemical-Metallurgical Institute (Karaganda, Kazakhstan), has carried
out test-work and a study of the market for the use of the company’s carbon-silica tailings to be used for
the production of ferro-silicon with a low content of aluminum, which is used for electrical and stainless
steels. This material can be sold to existing ferro-silicon producers but the Issuer has also carried out
preliminary studies on the feasibility of carrying out such a project itself. Process testing at small scale has
been carried out and larger scale testing is planned;
The Issuer, together with Marbett (Poland), has carried out research into the production and marketing for
sulfur-concrete and sulfur-asphalt. These products can be manufactured from the tailings produced during
the autoclave vanadium ore leaching as the result of the elimination of deleterious components;
The Issuer has carried out research on the market for vanadium batteries in Kazakhstan. Vanadium
electrolyte is forecast to become a major new use for vanadium and could become a major market for the
Company’s vanadium production;
The Issuer has procured equipment and tested the production of ferro-vanadium using the alumothermy
process as part of the current processing operation. It also carried out a study into the market for
ferrovanadium products, together with PCB Steel (Kazakhstan);
The Issuer, in cooperation with the Industry Committee of the Ministry of Industry and New Technologies,
has conducted a preliminary study on the possible transition of Kazakhstan’s building regulations toward
the adoption of the requirement to use vanadium steels in the building industry, as is the case in most
advanced economies and as it has recently been implemented in China.
9.1. Suppliers and customers of the Issuer’s main project related to the processing of vanadium ore at the
Balasausqandiq deposit in Kazakhstan:
1) The Russian group, Evraz, supplied the company with 100% of its vanadium-containing concentrates in
2016. Evraz share in total supplies of the Issuer accounted for 11.5%. In 2017 the company procured
concentrates and spent catalysts from other sources and is currently testing various other secondary
materials from other suppliers which are likely to replace some or all of the concentrates currently supplied
by Evraz.
2) Customers, which accounted for more than 10% of total sales in 2016:
Customer Product % of total sales Negative factors impacting sales
London Chemicals Ammonium
metavanadate 100%
The price is based on the
published Metal Bulletin price for
vanadium pentoxide
The gravel produced by the Issuer has been sold to a variety of contractors located in Shieli district, Kyzyk-
Orda region. One of the customers, Taraz Kolik Zholy LLP, has built an asphalt plant on Balausa’s territory and
contracts for delivery of gravel are negotiated from time to time as required.
9.2. Dependence of the Issuer on existing suppliers and customers.
INVESTMENT MEMORANDUM FERRO-ALLOY RESOURCES LTD
27
The main supplier of reagents is KazAzot LLP. KazAzot LLP is a major manufacturer and supplier of nitrogen
fertilizers and other chemicals. KazAzot LLP fully meets the needs of the domestic economy in nitrogen fertilizers,
with 60% of production supplying the domestic market and around 40 % of its production exported. Alternative
producers of similar products exist in Chirchik, Uzbekistan and in Novokuznetsk and Samara, Russia.
Sulfuric acid is currently supplied from ZhanaKorgan, 58 km from Shieli. However, the Company plans to
reduce the supply risk and the cost of sulfuric acid by constructing its own sulfuric acid plant at Balasausqandiq
sufficient to supply 100% of its own needs. The Company plans to procure sulphur at minimal cost from the oil and
gas desulphurization facilities in Western Kazakhstan and a major advantage is that the burning of sulphur to make
sulphuric acid also produces by-product steam that can be used either to generate electricity or for other plant
purposes. Currently, sulphuric acid prices are low so the Company plans to build this plant as part of the Phase 2
expansion in 2021, but in the event that acid prices rise the plan can be brought forward.
The vanadium market is diverse, with a large spot market as well as contracted deliveries. Since vanadium
is a high-value commodity, transport costs make up a small proportion of the delivered cost, enabling the product
to be shipped economically to anywhere in the world. The products from the current small-scale plant will serve to
establish a market and suitable offtake arrangements will be made in readiness for the expansion of production.
The existing markets for vanadium products are growing strongly as vanadium makes up an increasing component
of steel which itself is growing world-wide. Significant new markets for vanadium products are expected to arise
from the growing use of vanadium batteries and, in Kazakhstan, from the likely future introduction of requirements
for vanadium-bearing steels for construction purposes.
There are no anti-dumping tariffs against vanadium deliveries from Kazakhstan, so product can be shipped
into the EEC or the USA. The Customs Union within the Eurasian Economic Community (Kazakhstan, Russia,
Belorussia, Armenia, and Kyrgyzstan) allows to deliver vanadium to the member countries without import or export
tariffs.
10.1. Seasonality of operations
The activities of the Issuer are not seasonal. Processing operations are expected to continue throughout
the year without serious interruptions due to weather conditions.
10.2. Imports of raw materials and exports
The Issuer currently treats vanadium-containing concentrates imported from Russia but is currently testing
a variety of raw-materials from various parts of the world which can be substituted. After the development of the
Company’s own mine, the majority of production will be from ores that are mined on site in Kazakhstan. All
reagents used are available in Kazakhstan and although on some occasions it is cheaper to import direct, they are
usually procured in Kazakhstan.
In Kazakhstan, the consumption of vanadium in the form of ferro-vanadium (FV50) is estimated at 12 tonnes
per year, which is equivalent to 21.4 tonnes of V2O5 per year. This currently amounts to some 10% of the Issuer’s
current production capacity but will reduce to an insignificant proportion of the Issuer’s output post-expansion of
the processing capacity to 1 Mtpa of mined ore (Phase 1 of the development of the Balasausqandiq mine). The
remainder will be exported. The potential size of the V2O5 market in Kazakhstan is estimated to reach approximately
5,000 tonnes per year if Kazakhstan adopts international standards on the use of vanadium steel in construction.
10.3. Description of the main markets.
Although the market for vanadium is global, the most likely potential markets in which the Issuer will
compete with potential rivals are the emerging markets of Southeast Asia. Currently, the outlook is favourable for
the market in China – one of the main vanadium-producing countries in the world which has recently become a net
importer. Also, a significant demand for vanadium is expected to come from the renewable energy industry in the
form of vanadium flow batteries for storage of energy generated from renewable sources.
INVESTMENT MEMORANDUM FERRO-ALLOY RESOURCES LTD
28
Every year there is more and more evidence of the growing prominence of vanadium-based technologies
in the marketplace, including news in May 2016 that UniEnergy Technologies (UET) and Rongke Power will deploy
the world's largest vanadium flow battery (VFB), rated at 800 MWH. That battery will provide peak-shaving and
enhance grid stabilization on the Dalian peninsula in northern China and should become a very significant
development in the VRB field. It was estimated that the Dalian 800 MWH battery will use about 5,700 tonnes of
V2O5 on its own and will be built at Rongke Power's new GigaFactory. The factory is due to have a phase 1 capacity
of 300MW of VFB electrode stacks, a phase 2 capacity of 1GW, and a phase 3 capacity of 3GW. Assuming an average
of four hour battery capacity, and 7.2 kg of V2O5 per KWH, it is estimated that GigaFactory will use the following
amount of V2O5: Phase 1 – 8,640 tonnes, Phase 2 – 28,800 tonnes, Phase – 86,400 tonnes. UET/Rongke is just one
of many companies in the field.
10.4-5. Significant contracts and obligations.
There are no significant contracts or obligations planned during the next six months that amount to more
than 10 per cent of the assets of the Issuer.
The main obligations of the Company are those in accordance with the work program of the subsoil
contract number 270 from November 30, 1998.
10.6. Issuer's participation in court trials.
The Issuer is not involved in any litigation, and no penalties have been imposed.
10.7 Risk factors.
The Issuer is subject to various risks relating to political, economic, legal, social, industry, business and
financial conditions. The following risk factors, which are not exhaustive, are particularly relevant to the Issuer’s
business activities:
Volatility of prices for vanadium and other by-products
The supply, demand and prices for the Group’s products are volatile and are influenced by factors beyond
the Issuer’s control. These factors include global demand and supply, exchange rates, interest and inflation rates
and political events. A significant prolonged decline in product prices could impact the viability of the Group’s
activities and its ability to raise the finance required to carry out its plans.
While the Issuer does not currently hedge its production to reduce its exposure to product prices,
management expects that it may enter into long-term contracts in future that may include an element of hedging
or other reduction of price volatility.
Exploration risk
The exploration for, and the development of, ore resources and reserves involve a certain degree of risk.
These risks include the uncertainty that the Issuer will be able to economically exploit the discovered resource as
intended.
Environmental risk
The mining industry is subject to environmental hazards, such as the accidental discharge of hazardous
reagents, gases, fuels or waste products into the environment. These environmental hazards could expose the Issuer
to material liabilities for property damages, personal injuries, or other environmental harm, including costs of
investigating and remediating contaminated properties. The Issuer is subject to stringent environmental laws in the
Republic of Kazakhstan with regard to its operations. Failure to comply with such laws and regulations could subject
the Issuer to material administrative, civil, or criminal penalties or other liabilities. Additionally, compliance with
these laws may, from time to time, result in increased costs to the Issuer’s operations, impact production, or increase
the costs of potential acquisitions.
INVESTMENT MEMORANDUM FERRO-ALLOY RESOURCES LTD
29
Risk of mining and processing operations
The Group’s business involves certain operating hazards, such as accidents with the mining fleet, ground
movements, fly-rock and other accidents from blasting, the use of high temperatures and pressures in processing,
the use and transport of hazardous reagents and toxic substances as well as the usual hazards of fire, wind damage
and flood. Any of these operating hazards could cause serious injuries, fatalities, or property damage, which could
expose the Group to liabilities. The settlement of these liabilities could materially impact the funds available for the
development of the Issuer’s business. The Issuer maintains insurance against many potential losses and liabilities
arising from its operations but the Issuer’s insurance coverage cannot protect it against all operational risks.
Technology risk
The Company is currently operating at a small scale treating concentrates and has previously operated a
test plant to test and prove the efficiency of the technological process to treat its own ore and to derive the
operating parameters, consumptions of reagents and the recovery of vanadium products. There is no certainty that
issues relating to the increased scale of future operations may not emerge.
Financial risks
The Company will need to raise significant additional funds to carry out its expansion plans. There is no
certainty that the company will be able to raise such funds and consequently, that the planned expansions will take
place. The Company requires working capital to finance its current operations. The directors currently believe that
the Company has sufficient funds to meet its obligations but significant operating delays or shutdowns might create
a further financing requirement.
Foreign currency risk
Many of the Issuer’s operating costs and export revenues are principally negotiated in US dollars or Euros
while some costs are incurred and settled in tenge, the local currency of the Republic of Kazakhstan. Any changes
in the relative exchange rates among US dollars, Euros and tenge could positively or negatively affect the Issuer’s
results.
Business in Kazakhstan
Amongst the risks that face the Issuer in conducting business and operations in Kazakhstan are:
Economic instability, including in other countries or the global economy that could lead to consequences
such as hyperinflation, currency fluctuations and variations in the price and demand for the Company’s
products;
Insufficient or underdeveloped physical infrastructure;
Governmental and political instability that could disrupt, delay or curtail economic and regulatory reform,
increase centralized authority or result in nationalization;
Social instability from any ethnic, religious, historical or other divisions that could lead to a rise in
nationalism, social disturbances or conflict;
Uncertainties in the developing legal and regulatory environment, including, but not limited to, conflicting
laws, decrees and regulations applicable to the mining industry and foreign investment;
Unlawful or arbitrary action against the Issuer and its interests by the regulatory authorities, including the
suspension or revocation of its permits and licences or failure to approve extensions or other permits
necessary for the Issuer to continue operating its assets;
Lack of independence and experience of the judiciary, difficulty in enforcing court or arbitration decisions
and governmental discretion in enforcing claims;
INVESTMENT MEMORANDUM FERRO-ALLOY RESOURCES LTD
30
Laws restricting and regulating foreign investment in the mining industry;
Regulations which include pre-approval from the National Bank of Kazakhstan for the issuance of equity.
Taxation
The tax environment in Kazakhstan is subject to regular change and varying interpretations. As the tax law
evolves, instances of inconsistent opinions between local, regional and national tax authorities are not unusual.
Non-compliance with laws and regulations in Kazakhstan, as interpreted by the Kazakh authorities, may lead to
severe penalties and interest, which can amount to multiples of any assessed taxes. The uncertainty of interpretation
and application of tax laws, which are subject to regular change, creates a risk that the ultimate amount of taxes,
penalties and interest, if any, may be in excess of the amounts recognized to date or forecast, which could have a
material adverse impact on the Issuer’s cash flows, results and financial position.
Legal systems
Kazakhstan, and other countries in which the Issuer may transact business in the future, have or may have
legal systems that are less well developed than those in more developed economies. This could result in risks such
as:
Potential difficulties in obtaining effective legal redress in the courts of such jurisdictions, whether in respect
of a breach of contract, law or regulation, including an ownership dispute;
A higher degree of discretion on the part of government authorities;
The lack of judicial or administrative guidance on interpreting applicable rules and regulations;
Inconsistencies or conflicts between and within various laws, regulations, decrees, orders and resolutions;
Relative inexperience of the judiciary and courts in such matters.
In certain jurisdictions, the commitment of local business people, government officials and agencies, and
the judicial system to abide by legal requirements and negotiated agreements may be more uncertain, creating
particular concerns with respect to licenses and agreements for business. These may be susceptible to revision or
cancellation and legal redress may be uncertain or delayed. There can be no assurance that joint ventures, licenses,
license applications or other legal arrangements will not be adversely affected by the jurisdictions in which the Issuer
operates.
Liquidity risk
Liquidity risk is the risk that the Issuer will not be able to meet its financial obligations as they fall due. The
Issuer’s approach to managing its liquidity is to ensure, as far as possible, that it will always have sufficient liquid
funds and available debt and equity capital to meet its liabilities when due, without incurring unacceptable losses
or risking damage to the Issuer’s reputation.
INVESTMENT MEMORANDUM FERRO-ALLOY RESOURCES LTD
31
SECTION 6. FINANCIAL
Ferro-Alloy Resources Limited prepares financial statements in accordance with the requirements of the
Law of the Republic of Kazakhstan “On Accounting and Financial Reporting” from 2007, International Financial
Reporting Standards (IFRS). All data presented in this section are based on the consolidated financial statements
provided by the Issuer and verified by audit reports as of and for the years ended December 31, 2014, 2015, and
2016.
The audit of consolidated financial statements of the Issuer was carried by out KPMG (Kazakhstan) as of
and for the years ended December 31, 2014, 2015, and 2016.
Audited consolidated statements of comprehensive income of Ferro-Alloy Resources Limited
(US$ thsd)
2014 2015 2016
Revenue 177 127 292
Cost of sales (265) (105) (907)
Gross profit (89) 22 (614)
Other income 13 5 35
Administrative expenses (2,215) (1,138) (876)
Selling expenses - - (14)
Other expenses (1,006) (553) (2)
Operating loss (3,297) (1,692) (1,472)
Finance costs 43 (681) (51)
Loss before tax (3,254) (2,373) (1,524)
Income tax relief 0 0 0
Loss after tax (3,254) (2,373) (1,524)
FX translation gain (loss) (1,348) (2,019) 45
Total comprehensive loss (4,601) (4,392) (1,479)
Audited consolidated statements of financial position of Ferro-Alloy Resources Limited
(US$ thsd)
2014 2015 2016
Cash and cash equivalents 30 267 72
Inventories 351 565 737
Trade and other receivables 25 14 102
Prepayments 29 9 10
Total current assets 435 855 920
Fixed assets 5,623 2,967 2,687
Exploration and evaluation assets 342 184 187
Intangible assets 60 30 30
Prepayments 68 37 36
Total non-current assets 6,094 3,217 2,940
Total assets 6,528 4,073 3,861
INVESTMENT MEMORANDUM FERRO-ALLOY RESOURCES LTD
32
2014 2015 2016
Loans and borrowings 305 115 392
Trade and other payables 1,150 953 1,129
Total current liabilities 1,455 1,068 1,522
Provisions 194 121 135
Total non-current liabilities 194 121 135
Total liabilities 1,649 1,190 1,656
Share capital 8 15 15
Share premium 21,868 24,230 25,030
Foreign currency translation reserve (645) (2,664) (2,619)
Accumulated losses (16,351) (18,698) (20,221)
Total shareholders' equity 4,879 2,883 2,204
Audited consolidated statements of cash flows of Ferro-Alloy Resources Limited
(US$ thsd)
2014 2015 2016
Loss for the period (3,340) (2,347) (1,524)
Adjustments for:
Depreciation and amortization 716 460 404
Loss on write-off of fixed assets 4 30 34
Impairment of VAT and trade receivable 599 97 44
Finance costs 43 681 51
Cash used in operating activities before changes
in working capital (1,978) (1,079) (991)
Inventories 128 (576) (165)
Trade and other receivables, including VAT 10 (98) (110)
Prepayments 1 10 (8)
Trade and other payables 999 660 268
Net cash used in operating activities (839) (1,083) (1,006)
Acquisition of fixed assets and intangible assets (41) (301) (107)
Net used in investing activities (41) (301) (107)
Proceeds from share issue 574 1,056 702
Proceeds from borrowings 296 543 246
Payments of finance lease liabilities (10) 0 -
Payments of borrowings 0 (10) -
Net cash from financing activities 859 1,589 948
Net increase (decrease) in cash and cash
equivalents (21) 205 (165)
INVESTMENT MEMORANDUM FERRO-ALLOY RESOURCES LTD
33
2014 2015 2016
Cash and cash equivalents at the beginning of
period 114 30 267
Effect of changes in exchange rates (63) 32 (30)
Cash and cash equivalents at the end of period 30 267 72
Audited consolidated statements of changes in equity of Ferro-Alloy Resources Limited
(US$ thsd)
Consolidated Shareholders
fund
Additional
capital
Foreign
currency
translation
reserve
Accumulated
losses Total
As of 31 December 2013 4 20,402 703 (13,011) 8,097
Loss for the period (3,340) (3,340)
Foreign currency translation
differences (1,348) (1,348)
Shares issued 4 1,466 1,470
As of 31 December 2014 8 21,868 (645) (16,351) 4,879
Loss for the period (2,347) (2,347)
Foreign currency translation
differences (2,019) (2,019)
Shares issued 7 2,362 2,369
As of 31 December 2015 15 24,230 (2,664) (18,698) 2,883
Loss for the period (1,524) (1,524)
Foreign currency translation
differences 45 45
Shares issued 0 800 800
As of 31 December, 2016 15 25,030 (2,619) (20,221) 2,204
ASSETS
Presented below are the notes on the items from the audited financial statements as of 31 December 2016.
1. Intangible assets.
As at 31 December 2016, the Issuer had intangible assets with a book value of US$29,813.
(US$ thsd)
Intangible assets Initial cost Accumulated
depreciation
Accumulated
depreciation % of
Initial cost
Residual value
Mineral rights 115 115 100.0% 0
Patents 36 7 19.0% 29
Computer software 3 2 63.1% 1
Total 153 123 80.5% 30
2. Fixed assets.
INVESTMENT MEMORANDUM FERRO-ALLOY RESOURCES LTD
34
As at 31 December 2016, the book value of fixed assets of the Company was US$2,687,325.
(US$ thsd)
Fixed assets Initial cost Accumulated
depreciation
Accumulated
depreciation % of
Initial cost
Residual value
Land and buildings 1,844 481 26.1% 1,363
Plant and equipment 1,996 836 41.9% 1,160
Vehicles 351 295 84.0% 56
Computers 12 12 100.0% 0
Other 32 30 95.5% 1
Construction in progress 107 0.0% 107
Total 4,342 1,655 38.1% 2,687
3. Uncompleted fixed assets.
As at 31 December 2016, the Issuer had construction in progress with a book value of US$106,598.
Construction in progress includes administrative and residential complex, hotel for staff and sludge pit.
Construction of the administrative and residential complex started in October 2011. The Company plans to
finish the construction by the end of 2017.
Construction of the hotel for staff #3 started in February 2012. The Company plans to finish the construction
by the end of 2017.
Reconstruction of the sludge pit started in October 2016 and has been finished recently.
Construction and reconstruction of the above objects are financed by the Company’s funds generated from
the current operating activities.
4. Equity investments and other financial assets.
As at 31 December 2016, the Issuer had no equity investments.
If financial assets exceed 5% from the Issuer’s total assets, it is necessary to disclose detailed information on such
assets (financial assets type, their currency and terms, interest rate (dividend income).
As at 31 December 2016, the Issuer had no financial assets constituting five percent or more of the total
assets.
5. Trade and other receivables
Information on the Issuer’s debtors with amounts exceeding 5% of the total accounts receivable or a list of the top
ten largest debtors of the Issuer.
As at 31 December 2016, the carrying value of trade and other receivables before allowances for bad debts
of the Issuer amounted to US$126,072. List of the largest debtors with amounts exceeding 5% of the total trade and
other payables:
INVESTMENT MEMORANDUM FERRO-ALLOY RESOURCES LTD
35
Debtor’s name Debtor’s
Location
Amount
(US$ thsd)
% of total trade
and other
receivables
Maturity Reasons
M Trans-
StroyLLP Kazakhstan 6 4.8% Within 3 months
Ordinary course
of business
Employees Kazakhstan 80 63.5% Within 3 months
General and
administrative
expenses
Information on debtors which are related parties of the Issuer.
As at 31 December 2016, except for the debtors specified in the previous paragraph, the Issuer has no
debtors which are related parties of the Issuer.
Information on the Issuer’s advance payments.
As at 31 December 2016, the carrying value of prepayments of the Issuer amounted to US$45,505.
Name Amount (US$ thsd) % of total advance
payments Reasons
Floga LLP 36 79.1% Prepayment for equipment
Accounts receivable of the Issuer in the context of currency. How changes in the exchange rate will affect the
amount of receivables at maturity.
As at 31 December 2016, mostly all trade and other receivables of the Issuer were denominated in KZT. No
significant gains or losses are expected upon receipt of the KZT denominated amounts at maturity.
LIABILITIES
1. Equity
US$thsd
31.12.2014 31.12.2015 31.12. 2016
Share capital 8 15 15
Share premium 21,868 24,230 25,030
Number of ordinary shares outstanding 776,063 1,496,235 1,503,796
During 2016 the Group issued 7,561 shares, which were placed among existing shareholders, for the total
amount of US$800,133 (net of selling costs). The shares have a nominal value of US$0.01.
All shares have equal entitlement in respect of the residual assets of the Issuer. Holders of these shares are
entitled to receive dividends and vote at meetings of the Issuer in accordance with the rule of "one share - one
vote".
Throughout its existence the Issuer has not paid dividends.
2. Borrowings, loans and leases.
As at 31 December 2016, the Issuer has the following loans from shareholders
INVESTMENT MEMORANDUM FERRO-ALLOY RESOURCES LTD
36
Location Currency Interest rate Issue date Maturity
date
Use of
proceeds
Outstanding
balance
(US$thsd)
Loans from
shareholders UK USD 15%
18 May 2016
(US$130thsd)
10 June 2016
(US$100thsd)
15 July 2016
(US$16thsd)
Upon
demand
Working
capital 268
Loans from
shareholders
British
Virgin
Islands USD 10%
Several
loans were
received
from 14
February
2014 to 30
September
2015
Upon
demand Working
capital 123
Loans from
shareholders Kazakhstan KZT 0%
20 October
2016
Upon
demand Working
capital 2
As at 31 December 2016, the Issuer was not a party to any finance lease agreement.
3. Trade and other payables.
Information on the Issuer’s creditors with amounts exceeding 5% of the total accounts receivable or a list of the top
ten creditors of the Issuer.
As at 31 December 2016, the carrying value of trade and other payables was US$1,129,373. List of the
largest creditors with amounts exceeding 5% of the total trade and other payables:
Creditor’s name Creditor’s
location Amount (US$ thsd) % of total Reason Maturity date
Employees Kazakhstan 653 57.8%
Provision for
salaries to
senior
management
Within 12
months
Taxes Kazakhstan 194 17.2% Taxes on
salaries and
other
Within 6
months
London Chemicals
& Resources Ltd United Kingdom 102 9.0%
Payment for
ammonium
metavanadate
Within 3
months
Information on the creditors which are related parties of the Issuer
As at 31 December 2016, the Issuer had no creditors which are related parties.
Exchange gains and losses on accounts payable
As at 31 December 2016, trade payables were denominated mostly in KZT. No significant foreign exchange
gains or losses are expected upon repayment of these trade payables at maturity.
INVESTMENT MEMORANDUM FERRO-ALLOY RESOURCES LTD
37
FINANCIAL RESULTS
1. Revenue.
(US$ thsd)
2014 % of total 2015 % of total 2016 % of total
Gravel and waste rock 176 99.5% 81 63.9% 49 16.6%
Transportation services 1 0.5% 46 36.1% 6 2.1%
V2O5 0 0.0% 0 0.0% 238 81.3%
Total 177 100% 127 100% 292 100%
Waste rock from mining operations was crushed and sold according to local demand. The processing plant
was closed during 2014 and 2015 and started up at a small level of throughput in 2016.
2. Cost of goods sold.
(US$ thsd)
2014 % of total 2015 % of total 2016 % of total
Materials 51 19.3% 14 13.8% 358 45.7%
Depreciation 58 21.9% 56 53.1% 287 23.5%
Wages, salaries and related taxes 70 26.4% 25 23.7% 122 15.6%
Electricity - - 3 - 62 7.9%
Write down of inventory to net
realizable value - - - - 44 5.6%
Taxes other than on income 5 1.8% 2 1.8% 21 0.0%
Installation and examination
services 62 23.2% - - - -
Other 20 7.4% 5 4.6% 14 1.8%
Total 265 100.0% 105 97.0% 907 100%
In 2014 and 2015, the primary activity was the reorganization of the plant to treat purchased concentrates,
leading to low variable production costs. When production started in 2016, the amounts spent on materials and
electricity increased, reducing the percentage attributable to the ongoing fixed costs.
3. Issuer’s forecasts of sales volumes (Issuer’s forecast financial performance, including projected revenues and cost
of sales, are given in paragraph 5 of section 1 of this Investment Memorandum).
At the time when this Investment Memorandum was prepared, a small-scale semi-commercial plant has
been commissioned. As soon as the necessary funding is secured, the Company will start implementing the project
for the expansion of the existing pilot plant and the development of Balasausqandiq mine and associated new
processing plant. Upon completion of the expansion of the existing processing facility, scheduled for 1H2018, the
Company should be able to increase production of V2O5 to around 2,000 tonnes per year from the current level of
200 tonnes by processing purchased vanadium concentrates. The development Phase 1 of Balasausqandiq mine,
completion of which is scheduled for 2H2020, envisages production of additional 5,600 tonnes of V2O5 per year
by treating 1 Mtpa of ore mined at the Balasausqandiq deposit. Completion of the development Phase 2, schedule
for 2H2022, would allow treating additional 3 Mtpa of ore, adding 16,800 tonnes of V2O5 and bringing total
production from the primary ore to the level of 22,400 tonnes of V2O5 per year.
Revenue forecast for the next three years was prepared based on the production capacity as per the above-
described development plan and V2O5 price of US$6.00 per lb.
INVESTMENT MEMORANDUM FERRO-ALLOY RESOURCES LTD
38
2017 2018 2019
Net revenue 2,923 16,131 56,052
Cost of sales 1,689 8,444 22,099
Gross profit 1,234 7,687 33,953
4-5. Non-core activities.
At the date of this Investment Memorandum, the Issuer has no income and expenses derived from non-
core activities.
6. Coefficients.
At the date of preparation of this Investment Memorandum, the Issuer is at the stage of pre-commercial
production and has no history of full operational activity. In light of this, it is not meaningful to use coefficients
evaluating operational efficiency of the Issuer and its ability to create economic profit.
Below are the factors to assess the credit status and liquidity of assets of the Issuer.
Coefficient Calculation 31.12.2014 31.12.2015 31.12.2016
Asset turnover Revenue / Assets 0.03 0.03 0.08
Level of leverage, % Total debt / total capital 6% 4% 15.1%
Debt / Equity, % Total debt / Shareholders'
Equity 6% 4% 17.8%
Current ratio Current assets / Current
liabilities 0.30 0.80 0.60
Quick ratio (Cash and cash equivalents +
AR) / Current liabilities 0.03 0.24 0.10
Cash ratio (Cash and cash equivalents) /
Current liabilities 0.02 0.22 0.04
CASH FLOWS
1. Analysis of the Issuer’s cash flows for the last three years
Audited consolidated statements of cash flows of Ferro-Alloy Resources Limited:
(US$ thsd)
2014 2015 2016
Net cash generated / (used) in operating activities (839) (1,083) (1,006)
Net cash (used in) investing activities (41) (301) (107)
Net cash flow from financing activities 859 1,589 948
Net increase (decrease) in cash and cash equivalents (21) 205 (165)
The main costs in the operating subsidiary TOO Firm Balausa in 2014 and 2015 were for maintenance and
adaptation of the process plant, with smaller amounts spent on the mining and gravel crushing and delivery
operations. In 2016 the process plant was re-started, initially at low levels. At the start of 2016 vanadium prices
were at record lows, starting the year at around $2.50/lb leading to operating losess, but recovering over the course
of 2016 and early 2017 to $6.07/lb in April 2017.
INVESTMENT MEMORANDUM FERRO-ALLOY RESOURCES LTD
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Forecast cash flows of the Issuer for the next three years.
(US$ thsd)
2017 2018 2019
Profit (loss) for the period 469 5,313 19,145
adjustments for:
Depreciation and amortization 404 404 4,669
Changes in working capital:
Inventories - - (693)
Trade and other receivables - - (4,854)
Prepayments - - -
Trade and other payables - - -
Net cash generated / (used) in operating activities 873 5,717 18,267
Acquisition of fixed assets and intangible assets (2,072) (55,509) (51,558)
Net cash (used in) investing activities (2,072) (55,509) (51,558)
Proceeds from share issue 5,000 25,000 -
Proceeds from borrowings - 55,000 -
Repayment of borrowings - - -
Net cash flow from financing activities 5,000 80,000 -
Net increase (decrease) in cash and cash equivalents 3,801 30,208 (33,291)
Cash and cash equivalents at the beginning of period 72 3,873 34,081
Cash and cash equivalents at the end of period 3,873 34,081 790
The current production is carried out by an experimental semi-commercial plant with production capacity
of 200 tonnes of V2O5 per year from purchased concentrates. The Company has a clear development strategy,
which envisages expansion of the existing processing facility treating concentrates and development of the
Balasausqandiq mine and associated processing plant for treating vanadium-containing ore.
Prior to the development of the Balasausqandiq mine, the Company plans to expand the current processing
operations (at a total capital cost of US$12m) to increase production of V2O5 to 2,000 tonnes per year and upon
its completion the Company is expected to generate approximately US$14m in net operating cash flow per year. To
finance the development of the Balasausqandiq mine and associated with this construction of a new processing
plant, the Group will have to raise a significant amount of money, the nature and terms of which have yet to be
negotiated. Until necessary funding has been raised for the expansion of the current processing operations, the
forecasts of the Company’s activities are rather uncertain.
The cash flow forecast presented above is therefore for illustration purposes only. The costs and timing of
the planned development may well take place and be financed in a different way.
INVESTMENT MEMORANDUM FERRO-ALLOY RESOURCES LTD
40
Other relevant information
Information about liabilities that may arise as a result of guarantees issued early, finalized agreements, legal
actions and other events are set out in paragraph 10 of section 5 of this Investment Memorandum.
Chairman of the Board Nicholas Bridgen