Neometals (LON: NEO) (ASX: NEO) shares are up 7% today. NEO shares have risen on the back of the announced offtake agreement with Glencore over the future vanadium production. This is interesting, yes, because it gives us a guide as to what Neometals is thinking. But it's hard to say that this is a 7% of market capitalisation interesting statement or agreement. Quite apart from anything else we're not being told what the actual agreement itself is - it could be wildly unsuitable on the information we've got.
The background here is that Neometals is to extract vanadium as a recovery project. That's OK, a goodly portion of the world's useful vanadium is from recycling (the usual source is iron ore consuming blast furnaces, amusing because the processed vanadium is then usually used as a steel additive. But the process doesn't allow merely leaving it in the iron in the first place. It's left out of the iron, then collected, mixed with iron and added to steel). OK, that's all very sensible and dependent upon the exact numbers could do very well. We are less enamoured of all of the talk of vanadium batteries than many others but there's still that entirely useful steel market to sell into.
Neometals share price from London Stock Exchange
The actual announcement: “Under the terms of the Offtake Agreement, Novana will exclusively sell and deliver to Glencore, and Glencore will purchase and take delivery of all saleable vanadium bearing products (including but not limited to V2O5 and ferrovanadium) produced by Novana for an initial period of 5 years from the commencement date,” OK, that tells us that Neometals is not going to build its own sales team. Possibly wisely, as to keep feeding the larger customers requires vanadium from several sources, something a single supplier cannot do, of course. But there's this: “The price payable for the vanadium bearing products produced and delivered is tied to a prevailing market-publication.” That's probably Metal Bulletin but we're not told what is the discount (it won't be a premium). So we don't know how good a deal it is or not.
We've looked at vanadium, Neometals, before. We thought it was a perfectly sensible idea but that much depended upon the exact pricing and costs of the project. Which isn't something that today's announcement helps us with. More generally we're not very excited by Neometals. Just one of those things, a collection of reasonable projects but no outstanding - to our eyes at least - effort likely to produce a soaring share price.
