Could South Africa's Vanadium Loss Be South America's Gain?

Could South Africa's Vanadium Loss be South America's Gain?

Major vanadium producer EVRAZ (LSE:EVR) is getting out of South Africa, marking a critical turning point for the vanadium sector.

EVRAZ announced late in March that it will divest its 85-percent stake in South African vanadium mining and processing operations. The move is widely seen as a condemnation of South Africa's mining sector, where EVRAZ's operations have lately been disrupted by the labor unrest plaguing the country.

The company is selling the operations to its black empowerment partner for total consideration of $320 million.

The move is in line with the activities of other firms, such as Rio Tinto (LSE:RIO,ASX:RIO,NYSE:RIO) and India's GMR Infrastructure (BSE:532754), which have decided that South Africa's political and operational risks are simply too high.

But for the vanadium industry, these circumstances present a quandary.

South Africa produced 35 percent of the world's vanadium in 2012, according to estimates from the US Geological Survey (USGS). It holds a quarter of the world's known reserves of the metal.

The type of vanadium that it holds is also important. South Africa's magmatic deposits are largely vanadium-bearing magnetite, which can produce shipping-grade iron and also titanium as a by-product.

Having these co-metals to sell significantly lowers the unit production cost of a pound of vanadium. Because of this financial advantage, a large part of the world's vanadium output comes from combined iron-vanadium mines, which are generally more profitable than mines producing vanadium alone.

But with a third of the world's cheap vanadium-in-magnetite production now in jeopardy because of South Africa's deteriorating mining sector, where can the vanadium sector turn to fill the gap?

South American magnetite

South America may be the answer.