Largo Resources Announces Third Quarter 2019 Results
PRESS RELEASE November 13, 2019
Largo Resources Announces Third Quarter 2019 Results
All financial figures are in Canadian dollars unless otherwise stated.
Q3 2019 Highlights
- Production of 2,952 tonnes (6.5 million pounds1) of V2O5, a 15% increase over Q3 2018
- Cash operating costs excluding royalties2 of US$2.81 ($3.71) per pound of V2O5, a decrease
of 8% over Q3 2018
- Revenues of $32.1 million (net of the re-measurement of trade receivables / payables of
$20.4 million on vanadium sales from a contract with a customer of $52.5 million)
- Net loss of $8.6 million and a loss per share of $0.02
- Cash balance of $154.8 million exiting Q3 2019
- Average annual cash operating costs excluding royalties2 guidance lowered to US$3.30 to
$3.40 per lb V2O5; Annual production guidance maintained
- Expansion project expected to conclude in November 2019
- Board approval for the construction of a ferrovanadium plant in Maracás, Brazil
•
Q3 2019 operational and financial results conference call: Thursday, November 14th, 2019 at 10:00 a.m. EST
TORONTO - Largo Resources Ltd. ("Largo" or the "Company") (TSX: LGO) (OTCQX: LGORF) announces its third quarter 2019 operational and financial results highlighted by 2,952 tonnes of vanadium pentoxide (“vanadium” or “V2O5”) produced at a cash operating cost excluding royalties2 of US$2.81 per pound of V2O5.
Paulo Misk, President and Chief Executive Officer for Largo, stated: “Operations at the Maracás Menchen Mine performed well in the third quarter 2019 following increased production from the expansion project. Cash operating costs excluding royalties2 were US$2.81 per pound V2O5 in Q3 2019 representing a decrease of 8% over Q3 2018. Although the Company achieved lower operating and unit costs during the quarter, profitability continued to be impacted as a result of lower vanadium prices combined with the Company’s re-measurement of trade receivables / payables as a result of its current off-take agreement and consequently, the Company recorded a net loss of $8.6 million in Q3 2019. The Board realizes that the share price does not currently reflect the business value of the Company and is considering instituting a share repurchase program by way of a Normal Course Issuer Bid.”
He continued: “The Company believes that vanadium prices are unsustainably low and expects sentiment and prices to improve as evidenced by the recent price increase for ferrovanadium in Europe. Despite greater vanadium consumption in China over the last two years, the current price environment is largely attributable to high iron ore prices and a dramatic increase in Chinese V2O5 slag production earlier in 2019 from vanadium-titano magnetite (VTM)
deposits. The increase in Chinese vanadium supply, combined with greater than anticipated niobium substitution put vanadium prices under pressure throughout 2019. Going forward, we expect vanadium market sentiment to improve following current shutdowns from high cost stone coal producers, a decline in V2O5 slag production and a reverse in niobium substitution on the back of lower vanadium prices.”
“Largo is pleased to report that the Board has approved the construction of a ferrovanadium conversion plant at the Maracás Menchen Mine. Ferrovanadium is essential in the production of steel products, which make up approximately 91% of global vanadium consumption. The construction of the Company’s own ferrovanadium conversion plant creates downstream advantages as it eliminates the need to convert Largo’s V2O5 using third party convertors. The Company has begun the basic engineering studies associated with the construction of the plant and looks forward to providing an update to the market in the near future.”
“The Company is advancing basic engineering studies to further evaluate the economics associated with upgrading the Maracás Menchen Mine’s non-magnetic tailings using concentrate flotation to produce TiO2 concentrate. The Company’s non-magnetic tailings are composed of ilmenite which also contain titanium dioxide (TiO2). The Company began a pilot plant study in October to prove flotation performance and anticipates results of the ongoing study in Q4 2019.”
“The Company continues to advance its sales and trading business with the recently announced appointment Mr. Francesco D’Alessio as Head of Sales, Americas, who will support the Company's vanadium sales strategy in the North and South American markets. The Company has attended multiple conferences and continues to build the back-office team to support sales and ensure highest quality of service from May 2020 onwards.”
He concluded: “We are also pleased to announce a strategic partnership with Boston Metal to further advance its Molten Oxide Electrolysis (MOE) testing using Largo’s V2O5 to produce ferrovanadium. Boston Metal’s patented metals- production process is more efficient, less costly and greener with Molten Oxide Electrolysis.”
A summary of the operational and financial performance for Q3 2019 is provided in the tables below:
Financial
Three months ended Nine months ended September 30, September 30, September 30, September 30, 2019 2018 2019 2018
| Revenues $ Direct mine and mill costs Operating costs Net income (loss) before tax Income tax (expense) recovery Deferred income tax (expense) recovery Net income (loss) Basic earnings (loss) per share Diluted earnings (loss) per share Cash provided (used) before non-cash working capital items $ Net cash provided by operating activities Net cash (used in) financing activities | 32,118 | $ 149,458 (21,275) (36,706) 91,734 (6,930) (13,388) 71,416 0.14 0.11 $ 120,448 113,439 (64,164) | $ | 105,894 | $ 343,872 (60,705) (98,109) 191,563 (15,773) 32,205 207,995 0.40 0.33 $ 268,800 207,909 (112,975) |
| (22,213) | (64,227) | ||||
| (31,506) | (93,861) | ||||
| (9,850) | (28,715) | ||||
| 1,022 | 46 | ||||
| 238 | (2,590) | ||||
| (8,590) | (31,259) | ||||
| (0.02) | (0.06) | ||||
| (0.02) | (0.06) | ||||
| (1,736) | $ | 12,123 | |||
| 11,662 | 128,837 | ||||
| (28,137) | (127,432) |
Net cash (used in) investing activities (15,743) (3,995) (42,914) (12,791) Net change in cash (35,463) 43,867 (51,373) 73,336
As at December 31,
September 30,
2018
2019
| Cash Working capital3 Trade payables | $ | 154,815 | 206,188 135,258 - |
| 91,469 | |||
| 82,230 |
Operational
Maracás Menchen Mine Production Q3 2019 Q3 2018
| Total Ore Mined (tonnes) Ore Grade Mined - Effective Grade4 (%) Effective Grade of Ore Milled (%)5 Concentrate Produced (tonnes) Grade of Concentrate (%) Contained VO (tonnes) 2 5 Crushing Recovery (%) Milling Recovery (%) Kiln Recovery (%) Leaching Recovery (%) Chemical Plant Recovery (%) Global Recovery (%)3 VO produced (Flake + Powder) (tonnes) 2 5 VO produced (equivalent pounds)1 2 5 Cash operating costs2 per pound produced Cash operating costs excluding royalties2 per pound produced Revenues per pound sold 6, 8 Vanadium sales per pound sold7, 8 | 267,257 | 156,664 1.42 1.47 88,075 3.48 3,065 96.7 96.6 86.8 97.8 97.3 77.1 2,563 5,650,441 $5.41 $4.14 $3.99 $3.05 $27.12 $20.73 $21.86 $16.71 | |
| 1.52 | |||
| 1.44 | |||
| 92,629 | |||
| 3.26 | |||
| 3,016 | |||
| 96.5 | |||
| 97.0 | |||
| 88.8 | |||
| 97.2 | |||
| 96.7 | |||
| 78.1 | |||
| 2,952 | |||
| 6,508,038 | |||
| CAD$ | $3.99 | ||
| US$5 | $3.02 | ||
| CAD$ | $3.71 | ||
| US$6 | $2.81 | ||
| CAD$ | $5.36 | ||
| US$6 | $4.06 | ||
| CAD$ | $8.76 | ||
| US$6 | $6.64 |
Third Quarter 2019 Financial Results
The Company recorded a net loss of $8.6 million in Q3 2019 compared to net income of $71.4 million in Q3 2018 after the recognition of an income tax recovery of $1.0 million and a deferred income tax recovery of $0.2 million. This movement was primarily due to a decrease in revenues during the quarter and was partially offset by a decrease in operating costs of $5.2 million and a decrease in finance costs of $15.0 million.
Total sales of V2O5 in Q3 2019 were 2,720 tonnes which includes 360 tonnes of high purity V2O5. The Company’s total sales of high purity V2O5 in the nine months ended September 30, 2019 are 1,160 tonnes.
Following the $20.4 million reduction in revenues as a result of the re-measurement of trade receivables / payables under the Glencore contract, the Company recognized revenues of $32.1 million in Q3 2019 compared with revenues of $149.5 million in Q3 2018. Revenues per pound sold7 in Q3 2019 were $5.36 (US$4.06) compared with $27.12 (US$20.73) per pound in Q3 2018.
Vanadium sales from a contract with a customer was $52.5 million in Q3 2019, compared with $120.5 million in Q3 2018. Vanadium sales per pound sold7 in Q3 2019 was $8.76 (US$6.64) compared to $21.86 (US$16.71) per pound in Q3 2018. This decrease is primarily attributable to a decrease in the V2O5 price, with the average price per lb of V2O5 of approximately US$7.16 for Q3 2019, compared with approximately US$19.66 for Q3 2018. The most recent European Metal Bulletin price range quotation for V2O5 posted as of November 8, 2019 was in a range of US$4.45 to US$5.00 per lb.
Three months ended Nine months ended
30, 2019 30, 2019
30, 2018 30, 2018
| Vanadium sales from a contract with a customer $ Vanadium sales per pound sold7 ($/lb) $ Vanadium sales per pound sold7 (US$/lb) $ Re-measurement of trade receivables / payables $ Revenue adjustment per pound8 ($/lb) $ Revenue adjustment per pound8 (US$/lb) $ Revenues $ Revenues per pound sold7 ($/lb) $ Revenues per pound sold7 ($US/lb) $ | 52,528 | 120,506 21.86 16.71 28,952 5.09 3.89 149,458 27.12 20.73 | 229,717 | 287,729 18.13 13.99 56,143 3.51 2.71 343,872 21.67 16.73 | ||
| 8.76 | 14.27 | |||||
| 6.64 | 6.64 | 10.73 | 10.73 | |||
| (20,410) | (123,823) | |||||
| (3.08) | (7.40) | |||||
| (2.33) | (2.33) | (5.56) | (5.56) | |||
| 32,118 | 105,894 | |||||
| 5.36 | 6.58 | |||||
| 4.06 | 4.94 |
As a consequence of the negative revenue adjustment per pound8 realized in Q3 2019 and in the nine months ended September 30, 2019, the Company’s trade payables balance at September 30, 2019 was $82.2 million and the revenue adjustment payable8 was $92.3 million. Assuming V2O5 prices remain the same as at September 30, 2019, the Company’s total estimated revenue adjustment payable7 for V2O5 sold to September 30, 2019 is $89.8 million. At the date of this press release, the Company’s estimated revenue adjustment payable for V2O5 sold8 to October 31, 2019 is approximately $95.7 million.
Given the overall decline in the market price of V2O5 since December 31, 2018, the Company anticipates that it will continue to realize lower revenues, including significant negative re-measurements of trade receivables / payables, in future periods until such time as the decline levels off or prices increase.
The Company has forecast its expected cash balance and the estimated revenue adjustment payable8 at April 30, 2020 (the end date of the May 14, 2008 off-take agreement with Glencore International AG) under three different vanadium price scenarios. Each scenario assumes that the vanadium price shown in the table below applies from October 31, 2019 to April 30, 2020 and assumes that the Company sells 100% of its production during this period, constant foreign exchange rates and cash operating costs per pound produced2 consistent with results to date. The forecast balances, which constitute forward-looking information, are shown in the following table:
| US$4.00 | US$4.73 | US$5.50 | |||
|---|---|---|---|---|---|
| Forecast cash at April 30, 2020 | $ | 131,260 | $ | 138,105 $ | 144,717 |
| Estimated revenue adjustment payable8at April 30, 2020 | 103,738 | 95,463 | 86,616 | ||
| Net | $ | 27,522 | $ | 42,642 $ | 58,101 |
In Q3 2019, the Company generated positive cash from operating activities, with net cash provided by operating activities of $11.7 million, compared with $113.4 million in Q3 2018. This decrease was primarily due to revenues exceeding direct mine and mill costs and royalties by $8.1 million in Q3 2019, compared with $120.2 million in Q3 2018. This contributed to cash used before non-cash working capital items of $1.7 million, compared with cash provided before non-cash working capital items of $120.4 million in Q3 2018.
Cash used in financing activities in Q3 2019 was $28.1 million, compared with $64.2 million in Q3 2018. The movement is primarily due to a decrease in the repayment of long-term debt from Q3 2018 of $219.2 million, a decrease in the debt issue costs, interest, guarantee fees and other associated fees paid of $17.3 million, a decrease in the change in restricted cash of $201.2 million and an increase in interest income of $0.8 million.
Cash used in investing activities in Q3 2019 was $15.7 million representing an increase of $11.7 million from the $4.0 million seen in Q3 2018. This increase is primarily due to the expansion project being undertaken by the Company in 2019.
Operating costs for Q3 2019 were $31.5 million compared to $36.7 million in Q3 2018 and include direct mine and mill costs of $22.2 million ($21.3 million in Q3 2018), depreciation and amortization of $7.5 million ($7.4 million in Q3 2018) and royalties of $1.8 million ($8.0 million in Q3 2018). Lower operating costs in Q3 2019 compared with Q3 2018 are primarily due to a decrease in royalties as a result of a decrease in V2O5 prices during the quarter. The increase in direct mine and mill costs is primarily attributable to an increase in production in Q3 2019.
Cash operating costs excluding royalties2 in Q3 2019 were $3.71 (US$2.81) per pound compared to $3.99 (US$3.05) in Q3 2018, representing a decrease of 8%. The decrease seen in Q3 2019 compared with Q3 2018 is largely due to the Q3 2019 production of 2,952 tonnes of V2O5 being 389 tonnes higher than the 2,563 tonnes produced in Q3 2018, as well as an improvement in the global recovery level.
Interest income in Q3 2019 was $1.3 million representing an increase of $1.0 million from $0.3 million in Q3 2018. This is due to the Company’s increased cash position during the nine months ended September 30, 2019 which has enabled it to benefit from greater deposit interest rates.
Third Quarter 2019 Operational Results
Total V2O5 production of 2,952 tonnes during Q3 2019 was 15% higher than Q3 2018 and 72 tonnes (2.5%) above budget. Production in July 2019 achieved a new monthly record with 1,042 tonnes of V2O5 produced, which contributed to the total V2O5 production in the nine months ended September 30, 2019 of 7,566 tonnes. Q3 2019 production was 17% higher than in Q2 2019 primarily due to the commissioning of the new deammoniator as part of the first phase start-up of the expansion project.
In Q3 2019, 267,257 tonnes of ore were mined with an effective grade5 of 1.52% of V2O5. The crushing unit was fed with 329,024 tonnes and an effective V2O5 grade5 of 1.15%. Lower grades seen in the crushing feed are primarily due to processing lower grade weathered ore stockpiles built up during the first years of the operation. The Company also produced 92,629 tonnes of concentrate ore with an effective V2O5 grade5 of 3.26% compared to 88,075 tonnes produced in Q3 2018 with a grade of 3.48%.
Global V2O5 recovery rates3 averaged 78.1% in Q3 2019 which compares to 79.1% in Q2 2019 and 77.1% in Q3 2018. Global V2O5 recovery rates3 were down slightly quarter-over-quarter in 2019 primarily as a result of processing lowgrade ore stockpiles fed and some process variability during the expansion ramp-up phase.
The expansion project progressed during the quarter with the start-up of the second deammoniator which contributed to record production in July and with the start-up of the secondary ball mill in September 2019. The expansion project is expected to be completed in November 2019 following the commissioning of the preevaporator and leaching, de-silication and precipitation tanks.
2019 Annual Average Cash Cost Excluding Royalties Guidance Lowered
The Company lowered its 2019 annual average cash operating guidance excluding royalties2 from the range of US$3.45 - 3.65 to the range of US$3.30 – $3.40 reflecting cash operating cost2 performance during the first half of 2019 and the expected positive impact on foreign exchange for the balance of the year. Additionally, the Company has produced 7,566 tonnes of V2O5 year-to-date and continues to maintain its annual production guidance range of 10,000 to 11,000 tonnes of V2O5 for 2019.
Off-take Agreement Nonrenewal & Appointment of Head of Sales, Americas
The Company announced on August 20, 2019 that it had formally given notice to Glencore International AG of the nonrenewal of its off-take agreement dated May 14, 2008. In accordance with this notice, the Company’s off-take agreement will expire effective April 30, 2020. On October 21, 2019 the Company also announced the appointment of Mr. Francesco D’Alessio as Largo’s Head of Sales, Americas who will support the Largo’s vanadium sales and trading business with a particular focus on the North and South American markets.
Mining Vanadium Responsibly – Inaugural Environmental, Social and Governance Report
Building on Largo’s track record of responsible mining and strong community relations, the Company released its inaugural environmental, social and governance report (“ESG”) on August 15, 2019. The Company’s first annual ESG report sets a new standard for open and transparent reporting of sustainability performance and provides key indicators and measurements that will be used as benchmarks for future reporting. Largo’s ESG report is a tangible indication of the Company’s commitment to mining vanadium responsibly and ESG reports will be released annually in the future.
Conference Call
Largo Resources management will host a conference call on Thursday, November 14, 2019, at 10:00 a.m. EDT, to discuss the Company’s third quarter 2019 operational and financial results.
Conference Call Details:
Date: Thursday, November 14, 2019 Time: 10:00 a.m. EDT Dial-in Number: Local / International: +1 (416) 764-8688 North American Toll Free: (888) 390-0546 Brazil Toll Free: 08007621359 Conference ID: 59082301 Replay Number: Local / International: + 1 (416) 764-8677 North American Toll Free: (888) 390-0541 Replay Passcode: 082301# Website: To view press releases or any additional financial information, please visit our Investor Relations section of the Largo Resources website at: www.largoresources.com/investors
A playback recording will be available on the Company's website for a period of 60-days following the conference call.
The information provided within this release should be read in conjunction with Largo's unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2019 and 2018 and its management's discussion and analysis for the three and nine months ended September 30, 2019, which are available on our website at www.largoresources.com and on SEDAR.
About Largo Resources
Largo is a Toronto-based strategic mineral company focused on the production of vanadium flake, high purity vanadium flake and high purity vanadium powder at the Maracás Menchen Mine located in Bahia State, Brazil. The Company's common shares are principally listed on the Toronto Stock Exchange under the symbol "LGO". For more information on Largo, please visit our website at www.largoresources.com.
Neither the Toronto Stock Exchange (nor its regulatory service provider) accepts responsibility for the adequacy or accuracy of this release.
CONTACT INFORMATION:
For more information, please contact:
Alex Guthrie Manager, Investor Relations and Communications [email protected] 416-861-9797 Forward Looking Information
This press release contains forward-looking information under Canadian securities legislation, some of which may be statements"). Forward‐looking information in this press release includes, but is not limited to, statements with respect considered "financial outlook" for the purposes of application Canadian securities legislation ("forward-looking
to timing for and completion of the Maracás Menchen Mine expansion project and the costs associated therewith; the timing and amount of estimated future production; costs of future activities and operations; and the extent of capital and operating. Forward-looking statements can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved". All information contained in this news release, other than statements of current and historical fact, is forward looking information. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Largo to be materially different from those expressed or implied by such forward-looking statements, including but not limited to those risks described in the annual information form of Largo and in its public documents filed on SEDAR from time to time. Forward-looking statements are based on the opinions and estimates of management as of the date such statements are made. Although management of Largo has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. Largo does not undertake to update any forward-looking statements, except in accordance with applicable securities laws. Readers should also review the risks and uncertainties sections of Largo's annual and interim MD&As which also apply.
Non-GAAP8 Measures
The Company uses certain non-GAAP financial performance measures in its Management’s Discussion and Analysis for the three and nine months ended September 30, 2019, which are described in the following section.
Revenues Per Pound
The Company’s MD&A refers to revenues per pound sold, including vanadium sales per pound sold and revenue adjustment per pound sold. These are non-GAAP performance measures and are used to provide investors with information about key measures used by management to monitor performance of the Maracás Menchen Mine.
These measures, along with cash operating costs, are considered to be one of the key indicators of the Company’s ability to generate operating earnings and cash flow from its Maracás Menchen Mine. These revenues per pound measures do not have any standardized meaning prescribed by IFRS and differ from measures determined in accordance with IFRS. These measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These measures are not necessarily indicative of net earnings or cash flow from operating activities as determined under IFRS.
The following tables provide a reconciliation of these measures per pound sold for the Maracás Menchen Mine to revenues as per the Q3 2019 unaudited condensed interim consolidated financial statements.
Three months ended
September 30, September 30, 2019 2018
| Revenuesi VO sold (000s lb) 2 5 | $ | 32,118 | $ 149,458 5,512 |
| 5,997 | |||
| Revenues per pound sold ($/lb) Revenues per pound sold (US$/lb) ii Vanadium sales from a contract with a customer1 VO sold (000s lb) 2 5 | $ | 5.36 | $ 27.12 $ 20.73 $ 120,506 5,512 |
| $ | 4.06 | ||
| $ | 52,528 | ||
| 5,997 | |||
| Vanadium sales per pound sold ($/lb) Vanadium sales per pound sold (US$/lb)ii Re-measurement of trade receivables / payablesi VO sold subject to re-measurement (000s lb) 2 5 | $ | 8.76 | $ 21.86 $ 16.71 $ 28,952 5,688 |
| $ | 6.64 | ||
| $ | (20,410) | ||
| 6,636 | |||
| Revenue adjustment per pound ($/lb) Revenue adjustment per pound (US$/lb) ii | $ | (3.08) | $ 5.09 $ 3.89 |
| $ | (2.33) |
i.
As per note 20 in the Company's unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2019 and 2018.
ii. Calculated from “$/lb” using average CDN$/US$ foreign exchange rates of 1.32 and 1.31 for Q3 2019 and Q3 2018, respectively.
Nine months ended
September 30, September 30, 2019 2018
| Revenues1 VO sold (000s lb) 2 5 | $ | 105,894 | $ 343,872 15,871 |
| 16,094 | |||
| Revenues per pound sold ($/lb) Revenues per pound sold (US$/lb) ii Vanadium sales from a contract with a customeri VO sold (000s lb) 2 5 | $ | 6.58 | $ 21.67 $ 16.73 $ 287,729 15,871 |
| $ | 4.94 | ||
| $ | 229,717 | ||
| 16,094 | |||
| Vanadium sales per pound sold ($/lb) Vanadium sales per pound sold (US$/lb) ii Re-measurement of trade receivables / payablesi VO sold subject to re-measurement (000s lb) 2 5 | $ | 14.27 | $ 18.13 $ 13.99 $ 56,143 16,006 |
| $ | 10.73 | ||
| $ | (123,823) | ||
| 16,733 | |||
| Revenue adjustment per pound ($/lb) Revenue adjustment per pound (US$/lb) ii | $ | (7.40) | $ 3.51 $ 2.71 |
| $ | (5.56) |
i. As per note 20 in the Company's unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2019 and 2018.
ii. Calculated from “$/lb” using average CDN$/US$ foreign exchange rates of 1.33 and 1.30 for the nine months ended September 30, 2019 and 2018, respectively.
Cash Operating Costs
The Company’s MD&A refers to cash operating costs per pound produced, a non-GAAP performance measure, in order to provide investors with information about a key measure used by management to monitor performance. This information is used to assess how well the Maracás Menchen Mine is performing compared to plan and prior periods, and also to assess its overall effectiveness and efficiency.
Cash operating costs includes mine site operating costs such as mining costs, plant and maintenance costs, sustainability costs, mine and plant administration costs, royalties and sales, general and administrative costs, but excludes depreciation and amortization, share-based payments, foreign exchange gains or losses, commissions, reclamation, capital expenditures and exploration and evaluation costs. These costs are then divided by the pounds of production from the Maracás Menchen Mine to arrive at the cash operating costs per pound produced.
These measures, along with revenues, is considered to be one of the key indicators of the Company’s ability to generate operating earnings and cash flow from its Maracás Menchen Mine. These cash operating costs measures do not have any standardized meaning prescribed by IFRS and differ from measures determined in accordance with IFRS. These measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These measures are not necessarily indicative of net earnings or cash flow from operating activities as determined under IFRS.
In addition, the Company’s MD&A refers to cash operating costs excluding royalties. This is a non-GAAP performance measure and is calculated as cash operating costs less royalties, as disclosed in the following tables.
The following tables provide a reconciliation of cash operating costs per pound produced for the Maracás Menchen Mine to operating costs, excluding depreciation expense as per the Q3 2019 unaudited condensed interim consolidated financial statements.
Three months ended
September 30, September 30, 2019 2018
| Operating costsi Professional, consulting and management fees ii Other general and administrative expenses ii Less: depreciation and amortization expensei | $ | 31,506 | $ 36,706 710 564 (7,402) |
| 1,757 | |||
| 148 | |||
| (7,455) | |||
| Cash operating costs Less: royaltiesi | $ | 25,956 | $ 30,578 (8,029) |
| (1,838) | |||
| Cash operating costs excluding royalties VO produced (000s lb) 2 5 | $ | 24,118 | $ 22,549 5,650 |
| 6,508 | |||
| Cash operating costs per pound produced ($/lb) Cash operating costs per pound produced (US$/lb) iii Cash operating costs excluding royalties per pound produced ($/lb) Cash operating costs excluding royalties per pound produced (US$/lb) iii | $ | 3.99 | $ 5.41 US$ 4.14 $ 3.99 US$ 3.05 |
| US$ | 3.02 | ||
| $ | 3.71 | ||
| US$ | 2.81 |
i. As per note 21 in the Company's unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2019 and 2018.
ii. As per the Mine properties segment in note 17 in the Company's unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2019 and 2018.
iii. Calculated from “$/lb” using average CDN$/US$ foreign exchange rates of 1.32 and 1.31 for Q3 2019 and Q3 2018, respectively.
Nine months ended
2019 2018
| Operating costsi Professional, consulting and management fees ii Other general and administrative expenses ii Less: depreciation and amortization expensei | $ | 93,861 | $ 98,109 7,068 1,411 (23,684) |
| 4,631 | |||
| 805 | |||
| (23,689) | |||
| Cash operating costs Less: royaltiesi | $ | 75,608 | $ 82,904 (13,720) |
| (5,945) | |||
| Cash operating costs excluding royalties VO produced (000s lb) 2 5 | $ | 69,663 | $ 69,184 15,950 |
| 16,680 | |||
| Cash operating costs per pound produced ($/lb) Cash operating costs per pound produced (US$/lb)iii Cash operating costs excluding royalties per pound produced ($/lb) Cash operating costs excluding royalties per pound produced (US$/lb)iii | $ | 4.53 | $ 5.20 US$ 4.01 $ 4.34 US$ 3.35 |
| US$ | 3.41 | ||
| $ | 4.18 | ||
| US$ | 3.14 |
i. As per note 21 in the Company's unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2019 and 2018.
ii. As per the Mine properties segment in note 17 in the Company's unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2019 and 2018.
iii. Calculated from “$/lb” using average CDN$/US$ foreign exchange rates of 1.33 and 1.30 for the nine months ended September 30, 2019 and 2018, respectively.
Revenue Adjustment Payable
The Company’s MD&A refers to revenue adjustment payable, a non-GAAP performance measure used to provide investors with information about a key measure used by management as part of its monitoring of the financial liquidity of the Company. This measure is considered to be one of the key components monitored relating to the Company’s projected financial liquidity and capital resources. This revenue adjustment payable does not have any standardized meaning prescribed by IFRS and differs from measures determined in accordance with IFRS. This measure is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance, financial liquidity or capital resources prepared in accordance with IFRS. This measure is not necessarily indicative of cash flow from operating activities or disclosed commitments as determined and presented under IFRS.
The following table provides a reconciliation of this measure to trade receivables / payables as per the Q3 2019 unaudited condensed interim consolidated financial statements. At December 31, 2018, the Company had a trade receivable of $55,011, with a revenue adjustment payable of $nil.
September 30, 2019
| Trade payablesi Add: amounts to be received included in trade payables | $ | 82,230 |
| 10,094 | ||
| Revenue adjustment payable Add: estimated future re-measurement for VO soldii 2 5 | $ | 92,324 |
| (2,483) | ||
| Estimated revenue adjustment payable for VO sold at September 30, 2019 2 5 | $ | 89,841 |
| Revenue adjustment payable Add: estimated future re-measurement for VO soldiii 2 5 | $ | 92,324 |
| 3,370 | ||
| Estimated revenue adjustment payable for VO sold at the date of this MD&A 2 5 | $ | 95,694 |
I. As per note 10 in the Company's unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2019 and 2018. II.
Estimated based on the quantity of V2O5 sold in the nine months ended September 30, 2019 that is subject to re-measurement. The estimate assumes there is no change in the price per pound of V2O5 for the remainder of the duration of the Company’s off-take agreement from that stated as being the price at September 30, 2019 in the “Liquidity and Capital Resources” section of this MD&A and it assumes no receipt or payment of cash in relation to any amount in this table.
III. Estimated based on the quantity of V2O5 sold in the ten months ended October 31, 2019 that is subject to re-measurement. The estimate assumes there is no change in the price per pound of V2O5 for the remainder of the duration of the Company’s off-take agreement from that stated as being the price at the date of this MD&A in the “Liquidity and Capital Resources” section of this MD&A and it assumes no receipt or payment of cash in relation to any amount in this table.
1 Conversion of tonnes to pounds, 1 tonne = 2,204.62 pounds or lbs.
2 The cash operating costs per pound produced and cash operating costs excluding royalties per pound produced reported are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this press release.
3 Defined as current assets less current liabilities per the consolidated statements of financial position.
4 Effective grade represents the percentage of magnetic material mined multiplied by the percentage of V2O5 in the magnetic concentrate.
5 Refer to Management’s Discussion and Analysis for the three and nine months ended September 30, 2019 for exchange rates used.
6 Revenues per pound sold and vanadium sales per pound sold are calculated based on the quantity of V2O5 sold during the stated period. Revenue adjustment per pound is calculated based on the quantity of V2O5 sold that is subject to re-measurement. This may or may not differ to the quantity sold. Accordingly, these three measures may not, and are not intended to, sum.
7 The revenue adjustment payable is on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this press release.
8 GAAP – Generally Accepted Accounting Principles.