Largo Reports First Quarterly Net Income and Other Financial and Operational Highlights FOR Q3 2017
PRESS RELEASE November 6, 2017
LARGO REPORTS FIRST QUARTERLY NET INCOME
AND OTHER FINANCIAL AND OPERATIONAL HIGHLIGHTS FOR Q3 2017
Largo is for the first time reporting quarterly net income since its Maracás Menchen Mine started commercial production.
Net income for Q3 2017 of $13.5 million compares to a loss of $24.7 million for Q3 2016.
O
perating cash flows before changes in non-cash working capital items increased to $29.5 million, from $11.0 million
in Q2 2017 and negative $1.4 million in Q3 2016.
For
the nine months ended September 30, 2017 the Company recorded $45.6 million in operating cash flow before
changes in
non-cash working capital items vers us negative $15.7 million for the nine months ended September 30,
2016.
V2O5 production increased to its highest quarterly level to date of 2,513 tonnes in Q3 2017, from 2,183 tonnes in
Q2 201
7 and 2,182 tonnes for Q3 2016, with record monthly production of 888 tonnes in August 2017.
Revenues increased to $53.5 million in Q3 2017 from $35.8 million in Q2 2017 and from $20.8 million in Q3 2016,
mainly driven
by higher V2O5 prices and increased production.
Overall
metallurgical V2O5 recovery increased to 76.5% in Q3 2017, from 74.3% in Q2 2017 and 71.8% in Q1 2017.
Cash costs remained at US$3.56/lb, the same level as for Q2 2017, but on a Brazilian real basis represents the lowest
cost quarter since the start of commercial production (R$11.27).
Cash increased to $16.0 million in Q3 2017 from $12.4 million in Q2 2017 and restricted cash reduced to $0.2 million
in Q3 2017 from $8.3 milli
on in Q2 2017. The reduction in re stricted cash is primarily attr ibutable to the settlement of
outstan
ding bank guarantee fees over the course of Q3 2017.
TORONTO, November 6, 2017 - Largo Resources Ltd. ("Largo" or the "Company") today released highlights of its
financial results for the quarter ended September 30, 2017, as filed in full on SEDAR at http://www.sedar.com and on the
Company’s website at http://www.largoresources.com. The reader is cautioned that the below excerpt should be read in
conjunction with the Company’s unaudited condensed interim consolidated financial statements for the three and nine
months ended September 30, 2017 and 2016 as well as management’s discussion and analysis for the three and nine
months ended September 30, 2017 (“MD&A”). Note references in this press release refer to the notes contained in
Largo’s unaudited condensed interim consolidated financial statements for the three and nine months ended September
30, 2017 and 2016.
Q3 2017 financial highlights1
Q3 YTD
2017 2016 2017 2016
$$ $
$
Revenues 53.5
20.8 118.7 49.8
Direct mine and mill costs2 20.1 20.5 60.9 55.5
Net income (l
oss) 13.5 (24.7) (10.1) (44.0)
Basic earnings (loss) per Common Share 0.03 (0.06) (0.02) (0.12)
Cash provided (used) before non-cash working capital items 29.5 (1.4) 45.6 (15.7)
Net cash provided by (used in) operating activities 8.1 0.0 20.1 (20.5)
1.
Financial numbers are reported in millions of Canadian dollars, except for per share amounts.
2.
Refer to note 17.
158% incre
ase in Q3 revenues, driven mainly by higher V2O5 prices and increased production
Reven
ues for Q3 2017 represent an 158% increase over Q3 2016 and year-to-date revenue s represent a 139% increase
over the corresponding period last year.
Significant increase in cash generation
Revenues for Q3 2017 exceeded direct mine and mill costs by $33.4 million and cash provided before non-cash working
capital items for Q3 2017 was $29.5 million, representing increases of $33.2 million and $30.9 million respectively over Q3
2016.
Mark Smith, President and Chief Executive Officer for Largo, stated: "Our Q3 2017 financial performance is our best to date
and the first time Largo has achieved net income and earnings per share. This represents a significant improvement over
previous quarters and was driven by excellent operating pe rformance, especially due to our improvements in overall
recovery levels and robust vanadium pric es. We anticipate continuing to deliver strong financial performance as the
vanadium market continues to tighten and place upward pressure on vanadium pricing levels.”
Maracás Menchen Mine operating results
During Q3 2017 the overall V2O5 recovery was 76.5%, compared to 74.3% in the second quarter 2017 and 71.8% in the
first quarter 2017. The Company continues to improve its metal recovery as it actively works to reduce costs and increase
operational efficiencies. Key components of the improved recovery level in Q3 2017 include the leaching recovery, which
improved from 95% in the first quarter 2017 to 97.8% in Q3 2017, and the kiln recovery, which increased from 85.4% in the
second quarter 2017 to 87.0% in Q3 2017.
The lowest monthly production during Q3 2017 was in July, with an output of 807 tonnes of V2O5. The planned shut-down
in July 2017 to implement improvements in the deammoniat or exhaust system impacted production for two days. The
improvements were successfully implemented, with operations achieving a new produ ction record of 888 tonnes of V2O5
in August 2017.
The Company sold 20 tonnes of “high purity” V2O5 in Q3 2017 (125 tonnes in the nine months ended September 30, 2017).
In addition, the Company is proceeding with the installation of the necessary equipment to handle and pack V2O5 powder.
“High purity” V2O5 flake yields a price premium to the Company over and above what is received for V2O5 flake.
The cost per pound (in $) for Q3 2017 (refer to page 4 of the MD&A) was 7% lower than the second quarter 2017 primarily
due to higher production and higher global metal recovery during Q3 2017. These results are due to the improvements
implemented during the kiln refractory shutdown in Ma rch and April 2017 and the improvements made in July and August
in the deammoniator exhaust system.
In Q4 2017 the Company expects to maintain the higher metal recovery levels achieved in Q3 2017 and to maintain the
improved plant performance in order to achieve the target ed production level of 2,493 tonnes of V2O5 in Q4 2017. In
addition, the Company expects to realize the benefits from completed improvement projects, including the ammonium
sulphate dosage system.
Financing highlights during Q3 2017
On July 12, 2017, the Company announced that effective June 30, 2017, the syndicate of Brazilian commercial lenders
under the Company’s existing debt facilities have agreed to (i) terminate the US$5,000 March 2017 capital injection
requirement, which has been the subject of a temporary waiv er since March 15, 2017 and (ii) postpone the additional
US$5,000 June 2017 capitalization requirement until December 31, 2017. The March 2017 and June 2017 capitalization
requirements had initially been required by the commercial len ders in connection with the 2017 Facility. The commercial
lenders have further agreed that if the Company complies with the required pay ment obligations, then on December 31,
2017, the June 2017 capitalization requirement will also be terminated.
On July 24, 2017, the Company announced that it, along with its operating subsidiary Vanádio de Maracás S.A. (“Vanádio”),
have entered into a non-binding term sheet for the restructuring and conversion of the existing short term loan (refer to note
8(f)) and Swap Facility (refer to note 8(d)). Highlights of the proposed arrangement include: (i) conversion of the short term
loan into common shares of the Company to be issued within 60 days from the date of the definitive agreement and (ii)
renegotiation of the repayment schedule for the Swap Facility and accrued interest and, upon fulfilment of certain payment
milestones, the long-term restru cturing of the Swap Facility and accrued interes t. Refer to the Company’s press release
dated July 24, 2017 for further details. To allow time for th is restructuring to be finalized, the Company executed an
amendment to its short term loan on August 28, 2017 to defer payments to October 2017. Refer to note 8(f). Refer also to
subsequent events for the subsequent amendment after Q3.
During the nine months ended September 30, 2017, 13,381 warrants were exercised, resulting in proceeds to the Company
of $3,906 (refer to note 10).
Summary of the Company’s Q3 2017 financial results3
Sep. 30, 2017 Dec. 31, 2016
$ $
Cash 16.0 0.8
Restricted Cash 0.2 2.1
Total Current Assets 58.9 32.2
Mine properties, plant and equipment 300.2 321.1
Total Assets 359.1 353.3
Total Current Liabilities 114.8 94.1
Total Liabilities 318.9 326.5
Q3 YTD
2017 2016 2017 2016
$$ $$
Operating costs 30.2 30.0 89.7 83.0
Net income (loss) 13.5 (24.7) (10.1) (44.0)
Basic earnings (loss) per share 0.03 (0.06) (0.02) (0.12)
Net cash provided by (used in):
Financing activities 0.7 2.1 10.6 31.2
Investing activities (5.0) (4.1) (14.7) (12.1)
Cash operating costs since the commencement of commercial production on October 1, 20153
Production Production Pounds Cost per pound
Tonnes Equivalent CDN$ US$ R$
3rd Quarter 2017 2,513 5,540,210 $4.47 $3.56 R$11.27
2nd Quarter 2017 2,183 4,812,685 $4.80 $3.56 R$11.46
1st Quarter 2017 2,062 4,545,926 $5.19 $3.90 R$12.31
4th Quarter 2016 2,304 5,079,444 $4.82 $3.60 R$11.90
3rd Quarter 2016 2,182 4,810,481 $4.67 $3.59 R$11.61
2nd Quarter 2016 2,311 5,094,877 $4.19 $3.25 R$11.40
1st Quarter 2016 1,169 2,577,201 $6.52 $4.75 R$18.51
4th Quarter 2015 1,654 3,646,441 $5.97 $4.47 R$17.20
3. Refer to the “Non-GAAP Measures” section of the Company’s MD&A for a discussion regarding the calculation of these Non-GAAP Measures and
additional discussion of cash operating costs elsewhere in the Company’s MD&A.
2017 Production guidance
Annual
Production
High-End
Annual
Production
Low-End
Average
Annual
Production
Estimated Annual
Average
US$/CDN$ Cash
Operating
Costs Per Tonne 1,2,3
Estimated Annual
Average
US$/CDN$ Cash
Operating
Costs Per Pound 1,2,3
2017 2 9,751 tonnes 4
~ 21.5 mil. lbs
8,751 tonnes 4
~ 19.3 mil. lbs
9,251 tonnes 4
~ 20.4 mil. lbs
US$8,237
CDN$10,991
US$3.74
CDN$4.99
1. The cash operating costs reported are on a non-GAAP basis. Cash operating costs include all cash expenditures, the main categories being mining
costs, plant and maintenance costs, sustainability costs, mine and plant administration costs, royalties and SG&A. Cash operati ng costs excludes
depreciation and amortization charges, interest or any other debt servicing costs and commissions on sales. Refer to the “Non-G AAP Measures”
section of the MD&A. See also 3. below. The estimated aver age annual R$/US$ and CDN$/US$ exchange rates used for 2017 are appro ximately
3.22 and 1.33 respectively.
2. Excludes corporate SG&A or CAPEX (Capital Expenditures).
3. The reader is cautioned that the cash operating costs presented are intended to serve as a guide to the magnitude of the Com pany’s monthly
operating expenditures on a cash basis and excludes financing costs associated with the operations and non-cash accounting charges (including but
not limited to depreciation and amortization expense, accretion, share-based payments, or foreign exchange and derivative gains or losses). The
measure may therefore not be comparable to other companies or the results of similar operations and does not meet any definitio n of GAAP. Refer
to the “Non-GAAP Measures” section of the MD&A.
4. Conversion of tonnes to pounds, 1 tonne = 2,204.62 pounds or lbs.
Significant events and transactions subsequent to Q3 2017
On October 10, 2017, the Company executed an amendment to the terms of the US$2,000 Bridge loan it had entered into
with a shareholder of the Company on April 12, 2017 (refer to note 8(g)). Under the revised terms, the maturity date is
extended from October 11, 2017 to December 16, 2017 in retu rn for the Company paying an extension fee of US$120 on
or before December 16, 2017. Should the Company repay the Bridge loan in full prior to December 16, 2017, the extension
fee will be reduced to US$70.
On October 6, 2017, 10,714 warrants with an exercise price of $3.50 and an esti mated grant date fair value of $6,400
expired unexercised.
On October 12, 2017, 115 warrants with an exercise price of $0.29 and 128 warrants with an exercise price of $0.65 were
exercised, resulting in gross proceeds to the Company of $116. On November 2, 2017, 35 warrants with an exercise price
of $0.29 and 50 warrants with an exercise pr ice of $0.65 were exercised, resulting in gross proceeds to the Company of
$43.
On October 30, 2017, the Company executed an amendment to the terms of its US$4,425 short term loan (refer to note
8(f)) to extend the US$500 principal, plus interest, due on October 31, 2017 to November 30, 2017.
About Largo
Largo Resources Ltd. is a growing strategic mineral comp any focused on the production of vanadium pentoxide at its
Vanadio de Maracás Menchen Mine. Vanadium is primarily used as an alloy to strengthen steel and reduce its weight.
Vanadium enhanced steels are used in a vast and growing rang e of products that are used and encountered every day;
including, rebar, automobiles, transport infrastructure etc. As trends in the steel industry now demand increasingly stronger
and lighter products for advanced applications, the use of va nadium is expected to grow over the medium and long term.
Largo also has interests in a portfolio of other projects, in cluding: a 100% interest in the Currais Novos Tungsten Tailings
Project in Brazil; a 100% interest in the Campo Alegre de Lourdes Iron-Vanadium Project in Brazil; and a 100% interest in
the Northern Dancer Tungsten-Molybdenum property in the Yukon Territory, Canada. For more information, please visit
www.largoresources.com.
Cautionary Notes:
This press release contains forward-looking information under Canadian securities legislation. Forward-looking information
includes, without limitation, statements with respect to completion of a listing on a U.S. stock exchange. Generally, 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 word s and phrases or statements that certain actions, events or results "may", "could",
"would", "might" or "will be taken", "occur" or "be achieved". All information cont ained 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 fa ctors that may cause the actual results, level of activity, performance or
achievements of the Largo to be materially different from those expressed or imp lied by such forward-looking statements,
including but not limited to those risks de scribed 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 th at such statements will prove
to be accurate, as actual results and future events could di ffer 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.
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:
Largo Investor Relations