Largo Resources Announces Second Quarter 2020 Results Highlighted by Continued Low- cost Operations; Overall Sales and Trading Performance In-Line with Expectations
Largo Resources Announces Second Quarter
2020 Results Highlighted by Continued Low-
cost Operations; Overall Sales and Trading
Performance In-Line with Expectations
All dollar amounts are in U.S. dollars, unless otherwise noted.
Q2 2020 Highlights
Production of 2,562 tonnes (5.6 million pounds
1
) of V
2
O
5
, an increase of 2.0% over Q2
2019
Two consecutive months of V
2
O
5
production above nameplate capacity: 1,052 tonnes in
May 2020
and 1,030 tonnes in
June 2020
Global V
2
O
5
recovery rate
2
of 80.8%; Second quarter of strong global recoveries in 2020
Solid financial position: Cash at
June 30, 2020
totaled
$78.2 million
Record low cash operating costs excluding royalties
3
of
$1.89
per lb of V
2
O
5
,
44%
decrease over Q2 2019 (
after
tax credit benefits of
$2.2 million
)
Revenues of
$8.4 million
(net of the re-measurement of trade receivables / payables of
$2.4 million
on vanadium sales from contracts with customers of
$10.8 million
)
Net loss of
$7.0 million
and a loss per share of
$0.01
Company maintains its 2020 sales, cost and production guidance
Other Significant Highlights
2019 Sustainability Report released: Including improved performance metrics and new
reporting standards
Nameplate capacity increase by 10%: Planned kiln upgrades and cooler maintenance
scheduled for Q4 2020 with a capex of
$1.3 million
2020 drilling program underway following delays caused by COVID-19
TORONTO
,
Aug. 13, 2020
/CNW/ - Largo Resources Ltd. ("
Largo
" or the "
Company
") (TSX: LGO)
(OTCQX: LGORF) today announces its second quarter 2020 financial and operating results with
revenues of
$8.4 million
from vanadium pentoxide ("
V
2
O
5
") equivalent sales of 1,018 tonnes.
Production from the Maracás Menchen Mine in Q2 2020 was 2,562 tonnes (5.6 million lbs
1
) of V
2
O
5
produced at an average global recovery rate
4
of 80.8%.
Paulo Misk
, President and Chief Executive Officer for Largo, stated
: "The Company's balance sheet
and financial position remains solid exiting Q2 2020. Operations performed well during the quarter
following our preventative maintenance program and the Company's cash balance at the end of Q2
2020 was
$78.2 million
. Although profitability was impacted by lower recognized sales during the
quarter, the Company's working capital investment was necessary to fill our sales pipeline and
build strategic global V
2
O
5
stockpiles in order to fulfil customer demand going forward. Also,
despite some minor delays caused by the COVID-19 pandemic, our sales and trading performance
remains in-line with expectations. We continue to maintain the Company's 2020 sales guidance of
9,500 to 10,000 tonnes of V2O5 as we realize the economic benefits associated with our
commercial independence. Largo has demonstrated substantially lower unit costs versus Q2 2019,
despite the fact that such costs now include sales and distribution costs (while under the previous
off-take agreement, the Company's sales and marketing commissions were netted off against
revenue)."
He continued:
"On the market front, Chinese V
2
O
5
prices strengthened by approximately 15% to
$6.95
per lb during Q2 2020 as a result of increased steel sector demand. We continue to receive
inquires for our products from end users and remain very optimistic about expected future demand
growth as a result of recently announced stimulus programs, globally. Additionally, despite
experiencing a period of low demand within the aerospace industry, we continue to prioritize
increasing our high purity vanadium customer portfolio, particularly following the completion of our
vanadium trioxide plant next year. Our focus remains on capturing these high value sales when
demand returns to normalized levels as well as additional sales opportunities in new jurisdictions
as the preferred producer and supplier of high purity vanadium."
He concluded:
"I am also very encouraged by the support and dedication shown by our entire team
during these challenging times while at the same time achieving operational targets. Since
March
2020
, our team has supported local seamstress businesses who have produced over 230,000
protective masks which have aided in the fight against the spread of COVID-19 in Maracás. Going
forward, we continue to prioritize the health and safety of our workforce and extend our support to
our local communities as we proactively manage the circumstances related to the global COVID-19
pandemic."
A summary of the operational and financial performance for Q2 2020 is provided in the tables below.
Effective
May 1, 2020
, the Company's Canadian and Irish entities have changed their functional
currency to the U.S. dollar and the Company has changed its presentation currency from Canadian
dollar to the U.S. dollar. Prior period comparative information is restated in U.S. dollars to reflect the
change in presentation currency.
Financial
Three months ended
Six months ended
June 30,
2020
June 30,
2019
June 30,
2020
June 30,
2019
Revenues
$
8,350
$
21,963
$
50,259
$
55,168
Operating costs
(9,561)
(24,815)
(35,809)
(46,598)
Direct mine and mill costs
(2,180)
(16,800)
(19,674)
(31,367)
Net income (loss) before tax
(5,533)
(15,132)
(1,652)
(14,116)
Income tax (expense) recovery
-
102
-
(732)
Deferred income expense
(1,479)
(268)
(1,017)
(1,869)
Net income (loss)
(7,012)
(15,298)
(2,669)
(16,717)
Basic earnings (loss) per share
(0.01)
(0.03)
(0.00)
(0.03)
Diluted earnings (loss) per share
(0.01)
(0.03)
(0.00)
(0.03)
Cash provided (used) before non-cash working capital items
$
1,028
$
406
$
(294)
$
11,697
Net cash (used in) provided by operating activities
(63,649)
22,341
(64,631)
88,871
Net cash provided by (used in) financing activities
777
(5,116)
27,517
(73,050)
Net cash (used in) investing activities
(5,221)
(14,195)
(8,601)
(20,355)
Net change in cash
(67,079)
1,868
(49,284)
(5,865)
As at
June 30,
2020
December 31,
2019
Cash
$
78,215
127,499
Working capital
5
80,756
78,380
Operational
Maracás Menchen Mine Production
Q2 2020
Q2 2019
Total Ore Mined (tonnes)
257,357
308,858
Ore Grade Mined - Effective Grade
6
(%)
1.20
1.21
Effective Grade of Ore Milled
6
(%)
1.29
1.49
Concentrate Produced (tonnes)
99,059
102,320
Grade of Concentrate (%)
3.20
3.30
Contained V
2
O
5
(tonnes)
3,174
3,380
Crushing Recovery (%)
97.7
98.0
Milling Recovery (%)
94.7
97.9
Kiln Recovery (%)
91.7
88.8
Leaching Recovery (%)
99.1
95.7
Chemical Plant Recovery (%)
96.1
97.1
Global Recovery (%)
2
80.8
79.1
V
2
O
5
produced (Flake + Powder) (tonnes)
2,562
2,515
V
2
O
5
produced (equivalent pounds)
1
5,648,236
5,544,619
Cash operating costs
3
per pound
$
$2.57
$3.59
Cash operating costs excluding royalties
3
per pound
$
$1.89
$3.34
Total cash costs
3
$
$3.68
Revenues per pound sold
7
$
$3.72
$4.02
Second Quarter 2020 Financial Results
During Q2 2020, the Company recognized revenues of
$8.4 million
(
$22.0 million
in Q2 2019) from
sales of 1,018 tonnes of V
2
O
5
equivalent. The low volume of sales in May and June was expected
and is attributable to the Company's sales now typically being recognized at the time of delivery,
which can take a few months from the time of shipment from
Brazil
. The Company's total sales of
VPURE+™ products in the six months ended
June 30, 2020
are 600 tonnes.
The Company recorded a net loss of
$7.0 million
in Q2 2020 following the recognition of a deferred
income tax expense of
$1.5 million
. This compares to net loss of
$15.3 million
in Q2 2019 and is
primarily due to a decrease in operating and finance costs but was partially offset by a decrease in
revenues and interest income, and an increase in the foreign exchange loss during the quarter.
The Company's trade payables balance at
June 30, 2020
with its former off-take partner was
$2.4
million
. The decrease is primarily attributable to the payment made of approximately
$57.4 million
during Q2 2020 and the balance at
June 30, 2020
is attributable to the re-measurement of trade
receivables / payables for V
2
O
5
sold in the period to
April 30, 2020
. The Company anticipates that
the final re-measurement of trade receivables / payables resulting from its recently terminated
offtake agreement will negatively impact future periods by an aggregate of approximately
$0.3
million
.
Operating costs for Q2 2020 were
$9.6 million
compared to
$24.8 million
in Q2 2019 and include
direct mine and mill costs of
$2.2 million
(
$16.8 million
in Q2 2019), royalties of
$1.3 million
, product
acquisition costs of
$2.4 million
, distribution costs of
$0.3 million
, inventory write-down of
$1.3 million
and depreciation and amortization of
$2.0 million
. The decrease in direct mine and mill costs is
primarily attributable to the decrease in V
2
O
5
equivalent sold in Q2 2020.
Cash operating costs excluding royalties
3
in Q2 2020 were
$1.89
per lb sold compared to
$3.34
in
Q2 2019. The measure for Q2 2020 includes the benefit of tax credits of
$2.2 million
, without which
the cash operating costs excluding royalties
3
per lb would be
$3.04
. The decrease seen in Q2 2020
compared with Q2 2019 is largely due to the decreased sales as noted previously. For Q2 2020,
total cash costs
3
were
$3.68
(the measure for Q2 2020 includes the benefit of tax credits of
$2.2
million
, without which the total cash costs
3
would be
$4.66
). Total cash costs
3
exclude royalties and
include the Company's total professional, consulting and management fees and other general and
administrative expenses.
Cash (used in) provided by operating activities decreased from cash provided in Q2 2019 of
$22.3
million
to cash used in Q2 2020 of
$63.6 million
. This is primarily due to the change in accounts
payable of
$51.4 million
in Q2 2020 when a payment was made to reduce the Company's trade
payables balance with its former off-take partner. A further factor is the change in inventory of
$15.9
million
in Q2 2020 as a consequence of the increased time for the Company to deliver its products
and recognize sales as well as the building of strategic stock levels.
Second Quarter 2020 Operational Results
Total production from the Maracás Menchen Mine was 2,562 tonnes of V
2
O
5
, representing an
increase of 2.0% over Q2 2019. Following the completion of the Company's preventative
maintenance program, V
2
O
5
production in
April 2020
was 480 tonnes with 1,052 tonnes produced in
May 2020
and 1,030 tonnes in
June 2020
.
In Q2 2020, 257,357 tonnes of ore were mined with an effective grade
6
of 1.20% of V
2
O
5
. The
Company produced 99,059 tonnes of concentrate with an effective grade
6
of 3.20%. The decrease
in total ore mined when compared to Q2 2019 is due to operational adjustments to limit the mine site
contractor workforce during the COVID-19 pandemic as well as operational restrictions due to the
rainy season. The Company used available stocks to feed the crushing plant in order to mitigate the
impact on V
2
O
5
production.
The Q2 2020 global recovery
2
of 80.8% was higher than both Q2 2019 (79.1%) and the budget,
with strong recovery levels seen in both the kiln and leaching areas of the plant.
The Company's planned upgrades to the kiln and improvements in the cooler have been postponed
until Q4 2020 as a result of precautionary measures such as limiting mine site personnel and
contractors in light of the COVID-19 pandemic. This work is intended to increase the nameplate
capacity to 1,100 tonnes of V
2
O
5
per month and is not expected to have a significant impact on the
Company's Q4 2020 production.
2020 Vanadium Sales Progress In-Line with Expectations – 2020 Guidance Maintained
The Company completed its first independent shipment of vanadium from
Brazil
on
May 14, 2020
to
an end-user in the U.S. Since then, the Company has delivered both standard grade and high purity
V
2
O
5
as well as ferrovanadium ("FeV") to customers in
Brazil
,
North America
,
Europe
and
Asia
. The
Company's logistics operations have experienced some cancelations and delays related to COVID-
19, both inside and outside of
Brazil
. The Company has, so far, been able to fulfil all of its
commercial commitments with on-time deliveries thanks to careful planning and responsiveness.
Largo maintains its 2020 sales, cost and production guidance and will continue to monitor the rapidly
developing impacts of the COVID-19 pandemic, taking all possible actions to help minimize the
impact on the Company and its people. However, these actions could significantly change the
guidance and forecasts presented and Largo will, if and when necessary, update its guidance
accordingly.
The markets in which the Company operates have also seen impacts in various ways during Q2
2020. COVID-19 had a negative impact on the demand for vanadium from the aerospace industry
while on the positive side, the Chinese steel sector, which currently accounts for approximately 50%
of the total global vanadium demand, saw a sharp recovery. During Q2 2020, the Chinese V
2
O
5
price increased approximately 15% ending the period at an average V
2
O
5
price per lb of
$6.95
.
Additionally, the average price per lb of V
2
O
5
in
Europe
decreased by 5%, ending the period with an
average price of approximately
$5.30
, compared with approximately
$5.58
at
March 31, 2020
. The
average price per lb of V
2
O
5
for Q2 2020 was approximately
$6.14
, compared with approximately
$8.59
for Q2 2019. Largo is now selling products with pricing based on several different V
2
O
5
and
FeV benchmarks and the Company's revenues will be driven by the movements in these prices.
Vanadium: The Green Metal – 2019 Sustainability Report
The Company announced the release of its 2019 sustainability report on
July 20, 2020
, highlighted
by improved performance metrics and new reporting standards. This report is guided in part by
SASB, the Sustainability Accounting Standards Board. The Company's new approach to
sustainability reporting sets a new standard for open and transparent communication and Largo
expects to continually improve its disclosures in the years to come. The report is available for
download within the Responsibility section of the Company's website at
www.largoresources.com/responsibility-page
.
2020 Drill Program Underway
The Company's 2020 drill program recommenced in late
June 2020
following delays caused by the
COVID-19 pandemic. All drilling personnel have followed the prescribed COVID-19 quarantine
procedures before beginning work on site and Largo does not anticipate any further disruptions to
the overall plan going forward. Additional drill equipment and crews were mobilised in July and
August 2020
to increase the production of total metres drilled in order to maintain the planned drilling
timeframes at the various targets.
The Company has planned for 22,500 metres of drilling on the Near Mine Targets in 2020, primarily
to upgrade and expand known resources to determine initial mining opportunities. Additional drilling
(7,500 metres) has been planned in and around the Campbell pit to test for down dip continuations
of known mineralisation. Mineralisation at the Campbell pit remains open at depth based on current
drill results and exploration on the South Block will include a soil geochemistry sampling survey and
9,600 metres of drilling on higher priority targets based on geological, geophysical and geochemical
data. As of
August 11, 2020
, the Company had completed 3,725 metres of drilling in 17 holes at the
Novo Amparo Norte deposit and will shortly begin drilling at the Gulçari A Norte deposit.
TiO2 Pigment Project: Ilmenite and TiO
2
Chemical Pilot Plants in Progress to Develop TiO
2
Pigment
The Company continues its work on advancing basic engineering studies to further evaluate the
economics associated with upgrading the non-magnetic tailings using concentrate flotation to
produce titanium ("TiO
2
") concentrate for the pigment industry. The ilmenite chemical pilot plant was
completed in
October 2019
and was proven successful with ilmenite product being produced shortly
after. The Company constructed an additional chemical pilot plant to further upgrade its ilmenite
product to TiO
2
pigment in
April 2020
. Test work to further understand and evaluate the Company's
TiO
2
chemical pilot plant product is ongoing.
Conference Call
Largo Resources' management will host a conference call on
Friday, August 14, 2020
, at
2:00 p.m.
ET
, to discuss both operational and financial results for the second quarter of 2020.
Conference Call Details:
Date:
Friday, August 14, 2020
Time:
2:00 p.m. ET
Dial-in Number:
Local / International: +1 (416) 764-8688
North American Toll Free: (888) 390-0546
Brazil Toll Free: 08007621359
Conference ID:
63772474
Replay Number:
Local / International: + 1 (416) 764-8677
North American Toll Free: (888) 390-0541
Replay Passcode: 772474 #
Website:
To view press releases or any addition al 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 six months ended
June 30,
2020
and 2019 and its management's discussion and analysis for the three and six months ended
June 30, 2020
, which are available on our website at
www.largoresources.com
and on SEDAR.
About Largo Resources
Largo Resources is an industry preferred producer and supplier of vanadium for the global steel and
high purity markets. Largo's VPURE™ and VPURE+™ products are sourced from one of the world's
highest-grade vanadium deposits at the Maracás Menchen Mine located in
Brazil
. The Company's
common shares are principally listed on the Toronto Stock Exchange under the symbol "LGO". For
more information on Largo and VPURE™, please visit
www.largoresources.com
and
www.largoVPURE.com
.
Neither the Toronto Stock Exchange (nor its regulatory service provider) accepts
responsibility for the adequacy or accuracy of this release.
Forward Looking Information
This press release contains forward-looking information under Canadian securities legislation,
some of which may be considered "financial outlook" for the purposes of application Canadian
securities legislation ("forward-looking statements"). Forward
–
looking information in this press
release includes, but is not limited to, statements with respect to the timing and amount of
estimated future production and sales; costs of future activities and operations; the extent of capital
and operating expenditures; and the extent and overall impact of the COVID-19 pandemic in
Brazil
and globally. 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.
Trademarks are owned by Largo Resources Ltd.
Non-GAAP
8
Measures
The Company uses certain non-GAAP financial performance measures in its press release and
Management's Discussion and Analysis for the three and six months ended
June 30, 2020
, which
are described in the following section.
Revenues
Per Pound
The Company's press release refers to revenues per pound sold, a non-GAAP performance
measure that is used to provide investors with information about a key measure used by
management to monitor performance of the Company.
This measure, along with cash operating costs and total cash costs, 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 and sales activities. This revenues per pound measure 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 prepared in accordance
with IFRS. This measure is not necessarily indicative of net earnings or cash flow from operating
activities as determined under IFRS.
The following table provides a reconciliation of this measure per pound sold to revenues as per the
Q2 2020 unaudited condensed interim consolidated financial statements.
Three months ended
Six months ended
June 30,
2020
June 30,
2019
June 30,
2020
June 30,
2019
Revenues
i
$
8,350
$
21,963
$
50,259
$
55,168
V
2
O
5
equivalent sold (000s lb)
2,244
5,467
9,233
10,097
Revenues per pound sold ($/lb)
$
3.72
$
4.02
$
5.44
$
5.46
i. As per note 21 in the Company's Q2 2020 unaudited condensed interim consolidated financial statements
Cash Operating Costs Per Pound
The Company's press release refers to cash operating costs per pound, 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, distribution
costs and sales, general and administrative costs (all for the mine properties segment), but
excludes depreciation and amortization, share-based payments, foreign exchange gains or losses,
commissions, reclamation, capital expenditures and exploration and evaluation costs. Operating
costs not attributable to the mine properties segment are also excluded, including product
acquisition costs and inventory write-downs. These costs are then divided by the pounds of
vanadium sold that was produced by the Maracás Menchen Mine to arrive at the cash operating
costs per pound. Prior to 2020, these costs were divided by the pounds of production from the
Maracás Menchen Mine, rather than pounds sold. These periods have been recalculated using
pounds sold in the following table. This measure differs to the new total cash costs non-GAAP
measure the Company will use to measure its overall performance starting in 2020 (see later in
this section).
These measures, along with revenues, 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 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 press release 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 table.
The following table provides a reconciliation of cash operating costs per pound for the Maracás
Menchen Mine to operating costs as per the Q2 2020 unaudited condensed interim consolidated
financial statements.
Three months ended
Six months ended
June 30,
2020
June 30,
2019
June 30,
2020
June 30,
2019
Operating costs
i
$
9,561
$
24,815
$
35,809
$
46,598
Professional, consulting and management fees
ii
435
1,195
1,270
2,147
Other general and administrative expenses
2
528
290
765
491
Less: product acquisition costs
i
(2,444)
-
(2,444)
-
Less: inventory write-down
iii
(1,176)
-
(1,176)
-
Less: depreciation and amortization expense
1
(2,034)
(6,688)
(8,481)
(12,161)
Cash operating costs
4,870
19,612
25,743
37,075
Less: royalties
i
(1,290)
(1,327)
(3,597)
(3,070)
Cash operating costs excluding royalties
3,580
18,285
22,146
34,005
Produced V
2
O
5
sold (000s lb)
iv
1,896
5,467
8,885
10,097
Cash operating costs per pound ($/lb)
iv
$
2.57
v
$
3.59
$
2.90
v
$
3.67
Cash operating costs excluding royalties per pound ($/lb)
iv
$
1.89
v
$
3.34
$
2.49
v
$
3.37
i.
As per note 22 in the Company's Q2 2020 unaudited condensed interim consolidated financial statements
ii.
As per the Mine properties segment in note 18 in the Company's Q2 2020 unaudited condensed interim consolidated financial statements
iii.
As per note 7 in the Company's Q2 2020 unaudited condensed interim consolidated financial statements
iv.
Cash operating costs per pound and cash operating costs excluding royalties per pound for Q2 2019 were previously calculated and presented on a pounds produced
basis (V
2
O
5
produced (000s lb) = 5,545; V
2
O
5
sold (000s lb) = 5,467). These measures have been calculated and presented on a pounds sold basis in this MD&A
v.
The measure for Q2 2020 includes the benefit of tax credits of $2,187, without which the cash operating costs per pound would be $3.72 and $3.14 for the three and six
month periods ended June 30, 2020, respectively, and the cash operating costs excluding royalties per pound would be $3.04 and $2.74 for the three and six month
periods ended June 30, 2020, respectively
Total Cash Costs
The Company's press release refers to total cash costs, 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 Company is performing at producing
and selling vanadium products compared to plan and prior periods, and also to assess its overall
effectiveness and efficiency.
Total cash costs are a non-GAAP performance measure that includes all operating costs, sales
and distribution costs and the Company's total professional, consulting and management fees and
other general and administrative expenses. Total cash costs exclude royalties, depreciation and
amortization, share-based payments, foreign exchange gains or losses, commissions, reclamation
costs, exploration and evaluation costs and capital expenditures. These costs are then divided by
the total pounds of vanadium sold by the Company to arrive at total cash costs.
This measure differs from cash operating costs per pound in that it includes all operating costs,
sales and distribution costs, professional, consulting and management fees and other general and
administrative expenses, rather than just those from the Mine properties segment, and is
calculated on total V
2
O
5
equivalent pounds sold rather than pounds sold that was produced by the
Maracás Menchen Mine. The Company believes this will be a more accurate reflection of its all-in
unit costs.