Largo Resources Announces Solid Third Quarter 2020 Results Highlighted by its Successful Sales Strategy Implementation and Continued Low-cost Operations Except as otherwise set out herein
Largo Resources Announces Solid Third
Quarter 2020 Results Highlighted by its
Successful Sales Strategy Implementation and
Continued Low-cost Operations
Except as otherwise set out herein, all amounts expressed are in thousands of
U.S. dollars,
denominated by "$"
Q3 2020 Highlights
Solid financial position: Cash at
September 30, 2020
totaled
$74.9 million
Revenues of
$27.5 million
, an increase of 14% over Q3 2019
Revenues per pound sold
7
of
$5.37
, a 34% increase over Q3 2019
Net income of
$2.6 million
vs. a net loss of
$6.0 million
in Q3 2019
Total sales exceeded production levels in August and
September 2020
for the first time
since commercial independence, highlighting successful implementation of the
Company's strategy
Cash provided (used) before working capital items of
$4.8 million
vs. cash used in Q3
2019 of
$3.8 million
Record production of 3,092 tonnes (6.8 million pounds
1
) of V
2
O
5
, an increase of 5.0%
over Q3 2019
Record global V
2
O
5
recovery rate
2
of 84.2% in Q3 2020, an increase of 8.0% over Q3
2019
Continued low-cost operations: Cash operating costs excluding royalties
3
of
$3.14
per lb
of V
2
O
5
,
compared with
$3.02
per lb in Q3 2019; Total cash costs
3
were
$3.69
per lb in
Q3 2020
Other Significant Highlights
2020 cash cost guidance reduced: Cash operating cost excluding royalties
3
guidance
lowered to
$2.60
–
$2.80
/ lb V
2
O
5
from
$3.05
–
$3.25
/ lb; Total cash cost
3
guidance
lowered to
$3.20
to
$3.40
/ lb V
2
O
5
from 3.45 –
$3.65
/ lb
Postponing cost-efficient nameplate capacity increase to Q1 2021: Planned kiln
upgrades and cooler maintenance that will increase Largo's production capacity by 10%
with a CAPEX of only
$1.3 million
are postponed to Q1 2021 due to COVID-19 restrictions
Focus on safe business continuity: On track to meet lower end of 2020 production
guidance with strong production results expected in Q4 2020; 2020 sales guidance
maintained
2020 drilling program update: Drilling was ramped up in Q3 2020 with 14,007 metres (80
holes) completed
TORONTO
,
Nov. 12, 2020
/CNW/ - Largo Resources Ltd. ("
Largo
" or the "
Company
") (TSX: LGO)
(OTCQX: LGORF) is pleased to announce its third quarter 2020 financial and operating results
highlighted by net income of
$2.6 million
and revenues of
$27.5 million
from vanadium pentoxide
("
V
2
O
5
") equivalent sales of 2,320 tonnes. The Company achieved a new quarterly V
2
O
5
production
record of 3,092 tonnes (6.8 million lbs
1
) at the Maracás Menchen Mine in Q3 2020 and a new
record global recovery rate
2
of 84.2%.
Largo Resources Announces Solid Third Quarter 2020 Results Underscored by its Successful Sales
Strategy Implementation and Continued Low-cost Operations (CNW Group/Largo Resources Ltd.)
Paulo Misk
, President and Chief Executive Officer for Largo, stated
: "Our positive results in Q3
2020 reflect the notable dedication of the entire Largo team as we continue to advance our
independent commercial sales strategy and deliver on our operational and sales targets. We are
very pleased to report a profitable quarter in Q3 2020 with continued low cash operating costs
excluding royalties
3
of
$3.14
per lb and year-to-date cash operating costs excluding royalties
3
of
$2.70
per lb. Additionally, our independent sales strategy has proven beneficial for the Company in
Q3 2020 highlighted by an increase of 34% in revenues per lb
7
sold to
$5.37
from
$4.02
per lb
sold in Q3 2019."
He continued:
"
Our liquidity position remains solid heading into the final stretch
of 2020 and I am pleased to report that we expect to finish the year on a positive note both
operationally and financially. 2020 has presented some challenges for Largo but I am very proud
of the entire team who have been resilient during unprecedented times.
Our integrated supply of
vanadium from mine to customer remains one of the lowest costs and highest quality in the world.
The future looks very bright for Largo as we expect an increase in vanadium consumption from
rebar and steel applications due to new infrastructure spending and through the development of
clean energy applications—both of which are
aligned with our goal of contributing to a lower
carbon future through the use of vanadium
."
A summary of the Company's operational and financial performance in Q3 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
Nine months ended
September 30,
2020
September 30,
2019
September 30,
2020
September 30,
2019
Revenues
$
27,474
$
24,131
$
77,733
$
79,299
Operating costs
(20,977)
(23,673)
(56,786)
(70,271)
Direct mine and production costs
(11,354)
(16,691)
(31,028)
(48,058)
Net income (loss) before tax
3,352
(6,852)
1,700
(20,968)
Income tax (expense) recovery
(421)
724
(421)
(8)
Deferred income expense
(382)
179
(1,399)
(1,690)
Net income (loss)
2,549
(5,949)
(120)
(22,666)
Basic earnings (loss) per share
0.00
(0.01)
(0.00)
(0.04)
Diluted earnings (loss) per share
0.00
(0.01)
(0.00)
(0.04)
Cash provided (used) before non-cash working
capital items
$
4,820
$
(3,809)
$
4,526
$
7,888
Net cash (used in) provided by operating activities
382
6,376
(64,249)
95,247
Net cash provided by (used in) financing activities
126
(21,510)
27,643
(94,560)
Net cash (used in) investing activities
(4,435)
(11,896)
(13,036)
(32,251)
Net change in cash
(3,320)
(28,749)
(52,604)
(34,614)
As at
September 30,
2020
December 31,
2019
Cash
$
74,895
127,499
Debt
24,788
-
Working capital
4
84,671
78,380
Operational
Maracás Menchen Mine Production
Q3 2020
Q3 2019
Total Ore Mined (tonnes)
287,969
267,257
Ore Grade Mined - Effective Grade
5
(%)
1.28
1.52
Effective Grade of Ore Milled
5
(%)
1.26
1.44
Concentrate Produced (tonnes)
104,921
92,629
Grade of Concentrate (%)
3.32
3.26
Contained V
2
O
5
(tonnes)
3,487
3,016
Crushing Recovery (%)
98.1
96.5
Milling Recovery (%)
96.5
97.0
Kiln Recovery (%)
92.5
88.8
Leaching Recovery (%)
99.7
97.2
Chemical Plant Recovery (%)
96.4
96.7
Global Recovery (%)
2
84.2
78.1
V
2
O
5
produced (Flake + Powder) (tonnes)
3,092
2,952
V
2
O
5
produced (equivalent pounds)
1
6,816,685
6,508,038
Cash operating costs per pound
3
$
$3.50
$3.25
6
Cash operating costs excluding royalties
3
per pound
$
$3.14
$3.02
6
Total cash costs
3
$
$3.69
Revenues per pound sold
7
$
$5.37
$4.02
Third Quarter 2020 Financial Performance
In Q3 2020, the Company recognized revenues of
$27.5 million
from sales of 2,320 tonnes of
V
2
O
5
equivalent, representing an increase of 14% in revenues over Q3 2019 (
$24.1 million
).
Revenues per pound sold were
$5.37
in Q3 2020 compared to
$4.02
per pound sold in Q3 2019,
representing an increase of 34%. Q3 2020 marked Largo's first full quarter of independent sales and
the Company delivered both VPURE™ and VPURE+™ products as well as ferrovanadium ("FeV")
powered by VPURE™ to customers in
Brazil
,
North America
,
Europe
and
Asia
. The Company's total
V
2
O
5
equivalent sales in the nine months ended
September 30, 2020
are 6,508 tonnes.
The Company recorded net income of
$2.6 million
in Q3 2020 following the recognition of an income
tax expense of
$0.4 million
and a deferred income tax expense of
$0.4 million
. This compares to net
loss of
$6.0 million
in Q3 2019 and is primarily due to an increase in revenues and decrease in
operating costs.
Operating costs for Q3 2020 were
$21.0 million
compared to
$23.7 million
in Q3 2019 and include
direct mine and production costs of
$11.4 million
(
$16.7 million
in Q3 2019), royalties of
$1.6 million
(
$1.4 million
in Q3 2019), product acquisition costs of
$3.9 million
, distribution costs of
$0.9 million
,
inventory write-down of
$2 thousand
and depreciation and amortization of
$3.3 million
(
$5.6 million
in
Q3 2019). The decrease in direct mine and production costs is primarily attributable to the decrease
in V
2
O
5
equivalent sold in Q3 2020.
Cash operating costs excluding royalties
3
in Q3 2020 were
$3.14
per lb V
2
O
5
sold compared to
$3.02
in Q3 2019. The increase seen in Q3 2020 compared with Q3 2019 is largely due to a
decrease in produced pounds of V
2
O
5
sold as well as the incurrence of distribution costs in Q3
2020. In Q3 2020, the Company's total cash costs
3
were
$3.69
per lb. The Company's total cash
costs
3
measure excludes royalties, includes total professional, consulting and management fees and
other general and administrative expenses and are calculated on total pounds of V
2
O
5
sold.
In Q3 2020, cash provided before working capital items was
$4.8 million
compared to cash used in
Q3 2019 of
$3.8 million
. Net cash provided by operating activities decreased from
$6.4 million
in Q3
2019 to
$0.4 million
in Q3 2020. This is primarily due to the change in accounts receivable of
$4.6
million
in Q3 2020 as the payment terms with the Company's customers is greater than with its
former off-take partner. A further factor is the change in inventory of
$3.8 million
in Q3 2020, which
is a consequence of the increased time for the Company to deliver its products and recognize sales.
This was offset by the change in deferred revenue of
$6.6 million
in Q3 2020 as cash payments
were received for sales not yet recognized.
The Company's trade payables balance at
September 30, 2020
with its former off-take partner was
$0.09 million
. This is attributable to the re-measurement of trade receivables / payables for
V
2
O
5
sold in the period to
April 30, 2020
and is the last such re-measurement.
Third Quarter 2020 Operational Performance
Q3 2020 production of 3,092 tonnes of V
2
O
5
was a new quarterly production record for the
Company, being 5% higher than Q3 2019 and 3% higher than the previous record of 3,011 tonnes in
Q4 2019. V
2
O
5
production in
July 2020
was 1,055 tonnes, with 1,100 tonnes produced in
August
2020
and 937 tonnes produced in
September 2020
. Operational stability and an increase in the
global recovery
2
drove the Q3 2020 production performance. Subsequent to Q3 2020, production in
October 2020
was 1,119 tonnes of V
2
O
5
.
The global recovery
2
record of 84.2% achieved in Q3 2020 was 8% higher than the 78.1% achieved
in Q3 2019 and 4% higher than the 80.8% achieved in Q2 2020. This is primarily due to the
completion of continuous improvement projects in the plant that focused on recovery levels. This was
highlighted by the performance of the kiln and leaching areas in Q3 2020, with record quarterly
recovery levels of 92.5% and 99.7%, respectively, being achieved. The global recovery
2
in
July 2020
was 86.0%, with 84.0% achieved in August and 82.1% achieved in September.
In Q3 2020, 287,969 tonnes of ore were mined with an effective grade
5
of 1.28% of V
2
O
5
. The ore
mined in Q3 2020 was 8% higher than in Q3 2019 and 12% higher than in Q2 2020, which was
impacted by the COVID-19 restrictions put in place as well as operational restrictions due to the
rainy season. The Company produced 104,921 tonnes of concentrate with an effective grade
5
of
3.32%. The operational performance in Q3 2020 has remained in-line with the Company's plans
despite the COVID-19 restrictions put in place.
The Company's planned upgrades to the kiln and improvements in the cooler to increase nameplate
capacity to 1,100 tonnes of V
2
O
5
per month are now scheduled for Q1 2021 as a result of
precautionary measures taken by the Company in light of the COVID-19 pandemic.
Successful Sales Strategy Implementation – Strong Sales Results in August and
September
2020
The Company progresses its sales strategy for 2020 is in line with expectations, highlighted by V
2
O
5
equivalent sales of 1,062 tonnes in
August 2020
and 1,060 tonnes in
September 2020
. From May to
July 2020
, the Company successfully built the necessary inventories to fill its sales pipeline and meet
customer commitments as planned. As a result of Largo's new commercial independence and sales
flexibility, the Company increased its sales in
China
to take advantage of higher prices and greater
overall demand in Q3 2020. This further highlights the positive effect of the Company's commercial
strategy on its reputation, visibility and financial performance. Delivery times to
Asia
have increased
in Q3 2020 due to logistical constraints related to the COVID-19 pandemic. The Company continues
to actively manage this process to provide premium products and service to its customers and
remains confident in its ability to deliver on its 2020 sales guidance of 9,500 to 10,000 tonnes of
V
2
O
5
.
For Q3 2020, the average price per lb of V
2
O
5
in
Europe
was approximately
$5.33
, compared with
approximately
$7.16
for Q3 2019. During Q3 2020, the average price per lb of V
2
O
5
in
Europe
increased by 1%, ending the period with an average price of approximately
$5.35
, compared with
approximately
$5.30
at
June 30, 2020
. In Q3 2020, the average price per lb of V
2
O
5
in
China
was
approximately
$5.90
on a cost, insurance, and freight ("CIF") equivalent basis. In Q3 2020,
China
continued to be the driver of global vanadium demand from increased infrastructure spending and the
development of green technology applications. Going forward, Largo expects additional global
vanadium demand growth as a result of recently announced stimulus packages and a focus on
carbon footprint reduction. These significant, long-term trends are forecast to increase the
consumption of vanadium in rebar, high-quality steel applications and through new vanadium redox
flow battery deployments around the world.
Exploration Drilling Program Ramped Up in Q3 2020
After delays experienced in early 2020 due to the COVID-19 pandemic, exploration drilling was
ramped up and 14,007 metres of drilling (80 holes) was completed in Q3 2020. Drilling focused on
definition drilling at Novo Amparo Norte, Gulcari A Norte and additional drilling at the Campbell Pit. In
early
October 2020
, drills were moved to the São José and
Novo Amparo
deposits for further
expansion and resource definition drilling to gain a greater level of understanding of these deposits.
As of
November 12, 2020
, the Company has drilled 19,465 metres (109 holes).
The Company does not anticipate any further disruptions to the overall 2020 exploration plan. The
São José and
Novo Amparo
targets, as well as depth extension drilling at the Campbell Pit, will be
the focus of exploration activities in Q4 2020.
Conference Call
Largo Resources' management will host a conference call on
Friday, November 13, 2020
, at
10:00
a.m. ET
, to discuss both operational and financial results for the third quarter of 2020.
Conference Call Details:
Date:
Friday, November 13, 2020
Time:
10:00 a.m. ET
Dial-in Number:
Local / International: +1 (416) 764-8688
North American Toll Free: (888) 390-0546
Brazil Toll Free: 08007621359
Conference ID:
63665793
Replay Number:
Local / International: + 1 (416) 764-8677
North American Toll Free: (888) 390-0541
Replay Passcode: 537676 #
Website:
To view press releases or any additional financial information, please visit the 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, 2020
and 2019 and its management's discussion and analysis for the three and nine months
ended
September 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 nine months ended
September 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
Q3 2020 unaudited condensed interim consolidated financial statements.
Three months ended
Nine months ended
September 30,
2020
September 30,
2019
September 30,
2020
September 30,
2019
Revenues
i
$
27,474
$
24,131
$
77,733
$
79,299
V
2
O
5
equivalent sold (000s lb)
5,115
5,997
14,348
16,094
Revenues per pound sold ($/lb)
$
5.37
$
4.02
$
5.42
$
4.93
i.
As per note 21 in the Company's unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2020 and 2019.
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 were 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
produced 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 Q3 2020 unaudited condensed interim consolidated
financial statements.
Three months ended
Nine months ended
September 30,
2020
September 30,
2019
September 30,
2020
September 30,
2019
Operating costs
i
$
20,977
$
23,673
$
56,786
$
70,271
Professional, consulting and management fees
ii
853
1,321
2,123
3,468
Other general and administrative expenses
ii
390
111
1,155
602
Less: product acquisition costs
i
(3,877)
-
(7,180)
-
Less: inventory write-down
iii
-
-
(317)
-
Less: depreciation and amortization expense
i
(3,264)
(5,601)
(11,745)
(17,762)
Cash operating costs
15,079
19,504
40,822
56,579
Less: royalties
i
(1,552)
(1,381)
(5,149)
(4,451)
Cash operating costs excluding royalties
13,527
18,123
35,673
52,128
Produced V
2
O
5
sold (000s lb)
iv
4,310
5,997
13,195
16,094
Cash operating costs per pound ($/lb)
iv
$
3.50
$
3.25
$
3.09
$
3.52
Cash operating costs excluding royalties per pound ($/lb)
iv
$
3.14
$
3.02
$
2.70
$
3.24
i.
As per note 22
in the Company's unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2020 and 2019.
ii.
As per the Mine properties segment in note 18 in the Company's unaudited condensed interim consolidated financial statements for the three and nine months ended
September 30, 2020 and 2019.
iii.
As per note 7 in the Company's unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2020 and 2019.
iv.
Cash operating costs per pound and cash operating costs excluding royalties per pound for Q3 2019 were previously calculated and presented on a pounds produced
basis (V
2
O
5
produced (000s lb) = 6,508; V
2
O
5
sold (000s lb) = 5,997). These measures have been calculated and presented on a pounds sold basis in this MD&A.
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 were produced by the
Maracás Menchen Mine. The Company believes this will be a more accurate reflection of its all-in
unit costs.
This total cash costs 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