Largo Resources Reports Record Production and Lowest Annual Cash Costs at the Maracás Menchen Mine with 2019 Financial Results
PRESS RELEASE March 20, 2020
Largo Resources Reports Record Production and Lowest Annual Cash Costs at the
Maracás Menchen Mine with 2019 Financial Results
All financial figures are in Canadian dollars unless otherwise stated.
Q4 2019 Highlights
Production of 3,011 (6.6 million lbs1) tonnes of V2O5 in Q4 2019, a 16% increase over
Q4 2018
Record monthly V2O5 production of 1,162 tonnes in December 2019
Cash operating costs excluding royalties2 of US$2.48 ($3.28) per lb V2O5, a decrease of 29% over
Q4 2018
Revenues of $34.1 million in Q4 2019 (net of the re-measurement of trade
receivables / payables of $13.5 million on vanadium sales from a contract with a
customer of $47.6 million)
Full Year 2019 Highlights
Record FY 2019 production, achieving midpoint production guidance: 10,577 tonnes (23.3
million lbs1) of V2O5 produced in 2019, an increase of 8% over FY 2018
Cash operating costs excluding royalties2 of US$2.95 ($3.92) per lb V2O5, 12% lower than 2019
cost guidance; 13% lower than 2018
Revenues of $140.0 million in FY 2019 (net of the re-measurement of trade
receivables / payables of $137.3 million on vanadium sales from a contract with a
customer of $277.3 million)
Net loss of $36.2 million and a loss per share of $0.07
Cash balance of $166.1 million exiting 2019
New safety record in 2019: 238 days (1.5 million man-hours worked) without a Lost Time Injury
Other Significant Updates
Strategic sales and marketing transition proven successful: 90% committed on
guided annual sales for 2020
New 2020 total cash cost8 guidance of US$3.45 – 3.65/lb V2O5
2020 total cash cost8, cash operating costs excluding royalties2, sales and production guidance
maintained on a “business as usual” basis
Board approval for the construction of a vanadium trioxide (“V2O3”) processing plant
in Maracás, Brazil
2
Ilmenite flotation pilot plant proven successful; TiO 2 chemical pilot plant tests and
study expected to commence in April 2020
TORONTO - Largo Resources Ltd. ( "Largo" or the "Company") (TSX: LGO) (OTCQX: LGORF) announces its 2019
financial results highlighted by record annual production of 10,577 tonnes of vanadium pentoxide (“V2O5”) and the
lowest annual cash operating costs excluding royalties 2 achieved to date of US$2.95 per pound of V 2O5. The
Company recorded a net loss of $36.2 million in 2019 largely due to lower vanadium prices and the re-measurement
of trade receivables / payables as part of its offtake agreement which expires on April 30, 2020.
Paulo Misk, President and Chief Executive Officer for Largo, stated: “Profitability was impacted in Q4 2019 and in 2019
as a consequence of lower vanadium prices and largely due to a total re-measurement of trade receivables / payables
during the year of $137.3 million as part of the Company’s off-take agreement. Following the expiration of the off-take
agreement next month, the Company remains focused on maximizing value through its sales and marketing business,
which includes a focus on high purity vanadium sales with price premiums. I am very pleased to report that the
Company is approximately 90% committed on its annual guided sales for 2020.”
He continued: “On the operational front, the Company performed extremely well in 2019 achieving cash operating
costs excluding royalties 2 of US$2.95 per pound of V 2O5 in addition to setting a new V 2O5 production record of 10,577
tonnes. I am very proud of the entire Largo team who have consistently demonstrated their ability to achieve new
production records while maintaining cost discipline. In addition to the ferrovanadium conversion plant approval, the
Board of Directors has also approved the construction of a V2O3 processing plant at the Maracás Menchen Mine. Once
completed, the Company expects to increase its premium yielding high purity sales in the vanadium-titanium-
aluminum alloying market which is required for aerospace manufacturing, chemical industry and vanadium
electrolyte used for vanadium redox flow batteries.”
He concluded: “The Company is continuing to monitor the rapidly developing impacts of the COVID-19 (“coronavirus”)
pandemic and will take all possible actions to help minimize the impact on the Company and its people. Our thoughts
are with all of those affected by this virus. To date, there has been no impact on our production or on our shipment of
product out of Maracás. At this time, there has been no significant disruption to the Company’s supply chain for its
operations and the level of critical consumables continues to be at normal levels. Additionally, not a single employee
or contractor has tested positive for the virus and given its relative isolation, we believe that the risk to our operating
team in Maracás remains relatively low. Largo continues to monitor and will, if and when required, implement business
continuity measures to mitigate and minimize any potential impacts of the global pandemic on our operations, supply
chain, and commercial and financial activities. The Company continues to follow best practices as provided by the
World Health Organization and will provide additional updates as they are needed.”
A summary of the operational and financial performance for the fourth quarter Q4 and full year 2019 is provided below:
Financial
Three months ended Year ended
December 31,
2019
December 31,
2018
December 31,
2019
December 31,
2018
Revenues $ 34,118 $ 177,543 $ 140,012 $ 521,415
Direct mine and mill costs (20,025) (21,332) (84,252) (82,037)
Operating costs (29,980) (37,637) (123,841) (135,746)
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Net income (loss) before tax (2,544) 131,091 (31,259) 322,654
Income tax (expense) recovery (1,190) (11,694) (1,144) (27,467)
Deferred income tax (expense) recovery (1,219) (11,436) (3,809) 20,769
Net income (loss) (4,953) 107,961 (36,212) 315,956
Basic earnings (loss) per share (0.01) 0.21 (0.07) 0.61
Diluted earnings (loss) per share (0.01) 0.16 (0.07) 0.49
Cash provided (used) before non-cash
working capital items $ 16,507 $ 134,357 $ 28,630 $ 403,157
Net cash provided by operating activities 10,445 144,165 139,282 352,074
Net cash (used in) financing activities 12,206 (64,811) (115,226) (177,786)
Net cash (used in) investing activities (7,472) (6,198) (50,386) (18,989)
Net change in cash 11,262 78,127 (40,111) 151,463
As at
December 31,
2019
December 31,
2018
Cash $ 166,077 206,188
16,049 Working capital3 102,013 135,258
Trade payables 87,782 -
Operational
2019 2018
Q4 Q3 Q2 Q1 Full Year Q4 Full Year
Total Ore Mined (tonnes) 329,792 267,257 308,858 250,109 1,156,016 256,436 822,795
Ore Grade Mined - Effective Grade (%)6 1.36 1.52 1.21 1.29 1.34 1.33 1.30
Effective Grade of Ore Milled (%)6 1.57 1.44 1.49 1.51 1.50 1.53 1.68
Concentrate Produced (tonnes) 100,879 92,629 102,320 86,673 382,501 92,190 343,126
Grade of Concentrate (%) 3.28 3.26 3.30 3.32 3.29 3.27 3.41
Contained V2O5 (tonnes) 3,310 3,016 3,380 2,874 12,580 3,016 11,718
Crushing Recovery (%) 96.6 96.5 98.0 97.0 97.0 97.4 97.2
Milling Recovery (%) 96.0 97.0 97.9 96.8 96.9 97.9 96.9
Kiln Recovery (%) 89.7 88.8 88.8 89.2 89.1 84.3 86.6
Leaching Recovery (%) 96.7 97.2 95.7 97.7 96.8 96.5 97.2
Chemical Plant Recovery (%) 96.1 96.7 97.1 97.7 96.8 97.2 97.0
Global Recovery (%)7 77.3 78.1 79.1 80.0 78.5 75.3 77.0
V2O5 produced (tonnes) 3,011 2,952 2,515 2,099 10,577 2,595 9,830
V2O5 produced (equivalent pounds1) 6,638,111 6,508,038 5,544,619 4,627,497 23,318,266 5,720,989 21,671,415
Fourth Quarter and Full Year 2019 Financial Results
The Company recorded a net loss of $36.2 million in 2019 compared to net income of $316.0 million in 2018. This
movement was primarily due to a decrease in revenues during the year and was partially offset by a decrease in
operating costs of $11.9 million, a decrease in finance costs of $21.4 million and an increase in interest income of
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$5.7 million. In Q4 2019, the Company recorded a net loss of $5.0 million compared to net income of $108.0 million
in Q4 2018.
The Company’s total sales of V2O5 in 2019 were 10,160 tonnes which includes 1,640 tonnes of high purity V2O5. Total
high purity sales in 2019 increased 14% over the 1,440 tonnes sold in 2018. Total sales of V2O5 in Q4 2019 were 2,860
tonnes which includes 480 tonnes of high purity V2O5.
Following the $137.3 million reduction in revenues as a result of the re-measurement of trade receivables / payables
under the Glencore contract, the Company recognized revenues of $140.0 million in 2019 compared with revenues
of $521.4 million in 2018. Revenues per pound sold4 in 2019 were $6.25 (US$4.70) compared with $24.33 (US$18.68)
per pound in 2018. For Q4 2019, the Company recognized revenues of $34.1 million compared with revenues of
$177.5 million in Q4 2018. Revenues per pound sold 4 in Q4 2019 were $5.41 (US$4.09) compared with $31.96
(US$24.19) per pound in Q4 2018.
Vanadium sales from a contract with a customer was $277.3 million in 2019, compared with $455.4 million in 2018.
Vanadium sales per pound sold 4 in 2019 was $12.38 (US$9.32) compared to $21.25 (US$16.32) per pound in 2018.
This decrease is primarily attributable to a decrease in the V 2O5 price, with the average price per lb of V 2O5 of
approximately US$9.36 for 2019, compared with approximately US$18.30 for 2018. Vanadium sales from a contract
with a customer was $47.6 million in Q4 2019, compared with $167.6 million in Q4 2018. Vanadium sales per pound
sold4 in Q4 2019 was $7.54 (US$5.70) compared to $30.17 (US$22.84) per pound in Q4 2018. This decrease is primarily
attributable to a decrease in the V 2O5 price, with the average price per lb of V 2O5 of approximately US$5.37 for Q4
2019, compared with approximately US$24.53 for 2018.
Three months ended Year ended
December
31, 2019
December
31, 2018
December
31, 2019
December
31, 2018
Vanadium sales from a contract with a customer $ 47,568 167,639 277,285 455,368
Vanadium sales per pound sold 4 ($/lb) $ 7.54 30.17 12.38 21.25
Vanadium sales per pound sold 4 (US$/lb) $ 5.70 22.84 9.32 16.32
Re-measurement of trade receivables / payables $ (13,450) 9,904 (137,273) 66,047
Revenue adjustment per pound 5 ($/lb) $ (2.26) 3.65 (6.05) 3.53
Revenue adjustment per pound 5 (US$/lb) $ (1.71) 2.76 (4.55) 2.71
Revenues $ 34,118 177,543 140,012 521,415
Revenues per pound sold4 ($/lb) $ 5.41 31.96 6.25 24.33
Revenues per pound sold4 ($US/lb) $ 4.09 24.19 4.70 18.68
As a consequence of the negative revenue adjustment per pound 5 realized in Q4 2019 and in 2019, the Company’s
trade payables balance at December 31, 2019 was $87.8 million and the revenue adjustment payable 5 was $95.7
million (US$73.6 million). Assuming V2O5 prices remain the same as at December 31, 2019, the Company’s estimated
revenue adjustment payable 5 for V 2O5 sold to December 31, 2019 is $96.2 million (US$74.0 million). At the date of
this press release, the Company’s estimated revenue adjustment payable for V 2O5 sold 5 to February 29, 2019 is
approximately $94.4 million (US$72.6 million).
5
The Company has forecast its expected cash balance and the estimated revenue adjustment payable 5 at April 30,
2020 under three different vanadium price scenarios. Each scenario assumes that the vanadium price shown in the
table below applies from January 1, 2020 to April 30, 2020 and constant foreign exchange rates and cash operating
costs per pound produced2 consistent with the guidance released. The forecast balances, which constitute forward-
looking information, are shown in the table below.
The Company is continuing to monitor the rapidly developing impacts of the COVID-19 pandemic and will take all
possible actions to help minimize the impact on the Company and its people. Given these uncertainties, the
Company is actively working to secure credit facilities to provide it with additional cash resources should the
impacts be significant. In March 2020, the Company secured a US$13.0 million credit facility in Brazil. All amounts
drawn under the facility are due to be repaid as a lump sum at maturity in 359 days.
US$5.00/lb US$6.00/lb US$7.00/lb
Forecast cash at April 30, 2020 $ 165,295 $ 165,464 $ 165,949
Estimated revenue adjustment payable 5 at April 30, 2020 93,281 84,474 75,826
Net $ 72,014 $ 80,990 $ 90,123
Operating costs in 2019 were $123.8 million compared to $135.7 million in 2018 and include direct mine and mill
costs of $84.3 million ($82.0 million in 2018), depreciation and amortization of $31.7 million ($31.0 million in 2018)
and royalties of $7.9 million ($22.7 million in 2018). For Q4 2019, operating costs were $30.0 million compared to
$37.6 million in Q4 2018 and include direct mine and mill costs of $20.0 million ($21.3 million in Q4 2018),
depreciation and amortization of $8.0 million ($7.3 million in Q4 2018) and royalties of $2.0 million ($9.0 million in
Q4 2018). The decrease in direct mine and mill costs in Q4 2019 is primarily attributable to the recovery of operating
cost related tax credits totaling R$12.3 million. Additionally, the decrease in royalties in 2019 from 2018 is due to a
decrease in V2O5 price.
Cash operating costs excluding royalties 2 in 2019 were $3.92 (US$2.95) per pound compared to $4.41 (US$3.38) in
2018, representing a decrease of 13%. Cash operating costs excluding royalties2 in Q4 2019 were $3.28 (US$2.48) per
pound compared to $4.60 (US$3.48) in Q4 2018 which represents the lowest unit costs achieved since
commencement of operations in 2014. The decrease seen in Q4 2019 compared with Q4 2018 is largely due to the
Q4 2019 production of 3,011 tonnes of V2O5 being 416 tonnes higher than the 2,595 tonnes produced in Q4 2018, as
well as an improvement in the global recovery level and the recovery of tax credits.
Interest income in 2019 was $6.6 million representing an increase of $5.7 million over 2018. For Q4 2019, interest
income was $1.1 million compared to $0.6 million in Q4 2018. This is due to the Company’s increased cash position
during Q4 2019 and in 2019 which has enabled it to benefit from greater deposit interest rates.
Fourth Quarter and Full Year 2019 Operational Results
Total V2O5 production of 3,011 tonnes during Q4 2019 was 16% higher than Q4 2018. Production in December 2019
achieved a new monthly record with 1,162 tonnes of V2O5 produced, which contributed to the total V2O5 production
in 2019 of 10,577 tonnes being 747 tonnes higher than in 2018. In October, 946 tonnes of V 2O5 was produced, with
903 tonnes produced in November. Q4 2019 production was 2% higher than in Q3 2019, primarily due to the
6
successful completion of the expansion in the milling and evaporation areas, which enabled the full plant to achieve
its expanded design capacity.
In Q4 2019, 329,792 tonnes of ore were mined with an effective grade 6 of 1.36% of V 2O5. The Company produced
100,879 tonnes of concentrate ore with an effective V2O5 grade of 3.28%, compared with 92,190 tonnes produced in
Q4 2018 with a grade of 3.27%. The Company uses production drilling prior to blasting to better define the ore and
waste material being mined. This dilution control procedure has enabled the Company to avoid mining waste rock
inside the ore block, resulting in less ore being mined, but with a higher grade than expected. The effective grade
milled reports higher than the effective grade mined as a result of dry magnetic separation which occurs between
the two processes. The Company’s crushing and milling costs have benefited from the implementation of these
procedures as a result of lower throughput of material in these sections of the plant.
The Q4 2019 global recovery7 of 77.3% was impacted by the lower global recovery7 achieved in October 2019 (72.9%)
through the commissioning and ramp-up activities in the milling area. The 2019 global recovery7 of 78.5% is higher
than the 77.0% achieved in 2018, primarily due to the improved performance of the kiln, which increased its
recovery from 86.6% in 2018 to 89.1% in 2019.
V2O3 Processing Plant Approval
In addition to the previously approved ferrovanadium conversion plant, the Company’s Board of Directors has also
approved the construction of a V2O3 processing plant at the Maracás Menchen Mine, which is expected to increase
sales in the high purity aerospace market, chemical industry and vanadium electrolyte used for vanadium redox
flow batteries. The Company expects the construction of the V 2O3 plant to begin in Q1 2021 and subsequent ramp
up and commissioning of the plant to conclude in Q3 2021. Total capital expenditures are expected to be in the
range of approximately US$10 to 11 million.
Ilmenite Flotation Pilot Plant Study Proven Successful – Next Step: TiO2 Chemical Pilot Plant Study
The Company continues to evaluate the economic feasibility of extracting ilmenite concentrate and titanium
dioxide (TiO2) from its non-magnetic tailings at the Maracás Menchen Mine. To date, the Company has successfully
proven its ability to produce ilmenite concentrate using an ilmenite flotation pilot plant. The Company is expected
to commence the next phase of testing in April 2020 to further upgrade its ilmenite concentrate into TiO 2 using an
additional chemical pilot plant. The Company will continue to provide updates as these studies progress.
Q1 2020 Operational Update and Q2 2020 Financial Results Outlook
Subsequent to Q4 2019, production in January 2020 was 956 tonnes of V 2O5, with 915 tonnes of V 2O5 produced in
February 2020. Production in January 2020 was impacted by shutdowns of the kiln and cooler to fix the refractory
and maintenance to correct an instability in the kiln feed. February 2020 production was impacted by a kiln
shutdown to fix a hot spot in the refractory. In April 2020 the Company is planning an upgrade to the kiln burner and
improvements in the cooler with the aim of increasing kiln capacity by 10%. This will require the kiln and cooler to
be shut down for approximately 15 days. During this period, the Company will replace approximately 15 to 20
7
metres of the cooler refractory. The Company estimates that production in April 2020 will be approximately 500
tonnes of V2O5.
In addition to the impact on production as a result of kiln upgrades and cooler maintenance in April 2020, the
Company expects its Q2 2020 financial results to be impacted by lower sales realized in the quarter as a
consequence of inventory working capital due to shipping and ferrovanadium conversion lead times. Assuming an
increase or decrease in the V2O5 price of US$1.00/lb after April 1, 2020, the Company expects the revenue adjustment
payable8 to impact future periods (positively or negatively) by approximately US$7.4 million ($10,730 using a
foreign exchange rate of 1.45).
2020 Guidance Update
The Company’s 2020 guidance presented in the following table is prepared on a “business as usual” basis.
Notwithstanding the Company’s production, cost and sales guidance for 2020, Largo is conscious of the rapid
expansion of the COVID-19 pandemic and the evolving measures being imposed by governments globally to reduce
its spread and the impact that this may have on our guidance. To date, the restrictions imposed by the government
in Brazil have not impacted our operations but the potential future impact of these restrictions and other
restrictions globally on our operations, sales efforts and logistics is unknown but could be significant. The Company
will continue to monitor the situation and will, if and when necessary, update the market.
In addition, the Company has introduced a new non-GAAP cost measure it will use to measure its cost performance.
This decision was taken in light of the anticipated difference between production and sales volumes in 2020.
Following the end of the Company’s off-take agreement on April 30, 2020, the Company will incur its own sales and
distribution costs, which will be included as a component of operating costs going forward. Costs associated with
the off-take agreement were included in the commissions that were included in the measurement of revenues.
Total cash costs8 include direct mine and mill costs, sales and distribution costs and the Company’s professional,
consulting and management fees and other general and administrative expenses. Total cash costs 8 exclude
royalties, depreciation and amortization, share-based payments, foreign exchange gains or losses, reclamation
costs, exploration and evaluation costs and capital expenditures. These costs are then divided by the pounds of
V2O5 sold by the Company to arrive at total cash costs 8. The Company has also adjusted its previously stated cash
operating costs excluding royalties2 guidance for 2020 as a result of movements in Brazilian foreign exchange rates.
The Company’s 2020 guidance highlighted below:
2020 Guidance
Annual V2O5 production tonnes 11,750 – 12,250
Annual V2O5 sales tonnes 9,500 – 10,000
Cash operating costs excluding royalties i US$/lb 3.05 – 3.25
Total cash costs8,ii, iii US$/lb 3.45 – 3.65
Sustaining capital expenditures (excluding capitalized stripping costs) $ 11,500 – 14,500
US$ 9,000 – 11,000
8
Ferrovanadium conversion plant capital expenditures $ 6,500 – 9,500
US$ 5,000 – 7,000
i. The cash operating costs reported are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this press release. However, for 2020 onwards,
this measure will be reported on a per pounds sold basis rather than per pounds produced. The estimated average annual R$/US$ and $/US$ exchange
rates used are approximately 4.50 and 1.30, respectively.
ii. The total cash costs reported are on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this press release. The estimated average annual
R$/US$ and $/US$ exchange rates used are approximately 4.00 and 1.30, respectively.
iii. These measures exclude royalties. Every US$1/lb in the V 2O5 price realized by the Company in revenues adds approximately US$0.05/lb in royalties.
Conference Call
Largo Resources management will host a conference call on Monday, March 23, at 10:00 a.m. EST, to discuss the
Company’s annual operational and financial results for 2019.
Conference Call Details:
Date: Monday, March 23, 2020
Time: 10:00 a.m. EST
Dial-in Number: Local / International: +1 (416) 764-8688
North American Toll Free: (888) 390-0546
Brazil Toll Free: 08007621359
43872339
Conference ID: Monday, March 23, 2020
Replay Number: Local / International: + 1 (416) 764-8677
North American Toll Free: (888) 390-0541
Replay Passcode: 872339#
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 annual consolidated
financial statements for the year ended December 31, 2019 and 2018 and its management's discussion and analysis
for the year ended December 31, 2019 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. 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.