Mr. Mark Smith reports
LARGO RESOURCES ANNOUNCES SECOND QUARTER 2019 RESULTS
Largo Resources Ltd. has released its second-quarter 2019 operational and financial results with 2,515 tonnes of vanadium pentoxide (V2O5) produced at an average global V2O5 recovery rate (2) of 79.1 per cent and cash operating costs excluding royalties (3) of $3.30 (U.S.) per pound of V2O5.
Mark Smith, Chief Executive Officer for Largo, stated: "We are very pleased with operations in Q2 2019 though declining
prices combined with the re-measurement of trade receivables / payables under the Company's off-take agreement continued to impact profitability. The Company achieved consecutive monthly production records in June and July following the initial expansion project ramp up which included the start-up of the new deammoniator unit. Another key highlight during Q2 2019 was the Company's second quarter of strong global recoveries, which is highlighted by 80.9% achieved in June. He continued: "With the expansion project ramp up expected to conclude by the end of Q3 2019, the Company is well positioned for strong operational performance during the second half of 2019."
A summary of the operational and financial performance for Q2 2019 is provided in the tables below:
Three months ended Six months ended
June 30, June 30
2019 2018 2019 2018
Revenues 29,462 103,321 73,776 194,414
Direct mine and mill costs (22,550) (19,128) (42,014) (39,430)
Operating costs (33,284) (30,220) (62,355) (61,403)
Net income (loss) before tax (20,279) 50,305 (18,865) 99,829
Income tax (expense) recovery 138 (5,163) (976) (8,843)
Deferred income tax (expense)
recovery (360) 45,593 (2,828) 45,593
Net income (loss) (20,501) 90,735 (22,669) 136,579
Basic earnings (loss) per share (0.04) 0.17 (0.04) 0.26
Diluted earnings (loss) per share (0.04) 0.14 (0.04) 0.22
Cash provided (used) before
non-cash working capital items (7,829) 77,654 13,859 139,509
Net cash provided by operating
activities 21,759 69,530 117,175 94,470
Net cash (used in)
financing activities (6,936) (22,250) (99,295) (48,811)
Net cash (used in)
investing activities (18,969) (5,082) (27,171) (8,796)
Net change in cash (422) 34,010 (15,910) 29,469
June 30, 2019 Dec. 31, 2018
Cash $ 190,278 206,188
Restricted cash - 21
Working capital4 100,159 135,258
Maracas Menchen Mine Production Q2 2019 Q2 2018
Total Ore Mined (tonnes) 308,858 173,059
Ore Grade Mined - Effective Grade5 (%) 1.21 1.07
Effective Grade of Ore Milled (%) 1.49 1.85
Concentrate Produced (tonnes) 102,320 85,639
Grade of Concentrate (%) 3.30 3.37
Contained V2O5 (tonnes) 3,380 2,889
Crushing Recovery (%) 98.0 97.2
Milling Recovery (%) 97.9 95.8
Kiln Recovery (%) 88.8 89.7
Leaching Recovery (%) 95.7 97.6
Chemical Plant Recovery (%) 97.1 97.2
Global Recovery (%)2 79.1 79.2
V2O5 produced (Flake + Powder) (tonnes) 2,515 2,458
V2O5 produced (equivalent pounds)1 5,544,6195,418,956
Cash operating costs3 per pound produced CAD$ $4.75 $4.97
US$6 $3.54 $3.85
Cash operating costs excluding royalties3
per pound produced CAD$ $4.43 $4.32
US$6 $3.30 $3.35
Revenues per pound sold 7, 8 CAD$ $5.39 $18.91
US$ $4.02 $14.62
Vanadium sales per pound sold7, 8 CAD$ $13.86 $18.42
US$ $10.33 $14.24
Second Quarter 2019 Financial Results
Total sales of V2O5 in Q2 2019 were 2,480 tonnes which includes 360 tonnes of high purity V2O5. The Company's total sales of high purity V2O5 in the six months ended June 30, 2019 are 800 tonnes.
The Company recorded a net loss of $20.5 million in Q2 2019 after the recognition of an income tax recovery of $0.1 million and a deferred income tax expense of $0.4 million. This compares to net income of $90.7 million in Q2 2018 and is primarily due to a decrease in revenues and an increase in operating and finance costs during the quarter.
Following the $46.3 million reduction in revenues as a result of the remeasurement of trade receivables / payables under the Glencore contract, the Company recognized revenues of $29.5 million in Q2 2019 compared with revenues of $103.3 million in Q2 2018. Revenues per pound sold7 in Q2 2019 was $5.39
(US$4.02) compared with $18.91
(US$14.62) per pound in Q2 2018.
Vanadium sales from a contract with a customer was $75.8 million in Q2 2019, compared with $100.7 million in Q2 2018. Vanadium sales per pound sold 7 in Q2 2019 was $13.86
(US$10.33) compared to $18.42
(US$14.24) per pound in Q2 2018. This decrease is primarily attributable to a decrease in the V2O5 price, with the average price per lb of V2O5 of approximately US$8.59 for Q2 2019, compared with approximately US$15.44 for Q2 2018. Assuming the quarterly average price per lb of V2O5 of approximately US$8.59 and quarterly V2O5 sales of 2,480 tonnes, the Company could have earned estimated revenue8 of $62.9 million (US$46.7 million) in Q2 2019. The most recent European Metal Bulletin price range quotation for V2O5 posted as of August 9, 2019 was US$7.00 to 7.50 per lb.
Three months ended Six months ended
June 30, 2019June 30, 2018June 30, 2019June 30, 2018
Vanadium sales from a contract with a customer$ 75,786 100,664 177,189 167,223
Vanadium sales per pound sold7 ($/lb) $ 13.86 18.42 17.55 16.14
Vanadium sales per pound sold7 (US$/lb) $ 10.33 14.24 13.13 12.60
Re-measurement of trade receivables / payables$ (46,324) 2,657 (103,413) 27,191
Revenue adjustment per pound9 ($/lb) $ (10.15) 0.49 (10.24) 2.63
Revenue adjustment per pound9 (US$/lb) $ (7.57) 0.38 (7.66) 2.06
Revenues $ 29,462 103,321 73,776 194,414
Revenues per pound sold7 ($/lb) $ 5.39 18.91 7.31 18.77
Revenues per pound sold7 ($US/lb) $ 4.02 14.62 5.47 14.65
The Company's trade payables balance at June 30, 2019 was $67.4 million and the revenue adjustment payable9 was $78.9 million. Assuming V2O5 prices remain the same as at June 30, 2019, the Company's total estimated revenue adjustment payable9 to June 30, 2019 is $94.9 million. At the date of this press release, the Company's estimated revenue adjustment payable for V2O5 sold9 to July 31, 2019 is approximately $99.5 million.
Operating costs for Q2 2019 were $33.3 million compared to $30.2 million in Q2 2018 and include direct mine and mill costs of $22.6 million, depreciation and amortization of $9.0 million and royalties of $1.8 million. The increase in operating costs over Q2 2018 is primarily attributable to an increase in production, the impact of the ramp-up in production following the completion of the kiln refractory replacement in March 2019 and increased HFO and diesel costs.
Cash operating costs excluding royalties3 in Q2 2019 were $4.43
(US$3.30) per pound compared to $4.32
(US$3.35) in Q2 2018, representing an increase of 3%. The increase seen in Q2 2019 compared with Q2 2018 is largely due to the impact of foreign exchange as well as increased HFO and diesel costs, with a decrease seen in the US$ values and consistent global recovery and production levels between the two periods.
Finance costs in Q2 2019 were $10.9 million, representing an increase of $2.5 million from $8.4 million in Q2 2018. The increase is primarily attributable to the expensing of the deferred transaction costs on the long-term debt as a result of the committed redemption of the Company's 9.25% Senior Secured Notes due 2021 (the "Notes") that was completed in July 2019.
The Company generated positive cash from operating activities, with net cash provided by operating activities of $21.8 million, compared with $69.5 million in Q2 2018. This decrease was primarily due to revenues exceeding direct mine and mill costs and royalties by $5.1 million in Q2 2019, compared with $80.7 million in Q2 2018. This contributed to cash used before non-cash working capital items of $7.8 million, compared with cash provided before non-cash working capital items of $77.7 million in Q2 2018.
Cash used in investing activities in Q2 2019 was $19.0 million representing an increase of $13.9 million from the $5.1 million seen in Q2 2018. This increase is primarily due to the expansion project being undertaken by the Company in 2019 which remains on budget.
Second Quarter 2019 Operational Results
Total production during Q2 2019 from the Maracas Menchen Mine was 2,515 tonnes of V2O5, representing a 20% increase over Q1 2019 and a 2% increase over Q2 2018. Production increased throughout Q2 2019 following the completion of the kiln refractory replacement in March, with 755 tonnes of V2O5 produced in April and 834 tonnes in May. The Company achieved a monthly V2O5 production record in June of 926 tonnes following the installation and start-up of the new deammoniator unit as part of the expansion project ramp up. This was superseded by a new monthly V2O5 production record set in July of 1,042 tonnes, representing an increase of 13% over the month prior.
In Q2 2019, 308,858 tonnes of ore with an effective V2O5 grade5 of 1.21% were mined and the crushing unit was fed with 296,325 tonnes with an effective V2O5 grade of 1.11%. Milling was fed with 102,320 tonnes of pre-concentrate ore with an effective V2O5 grade of 1.49%, reflecting the increase provided by the dry-magnetic separator. Crushing, milling, calcining and the chemical plant performed well throughout the quarter by achieving budget targets and increasing the in-process stocks of V2O5.
Global V2O5 recovery rates2 averaged 79.1% in Q2 2019, which are in line with Q2 2018 and demonstrate another quarter of strong global recoveries2 for the Company. The performance during the quarter is mainly due to the operational stability throughout all sections of the plant and significant process control improvements made by the operational teams. In April, the global recovery was impacted by the lower kiln recovery rate as the kiln returned to optimal operation following its shutdown for the refractory replacement.
The expansion project to increase production capacity by 25% at the Maracas Menchen Mine continues to progress successfully following the start-up of the new deammoniator unit. The expansion project is expected to be completed during Q3 2019 with the start-up of the new ball mill and evaporator units. The ramp up of all areas is expected to be completed by the end of Q3 2019. The Company anticipates that total capital expenditures for its expansion project will remain in the range of $27.0 to $29.0 million for 2019, with between $8.0 and $10.0 million expected in the remainder of the year.
Repayment of All Outstanding Debt
On July 8, 2019, the Company announced that following its election to redeem its outstanding Notes, it had redeemed in full its outstanding Notes. The Notes were redeemed on July 8, 2019 at a price equal to 104.625% of the principal amount of the Notes plus accrued and unpaid interest to, but not including, the redemption date. The total amount paid was US$23.6 million, including the principal amount of Notes outstanding of US$22.4 million. Following this redemption, the Company is debt-free representing a significant milestone achieved for Largo.
Appointment of Paul Vollant as Director of Sales and Trading
On June 19, the Company announced that Mr. Paul Vollant will be joining the Largo team as Director of Sales and Trading effective September 2019. In this position, Mr. Vollant will lead the development of Largo's sales and trading business and work to further enhance the Company's presence in the global vanadium market. Mr. Vollant brings extensive commodity sales and trading experience with a focus in specialty metals, including vanadium and titanium.
Novo Amparo Norte Mineral Resource Estimate Update
The Company announced an updated mineral resource for its Novo Amparo Norte deposit ("NAN") at its Maracas Menchen Mine on June 11, 2019. The Company's exploration program successfully delivered a significant increase to the overall resource base at NAN with the successful conversion of resources from the Inferred category to the Measured and Indicated categories in addition to increasing the Inferred Resources. The updated resource estimate is based on approximately 12,912 m of diamond drilling over 88 holes (including 5,404 m in 47 drill holes completed in 2019) and 5,549 sample intervals across the deposit. NAN is located approximately 6.5 km north of the Company's current mining operation at the Maracas Menchen Mine, Campbell Pit.
Following the successful increase to NAN's overall resource base, the Company has postponed any further geological, engineering and economic studies to further upgrade the understanding of the deposit and will instead continue its focus on planned exploration of the other Satellite Deposits during the second half of 2019. Drilling will focus on the Gulcari A Norte mineralized zone which lies to the north of the Campbell Pit and on the Gulcari A South target which lies just south of the Campbell Pit.
Largo Resources' management will host a conference call on Wednesday, August 14, 2019, at 11:30 a.m. EDT, to discuss both operational and financial results for the second quarter of 2019. In addition, the Company's third-party independent consultant, Mr. Terry Perles, will provide an update on the vanadium market during the call.
Conference Call Details:
Date: Wednesday, August 14, 2019
Time: 11:30 a.m. EDT
- Local / International: +1 (416) 764-8688
North American Toll Free: (888) 390-0546
Brazil Toll Free: 08007621359
Conference ID: 69944520
- Local / International: + 1 (416) 764-8677
North American Toll Free: (888) 390-0541
Replay Passcode: 944520#
Website: To view press releases or any additional financial information, please visit our Investor Relations section of the Largo Resources website at: www.largoresources.com/investors
A playback recording will be available on the Company's website for a period of 60-days following the conference call.
The information provided within this release should be read in conjunction with Largo's unaudited condensed interim consolidated financial statements for the three and six months ended June 30, 2019 and 2018 and its management's discussion and analysis for the three and six months ended June 30, 2019, which are available on our website at www.largoresources.com and on SEDAR.
Quality Assurance and Quality Control
All drill core samples were delivered to the SGS facility in Belo Horizonte, Brazil for analysis of select elements by XRF79C. Davis Tube test work is carried out on all mineralized samples. Quality control entailed the insertion of company blanks and standards into the drill core sample stream. In addition, SGS routinely inserts blanks, standards and duplicate analysis.
Mr. Paul Sarjeant B.Sc. P.Geo., Manager of Geology at Largo is a Qualified Person as defined under National Instrument 43-101 Standards of Disclosure for Mineral Projects and has reviewed the technical information in this press release.
About Largo Resources
Largo is a Toronto-based strategic mineral company focused on the production of vanadium flake, high purity vanadium flake and high purity vanadium powder at the Maracas Menchen Mine located in Bahia State, Brazil. The Company's common shares are principally listed on the Toronto Stock Exchange under the symbol "LGO". For more information on Largo, please visit our website at www.largoresources.com.
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