Mr. Paulo Misk reports
LARGO RESOURCES REPORTS SOLID Q1 2020 RESULTS WITH NET INCOME OF $5.7 MILLION AND MAINTAINS STRONG LIQUIDITY POSITION
Largo Resources Ltd. has released its first quarter 2020 results, highlighted by net income of $5.7-million or basic earnings per share of one cent, cash operating costs excluding royalties (1) of $2.79 (U.S.) per pound V2O5 (vanadium pentoxide), and V2O5 production of 2,831 tonnes.
First quarter 2020 highlights:
-
Net income of $5.7-million and basic earnings per share of one cent;
-
Cash operating costs excluding royalties
(1)
of $2.79 (U.S.)
($3.69) per pound of V2O5, a decrease of 18 per cent over the first quarter of 2019;
-
Production of 2,831 tonnes (6.2 million pounds
(2)) of V2O5, a 35-per-cent increase over the first quarter of 2019;
-
V2O5 sales of 3,170 tonnes, a 51-per-cent increase over the first quarter of 2019;
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Revenues of $58.2-million (after a positive remeasurement of trade receivables/payables of $2.4-million on vanadium sales from a contract with a customer of $55.8-million), an increase of 31 per cent over the first quarter of 2019;
-
Cash balance of $206.1-million exiting the first quarter of 2020;
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Commercial independence -- over 85 per cent committed on annual guided sales for 2020;
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COVID-19 update -- the Maracas Menchen mine continued operations during the first quarter of 2020 and the company is maintaining its 2020 guidance on a business-as-usual basis;
-
First quarter 2020 operational and financial results conference call -- Wednesday, May 13, 2020, at 10 a.m. ET.
Paulo Misk, president and chief executive officer of Largo, stated: "Despite production impacts during the quarter, I am pleased to report the company generated net income of $5.7-million in Q1 2020 following a new quarterly sales record of 3,170 tonnes of V2O5. The company also performed well on a unit cost basis, achieving a cash operating cost excluding royalties (1) of $2.79 (U.S.) per pound in Q1 2020 -- a decrease of 18 per cent over Q1 2019. Our financial position continues to remain solid, with a cash balance of $147.5-million (U.S.) ($204.6-million) as of April 30, 2020, and a final revenue adjustment payable of $64.4-million (U.S.) due to the company's former offtake partner. Following the offset against receivable amounts due to the company, we expect the net trade payables payment of $57.4-million (U.S.) will be settled between May 15 and 25, 2020. The company is also evaluating the timing for the construction of the ferrovanadium conversion plant, including the deferral of planned 2020 capital expenditures due to precautionary measures associated with our employees and contractors in light of COVID-19."
He continued: "I am also very pleased to report that Largo has commenced full commercial control of its vanadium output following the expiration of the company's offtake agreement on April 30, 2020. The company's sales and trading team continues its dedication to the promotion and sales of Largo's products and have committed over 85 per cent of the company's annual guided sales for 2020. This strategic transition marks a transformative moment in Largo's history and we expect our commercial independence will prove beneficial both economically and strategically going forward. Largo is now an even more important player in the global vanadium industry, and we look to continue maximizing value for all of our shareholders as the industry preferred producer and supplier of vanadium."
A summary of operational and financial performance for the first quarter of 2020 is provided in the accompanying tables.
FINANCIAL
Three months ended Three months ended
March 31, 2020 March 31, 2019
Revenues $ 58,186 $ 44,314
Operating costs (36,423) (29,071)
Direct mine and mill costs (24,288) (19,464)
Net income before tax 5,092 1,414
Income tax expense - (1,114)
Deferred income tax expense 642 (2,468)
Net income (loss) 5,734 (2,168)
Basic earnings (loss) per share 0.01 (0.00)
Diluted earnings (loss) per share 0.01 (0.00)
Cash provided before non-cash working capital items $ 11,634 $ 21,688
Net cash provided by operating activities 11,622 95,416
Net cash provided by (used in) financing activities 35,770 (92,359)
Net cash (used in) investing activities (4,424) (8,202)
Net change in cash 40,060 (15,488)
As at As at
March 31, 2020 Dec. 31, 2019
Cash $ 206,137 166,077
Revenue adjustment payable (3) 91,933 95,683
Working capital (4) 116,742 102,013
OPERATIONAL -- MARACAS MENCHEN MINE PRODUCTION
Q1 2020 Q1 2019
Total ore mined (tonnes) 203,966 250,109
Ore grade mined -- effective grade (5) (%) 1.61 1.29
Effective grade of ore milled (5) (%) 1.59 1.51
Concentrate produced (tonnes) 100,072 86,673
Grade of concentrate (%) 3.36 3.32
Contained V2O5 (tonnes) 3,365 2,874
Crushing recovery (%) 98.3 97.0
Milling recovery (%) 98.4 96.8
Kiln recovery (%) 88.3 89.2
Leaching recovery (%) 96.6 97.7
Chemical plant recovery (%) 96.8 97.7
Global recovery (6) (%) 79.9 80.0
V2O5 produced (flake plus powder) (tonnes) 2,831 2,099
V2O5 produced (equivalent pounds) (2) 6,241,279 4,627,497
Cash operating costs excluding royalties (1) per pound produced
CAD$ $3.69 $4.54
US$ (7) $2.79 $3.41
Total cash costs (1)
CAD$ $3.97
US$ (7) $3.01
Revenues per pound sold (8)
CAD$ $8.33 $9.57
US$ (7) $6.31 $7.19
Vanadium sales per pound sold (8)
CAD$ $7.99 $21.90
US$ (7) $6.05 $16.46
First quarter 2020 financial results
The company reported net income of $5.7-million in the first quarter of 2020, compared with a net loss of $2.2-million in the first quarter of 2019. This movement was primarily due to an increase in revenues, a decrease in finance costs and a decrease in the total tax expense. This was partially offset by an increase in operating costs and an increase in the foreign exchange loss.
Total sales of V2O5 in the first quarter of 2020 were 3,170 tonnes (including 340 tonnes of high-purity V2O5), compared with 2,100 (including 440 tonnes of high-purity V2O5) tonnes sold in the first quarter of 2019. This represents an increase of 51 per cent and a new quarterly sales record for the company.
The company recognized revenues of $58.2-million in the first quarter of 2020 after a positive remeasurement of trade receivables/payables of $2.4-million under the Glencore contract. This compares with revenues of $44.3-million in the first quarter of 2019 and represents an increase of 31 per cent. Revenues per pound sold (8) in the first quarter of 2020 were $8.33
($6.31 (U.S.)), compared with $9.57
($7.19 (U.S.)) per pound in the first quarter of 2019.
Vanadium sales from a contract with a customer were $55.8-million in the first quarter of 2020, compared with $101.4-million in the first quarter of 2019. Vanadium sales per pound sold (8) in the first quarter of 2020 were $7.99
($6.05 (U.S.)), compared with $21.90
($16.46 (U.S.)) per pound in the first quarter of 2019. This decrease is primarily attributable to a decrease in the V2O5 price, with an average price per pound of V2O5 of approximately $6.07 (U.S.) for the first quarter of 2020, compared with approximately $16.34 (U.S.) for the first quarter of 2019.
Three months ended Three months ended
March 31, 2020 March 31, 2019
Vanadium sales from a contract with a customer $ 55,809 $ 101,403
Vanadium sales per pound sold (8) ($/lb) 7.99 21.90
Vanadium sales per pound sold (8) (US$/lb) 6.05 16.46
Remeasurement of trade receivables/payables 2,377 (57,089)
Revenue adjustment per pound (9) ($/lb) 0.28 (10.32)
Revenue adjustment per pound (9) (US$/lb) 0.21 (7.75)
Revenues 58,186 44,314
Revenues per pound sold (8) ($/lb) 8.33 9.57
Revenues per pound sold (8) ($US/lb) 6.31 7.19
As a consequence of the increase in the V2O5 price since the fourth quarter of 2019 and the positive revenue adjustment per pound (9) realized in the first quarter of 2020, the company's trade payables balance at March 31, 2020, was $75.8-million and the company's revenue adjustment payable (9) was $64.8-million (U.S.) ($91.9-million). The company's revenue adjustment payable (9) at April 30, 2020, was $64.4-million (U.S.) ($89.3-million).
Operating costs for the first quarter of 2020 were $36.4-million, compared with $29.1-million in the first quarter of 2019, and include direct mine and mill costs of $24.3-million ($19.5-million in the first quarter of 2019), depreciation and amortization of $8.9-million ($7.3-million in the first quarter of 2019), and royalties of $3.2-million ($2.3-million in the first quarter of 2019). The increase in direct mine and mill costs is primarily attributable to the increase in production and sales during the quarter.
Cash operating costs excluding royalties (1), which are now calculated on pounds sold, were $2.79 (U.S.)
($3.69) per pound in the first quarter of 2020, compared with $3.41 (U.S.)
($4.54) in the first quarter of 2019, representing a decrease of 18 per cent. The decrease seen in the first quarter of 2020 compared with the first quarter of 2019 is largely due to the increased sales and was partially offset by a slight decrease in the global recovery (6) level to 79.9 per cent from 80.0 per cent in the first quarter of 2019.
For the first quarter of 2020, total cash costs (1) were $3.01 (U.S.)
($3.97). Total cash costs (1) are calculated on pounds sold, exclude royalties, and include the company's total professional, consulting and management fees and other general and administrative expenses.
Cash provided by operating activities decreased from the first quarter of 2019 by $83.8-million. This is primarily due to the total change in amounts receivable and accounts payable of $80.2-million in the first quarter of 2019,, when the company's trade receivables were first classified as trade payables. Revenues exceeded direct mine and mill costs and royalties by $30.7-million in the first quarter of 2020, compared with $22.5-million in the first quarter of 2019.
In March, 2020, the company secured two credit facilities in Brazil, for a total of $24.8-million (U.S.). These facilities were fully drawn down and are due for repayment as a lump sum, together with accrued interest, in March, 2021. Cash provided by financing activities changed from cash used in the first quarter of 2019 by $128.1-million and is primarily due to the receipt of funds from the credit facilities and the repayment of the company's senior secured notes in the first quarter of 2019. In addition, $1.7-million was received in the first quarter of 2020 from the issuance of shares, compared with $400,000 in the first quarter of 2019.
The company's foreign exchange loss in the first quarter of 2020 increased by $11.9-million over the first quarter of 2019 and is primarily attributable to a strengthening of the U.S. dollar against the Brazilian real by approximately 29 per cent since Dec. 31, 2019, on U.S.-dollar-denominated costs and liabilities. This was partially offset by a strengthening of the U.S. dollar against the Canadian dollar by approximately 9 per cent since Dec. 31, 2019, on U.S.-dollar-denominated assets.
First quarter 2020 operational results
Total production in the first quarter of 2020 from the Maracas Menchen mine was 2,831 tonnes of V2O5, representing an increase of 35 per cent over the first quarter of 2019. Production in the first quarter of 2020 was impacted by hot spots in the cooler's shell, which required stoppages for maintenance on the refractory. In January, 2020, 956 tonnes of V2O5 were produced, with 915 tonnes produced in February and 960 tonnes in March.
The first quarter 2020 global V2O5 recovery (6) of 79.9 per cent is in line with both the first quarter of 2019 and the budget, with strong recovery levels seen in both the crushing and milling areas of the plant.
In the first quarter of 2020, 203,966 tonnes of ore were mined with an effective grade (5) of 1.61 per cent of V2O5 and the company produced 100,072 tonnes of concentrate with an effective grade (5) of 3.36 per cent. The decrease in total ore mined when compared with the first quarter of 2019 is due to operational adjustments to limit the mine site contractor work force 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 V2O5 production.
The annual kiln and cooler shutdown to replace the refractory and the planned improvements to the kiln and cooler to increase capacity that were scheduled for April, 2020, have been deferred to later in 2020 as a result of precautionary measures taken by the company in light of the COVID-19 pandemic. This work is not expected to have an impact on the company's production. The company instead performed an enhanced preventative maintenance program in the chemical plant for approximately 15 days and, as a result, production in April, 2020, was 480 tonnes of V2O5.
Commercial independence achieved -- internal sales and trading business proven successful:
-
Over 85 per cent committed on annual guided sales for 2020;
- Sales and trading team fully operational out of its two commercial offices in Dublin, Ireland, and Washington, D.C., United States;
-
The company announced the launch of VPURE and VPURE+, newly developed brands for the company's vanadium products, in January, 2020.
Following the election by the company on Aug. 20, 2019, the company's offtake agreement with Glencore International AG expired on April 30, 2020. The company has assembled a very strong commercial team that has committed approximately 85 per cent of the company's annual guided sales for 2020. The company expects that the balance of production will be sold in the spot market and be used to build safety stocks in strategic regional hubs. The company also expects second quarter 2020 to be a transition quarter where sales will be lower and inventory may increase mainly due to a longer period of time between production and revenue recognition as compared with terms under the previous offtake agreement. The Maracas Menchen mine has a proven record of premium product quality and operational stability, allowing the company to provide its customers with a reliable source of V2O5 for the global steel and high-purity markets. As a result of the downturn in global demand within the aerospace industry due to the COVID-19 pandemic, the company anticipates lower high-purity V2O5 sales during 2020. The company does not expect this to impact its total guided V2O5 sales for 2020.
2020 guidance maintained -- additional precautionary measures taken due to COVID-19
The company continues to maintain its 2020 guidance on a business-as-usual basis. The company's guidance is highly dependent on there being no disruptions or interruptions to the company's supply chain and logistics, which are critical to the company's operations and sales. Notwithstanding the company's production, cost and sales guidance for 2020, the company 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 the company's guidance. To date, the restrictions imposed by the government in Brazil have not significantly impacted the company's operations, but the potential future impact of these restrictions and other restrictions globally on the company's operations, sales efforts and logistics is unknown but could be significant. The Brazilian government has declared mining operations, including activities of mining, ore treatment, production, sales, transportation and the supply of mineral goods, as essential to the country. These activities are considered essential by the federal government and will continue despite local government restrictions on business activity and the circulation of people.
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. In light of this, the company is evaluating the timing for the construction of the ferrovanadium conversion plant, including the deferral of planned 2020 capital expenditures. This deferral will not impact the company's commercial strategy in 2020. Further, precautionary measures regarding COVID-19 have caused delays in the start of the company's 2020 drilling program, and work will commence as soon as the drill contractor and the company are able to mobilize people and equipment to the mine site based on government recommendations and policy and safety concerns for mine site personnel and contractors.
The company continues the necessary work required for the construction of its V2O3 processing plant, which is expected to commence in the first quarter of 2021. The company's V2O3 processing plant at the Maracas Menchen mine is expected to increase its sales in the high-purity aerospace market, chemical industry and vanadium electrolyte used for vanadium redox flow batteries. The company expects the ramp-up and commissioning of the plant to conclude in the third quarter of 2021 and total capital expenditures to be in the range of approximately $10.0-million (U.S.) to $11.0-million (U.S.), with $8.0-million (U.S.) to $10.0-million (U.S.) being incurred in 2020.
Change in company's denominated currency
In connection with the company managing its own sales activities, the company and a number of its subsidiaries will generate U.S.-dollar-denominated revenues and incur U.S.-dollar-denominated costs from May 1, 2020, onward. Considering the significance of these revenues and costs to the company's activities, the company determined that the currency of the primary economic environment in which three of the company's entities operate will change to the U.S. dollar on May 1, 2020.
Virtual annual and special meeting of shareholders
Due to restrictions relating the global COVID-19 pandemic, and to mitigate risks to the health and safety of communities, shareholders, employees and other stakeholders, the company is holding its annual and special meeting of shareholders as a completely virtual meeting. The meeting will be held by way of live webcast on June 8, 2020, at 11 a.m. and the specific details of the matters to be considered at the meeting, including specific instructions to access the webcast, are set forth in the company's management information circular, which is available on-line and is accessible on the company's website within the investor section or via the company's SEDAR profile. Registered shareholders and duly appointed proxyholders will be able to attend, participate and vote at the meeting, while non-registered shareholders (being shareholders who hold their shares through a broker, investment dealer, bank, trust company, custodian, nominee or other intermediary) will be able attend the meeting as guests and participate; however, they will not be able to vote at the meeting. Largo intends to resume its normal practice of holding in-person meetings and expects that it will do so for its next annual meeting to be held in 2021.
Conference call
Largo's management will host a conference call on Wednesday, May 13, 2020, at 10 a.m. ET to discuss the company's first quarter 2020 operational and financial results.
Conference call details:
Date: Wednesday, May 13, 2020
Time: 10 a.m. ET
Dial-in number: 1-416-764-8688 (local/international),
888-390-0546 (North America toll-free), 08007621359
(Brazil toll-free)
Conference ID: 80011471
Replay number: 1-416-764-8677
(local/international), 888-390-0541 (North America toll-free)
Replay passcode: 011471 followed by the pound sign
To view press releases or any additional financial information, please visit the investor relations section of Largo's website.
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 months ended March 31, 2020, and 2019 and its management's discussion and analysis (MD&A) for the three months ended March 31, 2020, which are available on Largo's website and on SEDAR.
Notes:
- Cash operating costs per pound sold, cash operating costs excluding royalties per pound sold and total cash costs per pound sold reported are on a non-GAAP (generally accepted accounting principles) basis;
- Conversion of tonnes to pounds -- one tonne equals 2,204.62 pounds;
- Revenue adjustment payable and revenue adjustment per pound are on a non-GAAP basis;
- Defined as current assets less current liabilities per the consolidated statements of financial position;
- Effective grade represents the percentage of magnetic material mined multiplied by the percentage of V2O5 in the magnetic concentrate;
- Global recovery is the product of crushing recovery, milling recovery, kiln recovery, leaching recovery and chemical plant recovery;
- Refer to the MD&A for the three months ended March 31, 2020, for exchange rates used;
- Revenues per pound sold and vanadium sales per pound sold are calculated based on the quantity of V2O5 sold during the stated period. Revenue adjustment per pound is calculated based on the quantity of V2O5 sold that is subject to remeasurement. This may or may not differ from the quantity sold. Accordingly, these three measures may not, and are not intended to, sum;
- Revenue adjustment payable and revenue adjustment per pound are on a non-GAAP basis.
About Largo Resources
Ltd.
Largo 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 Maracas Menchen mine in Brazil.
We seek Safe Harbor.
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