Q4 2020 Highlights
Cash operating costs excluding royalties 2 of $2.56 per lb V 2 O 5 , a 2% improvement over Q4 2019
Revenues of $42.3 million, an increase of 64% over Q4 2019; Revenues per lb sold 2 of $5.12, a 25% increase over Q4 2019
Net income of $6.9 million vs. a net loss of $4.3 million in Q4 2019
Record quarterly V 2 O 5 production of 3,340 tonnes (7.4 million lbs 1 ), an 11% increase over Q4 2019
Record quarterly sales of 3,746 tonnes of V 2 O 5 equivalent, a 31% increase over Q4 2019
Full Year 2020 Highlights
Continued low-cost operations: Annual cash operating costs excluding royalties 2 of $2.56 per lb V 2 O 5 , 5% lower than 2020 cost guidance; 16% lower than 2019
Revenues of $120.0 million, a 14% increase over 2019; Revenues per lb sold 2 of $5.31, a 13% increase over 2019; This performance is to be recognized in the context of an average European Fastmarkets Metal Bulletin (“FMB”) V 2 O 5 price of $5.71 per lb in 2020, compared to $9.34 per lb 2019
Net income of $6.8 million and basic earnings per share 9 of $0.12
Strong liquidity position maintained: Cash balance of $79.1 million exiting 2020 and a net working capital surplus of $93.0 million, despite significantly reducing trade payables in May 2020 through the cash settlement of trade payables relating to price adjustments under the Company’s former off-take agreement
Record operational performance: Annual V 2 O 5 production 11,825 tonnes (26.1 million lbs 1 ) in 2020, a 12% increase over 2019; Within 2020 V 2 O 5 production guidance of 11,750 – 12,250 tonnes
2020 sales guidance exceeded: Total V 2 O 5 equivalent sales of 10,254 tonnes in 2020, exceeding high-end V 2 O 5 sales guidance by 254 tonnes
Launch of Largo Clean Energy: The Company will focus on the deployment of its VCHARGE± batteries for the fast-growing renewable energy sector
Strong focus on safe business continuity: Largo continues to prioritize the health and safety of its workforce and extend support to local communities during the global COVID-19 pandemic
Environmental, Social, and Governance (“ESG”) improvement program initiated: Largo conducted an ESG gap analysis in 2020 which has led to several recommendations. The Company is now working on improvement opportunities to its overall ESG performance and disclosure
Other Significant Highlights
Debt-free: The Company completed the prepayment of its outstanding credit facilities in February 2021
Share consolidation complete: The Company completed a consolidation of its issued and outstanding common shares (“ Common Shares ”) at a ratio of one (1) post-consolidation share for every ten (10) pre-consolidation shares on March 4, 2021 and began trading on a post-consolidated basis on March 8, 2021
Nasdaq Stock Market (“Nasdaq”) application: The Company has submitted an initial application to list its Common Shares on Nasdaq with the view of increasing access to U.S. capital markets and enhancing overall shareholder value
Robust Vanadium Market
European FMB FeV prices are up by more than 34% since the beginning of 2021
European FMB V 2 O 5 prices are up by more than 54% since the beginning of 2021
U.S. CRU FeV prices are up by more than 44% since the beginning of 2021
Largo Resources Ltd. (” Largo ” or the ” Company “) ( TSX: LGO ) ( OTCQX: LGORD ) is pleased to announce its 2020 financial results highlighted by revenues of $120.0 million on sales of 10,254 tonnes of vanadium pentoxide (“ V 2 O 5 ”) equivalent. For 2020, the Company achieved a new annual V 2 O 5 production record of 11,825 tonnes and the lowest annual cash operating costs excluding royalties 2 to date of $2.56 per pound sold of V 2 O 5 .
2020 marked a transformative year for the Company as it successfully established and implemented its internal sales division while navigating challenges presented by the global COVID-19 pandemic. In 2020, the Company surpassed its annual V 2 O 5 sales guidance by 254 tonnes and outperformed its annual cash cost guidance by 5%. These results continue to highlight the Company’s strong focus on operational excellence and stringent cost management.
Paulo Misk, President and Chief Executive Officer for Largo, stated : “The Company exited 2020 with strong operational and financial momentum following new quarterly and annual production records and a new quarterly sales record. I am pleased to report that we achieved the lowest annual cash operating costs excluding royalties 2 to date of $2.56 per lb V 2 O 5 in 2020, outperforming the Company’s annual cash cost guidance by 5%. The Company ended 2020 with a cash balance of $79.1 million and following the full repayment of the Company’s outstanding credit facilities in February 2021, is now debt-free. Our financial position remains strong and the entire Largo team is focused on the execution and delivery of the Company’s strategic growth projects with the goal of significantly increasing shareholder value. In Q2 2021, we expect to release an updated technical report which will be aimed at upgrading mineral resources to mineral reserves, expanding our minerals resources and will incorporating the vanadium trioxide (“ V 2 O 3 ”) plant and titanium dioxide (“ TiO 2 ”) pigment projects.” He continued: “Largo Clean Energy remains a particular focus as we work to commercialize our superior VCHARGE± battery technology to capitalize on long-duration, clean energy storage opportunities around the world. Additionally, robust vanadium demand and low inventories continue to support price increases across all our main markets as evidenced by recent FMB spot market trades recorded as high as $8.65 per lb V 2 O 5 .” He concluded: “We remain very excited about the prospect of a Nasdaq listing as it is a major step forward in expanding our shareholder base and access to capital markets in the United States.”
A summary of the operational and financial performance for the fourth quarter and full year 2020 is provided below:
| Financial | Three months ended | Year ended | ||||||||||||||||
| December 31, | December 31, | December 31, | December 31, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||||
| Revenues | $ | 42,254 | $ | 25,808 | $ | 119,987 | $ | 105,107 | ||||||||||
| Operating costs | -31,604 | -22,679 | -88,390 | -92,950 | ||||||||||||||
| Direct mine and production costs | -18,547 | -15,098 | -48,929 | -63,156 | ||||||||||||||
| Net income (loss) before tax | 6,023 | -2,526 | 7,723 | -23,494 | ||||||||||||||
| Income tax (expense) recovery | 282 | -856 | -139 | -864 | ||||||||||||||
| Deferred income expense | 576 | -922 | -823 | -2,612 | ||||||||||||||
| Net income (loss) | 6,881 | -4,304 | 6,761 | -26,970 | ||||||||||||||
| Basic earnings (loss) per share | 0.12 | -0.08 | 0.12 | -0.5 | ||||||||||||||
| Diluted earnings (loss) per share | 0.11 | -0.08 | 0.11 | -0.5 | ||||||||||||||
| Operational | |||||||
| 2020 | 2019 | ||||||
| Q1 | Q2 | Q3 | Q4 | Full Year | Q4 | Full Year | |
| Total Ore Mined (tonnes) | 203,966 | 257,357 | 287,969 | 338,226 | 1,087,518 | 329,792 | 1,156,016 |
| Ore Grade Mined – Effective Grade (%) 5 | 1.61 | 1.2 | 1.28 | 1.18 | 1.29 | 1.36 | 1.34 |
| Effective Grade of Ore Milled (%) 5 | 1.59 | 1.29 | 1.26 | 1.28 | 1.34 | 1.57 | 1.5 |
| Concentrate Produced (tonnes) | 100,072 | 99,059 | 104,921 | 108,609 | 412,661 | 100,879 | 382,501 |
| Grade of Concentrate (%) | 3.36 | 3.2 | 3.32 | 3.24 | 3.28 | 3.28 | 3.29 |
| Contained V 2 O 5(tonnes) | 3,365 | 3,174 | 3,487 | 3,515 | 13,540 | 3,310 | 12,580 |
| Crushing Recovery (%) | 98.3 | 97.7 | 98.1 | 98.1 | 98.1 | 96.6 | 97 |
| Milling Recovery (%) | 98.4 | 94.7 | 96.5 | 95.4 | 96.2 | 96 | 96.9 |
| Kiln Recovery (%) | 88.3 | 91.7 | 92.5 | 91.2 | 91 | 89.7 | 89.1 |
| Leaching Recovery (%) | 96.6 | 99.1 | 99.7 | 98.5 | 98.6 | 96.7 | 96.8 |
| Chemical Plant Recovery (%) | 96.8 | 96.1 | 96.4 | 95.8 | 96.3 | 96.1 | 96.8 |
| Global Recovery (%) 4 | 79.9 | 80.8 | 84.2 | 80.6 | 81.5 | 77.3 | 78.5 |
| V 2 O 5 produced (tonnes) | 2,831 | 2,562 | 3,092 | 3,340 | 11,825 | 3,011 | 10,577 |
| V 2 O 5 produced (equivalent pounds 1 ) | 6,241,279 | 5,648,236 | 6,816,685 | 7,363,431 | 26,069,631 | 6,638,111 | 23,318,266 |
2020 Financial Results
The Company recorded net income of $6.8 million in 2020 compared to a net loss of $27.0 million in 2019. This movement was primarily due to an increase in revenues and a decrease in operating costs, professional, consulting and management fees, share-based payments, and finance costs.
During 2020, the Company recognized revenues of $120.0 million from sales of 10,254 tonnes of V 2 O 5 equivalent. This represents an increase of 14% from revenues of $105.1 million in 2019. Revenues per pound sold 2 were $5.31 in 2020 compared to $4.69 per pound sold in 2019, representing an increase of 13%.
Operating costs of $88.4 million decreased by 5% in 2020 from $93.0 million in 2019. Operating costs in 2020 include direct mine and production costs of $48.9 million (2019 – $63.2 million), conversion costs of $2.0 million (2019 – $nil), product acquisition costs of $10.5 million (2019 – $nil), royalties of $7.1 million (2019 – $5.9 million), distribution costs of $2.3 million (2019 – $nil), inventory write-down of $0.2 million (2019 – $nil) and depreciation and amortization of $17.5 million (2019 – $23.8 million).
Cash operating costs excluding royalties 2 were $2.56 per lb in 2020, compared with $3.06 for 2019. The decrease seen in 2020 compared with 2019 is largely due to a decrease in direct mine and production costs, which is primarily attributable to the lower costs recognized in Q2 2020 when the Company was ramping up its sales activities and cost reductions realized as a result of the expansion completed in 2019. For 2020, total cash costs 2 were $3.34 per pound sold.
For 2020, cash used in operating activities was $59.5 million, compared with cash provided by operating activities of $104.6 million in 2019. This movement is primarily attributable to a decreased in cash provided before working capital items of $9.6 million and a net decrease in working capital items of $154.5 million, which is largely driven by movements in amounts receivable and accounts payable and accrued liabilities. The change in amounts receivable is primarily due to the increased payment terms with the Company’s customers in 2020 as compared with 2019.
The Company’s cash position as of December 31, 2020 was $79.1 million. Subsequent to this date, the Company prepaid in full all of its outstanding credit facilities in Brazil that were scheduled to mature on March 12 and March 18, 2021, respectively. The Company completed the prepayment of $24.8 million in aggregate principal amount between the dates of January 29 and February 3, 2021, plus accrued and unpaid interest and all exit fees which were paid at a lower rate than the scheduled interest payable to the end of the maturity dates.
2020 Operational Results
2020 production of 11,825 tonnes of V 2 O 5 marked a new annual record for the Company and was within the 2020 guidance of 11,750 to 12,250 tonnes of V 2 O 5 . This represents an increase of 12% in annual production over 2019. Q4 2020 production of 3,340 tonnes of V 2 O 5 also set a new quarterly production record, being 11% higher than Q4 2019 and 8% higher than the previous record of 3,092 tonnes in Q3 2020.
The Company achieved a new annual average global V 2 O 5 recovery 4 record of 81.5% in 2020 which represents a 4% increase over the 78.5% averaged in 2019. In Q4 2020, global recoveries 4 averaged 80.6% which compares favourably to 77.3% averaged in Q4 2019. The increase in global recoveries 4 over 2020 is primarily due to the completion of continuous improvement projects in the plant focused on improving recoveries.
In Q4 2020, 338,226 tonnes of ore were mined with an effective grade 5 of 1.18% of V 2 O 5 . The ore mined in Q4 2020 was 3% higher than in Q4 2019 and 17% higher than in Q3 2020. The Company produced 108,609 tonnes of concentrate with an effective grade 5 of 3.24%. The contained V 2 O 5 in the concentrate produced was 8% higher in 2020 than in 2019. The operational performance in Q4 2020 remained in-line with the Company’s plans despite the COVID-19 restrictions put in place.
Subsequent to 2020, production in January 2021 was 382 tonnes of V 2 O 5 , and production in February 2021 was 769 tonnes of V 2 O 5 . The decrease in production levels seen is due to the planned shutdown to implement upgrades to the kiln and improvements in the cooler. It is anticipated that these upgrades and improvements will increase the nameplate production capacity to 1,100 tonnes of V 2 O 5 per month by the end of Q2 2021.
2020 Sales Guidance Exceeded – Successful Completion of 2021 Sales Contract Campaign
For 2020, the Company exceeded its annual sales guidance of 9,500 to 10,000 tonnes of V 2 O 5 equivalent with total sales of 10,254 tonnes of V 2 O 5 equivalent. In Q4 2020, the Company achieved a record quarterly sales level of 3,746 tonnes of V 2 O 5 equivalent sold. The Company delivered both standard grade and high purity V 2 O 5 as well as ferrovanadium (“FeV”) to customers globally. Following the logistics constraints experienced in Q3 2020, delays in deliveries to customers in Asia eased during Q4 2020. The Company continues to actively manage any logistics challenges it faces to provide premium products and service to its customers.
The Company successfully completed its sales contract campaign and has allocated a significant proportion of its estimated monthly production in 2021 to these contracts. Geographically, these contracts are well diversified with a well-balanced global footprint. The Company maintains a strong focus on developing new markets for its high purity products, including chemical applications and an expected gradual recovery of the aerospace industry beginning in Q2 2021. With the launch of Largo Clean Energy, the Company also aims to grow its sales into the fast-growing vanadium redox flow battery (“ VRFB ”) market.
Contributing to a Lower Carbon Future with Largo Clean Energy and its VCHARGE± Battery Technology
In December 2020, the Company launched Largo Clean Energy to provide safe, long-duration VRFBs to the fast-growing global renewable energy storage market. Largo remains focused on commercializing, producing, and deploying its superior VCHARGE± battery technology to capitalize on opportunities around the world. The Company is already in active discussions with end-users to sell and deploy its first VCHARGE± battery and will keep the market updated on its progress.
The VRFB’s technical and economic advantages are well-known and Largo plans to unlock the technology’s potential by providing a secure and reliable supply of high purity vanadium from its world-class Maracás Menchen Mine. Largo’s high purity VPURE+™ products have been previously tested in the manufacturing of electrolyte for VCHARGE± technology, demonstrating outstanding results.
ESG Improvement Program
The Company prides itself on a proven history of community relations, stakeholder engagement and excellent social and environmental stewardship. On July 20, 2020, the Company announced the release of its 2019 sustainability report highlighted by improved performance metrics and new reporting standards. Largo’s sustainability reporting is now guided in part by the Sustainability Accounting Standards Board (SASB) and closely follows Global Reporting Initiative (GRI) benchmarks.
During 2020, Largo conducted an initial assessment of climate-related risks and opportunities. The assessment took into consideration the potential impacts on all of the Company’s stakeholders. By better understanding these issues, the Company can explore the implementation of necessary mitigations and at the right time, explore new opportunities related to the enhancement of its overall ESG performance and disclosures. In addition to the climate change assessment, the Company conducted an ESG gap analysis in November 2020. This has led to several recommendations and the Company is now working on improvements to its overall ESG performance and disclosure. The Company expects to release its 2020 ESG report in late Q2 2021.
Vanadium Markets Outlook
In the first weeks of 2021, vanadium prices have increased in all main markets on the back of solid demand, low inventories, and renewed optimism.
European FMB FeV prices are up by more than 34% since the beginning of 2021
European FMB V 2 O 5 prices are up more than 54% since the beginning of 2021
U.S. CRU FeV prices are up by more than 44% since the beginning of 2021
The Company also expects that growing interest from the long-duration battery sector will continue to drive future vanadium demand growth in 2021 and beyond. Global energy storage deployment is expected to reach 1,095 GW/2,850 Gigawatt hours (“ GWh ”) 6 in 2040 and Largo believes that long-duration VRFBs will play a critical role in addressing this significant demand. It is estimated that long-duration energy storage (4 to 12+ hours) market growth will reach $16 billion worldwide 7 by 2025.
Share Consolidation and Nasdaq Application
On March 1, 2021, the Company announced that the consolidation of its Common Shares on the basis of up to one (1) post-consolidation Common Share for every ten (10) pre-consolidation Common Shares (the ” Consolidation “) was approved at the Special Meeting of Shareholders (the “ Meeting ”) held on the same date. Subsequently, the Company’s Board of Directors determined to proceed with a consolidation ratio of one (1) post-consolidation share for every ten (10) pre-consolidation shares in accordance with the parameters authorized by the Company’s shareholders at the Meeting. The Common Shares were consolidated effective on March 4, 2021 and commenced trading on the Toronto Stock Exchange (the “ TSX ”) on a post-consolidation basis at the open of trading on March 8, 2021.
The Company also announced that it has submitted an initial application to list its Common Shares on the Nasdaq with the view of increasing access to U.S. capital markets and enhancing overall shareholder value. The listing of the Company’s Common Shares on Nasdaq remains subject to the review and approval of the listing application and the satisfaction of all applicable listing and regulatory requirements, including the filing of a registration statement with and declaration of effectiveness by the United States Securities and Exchange Commission.
About Largo Resources
Largo Resources is an industry preferred producer and supplier of high-quality vanadium. Largo can service multiple vanadium market applications through the supply of its unrivaled VPURE™ and VPURE+™ products, which are sourced from one of the world’s highest-grade vanadium deposits at the Company’s Maracás Menchen Mine located in Brazil. Largo is also focused on the advancement of renewable energy storage solutions through Largo Clean Energy and its world-class VCHARGE± vanadium redox flow battery technology. The Company’s common shares are listed on the Toronto Stock Exchange under the symbol “LGO”.
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