Q2 2021 Highlights
At the Company’s investor-oriented virtual ‘Battery Day’ held on June 9, 2021, the Company discussed its transformational strategic shift to the production of vanadium based electrical energy storage systems. The Company believes that moving to vertically integrate its financially strong vanadium operations with its superior vanadium redox flow battery (“VRFB”) technology will present a higher value market opportunity for the Company’s vanadium products in the future and will also create a unique competitive advantage for Largo in the rapidly growing long duration energy storage market
Aligned with its commitment to the energy storage sector, Ian Robertson has been appointed as Co-Chair of the Board of the Company and as interim President of Largo Clean Energy Corp. (“LCE”)
LCE entered into its first VCHARGE± VRFB sales contract with Enel Green Power España (“EGPE”) and received notice to proceed on July 26, 2021
The Company reported net income of $8.4 million vs. a net loss of $7.0 million in Q2 2020
The Company recognized revenues of $54.3 million, 546% higher than Q2 2020
Cash provided before working capital items of $16.2 million vs. 1.0 million in Q2 2020
The Company exited Q2 2021 with a cash balance of $80.7 million
The Company will host a webcast and conference call for its Q2 2021 results on Wednesday, August 11th at 10:00 a.m. ET
Other Significant Highlights
Total V2O5 equivalent sales of 3,027 tonnes, a 197% increase over Q2 2020
Revenues per lb sold2 of $8.14, a 119% increase over Q2 2020
Cash operating costs excluding royalties1 of $3.39 per lb of V2O5 vs. $1.89 per lb in Q2 2020
Production of 3,070 tonnes (6.8 million lbs3) of V2O5, a 20% increase over Q2 2020 and 55% above Q1 2021
Vanadium demand in all of the Company’s key markets remained strong in Q2 2021:
Average European V2O5 price per lb of $8.19, representing a 16% increase over Q1 2021 and 33% above Q2 2020
Commissioning of vanadium trioxide (“V2O3”) processing plant initiated
2021 production, sales, cash operating costs excluding royalties1 and capital expenditure guidance maintained
Largo Resources Ltd. (“Largo” or the “Company”) (TSX: LGO) (NASDAQ: LGO) today announces its second quarter 2021 financial results highlighted by revenues of $54.3 million and net income of $8.4 million.
Strategic Updates
During the second quarter, the Company hosted an investor-oriented virtual ‘Battery Day’ during which the Company discussed its transformational strategic shift to the production of vanadium based electrical energy storage systems. The Company believes that moving to vertically integrate its financially strong vanadium operations with its superior long duration energy storage technology will present a higher value market opportunity for the Company’s vanadium products in the future and will also create a unique competitive advantage for Largo in the rapidly growing long duration energy storage market.
Aligned with its belief in the opportunities expected to arise in the transition to VRFB production, the Company announced the appointment of Mr. Ian Robertson as Co-Chair of the Board of Directors of the Company and as Interim President of LCE. During the quarter, the Company continued to augment its strategic, commercial, technical and manufacturing teams including the appointment of Mr. Salvatore Minopoli as VP of LCE Operations.
During the quarter, LCE secured a facility in Massachusetts, U.S. for its global headquarters, including its product development and stack manufacturing centre, which is sufficiently sized to support a manufacturing capacity of energy systems representing up to 1.4 gigawatt hours of storage per year. The team moved into the office facility in May 2021 and building modifications are underway for the installation and commissioning of the stack manufacturing capacity and test equipment required to support the business plan.
On July 20, 2021, the Company announced that LCE had entered into its first VCHARGE± VRFB sales contract with EGPE and has now received notice to proceed for this installation. Under the contract, LCE is obligated to deliver a five hour, 6.1 MWh VCHARGE± system for a project in Spain with expected commissioning in Q4 2022.
With respect to continued VRFB deployments, LCE is focused on obtaining the required regulatory certification to support expected 2022 project sales, with certifications on track to be received by the end of Q4 2021. In addition, the Company is progressing with establishing the supply chain and resources required to deliver on the anticipated project deployment timelines and cost targets.
Ian Robertson, Co-Chair of Largo, stated: “During our Battery Day we confirmed our belief that vertically integrating our highly efficient vanadium production capacity with our superior vanadium based energy storage technology will present a more financially and societally valuable proposition for the Company. I am pleased with the recently announced milestone energy storage system sales contract with a world-class partner and remain confident that it represents validation of the transformational opportunity to generate substantial long-term value for the Company. Looking ahead, we see the planned change in our name to “Largo Inc.” as evidence of the Company’s confidence in the significant opportunity that exists for Largo to profitably participate in the growing long duration energy storage market. We expect to proceed with the Company’s name change and extensive rebrand in late Q3 2021.”
Paulo Misk, President and Chief Executive Officer for Largo, stated: “Continued momentum across all key markets resulted in increased vanadium demand and strong revenue growth for the Company in Q2 2021. This has led to a substantial increase in revenues per lb2 sold of 119% over Q2 2020 and contributed to healthy cash flow generation, building upon our solid cash position. Following the additional debt funding obtained in Q2 2021 of $15 million, the Company exited the quarter with a cash balance of $80.7 million. We will continue to capitalize on the strong demand in the vanadium markets we serve with the goal of improving profit margins going forward.”
Q2 2021 Financial Results
The Company recorded net income of $8.4 million and basic earnings per share of $0.13 in Q2 2021, compared with a net loss of $7.0 million in Q2 2020.
During Q2 2021, the Company recognized revenues of $54.3 million from sales of 3,027 tonnes of V2O5 equivalent (Q1 2020 – 1,018 tonnes). This represents a 546% increase in revenues over Q2 2020 ($8.4 million). Revenues per pound sold2 were $8.14 in Q2 2021 compared to $3.72 per pound sold in Q2 2020, representing an increase of 119%.
Operating costs of $35.0 million in Q2 2021 (Q2 2020 – $9.6 million) include direct mine and production costs of $19.6 million (Q2 2020 – $2.2 million), conversion costs of $2.4 million (Q1 2020 – $nil), product acquisition costs of $3.7 million (Q1 2020 – $2.4 million), royalties of $2.4 million (Q2 2020 – $1.3 million), distribution costs of $1.3 million (Q1 2020 – $0.3 million) and depreciation and amortization of $5.6 million (Q2 2020 – $2.0 million). The increase in direct mine and production costs is primarily attributable to the increase in sales of V2O5 equivalent sold in Q2 2021. Operating costs in Q2 2021 were partially offset by a margin on iron ore sales of $0.1 million (Q2 2020 – $nil). Further, conversion costs relate to the costs incurred in converting quantities of V2O5 into ferrovanadium for delivery to customers and distribution costs relate to the costs incurred in delivering products to customers. In Q2 2020, the Company only sold V2O5 and had only just begun shipping products to its customers.
Cash operating costs excluding royalties1 were $3.39 per lb in Q2 2021, compared with $1.89 for Q2 2020. The increase seen in Q2 2021 compared with Q2 2020 is largely due to a decrease in the global recovery5, with 79.9% achieved in Q2 2021, compared with 80.8% achieved in Q2 2020, and the impact of higher costs arising from the planned shutdown in Q1 2021.
Professional, consulting and management fees were $4.4 million in Q2 2021, compared with $1.2 million in Q2 2020. The increase is primarily attributable to costs incurred in Q2 2021 in connection with LCE that was not operational in Q2 2020. In addition, the Company’s Corporate segment incurred increased legal and regulatory costs in Q2 2021 in relation to the Nasdaq listing process and U.S. regulatory requirements.
The foreign exchange gain in Q2 2021 increased from Q2 2020 by 184% to $3.1 million. This is primarily attributable to a weakening of the U.S. dollar against the Brazilian real by approximately 12% since March 31, 2021 on U.S. dollar denominated cash and liabilities in Brazil and a strengthening of the Canadian dollar against the U.S. dollar by approximately 2% since March 31, 2021 on Canadian dollar denominated assets.
Cash provided by operating activities of $19.1 million in Q2 2021 is an increase from cash used in operating activities of $63.6 million in Q2 2020. This is primarily due to an increase in cash provided before working capital items of $15.2 million and a net increase in working capital items of $67.6 million. The net movement in working capital items is largely driven by increases in amounts receivable and inventory balances in Q2 2021 and a payment to the Company’s former off-take partner in Q2 2020 in partial settlement of trade payables.
Q2 2021 Operational Results
Total production from the Maracás Menchen Mine was 3,070 tonnes of V2O5, representing an increase of 20% over Q2 2020 and a 55% increase over Q1 2021. This increase is attributable to the kiln upgrades and cooler improvements implemented in January 2021, as well as the impact of preventative maintenance in the chemical plant in Q2 2020. V2O5 production in April 2021 was 1,092 tonnes, with 1,075 tonnes produced in May and 903 tonnes produced in June. The lower production in June was due to a reduction in the total material mined that occurred during the transition between mining contractors that was completed by the end of Q2 2021. Subsequent to Q2 2021, production in July was 1,068 tonnes of V2O5.
The global recovery5 achieved in Q2 2021 was 79.9%, 1% lower than the 80.8% achieved in Q2 2020 and 3% higher than the 77.4% achieved in Q1 2021. The global recovery in April was 78.8%, with 78.5% achieved in May and 82.0% achieved in June. The Company expects the global recovery5 to stabilize at the levels seen in 2020 upon the completion of the commissioning and ramp up period for the kiln improvements implemented in Q1 2021.
In Q2 2021, 340,734 tonnes of ore were mined with an effective grade4 of 1.15% of V2O5. The ore mined in Q2 2021 was 32% higher than in Q2 2020. The Company produced 98,372 tonnes of concentrate with an effective grade4 of 3.23%.
About Largo Resources
Largo is a Canadian domiciled company that has historically been solely committed to the production and supply of high-quality vanadium products. The Company recently announced its belief that the development and sale of vanadium based electrical energy storage systems to support the planet’s on-going transition to renewable energy presents both an attractive economic opportunity for the use of the Company’s vanadium products and an opportunity to enhance the Company’s sustainability. Consequently, the Company is in the process of vertically integrating its highly efficient vanadium production operations with its vanadium-based energy storage technology to create a unique competitive advantage in the rapidly growing long duration energy storage market. The Company is confident that using its VPURETM and VPURE+TM products, which are sourced from one of the world’s highest-grade vanadium deposits at the Company’s Maracás Menchen Mine in Brazil, in its VCHARGE± vanadium redox flow battery technology results in a competitive and practical long duration energy storage product.
www.ferroalloynet.com
