[Ferro-Alloys.com] Largo Reports Second Quarter 2023 Financial Results, Including Further Progress on its Cost Reduction Initiatives and Commissioning of its Ilmenite Production as a By-Product of its Vanadium Operations

Largo Reports Second Quarter 2023 Financial Results, Including Further Progress on its Cost Reduction Initiatives and Commissioning of its Ilmenite Production as a By-Product of its Vanadium Operations

All dollar amounts expressed are in thousands of U.S. dollars unless otherwise indicated. 

Q2 2023 and Other Highlights

• Revenues of $53.1 million vs. revenues of $84.8 million Q2 2022; Revenues per pound of V₂O₅ sold¹ of $9.42 vs. $11.69 per pound sold in Q2 2022, mainly driven by a sharp decrease in V₂O₅ prices during the quarter, which was partially offset by an increase in the Company’s high purity vanadium sales
• Operating costs of $43.0 million vs. $50.7 million in Q2 2022; Cash operating costs excluding royalties per pound¹ of V₂O₅ equivalent sold of $5.18 vs. $4.23 in Q2 2022
• Net loss of $6.0 million vs. net income of $18.0 million in Q2 2022; Basic loss per share of $0.09
• Cash provided before working capital items of $3.8 million vs. $25.4 million in Q2 2022; Cash provided by operating activities of $18.1 million vs. $2.9 million in Q2 2022
• Cash balance of $64.0 million, net working capital² surplus of $103.1 million and debt of $65.0 million exiting Q2 2023
• V₂O₅ production 2,639 tonnes (5.8 million lbs³) vs. 3,084 tonnes in Q2 2022 and 2,111 tonnes in Q1 2023; V₂O₅ equivalent sales of 2,557 tonnes vs. 3,291 tonnes in Q2 2022
• Commissioning of the Company’s ilmenite concentration plant has commenced and is expected to be completed in Q3 2023, at which point a gradual ramp-up of ilmenite production in Q4 2023; Ilmenite concentrate will become a by-product of the Company’s vanadium operations in Brazil
• Hot commissioning of Largo Clean Energy’s (“LCE”) 6.1 megawatt-hour (“MWh”) Enel Green Power España (“EGPE”) vanadium redox flow battery (“VRFB”) deployment remains ongoing, with provisional acceptance by EGPE expected in Q3 2023
• The Company published its 2022 Sustainability Report entitled: “Building a low-carbon future together” highlighting the development and improvement of its ongoing sustainability programs
• Q2 2023 results conference call: Thursday, August 10th at 1:00 p.m. ET 

Vanadium Market Update⁴

• The average benchmark price per lb of V₂O₅ in Europe was $8.46 in Q2 2023, a 19% decrease from the average of $10.39 seen in Q1 2023 and a 24% decrease from the average of $11.08 seen in Q2 2022; The average benchmark price per kg of ferrovanadium in Europe was $33.47 in Q2 2023, a 15% decrease from the average of $39.46 seen in Q1 2023 and a 24% decrease from the average of $43.83 seen in Q2 2022
• Lower vanadium prices can be attributed to weaker demand in the Chinese construction market; however, these prices been partially offset by higher VRFB deployments in China and increased aerospace demand
• The average European benchmark V₂O₅ price at June 30, 2023 was approximately $7.98 per lb, compared with approximately $10.13 per lb at March 31, 2023 and $9.15 per lb at June 30, 2022
• According to Vanitec, demand in energy storage applications has increased by 141% from Q1 2022 to Q1 2023

TORONTO--(BUSINESS WIRE)-- Largo Inc. ("Largo" or the "Company") (TSX: LGO) (NASDAQ: LGO) today released financial and operating results for the three and six months ended June 30, 2023. The Company reported revenues of $53.1 million from vanadium pentoxide (“V₂O₅”) equivalent sales of 2,557 tonnes.

Daniel Tellechea, Interim CEO and Director of Largo, stated: “A sharp decrease in V₂O₅ prices combined with lower sales in Q2 2023 impacted the Company’s financial performance for the quarter. Higher production at the end of the second quarter is positively impacting in-transit inventory and should support higher availability and sales in the coming months. Our primary focus continues to be on delivering production and sales targets safely, optimizing our mine plan, as well as implementing additional cost reduction measures at both the mine site and at LCE to support profit margins going forward. The Company is beginning to see a reduction in key consumable costs at its mine site and has implemented a cost reduction plan at LCE.”

He continued: “Chinese and European steel sector spot demand for vanadium was weaker in Q2 2023, however, strong demand from the aerospace industry offset this during the quarter. Importantly, recent estimates indicate that energy storage demand is expected to increase significantly in the future, driven primarily by new VRFB deployments to 2030, with a CAGR of 14%⁸.”

Financial Results

Maracás Menchen Mine Operational and Sales Results

Q2 2023 Financial Highlights

• The Company recognized revenues of $53.1 million from sales of 2,557 tonnes of V₂O₅ equivalent (Q2 2022 – 2,849 tonnes) in Q2 2023. This represents a 37% decrease in revenues over Q2 2022 ($84.8 million) mainly due to lower sales and vanadium prices for the quarter. Reconciliation of the Company’s revenues per pound sold¹ and total quantities sold of each product are provided in the “Non-GAAP⁷ Measures” section of this press release.
• Operating costs of $43.0 million (Q2 2022 – $50.7 million) include direct mine and production costs of $25.0 million (Q2 2022 – $23.9 million), conversion costs of $2.2 million (Q2 2022 – $2.3 million), product acquisition costs of $3.8 million (Q2 2022 – $9.6 million), royalties of $2.5 million (Q2 2022 – $3.7 million), distribution costs of $2.5 million (Q2 2022 – $2.9 million), inventory write-down of $0.7 million (Q2 2022 – $2.3 million), depreciation and amortization of $6.2 million (Q2 2022 – $5.5 million) and iron ore costs of $0.2 million (Q2 2022 - $0.2 million). The increase in direct mine and production costs is attributable to an increase in total ore mined and the move to a new mining contractor in Q3 2022. Higher mining costs, the change in production levels across the period and the ramp up following the challenges experienced in the prior quarter negatively impacted costs. In addition, as compared with Q2 2022, the Company continued to experience elevated costs in critical consumables. The Company is actively working to manage its usage of these consumables and is also starting to see a softening in consumable prices.
• Cash operating costs excluding royalties¹ per pound sold were $5.18 per lb, compared with $4.23 for Q2 2022. The increase seen in Q2 2023 compared with Q2 2022 is largely due to the reasons noted above.
• Professional, consulting and management fees of $5.8 million decreased from Q2 2022 by 9%. The decrease was mainly due to lower expenses incurred in the mine properties segment in Q2 2023 over Q2 2022, which is primarily attributable to additional compensation costs incurred in Q2 2022.
• Other general and administrative expenses of $3.3 million decreased from Q2 2022 by 35% (or $1.8 million), which is primarily attributable to the increase in legal provisions recognized in Q2 2022 in the mine properties segment.
• Finance costs of $2.0 million in Q2 2023 increased by $1.7 million from Q2 2022, which is primarily attributable to interest on the increased debt level in Q2 2023 as compared with Q2 2022, as well as a write-down of vanadium assets of $0.2 million.
• Exploration and evaluation costs of $1.3 million in Q2 2023 increased by $1.1 million from Q2 2022. This was driven by infill drilling and geological model work at the Maracás Menchen Mine and diamond drilling at Campo Alegre de Lourdes.
• Following the completion of its short-term infill drilling program in the Campbell Pit, the resulting geological model update and the decision to prioritize operating flexibility in the near-term mine planning, the Company has decided to accelerate its pre-stripping mining rates. Accordingly, it has revised its guidance for capitalized waste stripping costs for 2023. Expenditures of $11.7 million were capitalized during the six months ended June 30, 2023, and the Company now plans to incur approximately $15.0 million in the remainder of 2023. The Company believes that increased operating flexibility at its open pit mine will, amongst other things, assist in preventing weather related disruptions at the mine.
• Cash provided by operating activities continues to be impacted by expenditures at LCE, with a net loss of $5.3 million recognized in Q2 2023 (Q2 2022 – $5.4 million).

Additional Corporate Updates

• Production: V₂O₅ production in April, May and June 2023 was 676 tonnes, 945 tonnes and 1,018 tonnes, respectively, for a total of 2,639 tonnes of V₂O₅ produced in Q2 2023.
  • The Company completed its 2023 infill drilling campaign, which resulted in a further refinement of the Company's short-term mining model. The Company achieved a normalized production level in June following the completion of upgrades to the crushing circuit and an improvement in mining performance as compared with Q1 2023. These upgrades are expected to reduce operational maintenance costs and provide more flexibility in the blending of ores to stabilize V₂O₅ production.
  • In Q2 2023, the Company produced 983 V₂O₅ equivalent tonnes of high purity products, including 706 tonnes of high purity V₂O₅ and 277 tonnes of high purity vanadium trioxide (“V₂O₃“). This represented 37% of the Company’s total quarterly production.
  • The global recovery⁶ achieved in Q2 2023 was 81.0%, a decrease of 1.0% from the 81.8% achieved in Q2 2022 and 2.4% lower than the 83.0% achieved in Q1 2023. The global recovery⁶ in April, May and June 2023 was 81.3%, 80.4%, 81.3%, respectively.
  • The total material moved in the mine in June was a record 1,349,405 tonnes of waste and 108,104 tonnes of ore (dry basis). In Q2 2023, 489,892 tonnes of ore were mined with an effective grade⁵ of 0.86% of V₂O₅. The ore mined in Q2 2023 was 30% higher than in Q2 2022. The Company produced 99,083 tonnes of concentrate with an effective grade⁵ of 3.34%.
  • Subsequent to Q2 2023, production in July 2023 was 644 tonnes of V₂O₅ equivalent as a result of process restrictions following the accident in July at its chemical plant. However, the Company accumulated intermediate stocks of vanadium material that is expected to be processed in August, offsetting a portion of weaker July V₂O₅ output.
• Sales: In Q2 2023, the Company sold 2,557 tonnes of V₂O₅ equivalent (Q2 2022 – 3,291 tonnes), including 289 tonnes of purchased products (Q2 2022 – 508 tonnes). Produced V₂O₅ equivalent sold decreased, with 2,268 tonnes sold in Q2 2023, as compared with 2,783 tonnes in Q2 2022. The Company delivered both standard grade and high purity V₂O₅, as well as vanadium trioxide ("V2O3") and ferrovanadium (“FeV”) to customers globally. Subsequent to Q2 2023, sales in July 2023 were 860 tonnes of V₂O₅ equivalent.
• Largo Clean Energy: During Q2 2023, LCE continued to make progress on the delivery of the EGPE contract, which remains a priority focus. LCE finalized the pumping of electrolyte for EGPE's VCHARGE VRFB deployment and completed cold commissioning of the system in June. The battery system was also successfully interconnected with the grid and the system inverter was successfully utilized to form the chemistry. The battery is currently performing charge-discharge cycles as part of the ongoing hot commissioning phase, which is anticipated to be completed in Q3 2023, along with provisional acceptance of the system by EGPE.
• During Q2 2023, Mr. Francesco D'Alessio was appointed as President of LCE. The Company continues to evaluate all strategic options for LCE in order to fully maximize its unique value proposition in the energy storage sector. This includes but is not limited to the potential strengthening and formalization of existing industry and commercial relationships, developing additional collaborative partnerships, evaluating alternative deployment strategies, and performing a comprehensive review of cost reduction measures.
• In accordance with this strategic evaluation, LCE has implemented a cost reduction plan and expects to realize savings of approximately 50% in its expenditures at LCE going forward.
• Ilmenite Plant: Construction of the ilmenite concentration plant was completed in Q2 2023. Commissioning of this new facility has commenced and is expected to be completed in Q3 2023. A gradual ramp-up of ilmenite concentrate production will occur in Q4 2023.
• Exploration: During Q2 2023, the Company completed approximately 5,000 metres of reverse circulation (“RC”) infill drilling in the Campbell Pit and 3,500 metres of diamond drilling in the near mine deep drilling program. The Campbell Pit geological model was updated in Q2 2023 and delivered to the mine planning team. This model will continue to be updated quarterly and will assist with mine planning activities going forward.
• Largo Physical Vanadium Corp. (“LPV”): LPV continued its acquisition of vanadium assets, with $1.5 million spent during Q2 2023. LPV has deployed over 90% of its capital and is focussed on marketing and strategic initiatives to establish its business model.

• [Editor:tianyawei]