Largo Resources Reports Solid Q1 2020 Results with Net Income of $5.7 Million and Maintains Strong Liquidity Position

2020-05-12

CSE - Canadian National Stock Exchange · Gold · Copper · Arsenic · Canada

Canada NewsWire

TORONTO, May 12, 2020

All financial figures are in Canadian dollars unless otherwise stated.

Q1 2020 Highlights

Net income of $5.7 millionand basic earnings per share of $0.01 Cash operating costs excluding royalties1of US$2.79($3.69)per lb of V2O5, a decrease of 18% over Q1 2019 Production of 2,831 tonnes (6.2 million pounds2) of V2O5, a 35% increase over Q1 2019 V2O5sales of 3,170 tonnes, a 51% increase over Q1 2019 Revenues of $58.2 million(after a positive re-measurement of trade receivables / payables of $2.4 millionon vanadium sales from a contract with a customer of $55.8 million), an increase of 31% over Q1 2019 Cash balance of $206.1 millionexiting Q1 2020 Commercial independence: Over 85% committed on annual guided sales for 2020 COVID-19 Update: The Maracás Menchen Mine continued operations during Q1 2020 and the Company is maintaining it's 2020 guidance on a "business as usual" basis Q1 2020 operational and financial results conference call: Wednesday, May 13th, 2020at 10:00 a.m. EST

TORONTO, May 12, 2020/CNW/ - Largo Resources Ltd. ("Largo" or the "Company") (TSX: LGO) (OTCQX: LGORF) is pleased to report its first quarter 2020 results highlighted by net income of $5.7 millionor basic earnings per share of $0.01, cash operating costs excluding royalties1of US$2.79per pound V2O5, and vanadium pentoxide ("vanadium" or "V2O5") production of 2,831 tonnes.

Paulo Misk, President and Chief Executive Officer for Largo, stated_: "Despite production impacts during the quarter, I am pleased to report the Company generated net income of $5.7 millionin 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 royalties1 of US$2.79per pound in Q1 2020 – a decrease of 18% over Q1 2019. Our financial position continues to remain solid with a cash balance of US$147.5 million($204.6 million) as of April 30, 2020and a final revenue adjustment payable of US$64.4 milliondue to the Company's former off-take partner. Following the offset against receivable amounts due to the Company, we expect the net trade payables payment of US$57.4 millionwill 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 off-take 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% 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 the operational and financial performance for Q1 2020 is provided in the tables below:

Financial

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 | | | | | March 31,

2020 | December 31,

2019 | | | | Cash | $ | 206,137 | 166,077 | | | Revenue adjustment payable3 | 91,933 | 95,683 | | | | Working capital4 | 116,742 | 102,013 | | |

Operational

| | | | | | Maracás Menchen Mine Production | | Q1 2020 | Q1 2019 | | | | | | | Total Ore Mined (tonnes) | | 203,966 | 250,109 | | Ore Grade Mined - Effective Grade5(%) | | 1.61 | 1.29 | | | | | | | Effective Grade of Ore Milled5(%) | | 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 Recovery6(%) | | 79.9 | 80.0 | | | | | | | V2O5produced (Flake + Powder) (tonnes) | | 2,831 | 2,099 | | V2O5produced (equivalent pounds)2 | | 6,241,279 | 4,627,497 | | Cash operating costs excluding royalties1per pound produced | CAD$ | $3.69 | $4.54 | | US$7 | $2.79 | $3.41 | | | Total cash costs1 | CAD$ | $3.97 | | | US$7 | $3.01 | | | | Revenues per pound sold8 | CAD$ | $8.33 | $9.57 | | US$7 | $6.31 | $7.19 | | | Vanadium sales per pound sold8 | CAD$ | $7.99 | $21.90 | | US$7 | $6.05 | $16.46 | |

First Quarter 2020 Financial Results

The Company reported net income of $5.7 millionin Q1 2020 compared to a net loss of $2.2 millionin Q1 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 V2O5in Q1 2020 were 3,170 tonnes (including 340 tonnes of high purity V2O5) compared to 2,100 (including 440 tonnes of high purity V2O5) tonnes sold in Q1 2019. This represents an increase of 51% and a new quarterly sales record for the Company.

The Company recognized revenues of $58.2 millionin Q1 2020 after a positive re-measurement of trade receivables / payables of $2.4 millionunder the Glencore contract. This compares with revenues of $44.3 millionin Q1 2019 and represents an increase of 31%. Revenues per pound sold8in Q1 2020 were $8.33(US$6.31)compared with $9.57(US$7.19)per pound in Q1 2019.

Vanadium sales from a contract with a customer was $55.8 millionin Q1 2020, compared with $101.4 millionin Q1 2019. Vanadium sales per pound sold8 in Q1 2020 was $7.99(US$6.05)compared to $21.90(US$16.46)per pound in Q1 2019. This decrease is primarily attributable to a decrease in the V2O5price, with the average price per lb of V2O5of approximately US$6.07for Q1 2020, compared with approximately US$16.34for Q1 2019.

| | Three months ended | | | | March 31, | March 31, | | | | 2020 | 2019 | | | | Vanadium sales from a contract with a customer | $ | 55,809 | 101,403 | | Vanadium sales per pound sold8($/lb) | $ | 7.99 | 21.90 | | Vanadium sales per pound sold8(US$/lb) | $ | 6.05 | 16.46 | | Re-measurement of trade receivables / payables | $ | 2,377 | (57,089) | | Revenue adjustment per pound9($/lb) | $ | 0.28 | (10.32) | | Revenue adjustment per pound9(US$/lb) | $ | 0.21 | (7.75) | | Revenues | $ | 58,186 | 44,314 | | Revenues per pound sold8($/lb) | $ | 8.33 | 9.57 | | Revenues per pound sold8($US/lb) | $ | 6.31 | 7.19 |

As a consequence of the increase in the V2O5price since Q4 2019 and the positive revenue adjustment per pound9realized in Q1 2020, the Company's trade payables balance at March 31, 2020was $75.8 millionand the Company's revenue adjustment payable9was US$64.8 million($91.9 million). The Company's revenue adjustment payable9at April 30, 2020was US$64.4 million($89.3 million).

Operating costs for Q1 2020 were $36.4 millioncompared to $29.1 millionin Q1 2019 and include direct mine and mill costs of $24.3 million($19.5 millionin Q1 2019), depreciation and amortization of $8.9 million($7.3 millionin Q1 2019) and royalties of $3.2 million($2.3 millionin Q1 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 royalties1, which are now calculated on pounds sold, were US$2.79($3.69)per pound in Q1 2020 compared to US$3.41($4.54)in Q1 2019, representing a decrease of 18%. The decrease seen in Q1 2020 compared with Q1 2019 is largely due to the increased sales and was partially offset by a slight decrease in the global recovery6level to 79.9% from 80.0% in Q1 2019.

For Q1 2020, total cash costs1were US$3.01($3.97). Total cash costs1are 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 Q1 2019 by $83.8 million. This is primarily due to the total change in amounts receivable and accounts payable of $80.2 millionin Q1 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 millionin Q1 2020, compared with $22.5 millionin Q1 2019.

In March 2020, the Company secured two credit facilities in Brazil, for a total of US$24.8 million. 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 Q1 2019 by $128.1 millionand is primarily due to the receipt of funds from the credit facilities and the repayment of the Company's Senior Secured Notes in Q1 2019. In addition, $1.7 millionwas received in Q1 2020 from the issuance of shares compared to $0.4 millionin Q1 2019.

The Company's foreign exchange loss in Q1 2020 increased by $11.9 millionover Q1 2019 and is primarily attributable to a strengthening of the U.S. dollar against the Brazilian real by approximately 29% since December 31, 2019on 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% since December 31, 2019on U.S. dollar denominated assets.

First Quarter 2020 Operational Results

Total production in Q1 2020 from the Maracás Menchen Mine was 2,831 tonnes of V2O5 representing an increase of 35% over Q1 2019. Production in Q1 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 V2O5was produced, with 915 tonnes produced in February and 960 tonnes in March.

The Q1 2020 global V2O5recovery6of 79.9% is in line with both Q1 2019 and the budget, with strong recovery levels seen in both the crushing and milling areas of the plant.

In Q1 2020, 203,966 tonnes of ore were mined with an effective grade5of 1.61% of V2O5and the Company produced 100,072 tonnes of concentrate with an effective grade5of 3.36%. The decrease in total ore mined when compared to Q1 2019 is due to operational adjustments to limit the mine site contractor workforce 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 V2O5production.

The annual kiln and cooler shutdown to replace the refractory and the planned improvements to the kiln and cooler to increase capacity that was scheduled for April 2020have 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 2020was 480 tonnes of V2O5.

Commercial Independence Achieved: Internal Sales and Trading Business Proven Successful

Over 85% committed on annual guided sales for 2020 Sales and trading team fully operational out of its two commercial offices in Dublin, Irelandand Washington DC, USA 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 August 20, 2019, the Company's off-take agreement with Glencore International AG expired on April 30, 2020. The Company has assembled a very strong commercial team who have committed approximately 85% of the Company's annual guided sales for 2020. The Company expects 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 Q2 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 to terms under our previous off-take agreement. The Maracás Menchen Mine has a proven track record of premium product quality and operational stability, which allows the Company to provide its customers with a reliable source of vanadium pentoxide 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 V2O5sales during the 2020. The Company does not expect this to impact its total guided V2O5sales for 2020.

2020 Guidance Maintained – Additional Precautionary Measures Taken due to COVID-19

The Company continues to maintain it's 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 Brazilhave 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 on 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 has 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 mobilise 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 V2O3processing plant which is expected to commence in Q1 2021. The Company's V2O3processing plant at the Maracás 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 Q3 2021 and total capital expenditures to be in the range of approximately US$10.0to 11.0 million, with US$8.0to $10.0 millionbeing 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, 2020onwards. 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 our communities, shareholders, employees and other stakeholders, the Company is holding its Annual and Special Meeting of Shareholders (the "Meeting") as a completely virtual meeting. The Meeting will be held by way of live webcast on June 8, 2020at 11:00 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 online and 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 Resources management will host a conference call on Wednesday, May 13, 2020, at 10:00 a.m. EST, to discuss the Company's first quarter 2020 operational and financial results.

_Conference Call Details: _

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, 2020and 2019 and its management's discussion and analysis for the three ended March 31, 2020, which are available on our website at www.largoresources.comand on SEDAR.

About Largo Resources

Largo Resources 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 Maracás Menchen Mine located in Brazil. The Company's common shares are principally listed on the Toronto Stock Exchange under the symbol "LGO". For more information on Largo and VPURE™, please visit www.largoresources.comand www.largoVPURE.com.

Neither the Toronto Stock Exchange (nor its regulatory service provider) accepts responsibility for the adequacy or accuracy of this release.