Largo Resources Announces Third Quarter 2019 Results

2019-11-13

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

Canada NewsWire

TORONTO, Nov. 13, 2019

All financial figures are in Canadian dollars unless otherwise stated.

Q3 2019 Highlights

Production of 2,952 tonnes (6.5 million pounds1) of V2O5, a 15% increase over Q3 2018 Cash operating costs excluding royalties2of US$2.81($3.71)per pound of V2O5, a decrease of 8% over Q3 2018 Revenues of $32.1 million(net of the re-measurement of trade receivables / payables of $20.4 millionon vanadium sales from a contract with a customer of $52.5 million) Net loss of $8.6 millionand a loss per share of $0.02 Cash balance of $154.8 millionexiting Q3 2019 Average annual cash operating costs excluding royalties2guidance lowered to US$3.30to $3.40per lb V2O5; Annual production guidance maintained Expansion project expected to conclude in November 2019 Board approval for the construction of a ferrovanadium plant in Maracás, Brazil Q3 2019 operational and financial results conference call: Thursday, November 14th, 2019at 10:00 a.m. EST

TORONTO, Nov. 13, 2019/CNW/ - Largo Resources Ltd. ("Largo" or the "Company") (TSX: LGO) (OTCQX: LGORF) announces its third quarter 2019 operational and financial results highlighted by 2,952 tonnes of vanadium pentoxide ("vanadium" or "V2O5") produced at a cash operating cost excluding royalties2of US$2.81per pound of V2O5.

Paulo Misk, President and Chief Executive Officer for Largo, stated: "Operations at the Maracás Menchen Mine performed well in the third quarter 2019 following increased production from the expansion project. Cash operating costs excluding royalties2were US$2.81per pound V2O5in Q3 2019 representing a decrease of 8% over Q3 2018. Although the Company achieved lower operating and unit costs during the quarter, profitability continued to be impacted as a result of lower vanadium prices combined with the Company's re-measurement of trade receivables / payables as a result of its current off-take agreement and consequently, the Company recorded a net loss of $8.6 millionin Q3 2019. The Board realizes that the share price does not currently reflect the business value of the Company and is considering instituting a share repurchase program by way of a Normal Course Issuer Bid."

He continued: "The Company believes that vanadium prices are unsustainably low and expects sentiment and prices to improve as evidenced by the recent price increase for ferrovanadium in Europe. Despite greater vanadium consumption in Chinaover the last two years, the current price environment is largely attributable to high iron ore prices and a dramatic increase in Chinese V2O5slag production earlier in 2019 from vanadium-titano magnetite (VTM) deposits. The increase in Chinese vanadium supply, combined with greater than anticipated niobium substitution put vanadium prices under pressure throughout 2019. Going forward, we expect vanadium market sentiment to improve following current shutdowns from high cost stone coal producers, a decline in V2O5slag production and a reverse in niobium substitution on the back of lower vanadium prices."

"Largo is pleased to report that the Board has approved the construction of a ferrovanadium conversion plant at the Maracás Menchen Mine. Ferrovanadium is essential in the production of steel products, which make up approximately 91% of global vanadium consumption. The construction of the Company's own ferrovanadium conversion plant creates downstream advantages as it eliminates the need to convert Largo's V2O5using third party convertors. The Company has begun the basic engineering studies associated with the construction of the plant and looks forward to providing an update to the market in the near future."

"The Company is advancing basic engineering studies to further evaluate the economics associated with upgrading the Maracás Menchen Mine's non-magnetic tailings using concentrate flotation to produce TiO2 concentrate. The Company's non-magnetic tailings are composed of ilmenite which also contain titanium dioxide (TiO2). The Company began a pilot plant study in October to prove flotation performance and anticipates results of the ongoing study in Q4 2019."

"The Company continues to advance its sales and trading business with the recently announced appointment Mr. Francesco D'Alessio as Head of Sales, Americas, who will support the Company's vanadium sales strategy in the North and South American markets. The Company has attended multiple conferences and continues to build the back-office team to support sales and ensure highest quality of service from May 2020onwards."

He concluded: "We are also pleased to announce a strategic partnership with Boston Metal to further advance its Molten Oxide Electrolysis (MOE) testing using Largo's V2O5to produce ferrovanadium. Boston Metal's patented metals-production process is more efficient, less costly and greener with Molten Oxide Electrolysis."

A summary of the operational and financial performance for Q3 2019 is provided in the tables below:

Financial

| | | | | | | | | | | | | | | Three months ended | | Nine months ended | | | | | | | | | September 30, 2019 | | September 30, 2018 | | September 30, 2019 | | September 30, 2018 | | Revenues | | $ | 32,118 | $ | 149,458 | $ | 105,894 | $ | 343,872 | | Direct mine and mill costs | | | (22,213) | | (21,275) | | (64,227) | | (60,705) | | Operating costs | | | (31,506) | | (36,706) | | (93,861) | | (98,109) | | Net income (loss) before tax | | | (9,850) | | 91,734 | | (28,715) | | 191,563 | | Income tax (expense) recovery | | | 1,022 | | (6,930) | | 46 | | (15,773) | | Deferred income tax (expense) recovery | | | 238 | | (13,388) | | (2,590) | | 32,205 | | Net income (loss) | | | (8,590) | | 71,416 | | (31,259) | | 207,995 | | Basic earnings (loss) per share | | | (0.02) | | 0.14 | | (0.06) | | 0.40 | | Diluted earnings (loss) per share | | | (0.02) | | 0.11 | | (0.06) | | 0.33 | | | | | | | | | | | | | Cash provided (used) before non-cash working capital items | | $ | (1,736) | $ | 120,448 | $ | 12,123 | $ | 268,800 | | Net cash provided by operating activities | | | 11,662 | | 113,439 | | 128,837 | | 207,909 | | Net cash (used in) financing activities | | | (28,137) | | (64,164) | | (127,432) | | (112,975) | | Net cash (used in) investing activities | | | (15,743) | | (3,995) | | (42,914) | | (12,791) | | Net change in cash | | | (35,463) | | 43,867 | | (51,373) | | 73,336 | | | | | | | | | | | As at | | | | | | | | | September 30, 2019 | | December 31, 2018 | | Cash | | | | | | $ | 154,815 | | 206,188 | | Working capital3 | | | | | | | 91,469 | | 135,258 | | Trade payables | | | | | | | 82,230 | | - |

Operational

| | | | | | Maracás Menchen Mine Production | | Q3 2019 | Q3 2018 | | | | | | | Total Ore Mined (tonnes) | | 267,257 | 156,664 | | Ore Grade Mined - Effective Grade4(%) | | 1.52 | 1.42 | | | | | | | Effective Grade of Ore Milled (%)5 | | 1.44 | 1.47 | | Concentrate Produced (tonnes) | | 92,629 | 88,075 | | Grade of Concentrate (%) | | 3.26 | 3.48 | | Contained V2O5(tonnes) | | 3,016 | 3,065 | | | | | | | Crushing Recovery (%) | | 96.5 | 96.7 | | Milling Recovery (%) | | 97.0 | 96.6 | | Kiln Recovery (%) | | 88.8 | 86.8 | | Leaching Recovery (%) | | 97.2 | 97.8 | | Chemical Plant Recovery (%) | | 96.7 | 97.3 | | Global Recovery (%)3 | | 78.1 | 77.1 | | | | | | | V2O5produced (Flake + Powder) (tonnes) | | 2,952 | 2,563 | | V2O5produced (equivalent pounds)1 | | 6,508,038 | 5,650,441 | | Cash operating costs2per pound produced | CAD$ | $3.99 | $5.41 | | US$5 | $3.02 | $4.14 | | | Cash operating costs excluding royalties2per pound produced | CAD$ | $3.71 | $3.99 | | US$6 | $2.81 | $3.05 | | | Revenues per pound sold6, 8 | CAD$ | $5.36 | $27.12 | | US$6 | $4.06 | $20.73 | | | Vanadium sales per pound sold7, 8 | CAD$ | $8.76 | $21.86 | | US$6 | $6.64 | $16.71 | |

Third Quarter 2019 Financial Results

The Company recorded a net loss of $8.6 millionin Q3 2019 compared to net income of $71.4 millionin Q3 2018 after the recognition of an income tax recovery of $1.0 millionand a deferred income tax recovery of $0.2 million. This movement was primarily due to a decrease in revenues during the quarter and was partially offset by a decrease in operating costs of $5.2 millionand a decrease in finance costs of $15.0 million.

Total sales of V2O5in Q3 2019 were 2,720 tonnes which includes 360 tonnes of high purity V2O5. The Company's total sales of high purity V2O5in the nine months ended September 30, 2019are 1,160 tonnes.

Following the $20.4 millionreduction in revenues as a result of the re-measurement of trade receivables / payables under the Glencore contract, the Company recognized revenues of $32.1 millionin Q3 2019 compared with revenues of $149.5 millionin Q3 2018. Revenues per pound sold7in Q3 2019 were $5.36(US$4.06)compared with $27.12(US$20.73)per pound in Q3 2018.

Vanadium sales from a contract with a customer was $52.5 millionin Q3 2019, compared with $120.5 millionin Q3 2018. Vanadium sales per pound sold7 in Q3 2019 was $8.76(US$6.64)compared to $21.86(US$16.71)per pound in Q3 2018. This decrease is primarily attributable to a decrease in the V2O5price, with the average price per lb of V2O5of approximately US$7.16for Q3 2019, compared with approximately US$19.66for Q3 2018. The most recent European Metal Bulletin price range quotation for V2O5posted as of November 8, 2019was in a range of US$4.45to US$5.00per lb.

| | Three months ended | Nine months ended | | | | | September 30, 2019 | September 30, 2018 | September 30, 2019 | September 30, 2018 | | | | Vanadium sales from a contract with a customer | $ | 52,528 | 120,506 | 229,717 | 287,729 | | Vanadium sales per pound sold7($/lb) | $ | 8.76 | 21.86 | 14.27 | 18.13 | | Vanadium sales per pound sold7(US$/lb) | $ | 6.64 | 16.71 | 10.73 | 13.99 | | | | | | | | | Re-measurement of trade receivables / payables | $ | (20,410) | 28,952 | (123,823) | 56,143 | | Revenue adjustment per pound8($/lb) | $ | (3.08) | 5.09 | (7.40) | 3.51 | | Revenue adjustment per pound8(US$/lb) | $ | (2.33) | 3.89 | (5.56) | 2.71 | | | | | | | | | Revenues | $ | 32,118 | 149,458 | 105,894 | 343,872 | | Revenues per pound sold7($/lb) | $ | 5.36 | 27.12 | 6.58 | 21.67 | | Revenues per pound sold7($US/lb) | $ | 4.06 | 20.73 | 4.94 | 16.73 |

As a consequence of the negative revenue adjustment per pound8realized in Q3 2019 and in the nine months ended September 30, 2019, the Company's trade payables balance at September 30, 2019was $82.2 millionand the revenue adjustment payable8was $92.3 million. Assuming V2O5prices remain the same as at September 30, 2019, the Company's total estimated revenue adjustment payable7for V2O5sold to September 30, 2019is $89.8 million. At the date of this press release, the Company's estimated revenue adjustment payable for V2O5sold8to October 31, 2019is approximately $95.7 million.

Given the overall decline in the market price of V2O5since December 31, 2018, the Company anticipates that it will continue to realize lower revenues, including significant negative re-measurements of trade receivables / payables, in future periods until such time as the decline levels off or prices increase.

The Company has forecast its expected cash balance and the estimated revenue adjustment payable8at April 30, 2020(the end date of the May 14, 2008off-take agreement with Glencore International AG) under three different vanadium price scenarios. Each scenario assumes that the vanadium price shown in the table below applies from October 31, 2019to April 30, 2020and assumes that the Company sells 100% of its production during this period, constant foreign exchange rates and cash operating costs per pound produced2consistent with results to date. The forecast balances, which constitute forward-looking information, are shown in the following table:

| | | | | | | | | | | US$4.00 | | US$4.73 | | US$5.50 | | Forecast cash at April 30, 2020 | $ | 131,260 | $ | 138,105 | $ | 144,717 | | Estimated revenue adjustment payable8at April 30, 2020 | | 103,738 | | 95,463 | | 86,616 | | Net | $ | 27,522 | $ | 42,642 | $ | 58,101 |

In Q3 2019, the Company generated positive cash from operating activities, with net cash provided by operating activities of $11.7 million, compared with $113.4 millionin Q3 2018. This decrease was primarily due to revenues exceeding direct mine and mill costs and royalties by $8.1 millionin Q3 2019, compared with $120.2 millionin Q3 2018. This contributed to cash used before non-cash working capital items of $1.7 million, compared with cash provided before non-cash working capital items of $120.4 millionin Q3 2018.

Cash used in financing activities in Q3 2019 was $28.1 million, compared with $64.2 millionin Q3 2018. The movement is primarily due to a decrease in the repayment of long-term debt from Q3 2018 of $219.2 million, a decrease in the debt issue costs, interest, guarantee fees and other associated fees paid of $17.3 million, a decrease in the change in restricted cash of $201.2 millionand an increase in interest income of $0.8 million.

Cash used in investing activities in Q3 2019 was $15.7 millionrepresenting an increase of $11.7 millionfrom the $4.0 millionseen in Q3 2018. This increase is primarily due to the expansion project being undertaken by the Company in 2019.

Operating costs for Q3 2019 were $31.5 millioncompared to $36.7 millionin Q3 2018 and include direct mine and mill costs of $22.2 million($21.3 millionin Q3 2018), depreciation and amortization of $7.5 million($7.4 millionin Q3 2018) and royalties of $1.8 million($8.0 millionin Q3 2018). Lower operating costs in Q3 2019 compared with Q3 2018 are primarily due to a decrease in royalties as a result of a decrease in V2O5prices during the quarter. The increase in direct mine and mill costs is primarily attributable to an increase in production in Q3 2019.

Cash operating costs excluding royalties2in Q3 2019 were $3.71(US$2.81)per pound compared to $3.99(US$3.05)in Q3 2018, representing a decrease of 8%. The decrease seen in Q3 2019 compared with Q3 2018 is largely due to the Q3 2019 production of 2,952 tonnes of V2O5being 389 tonnes higher than the 2,563 tonnes produced in Q3 2018, as well as an improvement in the global recovery level.

Interest income in Q3 2019 was $1.3 millionrepresenting an increase of $1.0 millionfrom $0.3 millionin Q3 2018. This is due to the Company's increased cash position during the nine months ended September 30, 2019which has enabled it to benefit from greater deposit interest rates.

Third Quarter 2019 Operational Results

Total V2O5production of 2,952 tonnes during Q3 2019 was 15% higher than Q3 2018 and 72 tonnes (2.5%) above budget. Production in July 2019achieved a new monthly record with 1,042 tonnes of V2O5produced, which contributed to the total V2O5production in the nine months ended September 30, 2019of 7,566 tonnes. Q3 2019 production was 17% higher than in Q2 2019 primarily due to the commissioning of the new deammoniator as part of the first phase start-up of the expansion project.

In Q3 2019, 267,257 tonnes of ore were mined with an effective grade5of 1.52% of V2O5. The crushing unit was fed with 329,024 tonnes and an effective V2O5grade5of 1.15%. Lower grades seen in the crushing feed are primarily due to processing lower grade weathered ore stockpiles built up during the first years of the operation. The Company also produced 92,629 tonnes of concentrate ore with an effective V2O5grade5of 3.26% compared to 88,075 tonnes produced in Q3 2018 with a grade of 3.48%.

Global V2O5recovery rates3averaged 78.1% in Q3 2019 which compares to 79.1% in Q2 2019 and 77.1% in Q3 2018. Global V2O5recovery rates3were down slightly quarter-over-quarter in 2019 primarily as a result of processing low-grade ore stockpiles fed and some process variability during the expansion ramp-up phase.

The expansion project progressed during the quarter with the start-up of the second deammoniator which contributed to record production in July and with the start-up of the secondary ball mill in September 2019. The expansion project is expected to be completed in November 2019following the commissioning of the pre-evaporator and leaching, de-silication and precipitation tanks.

2019 Annual Average Cash Cost Excluding Royalties Guidance Lowered

The Company lowered its 2019 annual average cash operating guidance excluding royalties2from the range of US$3.45- 3.65 to the range of US$3.30– $3.40reflecting cash operating cost2performance during the first half of 2019 and the expected positive impact on foreign exchange for the balance of the year. Additionally, the Company has produced 7,566 tonnes of V2O5year-to-date and continues to maintain its annual production guidance range of 10,000 to 11,000 tonnes of V2O5for 2019.

Off-take Agreement Nonrenewal & Appointment of Head of Sales, Americas

The Company announced on August 20, 2019that it had formally given notice to Glencore International AG of the nonrenewal of its off-take agreement dated May 14, 2008. In accordance with this notice, the Company's off-take agreement will expire effective April 30, 2020. On October 21, 2019the Company also announced the appointment of Mr. Francesco D'Alessio as Largo's Head of Sales, Americas who will support the Largo's vanadium sales and trading business with a particular focus on the North and South American markets.

Mining Vanadium Responsibly – Inaugural Environmental, Social and Governance Report

Building on Largo's track record of responsible mining and strong community relations, the Company released its inaugural environmental, social and governance report ("ESG") on August 15, 2019. The Company's first annual ESG report sets a new standard for open and transparent reporting of sustainability performance and provides key indicators and measurements that will be used as benchmarks for future reporting. Largo's ESG report is a tangible indication of the Company's commitment to mining vanadium responsibly and ESG reports will be released annually in the future.

Conference Call

Largo Resources management will host a conference call on Thursday, November 14, 2019, at 10:00 a.m. EDT, to discuss the Company's third quarter 2019 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 and nine months ended September 30, 2019and 2018 and its management's discussion and analysis for the three and nine months ended September 30, 2019, which are available on our website at www.largoresources.comand on SEDAR.

About Largo Resources

Largo is a Toronto-based strategic mineral company focused on the production of vanadium flake, high purity vanadium flake and high purity vanadium powder at the Maracás Menchen Mine located in Bahia State, Brazil. The Company's common shares are principally listed on the Toronto Stock Exchange under the symbol "LGO". For more information on Largo, please visit our website at www.largoresources.com.

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

Forward Looking Information

This press release contains forward-looking information under Canadian securities legislation, some of which may be considered "financial outlook" for the purposes of application Canadian securities legislation ("forward-looking statements"). Forward‐looking information in this press release includes, but is not limited to, statements with respect to timing for and completion of the Maracás Menchen Mine expansion project and the costs associated therewith; the timing and amount of estimated future production; costs of future activities and operations; and the extent of capital and operating. Forward-looking statements can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved". All information contained in this news release, other than statements of current and historical fact, is forward looking information. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Largo to be materially different from those expressed or implied by such forward-looking statements, including but not limited to those risks described in the annual information form of Largo and in its public documents filed on SEDAR from time to time. Forward-looking statements are based on the opinions and estimates of management as of the date such statements are made. Although management of Largo has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. Largo does not undertake to update any forward-looking statements, except in accordance with applicable securities laws. Readers should also review the risks and uncertainties sections of Largo's annual and interim MD&As which also apply.