Largo Resources Announces Second Quarter 2019 Results

2019-08-13

TSX - Toronto Stock Exchange · Vanadium · Titanium · Iron · Platinum · Palladium · Gold · Tungsten · Molybdenum · Canada

Canada NewsWire

TORONTO, Aug. 13, 2019

All financial figures are in Canadian dollars unless otherwise stated.

Q2 2019 Highlights

Production of 2,515 tonnes (5.5 million pounds1) of V2O5, an increase of 20% over Q1 2019 and 2% over Q2 2018 New monthly V2O5 production record of 1,042 tonnes in July Global V2O5recovery rate2of 79.1%; Second quarter of strong global recoveries in 2019 Cash operating costs excluding royalties3of $4.43(US$3.30)per pound of V2O5 Revenues of $29.5 million(net of the re-measurement of trade receivables / payables of $46.3 millionon vanadium sales from a contract with a customer of $75.8 million) Net loss of $20.5 millionand a loss per share of $0.04 Cash used before non-cash working capital items of $7.8 million Cash balance of $190.3 millionexiting Q2 2019 Successful start to expansion project ramp up; Ramp up of all areas is expected to be completed by the end of Q3 2019 Company remains on track to achieve its production and cost guidance for 2019

TORONTO, Aug. 13, 2019/CNW/ - Largo Resources Ltd. ("Largo" or the "Company") (TSX: LGO) (OTCQX: LGORF) announces its second quarter 2019 operational and financial results with 2,515 tonnes of vanadium pentoxide ("vanadium" or "V2O5") produced at an average global V2O5recovery rate2of 79.1% and cash operating costs excluding royalties3of US$3.30per pound of V2O5.

Mark Smith, Chief Executive Officer for Largo, stated_: "We are very pleased with operations in Q2 2019 though declining V2O5prices combined with the re-measurement of trade receivables / payables under the Company's off-take agreement continued to impact profitability. The Company achieved consecutive monthly production records in June and July following the initial expansion project ramp up which included the start-up of the new deammoniator unit. Another key highlight during Q2 2019 was the Company's second quarter of strong global recoveries, which is highlighted by 80.9% achieved in June. _He continued: "With the expansion project ramp up expected to conclude by the end of Q3 2019, the Company is well positioned for strong operational performance during the second half of 2019."

A summary of the operational and financial performance for Q2 2019 is provided in the tables below:

Financial

| | | | | | | | | | | | | | Three months ended | Six months ended | | | | | | | | | | | June 30, 2019 | | June 30, 2018 | | June 30, 2019 | | June 30, 2018 | | Revenues | | $ | 29,462 | $ | 103,321 | $ | 73,776 | $ | 194,414 | | Direct mine and mill costs | | | (22,550) | | (19,128) | | (42,014) | | (39,430) | | Operating costs | | | (33,284) | | (30,220) | | (62,355) | | (61,403) | | Net income (loss) before tax | | | (20,279) | | 50,305 | | (18,865) | | 99,829 | | Income tax (expense) recovery | | | 138 | | (5,163) | | (976) | | (8,843) | | Deferred income tax (expense) recovery | | | (360) | | 45,593 | | (2,828) | | 45,593 | | Net income (loss) | | | (20,501) | | 90,735 | | (22,669) | | 136,579 | | Basic earnings (loss) per share | | | (0.04) | | 0.17 | | (0.04) | | 0.26 | | Diluted earnings (loss) per share | | | (0.04) | | 0.14 | | (0.04) | | 0.22 | | | | | | | | | | | | | Cash provided (used) before non-cash working capital items | | $ | (7,829) | $ | 77,654 | $ | 13,859 | $ | 139,509 | | Net cash provided by operating activities | | | 21,759 | | 69,530 | | 117,175 | | 94,470 | | Net cash (used in) financing activities | | | (6,936) | | (22,250) | | (99,295) | | (48,811) | | Net cash (used in) investing activities | | | (18,969) | | (5,082) | | (27,171) | | (8,796) | | Net change in cash | | | (422) | | 34,010 | | (15,910) | | 29,469 | | | | | | | | | | | As at | | | | | | | | | June 30, 2019 | | December 31, 2018 | | Cash | | | | | | $ | 190,278 | | 206,188 | | Restricted cash | | | | | | | - | | 21 | | Working capital4 | | | | | | | 100,159 | | 135,258 |

Operational

| | | | | | Maracás Menchen Mine Production | | Q2 2019 | Q2 2018 | | | | | | | Total Ore Mined (tonnes) | | 308,858 | 173,059 | | Ore Grade Mined - Effective Grade5(%) | | 1.21 | 1.07 | | | | | | | Effective Grade of Ore Milled (%) | | 1.49 | 1.85 | | Concentrate Produced (tonnes) | | 102,320 | 85,639 | | Grade of Concentrate (%) | | 3.30 | 3.37 | | Contained V2O5(tonnes) | | 3,380 | 2,889 | | | | | | | Crushing Recovery (%) | | 98.0 | 97.2 | | Milling Recovery (%) | | 97.9 | 95.8 | | Kiln Recovery (%) | | 88.8 | 89.7 | | Leaching Recovery (%) | | 95.7 | 97.6 | | Chemical Plant Recovery (%) | | 97.1 | 97.2 | | Global Recovery (%)2 | | 79.1 | 79.2 | | | | | | | V2O5produced (Flake + Powder) (tonnes) | | 2,515 | 2,458 | | V2O5produced (equivalent pounds)1 | | 5,544,619 | 5,418,956 | | Cash operating costs3per pound produced | CAD$ | $4.75 | $4.97 | | US$6 | $3.54 | $3.85 | | | Cash operating costs excluding royalties3per pound produced | CAD$ | $4.43 | $4.32 | | US$6 | $3.30 | $3.35 | | | Revenues per pound sold7, 8 | CAD$ | $5.39 | $18.91 | | US$ | $4.02 | $14.62 | | | Vanadium sales per pound sold7, 8 | CAD$ | $13.86 | $18.42 | | US$ | $10.33 | $14.24 | |

Second Quarter 2019 Financial Results

Total sales of V2O5in Q2 2019 were 2,480 tonnes which includes 360 tonnes of high purity V2O5. The Company's total sales of high purity V2O5in the six months ended June 30, 2019are 800 tonnes.

The Company recorded a net loss of $20.5 millionin Q2 2019 after the recognition of an income tax recovery of $0.1 millionand a deferred income tax expense of $0.4 million. This compares to net income of $90.7 millionin Q2 2018 and is primarily due to a decrease in revenues and an increase in operating and finance costs during the quarter.

Following the $46.3 millionreduction in revenues as a result of the remeasurement of trade receivables / payables under the Glencore contract, the Company recognized revenues of $29.5 millionin Q2 2019 compared with revenues of $103.3 millionin Q2 2018. Revenues per pound sold7in Q2 2019 was $5.39(US$4.02)compared with $18.91(US$14.62)per pound in Q2 2018.

Vanadium sales from a contract with a customer was $75.8 millionin Q2 2019, compared with $100.7 millionin Q2 2018. Vanadium sales per pound sold 7 in Q2 2019 was $13.86(US$10.33)compared to $18.42(US$14.24)per pound in Q2 2018. This decrease is primarily attributable to a decrease in the V2O5price, with the average price per lb of V2O5of approximately US$8.59for Q2 2019, compared with approximately US$15.44for Q2 2018. Assuming the quarterly average price per lb of V2O5of approximately US$8.59and quarterly V2O5sales of 2,480 tonnes, the Company could have earned estimated revenue8of $62.9 million(US$46.7 million) in Q2 2019. The most recent European Metal Bulletin price range quotation for V2O5posted as of August 9, 2019was US$7.00– 7.50 per lb.

| | Three months ended | Six months ended | | | | | June 30, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 | | | | Vanadium sales from a contract with a customer | $ | 75,786 | 100,664 | 177,189 | 167,223 | | Vanadium sales per pound sold7($/lb) | $ | 13.86 | 18.42 | 17.55 | 16.14 | | Vanadium sales per pound sold7(US$/lb) | $ | 10.33 | 14.24 | 13.13 | 12.60 | | | | | | | | | Re-measurement of trade receivables / payables | $ | (46,324) | 2,657 | (103,413) | 27,191 | | Revenue adjustment per pound9($/lb) | $ | (10.15) | 0.49 | (10.24) | 2.63 | | Revenue adjustment per pound9(US$/lb) | $ | (7.57) | 0.38 | (7.66) | 2.06 | | | | | | | | | Revenues | $ | 29,462 | 103,321 | 73,776 | 194,414 | | Revenues per pound sold7($/lb) | $ | 5.39 | 18.91 | 7.31 | 18.77 | | Revenues per pound sold7($US/lb) | $ | 4.02 | 14.62 | 5.47 | 14.65 |

The Company's trade payables balance at June 30, 2019was $67.4 millionand the revenue adjustment payable9was $78.9 million. Assuming V2O5prices remain the same as at June 30, 2019, the Company's total estimated revenue adjustment payable9to June 30, 2019is $94.9 million. At the date of this press release, the Company's estimated revenue adjustment payable for V2O5sold9to July 31, 2019is approximately $99.5 million.

Operating costs for Q2 2019 were $33.3 millioncompared to $30.2 millionin Q2 2018 and include direct mine and mill costs of $22.6 million, depreciation and amortization of $9.0 millionand royalties of $1.8 million. The increase in operating costs over Q2 2018 is primarily attributable to an increase in production, the impact of the ramp-up in production following the completion of the kiln refractory replacement in March 2019and increased HFO and diesel costs.

Cash operating costs excluding royalties3in Q2 2019 were $4.43(US$3.30)per pound compared to $4.32(US$3.35)in Q2 2018, representing an increase of 3%. The increase seen in Q2 2019 compared with Q2 2018 is largely due to the impact of foreign exchange as well as increased HFO and diesel costs, with a decrease seen in the US$ values and consistent global recovery and production levels between the two periods.

Finance costs in Q2 2019 were $10.9 million, representing an increase of $2.5 millionfrom $8.4 millionin Q2 2018. The increase is primarily attributable to the expensing of the deferred transaction costs on the long-term debt as a result of the committed redemption of the Company's 9.25% Senior Secured Notes due 2021 (the "Notes") that was completed in July 2019.

The Company generated positive cash from operating activities, with net cash provided by operating activities of $21.8 million, compared with $69.5 millionin Q2 2018. This decrease was primarily due to revenues exceeding direct mine and mill costs and royalties by $5.1 millionin Q2 2019, compared with $80.7 millionin Q2 2018. This contributed to cash used before non-cash working capital items of $7.8 million, compared with cash provided before non-cash working capital items of $77.7 millionin Q2 2018.

Cash used in investing activities in Q2 2019 was $19.0 millionrepresenting an increase of $13.9 millionfrom the $5.1 millionseen in Q2 2018. This increase is primarily due to the expansion project being undertaken by the Company in 2019 which remains on budget.

Second Quarter 2019 Operational Results

Total production during Q2 2019 from the Maracás Menchen Mine was 2,515 tonnes of V2O5, representing a 20% increase over Q1 2019 and a 2% increase over Q2 2018. Production increased throughout Q2 2019 following the completion of the kiln refractory replacement in March, with 755 tonnes of V2O5produced in April and 834 tonnes in May. The Company achieved a monthly V2O5production record in June of 926 tonnes following the installation and start-up of the new deammoniator unit as part of the expansion project ramp up. This was superseded by a new monthly V2O5production record set in July of 1,042 tonnes, representing an increase of 13% over the month prior.

In Q2 2019, 308,858 tonnes of ore with an effective V2O5grade5of 1.21% were mined and the crushing unit was fed with 296,325 tonnes with an effective V2O5grade of 1.11%. Milling was fed with 102,320 tonnes of pre-concentrate ore with an effective V2O5grade of 1.49%, reflecting the increase provided by the dry-magnetic separator. Crushing, milling, calcining and the chemical plant performed well throughout the quarter by achieving budget targets and increasing the in-process stocks of V2O5.

Global V2O5recovery rates2averaged 79.1% in Q2 2019, which are in line with Q2 2018 and demonstrate another quarter of strong global recoveries2for the Company. The performance during the quarter is mainly due to the operational stability throughout all sections of the plant and significant process control improvements made by the operational teams. In April, the global recovery was impacted by the lower kiln recovery rate as the kiln returned to optimal operation following its shutdown for the refractory replacement.

The expansion project to increase production capacity by 25% at the Maracás Menchen Mine continues to progress successfully following the start-up of the new deammoniator unit. The expansion project is expected to be completed during Q3 2019 with the start-up of the new ball mill and evaporator units. The ramp up of all areas is expected to be completed by the end of Q3 2019. The Company anticipates that total capital expenditures for its expansion project will remain in the range of $27.0to $29.0 millionfor 2019, with between $8.0and $10.0 millionexpected in the remainder of the year.

Repayment of All Outstanding Debt

On July 8, 2019, the Company announced that following its election to redeem its outstanding Notes, it had redeemed in full its outstanding Notes. The Notes were redeemed on July 8, 2019at a price equal to 104.625% of the principal amount of the Notes plus accrued and unpaid interest to, but not including, the redemption date. The total amount paid was US$23.6 million, including the principal amount of Notes outstanding of US$22.4 million. Following this redemption, the Company is debt-free representing a significant milestone achieved for Largo.

Appointment of Paul Vollantas Director of Sales and Trading

On June 19, the Company announced that Mr. Paul Vollantwill be joining the Largo team as Director of Sales and Trading effective September 2019. In this position, Mr. Vollant will lead the development of Largo's sales and trading business and work to further enhance the Company's presence in the global vanadium market. Mr. Vollant brings extensive commodity sales and trading experience with a focus in specialty metals, including vanadium and titanium.

Novo Amparo Norte Mineral Resource Estimate Update

The Company announced an updated mineral resource for its Novo Amparo Nortedeposit ("NAN") at its Maracás Menchen Mine on June 11, 2019. The Company's exploration program successfully delivered a significant increase to the overall resource base at NAN with the successful conversion of resources from the Inferred category to the Measured and Indicated categories in addition to increasing the Inferred Resources. The updated resource estimate is based on approximately 12,912 mof diamond drilling over 88 holes (including 5,404 min 47 drill holes completed in 2019) and 5,549 sample intervals across the deposit. NAN is located approximately 6.5 km north of the Company's current mining operation at the Maracás Menchen Mine, Campbell Pit.

Novo Amparo Norte Mineral Resource Estimate as of May 31, 2019

| Category | Tonnes (Mt) | Head Grade V2O5 % | % Magnetics | Magnetic Concentrate V2O5% | Contained V2O5in Magnetic Concentrate (Tonnes) | | Measured | 6.25 | 0.91 | 33.1 | 2.32 | 45,274 | | Indicated | 5.98 | 0.85 | 28.1 | 2.50 | 37,811 | | Total M & I | 12.23 | 0.88 | 30.7 | 2.41 | 83,086 | | | | | | | | | Inferred | 11.33 | 0.90 | 31.2 | 2.46 | 78,782 |

| 1. | Mineral Resources have been classified using the Canadian Institute of Mining, Metallurgy and Petroleum ("CIM"), CIM Standards on Mineral Resources and Reserves, Definitions and Guidelines prepared by the CIM Standing Committee on Reserve Definitions and adopted by the CIM Council. | | 2. | Mineral Resources which are not Mineral Reserves do not have demonstrated economic viability. The Inferred Mineral Resource in this estimate has a lower level of confidence than that applied to the Measured and Indicated Mineral Resource. It is reasonably expected that a portion of the Inferred Mineral Resource could be upgraded to an Indicated Mineral Resource with continued exploration. | | 3. | Magnetite content is determined by Davis Tube Test methodology. V2O5content of the magnetite concentrate was determined by XRF79C methodology at the SGS facility in Belo Horizonte, Brazil. | | 4. | Assuming only mineralized zones grading 0.45% V2O5or greater. | | 5. | Numbers may not add up exactly due to rounding. |

Following the successful increase to NAN's overall resource base, the Company has postponed any further geological, engineering and economic studies to further upgrade the understanding of the deposit and will instead continue its focus on planned exploration of the other Satellite Deposits during the second half of 2019. Drilling will focus on the Gulçari A Norte mineralized zone which lies to the north of the Campbell Pit and on the Gulçari A South target which lies just south of the Campbell Pit.

Conference Call

Largo Resources' management will host a conference call on Wednesday, August 14, 2019, at 11:30 a.m. EDT, to discuss both operational and financial results for the second quarter of 2019. In addition, the Company's third-party independent consultant, Mr. Terry Perles, will provide an update on the vanadium market during the call.

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 six months ended June 30, 2019and 2018 and its management's discussion and analysis for the three and six months ended June 30, 2019, which are available on our website at www.largoresources.comand on SEDAR.

Quality Assurance and Quality Control

All drill core samples were delivered to the SGS facility in Belo Horizonte, Brazilfor analysis of select elements by XRF79C. Davis Tube test work is carried out on all mineralized samples. Quality control entailed the insertion of company blanks and standards into the drill core sample stream. In addition, SGS routinely inserts blanks, standards and duplicate analysis.

Qualified Person

Mr. Paul Sarjeant B.Sc.P.Geo., Manager of Geology at Largo is a Qualified Person as defined under National Instrument 43-101 Standards of Disclosure for Mineral Projects and has reviewed the technical information in this press release.

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.