Largo Inc. (TSX: LGO) (NASDAQ: LGO) announced annual production of 10,436 tonnes (23.0 million lbs.) of vanadium pentoxide (V2O5) equivalent and sales of 11,091 tonnes of V2O5 equivalent from its Maracás Menchen Mine in 2022.
Fourth quarter production was impacted by historic rainfall, but importantly Largo expects a strong rebound in both production and sales through 2023. A rebound in production and sales coupled with strengthening vanadium prices point to an exciting 2023 for the company.
Key Developments:
- Largo expects a 10% increase in production in 2023 over 2022, with production rising almost 60% from the 1st to the 4th quarter this year.
- Like a majority of operating companies globally, production costs continue to experience increasing inflationary pressures in 2023. Following higher estimated operating costs in H1 2023 due to the impacts from lower sales and production, costs are expected to end the year around the lower end of its reported guidance of $4.85 / lb V2O5.
- Final testing of Largo’s first VRFB battery installation is expected by the end of 2Q 2023, an important milestone for its clean energy business.
- Largo added liquidity by borrowing $45 million to support heightened growth capital spending in the first half of 2023.
- Vanadium prices hit $9.44/lb to end 2022, up 20% from the yearly low and still rising in January.
Paulo Misk, President and CEO of Largo, stated:
“Despite operational challenges faced in 2022, we continue to prioritize and focus on the steady state operation of our Maracás Menchen Mine in Brazil. To ensure normal operating performance throughout 2023, our operational team performed mitigation efforts to rectify rain-related impacts and preventive maintenance measures during the operational downtime in December 2022 and January 2023.”
He continued:
“In the coming year, we expect to meet our planned objectives to fully realize the value of our tier one vanadium company, including annual guidance for 2023, the completion of our ilmenite concentration plant, and the delivery of our inaugural VRFB for Enel in the second quarter of 2023.”
He concluded:
“While our negotiation with Ansaldo continues, LCE’s senior management continue to maintain their efforts on core development and system improvements required to support the current and future needs of the long duration energy storage sector. We are pleased to see a strengthening in vanadium demand, driven by strong high purity aerospace inquiries and new VRFB deployments, which has led to price increases in recent months.”
Q4, FY 2022 and Other Highlights
Quarterly Operational Results Impacted by a Mining Contractor Change, Mine Sequencing and Heavy Rainfall:
In Q4 2022, V2O5 production from the Maracás Menchen Mine of 2,004 tonnes was in line with the 2,003 tonnes produced in Q4 2021. As a result of the Largo’s mining contractor transition and corrective maintenance at the leaching and deammoniator areas, 804 tonnes of V2O5 were produced in October 2022. Production of 605 tonnes in November 2022 was affected by changes in mining sequence and 596 tonnes in December 2022 was affected by heavy rains at the Company’s operations.
Annual V2O5 production was 10,436 tonnes in 2022, being largely in line with the 10,319 tonnes produced in 2021. Lower annual production was due to preventative and corrective maintenance at Company’s plant facility in Maracás in Q1 2022, a planned kiln and cooler refractory refurbishment in Q3 2022 and heavy rainfall in December.
Rainfall Impact and Mitigation Efforts – Impacts to January 2023 Production and Sales Expected:
There is a silver Lining to all the rain for Largo. They completed planned February maintenance in December/January during the rain induced downtime. This resulted in approximately 16 days of operational downtime in December 2022 and January 2023, during which time the Company performed preventative maintenance measure such as kiln refractory and electrostatic precipitator (“ESP”) repairs, previously planned for February 2023.
As a result of these rain-related impacts in December 2022 and January 2023, the Company expects Q1 2023 production and sales ranges of 1,900 – 2,200 tonnes and 2,300 – 2,500 tonnes, respectively.
Annual Sales Results Within Guidance – Vanadium Prices Reflect Increase in Demand:
In Q4 2022, V2O5 equivalent sales were 2,774 tonnes (inclusive of 118 tonnes of purchased material), representing a 4% decrease over Q4 2021. Total V2O5 equivalent sales were 11,091 tonnes (inclusive of 1,057 tonnes of purchased material) in 2022, representing a 3% decrease over 2021. Lower sales in Q4 were impacted by the effects of lower production. Stronger vanadium prices exiting the quarter reflected an increase in demand from the high purity aerospace sector and continued growth in VRFB deployments, particularly in China.
The average benchmark price per lb of V2O5 in Europe was $9.44 exiting the quarter, representing an increase of approximately 20% from the lows of 2022. As of January 20, 2023, the benchmark price per lb of V2O5 in Europe was $10.08.
Inaugural VRFB Deployment Progress:
During Q4 2022, LCE continued to make additional progress on the delivery of the Enel Green Power España (“EGPE”) contract. Substantially all of the hardware is either in transit or ready for installation at the deployment site in Spain. The remaining items to be shipped are six of the twelve electrolyte storage containers, which will be shipped in February 2023 and installed in March 2023. Additionally, the Company expects the installation and interconnection of the AC and DC power systems to be completed in Q1 2023. The hot commissioning of the VRFB system as well as provisional acceptance, which requires the completion of as-build drawings, manuals, final punch-list items, and operational testing by EGPE is expected to be completed in Q2 2023.
New Debt Facilities Secured in Brazil:
In December 2022, the Company secured an additional debt facility of $20.0 million with a bank in Brazil. The facility is for three years, with a 360-day grace period and equal principal repayments due every six months until maturity following the grace period. In addition to a fee of 0.7%, accrued interest at a rate of 8.20% p.a. is to be paid every six months until maturity. In January 2023, the Company secured two additional debt facilities with banks in Brazil. The first facility of $15.0 million is for two years, with a 180-day grace period and equal principal repayments due every three months until maturity following the grace period. In addition, accrued interest at a rate of 6.85% p.a. is to be paid every three months. The second facility of $10.0 million is for three years, with a 360-day grace period and equal principal repayments due every six months until maturity following the grace period. In addition to a fee of 0.7%, accrued interest at a rate of 8.36% p.a. is to be paid every six months. A portion of the December 2022 debt facility was used in December 2022 to repay the Company’s existing $15.0 million debt facility secured in April 2022 and due for repayment in April 2023, with the remaining debt facilities primarily being used to address working capital pressures caused by ongoing capex projects in the first six months of 2023.
Largo Inc. is a market awareness client of Capital 10X.
