Vanadium: Largo Resources Announces Strong Q3 2020 Despite a Global Pandemic

Largo Resources (TSX:LGO) announced strong Q3 2020 results, implementing a successful V2O5 (vanadium pentoxide) sales strategy with continued low operating costs. 

Q3 2020 Highlights

  • Increased Revenues on an absolute basis and per pound of vanadium sold
  • Record vanadium production in the quarter (tonnes)
  • A continued trend of profitable, low-cost and efficient operations

Largo recognized revenues of $27.5 million in the quarter from sales of 2,320 tonnes of vanadium, an increase of 14% year over year ($24.1 million). 

Revenues per pound sold of $5.37 compared to $4.02 per pound sold in Q3 2019 – up 34% year over year.

This revenue per pound result is even more impressive when you consider that global vanadium prices are down 25% over the last 12 months.

Operating costs for Q3 2020 were $21.0 million compared to $23.7 million in Q3 2019, down 11%.  

Cash operating cost excluding royalties guidance was lowered to US$2.60-$2.80/lb V2O from the previous range of US$3.05-$3.25/lb V2O5 – a reduction of 14%.  Based on the current guidance mid-point it implies the company will have reduced cash operating costs by 35% since 2018.

Net income for Q3 2020 swung positive to $2.6 million from a loss of $6 million the previous year.

Outstanding Q3 Operational Performance

Largo had a new quarterly production record of 3,092 tonnes (6.8 million pounds) of vanadium, an increase of 5% over Q3 2019 (3% higher than the previous record of 3011 tonnes in Q4 2019). 

The global recovery rate hit a record of 84.2% in Q3 2020, 8% higher than the 78.1% rate achieved in Q3 2019. This is a particularly strong data point for investors to take note of as it demonstrates efficient operations.   

The recovery rate benefitted from the implementation of continuous improvement projects with plants laser-focused on recovery levels. 

Led by the performance of the kiln and leaching areas in Q3 2020, where recovery levels were 92.5% and 99.7% respectively. 

The global recovery in July 2020 was 86%, with 84% achieved in August and 82.1% achieved in September.

Successful Sales Strategy & Future Outlook

Largo continues with an effective sales strategy in 2020, highlighted by vanadium equivalent sales of 1,100 tonnes in August 2020, 937 tonnes in September 2020 and 1,119 tonnes in October after the quarter ended. 

Earlier this year, the company built essential inventories to fill its sales pipeline and meet customer commitments. 

Largo resources was able to increase its sales in China to take advantage of higher prices and overall demand in Q3 2020. 

The company continues to manage logistical restraints due to the impact of COVID-19 and is confident they can deliver on 2020 sales guidance of 9,500 to 10,000 of vanadium. 

In Q3 2020 China is the main driver of global vanadium demand, as a result of increased infrastructure spending and the development of green technology applications. 

Remember vanadium increased the strength of steel allowing for better fuel efficiency and a decreased carbon footprint for all sorts of commercial applications.

Largo anticipates additional global vanadium demand growth in light of recently announced stimulus packages and a global desire for a reduced carbon footprint. 

Long-term trends forecast an increase in the consumption of vanadium in rebar and other steel applications, as well as new vanadium redox flow battery deployment around the world for energy storage applications.

In a recent statement, Paulo Misk, President and CEO of Largo commented on the company’s future growth outlook:

“Our integrated supply of vanadium from mine to customer remains one of the lowest costs and highest quality in the world.  The future looks very bright for Largo as we expect an increase in vanadium consumption from rebar and steel applications due to new infrastructure spending and through the development of clean energy applications – both of which are aligned with our goal of contributing to a lower carbon future through the use of vanadium.”

Largo Resources keen governance and strong financial performance has positioned the company well to take advantage of future growth opportunities in the green metal industrial economy.

 

Largo Resources is a market awareness client of Capital 10X.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.