Largo Resources – The Best Positioned Vanadium Producer
In our October 6th launch of the ‘Green Metals in Focus’ series we highlighted vanadium as a key metal in the green industrial revolution.
We further recognized 3 key applications for vanadium which make it an essential part of manufacturing for other industrial verticals. At the time of this report vanadium:
- Increases the tensile strength and production efficiency of steel
- Improves the fuel efficiency of aircraft and other vehicles
- Is essential in the manufacture of vanadium redox flow batteries (institutional and electrical grid efficiency)
Taking a glance at the global producers in this space; we identified Largo Resources as the company producing the highest grade vanadium (double that of its next closes peer – Bushveld) and at a very attractive cost (1st quartile production cash cost).
Record Q3 Operational Results
On October 19th Largo Resources announced stellar Q3 2020 operational results, producing a record 3,092 tonnes of V2O5 (Vanadium Pentoxide), a 5% increase from the previous year.
Largo has successfully implemented its strategy – with total sales exceeding production capacity in August and September 2020 for the first time since commercial independence.
Additionally, global recovery rates have increased by 8% year-over-year, to a high of 84.2%.
The company continues to perform despite setbacks due to the global pandemic. Planned kiln upgrades and cooler maintenance that will increase Largo’s production capacity by 10% with a CAPEX of only $1.3 million, have been postponed to Q1 2021 due to COVID 19 restrictions.
Revised 2020 Guidance: Costs Continue to Trend Lower
Largo Resources remains laser focus on cost containment. The company has reduced 2020 cash cost guidance:
- Cash operating cost excluding royalties guidance lowered to US$2.60-$2.80/lb V2O5 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.
- Total cash cost guidance lowered to $3.20 – $3.40/lb V2O5 from the previous range of $3.45 – $3.65/lb V2O5 – a reduction of 7%.
The company is on track to meet the lower end of its 2020 production guidance of 11,750 – 12,250 tonnes of V2O5.
Chinese Demand Continues to Drive Growth
The vanadium production success story is largely fueled on the back of China’s demand for the green metal, with the government pledging a recovery package of 4 trillion yuan ($559 billion US) – the largest financial stimulus in the nation’s history as part-in-parcel of its strategy to rescue struggling factories and merchants from the ill effects of the COVID 19 global pandemic.
China continues to be a major driver of global vanadium demand from increased infrastructure spending and investments in green technologies. Beijing has given local governments the authority to spend an additional 1.6 trillion yuan on construction projects in a bid to increase employment and combat decreased international trade due to COVID-19.
Chinese influence, as well as higher global vanadium prices, are significant long-term trends expected to drive future demand for vanadium rebar, high-quality vanadium industrial applications and deployment of vanadium redox flow batteries. This entrenches vanadium as the “efficiency” green metal within the Green Metals Industrial Revolution.
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.