Commodity Super Cycle: Green Metals are the Sweet Spot
Capital 10x has recently identified commodities as cycling into a long-awaited structural bull market. The price of overall commodities has reached a 50-year low relative to equities, with investment in mining exploration in terminal decline.
Commodities Relative to US Equities
We believe one of the most attractive areas in commodities are the strategic metals that underpin the green economy: copper, lithium, cobalt and vanadium.
Low inventories and strong demand, specifically in green metals, has driven strong price appreciation. In the first weeks of 2021, vanadium prices specifically are increasing in all main markets on the back of demand, inventory issues and renewed optimism.
- European FMB FeV prices are up by more than 34% since the beginning of 2021
- European FMB V2O5 prices are up more than 54% since the beginning of 2021
- U.S. CRU FeV prices are up by more than 44% since the beginning of 2021
As we’ve stated in our previous green metals research notes, we believe that key industries fueled by green metals (i.e., electric vehicles, grid-level energy storage) will continue to drive future commodities demand growth this year and be further propelled through growing interest as well as environmental policies.
For example, Vanadium which is the essential green metal utilized in the long-duration energy storage (4 to 12+ hours) market is anticipated to reach $16 billion worldwide by 2025.
In our vanadium initiation report we identified Largo Resources (TSE:LGO) 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 Q4 2020 Results
On March 17th Largo Resources delivered stellar Q4 2020 results, implementing a successful V205 (vanadium pentoxide) sales strategy that exceeded the top end of their guidance – 10,260 tonnes vs. 10,000 tonnes (top end of guidance).
Key highlights for the quarter:
- Strong topline growth: revenue increased 64% from the previous year to $42.3 million
- Vanadium production reached a new quarterly record of 3,340 tonnes, an increase of 11% year-over-year.
- Net income swung positive to $6.9 million from a loss of $4.3 million in the previous year.
2020 Full Year Highlights
The company recorded a net income of $6.8 million in 2020 compared to a net loss of $27.0 million in 2019. This pivot to profitability was driven by strong increase in revenues and a decrease in cash operating costs, fees and finance costs.
Cash costs for the full year came in at $2.56/lb, 5% lower than previous guidance and 16% lower than 2019.
Largo delivered record V2O5 production, up 12% year-over-year to 11,825 tonnes; and a record recovery rate of 81.4%, an increase of 4% from the previous year.
Key Drivers for 2021
VRFBs (Vanadium Redox Flow Batteries)
Largo Clean Energy was launched in December 2020 to provide safe, long-duration VRFBs to the fast-growing global renewable energy storage market. Largo remains focused on commercializing, producing, and deploying its VCHARGE± battery technology to capitalize on opportunities around the world.
The VRFB’s technical and economic advantages are well-known and Largo plans to unlock the technology’s potential by providing a secure and reliable supply of high purity vanadium from its world-class Maracás Menchen Mine.
Largo Resources also announced that it has submitted an initial application to list its Common Shares on the Nasdaq – with the view of increasing access to U.S. capital markets and enhancing overall shareholder value.
Technical Resource Report
The company expects to release an updated technical report in Q2 2020 that will aim to upgrade mineral resources to mineral reserves and expand minerals resources. The report will also incorporate the vanadium trioxide plant and the titanium dioxide pigment projects.
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.