Largo Q2 2024 Earnings Report

Largo EPS Results

• Actual EPS: -C$0.31
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Largo Revenue Results

• Actual Revenue: $39.08 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Largo Announcement Details

• Quarter: Q2 2024
• Date: 8/8/2024
• Time: N/A
• Conference Call Date: Friday, August 9, 2024
• Conference Call Time: 10:00AM ET

Largo (TSE:LGO) Inc is committed to the production and supply of high-quality vanadium products. The Company is also focused on the advancement of renewable energy storage solutions through Largo Clean Energy and its vanadium redox flow battery technology. The Company is engaged in the mining, exploration, and development of mineral properties, primarily in Brazil, through which it produces and supplies vanadium products VPURE Flake, VPURE+ Flake, and VPURE+ Powder.

Largo Q2 2024 Earnings Call Transcript

Key Takeaways

• Largo’s Q2 production reached 2,689 tonnes of V₂O₅—within guidance—and record ore crushing, while operational improvements drove June costs to be 10% below forecast.
• The company reported Q2 revenues of $28.6 million and a net loss of $14.5 million—including an $8.5 million non-recurring write-down—with cash operating costs at $5.97 per pound sold.
• Sales volumes declined 28% year-over-year amid a 30% drop in European V₂O₅ prices, though ilmenite sales exceeded guidance at 12,261 tonnes, and new Chinese rebar standards are expected to boost future vanadium demand.
• Largo Clean Energy is advancing a strategic partnership with Stryten Energy and completing Phase 2 of its VRSP deployment for Enel Green Power in Spain, underscoring its focus on energy storage solutions.
• The 2023 sustainability report launch highlights enhanced ESG efforts, including biodiversity management plans and a newly formed decarbonization working group to improve climate-related disclosures.

Presentation

[Operator]

Good day, and thank you for standing by. Welcome to Largo's second quarter 2024 financial results conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. If at any time you require immediate assistance, please press star zero for the operator. This call is being recorded Friday, August ninth, 2024. I would now like to hand the conference over to your speaker today, Alex Guthrie, Director of Investor Relations. Please go ahead.

[Alex Guthrie, Head of Investor Relations at Largo Inc.]

Thank you, operator, and welcome to everyone joining us for Largo's second quarter financial results conference call. Our Q2 2024 financial statements related MD&A and most recent AIF are available on our website at largoinc.com, as well as on SEDAR+ and EDGAR. Before we proceed, please note that some information discussed today will include forward-looking statements. Please refer to the cautionary notes in our MD&A financial statements and AIF available online. Additionally, all figures mentioned are in US dollars, unless otherwise stated. Today's speakers include Daniel Telechea, our Interim CEO and Director, Celio Pereira, our COO of Largo Brazil, David Harris, our CFO, Paul Vallance, our CCO, and Francesco d’Alessio, the President of Largo Clean Energy. After the prepared remarks, we will open the call to questions. Please limit your questions to two and requeue if you have further questions to allow everyone a chance to participate.

[Alex Guthrie, Head of Investor Relations at Largo Inc.]

I will now turn the call over to Daniel.

[Daniel Tellechea, Interim CEO and Director at Largo Inc.]

Good morning, everyone. Thank you for joining us today to discuss Largo's second quarter 2024 results. Despite these challenges posed by persistent lower commodity prices, our team continues to focus on improvements in vanadium production, ramping up our ilmenite concentration plant and reducing production costs. With the implementation of our new operations team earlier this year, we have seen significant progress in meeting our production targets. Our vanadium production has notably increased, and the ramp-up of our ilmenite production is progressing, allowing us for a diversification to our revenues through the sale of this new product. I am also very pleased to highlight our recently published sustainability report for 2023. Last year tested our organization, and we remain steadfast in our dedication to safety and sustainability.

[Daniel Tellechea, Interim CEO and Director at Largo Inc.]

Despite such challenges, we achieved notable milestone, including executive whole biodiversity management plans, focusing on high priority projects, and reinforcing our position as a leading supplier. We have made significant strides in our ESG initiatives, forming a decarbonization working group to reduce greenhouse gas emissions and advancing transparency to our climate-related disclosures. You can download Largo's most recent sustainability report on our website within the sustainability section. Let me now turn the call over to Celio to discuss our operational progress this quarter.

[Célio Pereira, COO, Largo Brazil at Largo Inc.]

Thank you, Daniel, and good morning, everyone. It's a pleasure to provide you with an update on our operational progress at the Maracás Mine. Firstly, our focus remains on maximizing output and reducing costs. I am pleased to report that our second quarter production results reflect the successful completion of the planned kiln maintenance in Q1 and a return to expected production levels. Our V2O5 production was 2,689 tons in Q2 2024, an improvement over both Q2 2023 and Q1 2024. This achievement aligned with our quarterly production guidance of 2,400-2,900 tons. However, our global V2O5 recovery rate was 74.3% in Q2 2024, compared to 81% in Q2 2023, with this decline being primarily due to lower magnetic and V2O5 grades in the processed ore as expected.

[Célio Pereira, COO, Largo Brazil at Largo Inc.]

We mined 568,000 tons of ore with an effective V2O5 grade of 0.69% in Q2 2024, representing a 16% increase in total ore mined over the prior comparative quarter. Additionally, total ore crushed was 640,000 tons in Q2 2024, a 24% increase over Q1 2024 and a 44% increase over Q2 2023. Notably, this crushing volume marks a record for our Maracás operations, a necessary achievement given the processing of lower grade ore. These increases are crucial as we aim to achieve our set production targets in accordance with our 2024 mining plan. Our cost management initiatives remain ongoing, with a focus on streamlining operations and enhancing efficiencies....

[Célio Pereira, COO, Largo Brazil at Largo Inc.]

Our team has implemented a number of initiatives with the goal of reducing production costs and improving productivity, including reducing haulage distance, minimizing the number of contractors, and conducting a comprehensive review of all contracts. We have now finalized most of our contract optimizations, resulting in significant cost reductions and synergies. These initiatives are already yielding positive results, with June 2024 costs being 10% lower than forecast. The next phase will focus on inputs, materials, purchases, and logistics, which represent a substantial portion of our operational costs at Maracás. We expect to see additional benefits reflected in our financial results starting Q3 2024. In a proactive move, we have also rescheduled our annual kiln maintenance from Q1 2025 to November 2024. This decision is to mitigate potential disruptions from the anticipated rainy season at the Maracás mine site.

[Célio Pereira, COO, Largo Brazil at Largo Inc.]

The maintenance period is expected to last between 15-25 days and should not affect our annual production guideline, which is 29,000 tons to 11,000 tons of V2O5 equivalent. During this period, we plan to build our magnetic concentrate stockpile for further production. However, ilmenite concentrate production and sales will be impacted, leading us to revise our annual ilmenite concentrate production and sales guidance to 40,000 tons to 50,000 tons and 27,000 tons to 42,000 tons, respectively. I would like to highlight that we continue to review and optimize the quality of our ilmenite concentrate to achieve greater revenues for this product in the future. As I close out, I'd like to commend our operations team at Largo, who are extremely committed to improving production efficiency and cost management.

[Célio Pereira, COO, Largo Brazil at Largo Inc.]

These efforts are essential as we strive to maintain and exceed our production targets, ensuring improved operational performance in the face of challenging vanadium market conditions we currently face. Now, I will turn the call over to David for an overview of our Q2 financial results.

[David Harris, CFO at Largo Inc.]

Thanks, Célio, and welcome to everyone on the call today. As Largo's new CFO, it is a privilege to speak with you today. Although this is my first earnings call in this role, I have been part of Largo's finance team for nearly a decade, and I'm excited to contribute to our efforts as we navigate the current challenging market conditions and work towards achieving profitability. In Q2 2024, revenues of $28.6 million were significantly impacted by lower vanadium prices and reduced sales volumes. Operating costs decreased to $36.4 million in Q2 2024, primarily due to a 40% drop in direct mine and production costs, reflecting a 28% decrease in vanadium sold. Our Q2 2024 financial results also include significant non-recurring expenses, mainly related to a write-down on vanadium finished products and foreign exchange losses.

[David Harris, CFO at Largo Inc.]

The net loss for Q2 2024 was $14.5 million, which included $8.5 million in these non-recurring items, compared to $6 million in Q2 2023, which included $1.1 million of non-recurring items. This was partially offset by decreases in professional consulting and management fees and technology start-up costs as a result of a cost reduction initiatives and reduced activity at Largo Clean Energy. Cash operating costs, excluding royalties, were $5.97 per pound sold in Q2 2024, a 15% decrease over Q2 2023. This increase is primarily due to inventory write-downs recognized during the period. However, our ongoing initiatives to reduce production costs and improve productivity, such as optimizing haulage distances and reducing the number of contractors, are starting to show positive results.

[David Harris, CFO at Largo Inc.]

Costs in June 2024 were 10% lower than forecast, as Célio highlighted just now. In Q2 2024, we signed an inventory financing agreement for up to $10 million, using our vanadium finished products inventory to secure drawdowns for up to 100 days. Subsequently, in July 2024, we signed an additional inventory financing agreement for up to $10 million, with drawdown secured for up to 90 days. Before I hand it over to Paul, I'll highlight that we are making significant progress in our efforts to reduce costs at the Maracás Mine. Our commitment to returning to profitability remains the primary focus, and we look forward to providing an update on our progress in the coming quarters. I'll now turn it over to Paul.

[Paul Vollant, CCO at Largo Inc.]

Thanks, David, and welcome everyone to the call today. I'm pleased to provide you with an update on our commercial activities for Q2 2024. In the last quarter, we achieved V2O5 equivalent sales of 1,841 tons, including 128 tons of purchased material. This represents a 28% decrease from our Q2 2023 due to lower material availability and planned maintenance in Q1 2024. Global vanadium demand continues to face challenges, particularly in the Chinese steel sector. The average benchmark price per pound of V2O5 in Europe was $5.93 in Q2 2024, a 30% decrease from Q2 2023. Similarly, the average benchmark price per kilogram of ferrovanadium in Europe was $26.83, a 20% decrease compared to the same period last year.

[Paul Vollant, CCO at Largo Inc.]

Looking ahead, we're encouraged by the new mandatory Chinese rebar standard announced in June 2024, which will take effect in September. We anticipate this new regulation to positively impact demand for vanadium in the near future. On the ilmenite front, we sold 12,261 tons in Q2 2024, exceeding our guidance top range of 11,500 tons. This increase was anticipated as catch-up sales from Q1 2024. Finally, it's important to note the current logistical challenges, particularly congestion and delays in Asia and the Middle East. Our team is diligently managing our supply chain to ensure timely delivery to our customers. In conclusion, despite the current market challenges, we remain optimistic about the potential uplift in vanadium demand and our strategic effort to manage production and sales efficiently.

[Paul Vollant, CCO at Largo Inc.]

I'll now turn it over to Francesco for an update on Largo Clean Energy.

[Francesco D’Alessio, President, Largo Clean Energy at Largo Inc.]

Thank you, Paul, and good morning, everyone. Since our last update, our primary focus has been on finalizing the requisite items related to our strategic evaluation of the clean energy business. We have been actively moving negotiations forward concerning our proposed venture with Stryten Energy, as previously announced. This partnership aims to leverage our combined strengths and drive innovation and market penetration in the clean energy sector. We are optimistic about reaching the final stages of this process soon. Additionally, we are completing the second phase of our commissioning for our VRF deployment in Spain for Enel Green Power. This phase includes the replacement of the inverters and transformers. This project is a testament to our commitment to advancing clean energy solutions and demonstrates the practical application of our VRF technology.

[Francesco D’Alessio, President, Largo Clean Energy at Largo Inc.]

Looking forward, we remain dedicated to advancing our clean energy initiatives and are excited about the potential of our partnership with Stryten Energy. We believe this will position us strongly in the U.S. market and enhance our ability to deliver sustainable energy storage solutions. Thanks for your attention. I will now turn the call over back to Daniel for closing remarks.

[Daniel Tellechea, Interim CEO and Director at Largo Inc.]

Thanks, Francesco. In summary, Q2 2024 was a period of progress for Largo, marked by operational improvements and strategic initiatives aimed at long-term growth despite market challenges. I am pleased to highlight that our mining segment achieved positive Adjusted EBITDA for both Q2 2024 and for the first half of the year, ending June 30, 2024. This indicates that we are on the right track in successfully completing the turnaround of our mining operations at Maracás. On the market front, we are optimistic about the future vanadium demand due to the new Chinese standards, and strategically look forward to advancing our clean energy initiatives to our potential partnership with Stryten Energy. Thank you for your continuous support, and we look forward to updating you on our progress in the coming quarters.

[Daniel Tellechea, Interim CEO and Director at Largo Inc.]

I will now hand the call back over to the operators for our question and answer section.

[Operator]

Thank you, Daniel. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star button followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star zero followed by the number two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from the line of Heiko Ihle of H.C. Wainwright. Please go ahead.

[Heiko Ihle, Analyst at H.C. Wainwright]

Hey there. Thanks for taking my questions. Hope everybody is doing well. Hello?

[Daniel Tellechea, Interim CEO and Director at Largo Inc.]

Hello. Thank you.

[Heiko Ihle, Analyst at H.C. Wainwright]

Perfect. Yeah, for Largo Clean Energy, any idea how much the venture is currently costing you on a cash flow basis? I mean, I know there is the reduced headcounts and the reduced activity you discussed in the release, but still, maybe if you could quantify how that has progressed by quarter and what you see cash-wise for the remainder of the year.

[Francesco D’Alessio, President, Largo Clean Energy at Largo Inc.]

David, do you want to take that?

[Daniel Tellechea, Interim CEO and Director at Largo Inc.]

David, can you take that question?

[David Harris, CFO at Largo Inc.]

Yeah. Hi, Heiko, David. Yeah, I would say with the reduced headcount and, you know, all the focus being on completing the Enel project, I mean, I'm sure you can imagine that the cash burn is greatly reduced on that one. Not going to quote exact numbers, but it's certainly not, you know, a significant drawdown on our cash balances at the moment. And, you know, we're just focused on getting the agreement signed and closed with Stryten, and moving forward with Stryten.

[Heiko Ihle, Analyst at H.C. Wainwright]

Okay, maybe not a specific number then, but you want to maybe give us a range or, like, a ballpark?

[Francesco D’Alessio, President, Largo Clean Energy at Largo Inc.]

Cash, cash burn? I mean, it's, you know, with the focus just being on some of the milestones and getting the equipment in place at Enel, I mean, the, it's sort of, you know, lumpy, but, you know, in some months we're sort of down at the sort of $200,000 range in terms of cash. And, you know, if there's a piece of equipment that's needed to be purchased or paid for, then, you know, you might see, you know, a bit of a, bit of a doubling at most, but certainly nothing more than that at the current level of activity.

[Heiko Ihle, Analyst at H.C. Wainwright]

Okay, that's good, because my number internally was actually higher, so that's good to know. And then just a quick clarification. Can you give some color, speaking of costs, on costs for the kiln maintenance that you plan to do next quarter? I see the actual cash outlay is pretty limited. It's just a little bit of downtime, right?

[David Harris, CFO at Largo Inc.]

Yeah. Celio, maybe you want to provide a little bit more color on the kiln maintenance and your projections on that one.

[Célio Pereira, COO, Largo Brazil at Largo Inc.]

Yeah, sure. So it's our annual, standard kiln refractory replacement. We are just moving, what we first planned for February, we are moving to November. We believe that's gonna be an optimization, given the rain season starts on early December. So usually our cash burn on this kiln maintenance, it's between $2-$3 million per year.

[Heiko Ihle, Analyst at H.C. Wainwright]

Very helpful. Thank you, guys, and hope everybody has a good weekend.

[David Harris, CFO at Largo Inc.]

Thanks, Michael.

[Célio Pereira, COO, Largo Brazil at Largo Inc.]

Thank you. Thank you.

[Operator]

Your next question comes from the line of Andrew Wong of RBC Capital Markets. Please go ahead.

[Andrew Wong, Analyst at RBC Capital Markets]

Hey, good morning. What's your view on the margin of FeV production in vanadium? I know it's a bit hard to tell, given a lot of the non-mine primary production, but is there any sense of are we kind of getting there in terms of pricing, and, and could there be any support at these levels?

[Célio Pereira, COO, Largo Brazil at Largo Inc.]

Can you take that question, David?

[David Harris, CFO at Largo Inc.]

Oh, sorry, I thought it was a question relating to the price of vanadium. Yeah, I mean, we're seeing, you know, good, good progress as we highlighted in our sort of prepared remarks in terms of costs coming down. And, you know, June was one of the best months we've seen in a long time on the cost side. You know, so obviously there's a bit of a lag between production and sales. So we're, you know, waiting for that to sort of flow through and be seen in sort of more impactfully in our financial results.

[David Harris, CFO at Largo Inc.]

Perhaps in terms of, you know, the views on the vanadium market, Paul, maybe you just want to provide a little bit of sort of color and input on, you know, the vanadium market in that regard.

[Paul Vollant, CCO at Largo Inc.]

Sure. Hi, Andrew. Yeah, on the marginal cost of production, it's very hard to say. As you know, about 80% of the vanadium supply comes as a by-product with, you know, difficult transparency on the actual cost. But what we can say is that at the moment, you know, there's quite a lot of transparency at the primary producers level, where you can see that in the current price environment people are loss-making, and we're also starting to see some cutbacks in production in Asia. So, you know, we're definitely in a very low pricing environment at the moment, where supply is gonna start to get adjusted if prices do not recover pretty quickly.

[Andrew Wong, Analyst at RBC Capital Markets]

Okay, thank you for that. Just a question on working capital use. Looks like that's gone up this year, quite, quite significantly. Will that reverse in future quarters? And why has that gone up so much?

[David Harris, CFO at Largo Inc.]

Yeah, I mean-

[Célio Pereira, COO, Largo Brazil at Largo Inc.]

David?

[David Harris, CFO at Largo Inc.]

I'll take that one, Andrew. I mean, as you've seen, we've, you know, we've seen some variability in, you know, in, in production at the beginning of the year, and also, you know, the impact on, on sales coming in. And, you know, as our, our production is, is ramping up, you know, obviously, it's sort of taking up more and more working capital in, in that regard. You know, we're, we're focused on, you know, getting costs down and, you know, maximizing our, our, our sales efforts, and sort of getting, you know, sales and production more, more aligned. And we're, you know, constantly looking at, you know, at new opportunities that on, restructuring our, our existing debt facilities. So, you know, looking and working with, with our lenders in, in that regard as well.

[David Harris, CFO at Largo Inc.]

So, you know, I think things are moving, aiming for things to move in a positive direction. But yeah, we've seen some, I'd say, some hiccups and challenges in the early part of this year.

[Andrew Wong, Analyst at RBC Capital Markets]

Okay. Thank you.

[Operator]

Your next question comes from the line of Gordon Lawson of Paradigm Capital. Please go ahead.

[Gordon Lawson, Analyst at Paradigm Capital]

Hi, good morning, everyone. Can you provide some additional color on the decrease in V2O3 and ferrovanadium sales and what we should expect in the next few quarters? Paul?

[Paul Vollant, CCO at Largo Inc.]

Yes. Hi, Gordon. Yeah, decrease, as I mentioned earlier, decrease in Q2 sales were very much linked to availability of material. So, yeah, you know, our sales cycle is about three months, so our quarterly sales will very much represent the previous quarter's production. And as you have seen, the Q1 production and Q2 sales were quite aligned. In terms of ferrovanadium, that's still where we believe we'll see most of the liquidity and demand for the spot market. V2O3 demand is more linked to aerospace and chemical, as well as battery sector demand. So these are more long-term, usually contract that are for a year or more, usually.

[Paul Vollant, CCO at Largo Inc.]

So there's usually quite good visibility there, but our sales will essentially represent our production over the long term.

[Gordon Lawson, Analyst at Paradigm Capital]

...Over the long term, but with these contracts, can you- is there any, I mean, I, I know you don't like to, like to give guidance here, but just, again, someone asked for a range for V2O3 in particular, in the second half of the year?

[Paul Vollant, CCO at Largo Inc.]

Yeah, I don't think we provide guidance on such a granular basis, but V2O3 is very much linked to high purity demand. High purity demand for Largo should probably be between 20%-30% of our total production. So yeah, V2O3 would be a portion of that.

[Gordon Lawson, Analyst at Paradigm Capital]

Okay. Just one of the hard balls here. So, I mean, what options are you considering during this low price environment sort of lasting, like, 12 months? I mean, and would that include care and maintenance to reschedule some significant mill upgrades or additional financial levers on... What do you have on the table here?

[Daniel Tellechea, Interim CEO and Director at Largo Inc.]

Well, let me take that question. Basically, the options that we are doing right now is to continue reducing cash costs. And we have been done tremendously efforts, and we have advanced extremely in order to reduce our cash cost of operation. That is key in order to face this low price environment. We have already completed analysis of most, most of our contracts. We have completed our headcount reduction. Now we are embarking reducing inputs to the plant. So that's basically the strategy we have in place.

[Gordon Lawson, Analyst at Paradigm Capital]

Okay, thank you.

[Operator]

Ladies and gentlemen, there are no further questions at this time. I'd now like to turn the call back over to Alex for final closing remarks. Please go ahead.

[Alex Guthrie, Head of Investor Relations at Largo Inc.]

Thank you, operator, and thanks to everyone for joining us today. This concludes the Q&A session and our quarterly investor conference call. Have a great day. Bye-bye.

[Operator]

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

Participants

Executives

• Alex Guthrie, Head of Investor Relations
• Célio Pereira, COO, Largo Brazil
• Daniel Tellechea, Interim CEO and Director
• David Harris, CFO
• Francesco D’Alessio, President, Largo Clean Energy
• Paul Vollant, CCO

Analysts

• Andrew Wong, Analyst at RBC Capital Markets
• Gordon Lawson, Analyst at Paradigm Capital
• Heiko Ihle, Analyst at H.C. Wainwright