Largo Hits Record Vanadium Production, Posts Net Loss for 2019

Vanadium producer Largo Resources (TSX:LGO,OTCQX:LGORF) hit record annual production at the Maracás Menchen mine in Brazil last year, the company announced on Friday (March 20).

In 2019, Largo produced 10,577 tonnes of vanadium pentoxide (V2O5) at US$2.95 per pound, the lowest annual cash operating cost, excluding royalties, achieved to date by the company.

However, the firm saw a net loss of US$36.2 million compared to net income of US$316 million in 2018.

“Profitability was impacted in Q4 2019 and in 2019 as a consequence of lower vanadium prices and largely due to a total re-measurement of trade receivables/payables during the year of US$137.3 million as part of the company’s offtake agreement,” President and CEO Paulo Misk said.

Largo’s offtake deal with Glencore (LSE:GLEN) will expire in April, and the company’s business strategy includes remaining focused on the sale of high-purity vanadium with price premiums.

Misk added that Largo is approximately 90 percent committed on its annual sales guidance for 2020, which is set at 9,500 to 10,000 tonnes. This year the company is expecting to produce around 11,750 to 12,250 tonnes of V2O5 at a total cash cost of US$3.45 to US$3.65.

The company has also approved the construction of a vanadium trioxide processing plant at Maracás Menchen. It is expected to increase sales for the high-purity aerospace market, the chemical industry and for vanadium electrolyte used for vanadium redox flow batteries.

Speaking about the current coronavirus outbreak, Misk said the company is continuing to monitor the rapidly developing impacts of the COVID-19 pandemic and will take all possible actions to help minimize its effects on the company and its people.

“Our thoughts are with all of those affected by this virus,” he said. “To date, there has been no impact on our production or on our shipment of product out of Maracás.”

At this time, there has been no significant disruption to the company’s supply chain, and the level of critical consumables continues to be at a normal level, he added, saying that no employee or contractor has tested positive for the virus. “Given its relative isolation, we believe that the risk to our operating team in Maracás remains relatively low,” Misk said.

The vanadium market is in a wait-and-see mode, with concerns about the coronavirus impact increasing.

“This is hard to predict,” Roskill Director Jack Bedder told the Investing News Network (INN) recently about the outbreak. “Vanadium is mostly produced and consumed in China, and thus China’s recovery from the epidemic will be a key factor.”

Looking at prices, CRU Group Senior Consultant Willis Thomas told INN that what happens with vanadium prices in 2020 will depend on the impact of COVID-19.

“Pre-COVID-19, we expected vanadium prices to more likely rise to the end of the year than fall, but the virus rules all at this point,” he said.

On Monday (March 23), shares of Largo were down over 13 percent at C$0.58. The company’s share price has been on a downtrend since the start of the year, falling more than 40 percent year-to-date.

“We expect the stock to re-rate once the offtake agreement with Glencore expires in May 2020 as Largo transitions to supply contracts focused on high-purity product,” CIBC analysts said in a note. “We maintain our outperformer rating and C$2.50 price target.”

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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.