Largo Resources Staying Positive in Less-than-Ideal Market

Largo Resources’ (TSX:LGO) Brazilian Maracas Menchen project was hindered by delays this summer and is now operating in a less-than-ideal market, but in a Thursday conference call President and CEO Mark Brennan sought to ease investors’ concerns.

Maracas Menchen, located on the east coast of Brazil, is 28,587 hectares and has a 100-percent, six-year offtake agreement with Glencore (LSE:GLEN).

During Thursday’s call, Brennan admitted there were slight delays in production this summer, but emphasized that planned production for November should offset any delays.

He maintained that the company’s goal is to hit the peak of phase 1 production (9,600 tonnes per annum) by July 2015, though the expectation is that the company could surpass that.

“We’re coming into the ramp-up process, we went through the process of figuring out where problems were. We’ve now driven out of that fog,” Brennan said.

Difficulties with a feed screw in the kiln as well as electromagnetic engineering issues caused production hiccups back in July. “We found material coming in, but it was not the performance we expected,” he noted.

Brennan would not disclose the total amount of material that’s been produced at the project so far, only saying that the company has hit the 40-percent production capacity mark. The project is producing about 800 tonnes of vanadium a month.

Sinking markets causing concern, looks for calm

With stock markets dropping across the globe, Brennan sought to ease concerns about the project’s current financial state. Referencing RB Energy’s (TSX:RBI) dramatic fall — Tuesday brought the news that it is filing for creditor protection — Brennan wanted to assure investors that it won’t happen with Largo.

“We’re looking at a very difficult market environment, more tumultuousness [sic] than the last four years … however, we see a very different picture internally than externally,” Brennan said. “Looking at commodities, all of them are suffering and coming down in terms of pricing. Vanadium has had some very good demands over the past few years and we expect that to continue. We are seeing many, many new products using vanadium.”

He said he sees the bottom for vanadium pentoxide prices as $5 per pound, with a current price range of $5.30 to $5.60.

The company announced that it’s recently raised just over $30 million via private placement. Largo has also consolidated its shares within the past week, a step that Brennan said was a month in the making, noting that shareholders he spoke with following the private placement expressed an interest in seeing it happen.

“We’re seeing strong growth, positive operations — we felt it was the right time,” he said. “We wanted to see less volatility in the stock.”

Keeping options open

But as markets continue to flip-flop, Brennan said Largo has been examining by-product production at the property for the past five months in an effort to help boost cash flow. Amounts of platinum-group metals and almanite (a mixture of iron and titanium) have been discovered on the property, with more exploration planned.

With a 100-percent offtake agreement with Glencore, combined with weekly shipments, Largo appears to have a stable importer of its product.

While Largo maintains that its official stance is on producing vanadium to use in the steel market, Brennan admitted that he is keeping an eye on the growing vanadium battery market.

“Largo hasn’t pounded the table on batteries … and we still don’t want to do that, but renewable energy is a very critical item,” he said, going on to reference the renewable energy push being seen in countries such as Germany, which is looking to increase the use of renewable energy technology.

As the project moves towards the intended goal of phase 1 production, and hints of increased worldwide demand for vanadium continue, investors are sure to keep an eye on Largo and its Maracas Menchen project.

Securities Disclose: I, Nick Wells, hold no direct or indirect involvement in any of the companies mentioned.