Largo Reports First Quarter 2024 Financial Results; Cost Reduction Measures and Productivity Initiatives Underway
Largo released its Q1 2024 financial results, showing revenues of $42.2 million, down from $57.4 million in Q1 2023. This decline is primarily due to a significant drop in vanadium prices. Operating costs grew to $49.7 million from $45.9 million, driven by an extended maintenance period and a $4.5 million write-down of produced vanadium products. The company reported a net loss of $13 million compared to a $1.2 million loss in Q1 2023. Basic loss per share was $0.20, up from $0.02. Total V2O5 equivalent sales were 2,765 tonnes with a cash operating cost of $6.12 per lb sold.
Production figures include 1,729 tonnes of V2O5 and 9,563 tonnes of ilmenite concentrate. Vanadium market conditions were weak due to low demand in the steel industry, though aerospace demand remained strong. The company expects future demand increases, particularly in energy storage in China. Largo is implementing cost reduction measures and productivity initiatives to restore profitability.
- Cash balance of $45.7 million by the end of Q1 2024.
- Net working capital surplus of $70.8 million.
- Ilmenite concentrate production increased by 7% from Q4 2023.
- 24% decrease in professional, consulting, and management fees.
- 73% decrease in technology start-up costs.
- Secured an $8 million working capital debt facility with a Brazilian bank.
- Signed a binding term sheet for up to $10 million in inventory financing.
- 27% decrease in revenues to $42.2 million from $57.4 million in Q1 2023.
- Operating costs increased to $49.7 million from $45.9 million.
- Net loss of $13 million compared to a $1.2 million loss in Q1 2023.
- Basic loss per share increased to $0.20 from $0.02.
- V2O5 production decreased to 1,729 tonnes from 2,111 tonnes.
- Higher cash operating costs excluding royalties of $6.12 per lb sold, up from $5.15.
- Lower production due to extended maintenance activities.
- Significant decrease in vanadium prices, affecting revenues.
- Ilmenite sales below guidance due to operational and administrative delays.
Insights
The first quarter financial results for Largo Inc. reveal a decline in revenues from
Largo’s cash flow situation presents some concerns. The cash balance stands at
For retail investors, it’s important to be aware of the volatility in vanadium prices, which directly impacts Largo’s revenue potential. The company’s measures to reduce costs and improve productivity, while promising, are yet to show concrete results. The anticipated improvements in the second half of the year need to be monitored closely for signs of financial turnaround.
The market for vanadium, a key component used in steel alloying and energy storage, has shown significant fluctuations. The average benchmark price per pound of V2O5 in Europe dropped from
However, on a positive note, there is a strong demand from the aerospace sector and anticipated growth in energy storage applications, especially in China. If these sectors gain momentum, Largo could see an uptick in vanadium prices which would positively impact revenues. Retail investors should monitor market trends closely, particularly any developments in the steel and energy storage industries that might signal a recovery in vanadium prices.
It is also worth noting that Largo’s strategic review and cost reduction initiatives appear to be geared towards navigating these adverse market conditions. While the results of these initiatives are yet to be fully realized, they could position the company for improved performance in a more favorable market environment.
All dollar amounts expressed are in thousands of
Q1 2024 and Other Highlights
-
Revenues of
$42.2 million $6.91 $9.14 -
Operating costs of
$49.7 million $45.9 million -
Cash operating costs excluding royalties per pound6 of
$6.12 $5.15 $4.5 million -
Net loss of
$13.0 million $4.4 million $1.2 million $0.1 million $0.20 $0.02 -
Cash balance of
$45.7 million $70.8 million $75.0 million - V2O5 equivalent sales of 2,765 tonnes (inclusive of 156 tonnes of purchased material) in Q1 2024 vs. 2,849 equivalent tonnes sold (inclusive of 245 tonnes of purchased material) in Q1 2023
- V2O5 production of 1,729 tonnes (3.8 million lbsiii) in Q1 2024 vs. 2,111 tonnes produced in Q1 2023; Lower production in Q1 2024 was expected and is largely attributable to the completion of the Company’s planned kiln refractory replacement and other plant maintenance activities during the quarter
-
The Company produced 9,563 tonnes of ilmenite concentrate in Q1 2024, an increase of
7% from Q4 2023, and sold 513 tonnes of ilmenite concentrate in Q1 2024; Ilmenite sales were below Q1 2024 guidance due to operational and administrative delays - Q1 2024 results conference call: Thursday, May 16th at 10:00 a.m. ET
Vanadium Market Updateiv
-
Due to adverse conditions in the Chinese and European steel industries, spot demand for Q1 2024 continued to be weak; however, strong aerospace demand continued; Future quarters are expected to witness an increase in demand for energy storage, specifically in
China -
The average benchmark price per pound of V2O5 in
Europe was$6.44 38% decrease from the average of$10.39 Europe was$27.96 30% decrease from the average of$39.46 -
The average benchmark price per pound of V2O5 in
Europe as of May 10, 2024 was$5.87
Daniel Tellechea, Interim CEO and Director of Largo, stated: “Having navigated challenges in the first quarter, such as an extended maintenance period which led to increased costs, and a sharp decline in vanadium prices, our focus remains on restoring profitability at Largo. We continued to realize cost savings at our clean energy division this quarter as a result of initiating our strategic review process, and negotiations with Stryten Energy LLC remain ongoing. While we anticipate elevated costs in the first half of the year, we expect improvements in the second half as the full effects of our previously announced productivity initiatives and cost reduction measures materialize at our Maracás Menchen Mine.”
Financial and Operating Results – Highlights
Financial figures expressed in thousands of |
Three months ended |
|
Mar. 31, 2024 |
Mar. 31, 2023 |
|
Revenues |
42,187 |
57,421 |
Operating costs |
(49,707) |
(45,931) |
Net income (loss) |
(13,006) |
(1,207) |
Basic earnings (loss) per share |
(0.20) |
(0.02) |
Adjusted EBITDAv |
(3,626) |
9,592 |
Cash (used) provided before working capital items |
(7,268) |
8,150 |
Cash operating costs excl. royaltiesvi ($/lb) |
6.12 |
5.15 |
Cash |
45,656 |
42,714 |
Debt |
75,000 |
75,000 |
Total mined – dry basis (tonnes) |
3,243,492 |
3,523,656 |
Total ore mined (tonnes) |
604,231 |
341,967 |
Effective gradevii of ore milled (%) |
0.82 |
1.08 |
V2O5 equivalent produced (tonnes) |
1,729 |
2,111 |
Ilmenite concentrate produced (tonnes) |
9,563 |
Nil |
Q1 2024 Notes
-
The Company recorded a net loss of
$13.0 million $1.2 million 27% decrease in revenues and an8% increase in operating costs, which were partially offset by a24% decrease in professional, consulting and management fees and a73% decrease in technology start-up costs. -
In Q1 2024, the Company’s direct mine and production costs of
$29.9 million 5% over Q1 2023, primarily due to the impact of the scheduled plant shutdown in Q1 2024 and the associated lower global recoveries and higher costs as the plant resumed operations. During the shutdown, the kiln refractory was replaced, and annual maintenance activities were performed in the crushing, milling, ilmenite, leaching and chemical sections of the plant. -
Cash operating costs excluding royalties6 of
$6.12 19% over Q1 2023 ($5.15 $4.5 million -
Professional, consulting and management fees in Q1 2024 decreased from Q1 2023 by
24% ($1.3 million 73% ($2.0 million - Subsequent to Q1 2024, production and sales in were 815 tonnes and 757 tonnes of V2O5 equivalent, respectively, in April 2024, with 2,500 tonnes of ilmenite concentrate being produced during this period and 8,363 dry tonnes of ilmenite being sold.
-
In May 2024, the Company secured a working capital debt facility with a bank in
Brazil for a total limit of$8.0 million 8.25% p.a., with renewals subject to approval by the bank. -
On May 15, 2024, the Company signed a binding term sheet for up to
$10.0 million $10.0 million 1% , interest at an expected rate of theU.S. Secured Overnight Financing Rate ("SOFR") plus2.5% and other direct costs.
The information provided within this release should be read in conjunction with Largo's unaudited condensed interim consolidated financial statements for the three months ended March 31, 2024 and 2023 and its management's discussion and analysis for the three months ended March 31, 2024 which are available on our website at www.largoinc.com or on the Company’s respective profiles at www.sedarplus.com and www.sec.gov.
About Largo
Largo is a globally recognized vanadium company known for its high-quality VPURE™ and VPURE+™ products, sourced from its Maracás Menchen Mine in
Largo’s common shares trade on the Nasdaq Stock Market and on the Toronto Stock Exchange under the symbol "LGO". For more information, please visit www.largoinc.com.
Cautionary Statement Regarding Forward-looking Information:
This press release contains “forward-looking information” and “forward-looking statements” within the meaning of applicable Canadian and
The following are some of the assumptions upon which forward-looking information is based: that general business and economic conditions will not change in a material adverse manner; demand for, and stable or improving price of V2O5 and other vanadium commodities; receipt of regulatory and governmental approvals, permits and renewals in a timely manner; that the Company will not experience any material accident, labour dispute or failure of plant or equipment or other material disruption in the Company’s operations at the Maracás Menchen Mine or relating to Largo Clean Energy, specially in respect of the installation and commissioning of the EGPE project; the availability of financing for operations and development; the availability of funding for future capital expenditures; the ability to replace current funding on terms satisfactory to the Company; the ability to mitigate the impact of heavy rainfall; the Company’s ability to procure equipment, services and operating supplies in sufficient quantities and on a timely basis; that the estimates of the resources and reserves at the Maracás Menchen Mine are within reasonable bounds of accuracy (including with respect to size, grade and recovery and the operational and price assumptions on which such estimates are based); the accuracy of the Company’s mine plan at the Maracás Menchen Mine, the competitiveness of the Company's VRFB technology; the ability to obtain funding through government grants and awards for the Green Energy sector, the accuracy of cost estimates and assumptions on future variations of VCHARGE battery system design, that the Company’s current plans for ilmenite and VRFBs can be achieved; the Company's "two-pillar" business strategy will be successful; the Company's sales and trading arrangements will not be affected by the evolving sanctions against
Forward-looking statements can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved". All information contained in this news release, other than statements of current and historical fact, is forward looking information. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of Largo or Largo Clean Energy to be materially different from those expressed or implied by such forward-looking statements, including but not limited to those risks described in the annual information form of Largo and in its public documents filed on www.sedar.com and available on www.sec.gov from time to time. Forward-looking statements are based on the opinions and estimates of management as of the date such statements are made. Although management of Largo has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. Largo does not undertake to update any forward-looking statements, except in accordance with applicable securities laws. Readers should also review the risks and uncertainties sections of Largo's annual and interim MD&As which also apply.
Trademarks are owned by Largo Inc.
Non-GAAP Measures
The Company uses certain non-GAAP measures in its press release, which are described in the following section. Non-GAAP financial measures and non-GAAP ratios are not standardized financial measures under IFRS, the Company's GAAP, and might not be comparable to similar financial measures disclosed by other issuers. These measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.
Revenues Per Pound
This press release refers to revenues per pound sold, V2O5 revenues per pound of V2O5 sold, V2O3 revenues per pound of V2O3 sold and FeV revenues per kg of FeV sold, a non-GAAP performance measure that is used to provide investors with information about a key measure used by management to monitor the performance of the Company.
This measure, along with cash operating costs and total cash costs, is considered to be one of the key indicators of the Company’s ability to generate operating earnings and cash flow from its Maracás Menchen Mine and sales activities. These measures differ from measures determined in accordance with IFRS, and are not necessarily indicative of net earnings or cash flow from operating activities as determined under IFRS.
The following table provides a reconciliation of this measure of revenues per pound sold, V2O5 revenues per pound of V2O5 sold, V2O3 revenues per pound of V2O3 sold and FeV revenues per kg of FeV sold, as per the Q1 2024 unaudited condensed interim consolidated financial statements.
|
Three months ended |
||||
|
March 31,
|
March 31,
|
|||
Revenues - V2O5 produced1 |
$ |
21,558 |
$ |
34,526 |
|
V2O5 sold - produced (000s lb) |
|
3,113 |
|
3,798 |
|
V2O5 revenues per pound of V2O5 sold - produced ($/lb) |
$ |
6.93 |
$ |
9.09 |
|
|
|
|
|||
Revenues - V2O5 purchased1 |
$ |
988 |
$ |
2,528 |
|
V2O5 sold - purchased (000s lb) |
|
176 |
|
309 |
|
V2O5 revenues per pound of V2O5 sold - purchased ($/lb) |
$ |
5.61 |
$ |
8.18 |
|
|
|
|
|||
Revenues - V2O51 |
$ |
22,546 |
$ |
37,054 |
|
V2O5 sold (000s lb) |
|
3,289 |
|
4,107 |
|
V2O5 revenues per pound of V2O5 sold ($/lb) |
$ |
6.85 |
$ |
9.02 |
|
|
|
|
|||
Revenues - V2O3 produced1 |
$ |
6,203 |
$ |
1,483 |
|
V2O3 sold - produced (000s lb) |
|
668 |
|
134 |
|
V2O3 revenues per pound of V2O3 sold - produced ($/lb) |
$ |
9.29 |
$ |
11.07 |
|
|
|
|
|||
Revenues - V2O3 purchased1 |
$ |
— |
$ |
1,155 |
|
V2O3 sold - purchased (000s lb) |
|
— |
|
88 |
|
V2O3 revenues per pound of V2O3 sold - purchased ($/lb) |
$ |
— |
$ |
13.13 |
|
|
|
|
|||
Revenues - V2O31 |
$ |
6,203 |
$ |
2,637 |
|
V2O3 sold (000s lb) |
|
668 |
|
223 |
|
V2O3 revenues per pound of V2O3 sold ($/lb) |
$ |
9.29 |
$ |
11.83 |
|
|
|
|
|||
Revenues - FeV produced1 |
$ |
12,249 |
$ |
17,428 |
|
FeV sold - produced (000s kg) |
|
569 |
|
568 |
|
FeV revenues per kg of FeV sold - produced ($/kg) |
$ |
21.53 |
$ |
30.68 |
|
|
|
|
|||
Revenues - FeV purchased1 |
$ |
1,120 |
$ |
301 |
|
FeV sold - purchased (000s kg) |
|
51 |
|
10 |
|
FeV revenues per kg of FeV sold - purchased ($/kg) |
$ |
21.96 |
$ |
30.10 |
|
|
|
|
|||
Revenues - FeV1 |
$ |
13,369 |
$ |
17,730 |
|
FeV sold (000s kg) |
|
620 |
|
578 |
|
FeV revenues per kg of FeV sold ($/kg) |
$ |
21.56 |
$ |
30.67 |
|
|
|
|
|||
|
|
|
|||
Revenues1 |
$ |
42,118 |
$ |
57,421 |
|
V2O5 equivalent sold (000s lb) |
|
6,096 |
|
6,281 |
|
Revenues per pound sold ($/lb) |
$ |
6.91 |
$ |
9.14 |
|
1. As per note 18 of the Company’s Q1 2024 unaudited condensed interim consolidated financial statements. |
|||||
Cash Operating Costs Excluding Royalties Per Pound
The Company’s press release refers to cash operating costs excluding royalties per pound, which are non-GAAP ratios based on cash operating costs and cash operating costs excluding royalties, which are non-GAAP financial measures, in order to provide investors with information about a key measure used by management to monitor performance. This information is used to assess how well the Maracás Menchen Mine is performing compared to plan and prior periods, and also to assess its overall effectiveness and efficiency.
Cash operating costs includes mine site operating costs such as mining costs, plant and maintenance costs, sustainability costs, mine and plant administration costs, royalties and sales, general and administrative costs (all for the Mine properties segment), but excludes depreciation and amortization, share-based payments, foreign exchange gains or losses, commissions, reclamation, capital expenditures and exploration and evaluation costs. Operating costs not attributable to the Mine properties segment are also excluded, including conversion costs, product acquisition costs, distribution costs and inventory write-downs.
Cash operating costs excluding royalties is calculated as cash operating costs less royalties. Cash operating costs per pound and cash operating costs excluding royalties per pound are obtained by dividing cash operating costs and cash operating costs excluding royalties, respectively, by the pounds of vanadium equivalent sold that were produced by the Maracás Menchen Mine. Cash operating costs, cash operating costs excluding royalties, cash operating costs per pound and cash operating costs excluding royalties per pound, along with revenues, are considered to be key indicators of the Company’s ability to generate operating earnings and cash flow from its Maracás Menchen Mine. These measures differ from measures determined in accordance with IFRS, and are not necessarily indicative of net earnings or cash flow from operating activities as determined under IFRS.
The following table provides a reconciliation of cash operating costs and cash operating costs excluding royalties, cash operating costs per pound and cash operating costs excluding royalties per pound for the Maracás Menchen Mine to operating costs as per the Q1 2024 unaudited condensed interim consolidated financial statements.
|
Three months ended |
|||||
|
March 31,
|
March 31,
|
||||
Operating costsi |
$ |
49,707 |
|
$ |
45,931 |
|
Professional, consulting and management feesii |
|
462 |
|
|
844 |
|
Other general and administrative expensesiii |
|
279 |
|
|
309 |
|
Less: ilmenite costsi |
|
(47 |
) |
|
— |
|
Less: iron ore costsi |
|
— |
|
|
(273 |
) |
Less: conversion costsi |
|
(2,023 |
) |
|
(1,918 |
) |
Less: product acquisition costsi |
|
(2,050 |
) |
|
(4,178 |
) |
Less: distribution costsi |
|
(1,818 |
) |
|
(1,447 |
) |
Less: inventory write-downiv |
|
446 |
|
|
— |
|
Less: depreciation and amortization expensei |
|
(8,077 |
) |
|
(7,251 |
) |
Cash operating costs |
|
36,879 |
|
|
32,107 |
|
Less: royalties1 |
|
(1,673 |
) |
|
(2,445 |
) |
Cash operating costs excluding royalties |
|
35,206 |
|
|
29,572 |
|
Produced V2O5 sold (000s lb) |
|
5,753 |
|
|
5,741 |
|
Cash operating costs per pound ($/lb) |
$ |
6.41 |
|
$ |
5.58 |
|
Cash operating costs excluding royalties per pound ($/lb) |
$ |
6.12 |
|
$ |
5.15 |
|
| i. | As per note 19 of the Company’s Q1 2024 unaudited condensed interim consolidated financial statements. |
| ii. | As per the Mine properties segment in note 15 of the Company’s Q1 2024 unaudited condensed interim consolidated financial statements. |
| iii. |
Year ended as per the Mine properties segment in note 15 less the increase in legal provisions of |
| iv. |
As per note 5 of the Company’s Q1 2024 unaudited condensed interim consolidated financial statements for ilmenite finished products and warehouse supplies, and including a write-down of vanadium purchased products of |
EBITDA and Adjusted EBITDA
The Company’s press release refers to earnings before interest, tax, depreciation and amortization, or "EBITDA", and adjusted EBITDA, which are non-GAAP financial measures, in order to provide investors with information about key measures used by management to monitor performance. EBITDA is used as an indicator of the Company's ability to generate liquidity by producing operating cash flow to fund working capital needs, service debt obligations, and fund capital expenditures.
Adjusted EBITDA removes the effect of inventory write-downs, impairment charges (including write-downs of vanadium assets), insurance proceeds received, movements in legal provisions, non-recurring employee settlements and other expense adjustments that are considered to be non-recurring for the Company. The Company believes that by excluding these amounts, which are not indicative of the performance of the core business and do not necessarily reflect the underlying operating results for the periods presented, it will assist analysts, investors and other stakeholders of the Company in better understanding the Company's ability to generate liquidity from its core business activities.
EBITDA and adjusted EBITDA are intended to provide additional information to analysts, investors and other stakeholders of the Company and do not have any standardized definition under IFRS. These measures should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These measures exclude the impact of depreciation, costs of financing activities and taxes, and the effects of changes in operating working capital balances, and therefore are not necessarily indicative of operating profit or cash flow from operating activities as determined under IFRS. Other companies may calculate EBITDA and adjusted EBITDA differently.
The following table provides a reconciliation of EBITDA and adjusted EBITDA to net income (loss) as per the Q1 2024 unaudited condensed interim consolidated financial statements.
|
Three months ended |
|||||
|
March 31,
|
March 31,
|
||||
Net loss |
$ |
(13,006 |
) |
$ |
(1,207 |
) |
Finance costs |
|
1,812 |
|
|
1,426 |
|
Interest income |
|
(306 |
) |
|
(712 |
) |
Income tax expense |
|
22 |
|
|
333 |
|
Deferred income tax recovery (expense) |
|
(5,329 |
) |
|
1,589 |
|
Depreciationi |
|
8,724 |
|
|
8,044 |
|
EBITDA |
$ |
(8,083 |
) |
$ |
9,473 |
|
Inventory write-downii |
|
4,080 |
|
|
— |
|
Write-down of vanadium assets |
|
(114 |
) |
|
— |
|
Movement in legal provisionsiii |
|
491 |
|
|
119 |
|
Adjusted EBITDA |
$ |
(3,626 |
) |
$ |
9,592 |
|
i. |
As per the consolidated statements of cash flows in the Company’s Q1 2024 unaudited condensed interim consolidated financial statements. |
ii. |
As per note 5 of the Company’s Q1 2024 unaudited condensed interim consolidated financial statements. |
iii. |
As per then “non-recurring items” section on page 5 of the Company’s Q1 2024 management’s discussion and analysis. |
_________________
1 Revenues per pound sold are non-GAAP ratios with no standard meaning under IFRS, and may not be comparable to similar financial measures disclosed by other issuers. Refer to the “Non-GAAP Measures” section of this press release.
2 Defined as current assets less current liabilities per the consolidated statements of financial position.
3 Conversion of tonnes to pounds, 1 tonne = 2,204.62 pounds or lbs.
4 Fastmarkets Metal Bulletin.
5 Adjusted EBITDA is a non-GAAP financial measure with no standard meaning under IFRS, and may not be comparable to similar financial measures disclosed by other issuers. Refer to the “Non-GAAP Measures” section of this press release.
6 The cash operating costs excluding royalties and revenues per pound per pound sold are reported on a non-GAAP basis. Refer to the “Non-GAAP Measures” section of this press release. Revenues per pound sold are calculated based on the quantity of V2O5 sold during the stated period.
7 Effective grade represents the percentage of magnetic material mined multiplied by the percentage of V2O5 in the magnetic concentrate
View source version on businesswire.com: https://www.businesswire.com/news/home/20240515289077/en/
For further information:
Investor Relations
Alex Guthrie
Senior Manager, External Relations
+1.416.861.9778
aguthrie@largoinc.com
Source: Largo Inc.
FAQ
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