Largo Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 14, 2024

There are 10 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to Largo's Third Quarter 2024 Financial Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. I would now like to hand the conference over to your speaker today, Alex Guthrie, Director of Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you, operator, and thanks to everyone who has joined us for Largo's 3rd quarter financial results conference call. Our Q3 2024 financial statements, related MD and A and most recent AIF are available on our website at largoinc.com as well as on SEDAR Plus and EDGAR. Before we proceed, please note that some information discussed today will include forward looking statements and non IFRS measures. Please refer to the cautionary notes and non GAAP section of company's latest MD and A, financial statements and AIF, which are all available online. Additionally, all figures mentioned are in U.

Speaker 1

S. Dollars unless otherwise stated. Today's speakers include Daniel Talichiea, Interim CEO and Director Talio Pereira, COO of Largo Brasil David Harris, CFO and Francesco D'Alessio, COO and President of Largo Clean Energy. Following the prepared remarks, we will open the call to questions. Please limit your questions to and requeue if you have further inquiries to allow everyone a chance to participate.

Speaker 1

I will now turn the call over to Daniel.

Speaker 2

Thank you, Alex, and good morning, everyone. Thank you for joining us today to discuss our Q3 results. In Q3, Largo continued to make positive strides on several fronts, and I am pleased to highlight a few areas where we are seeing real progress. First, we delivered our highest quarterly vanadium production in 7 quarters, producing 3,072 tons, up 42% from Q3 last year. Additionally, we saw another strong quarter in ramp up our ilmenite production, contributing to our efforts in diversifying revenues at Largo.

Speaker 2

Largo's cost improvements have been equally important during the quarter. We reduced our operating costs by 31%, allowing us to maintain a competitive position within the vanadium sector. And as announced, our vanadium supply agreement, which unlocks approximately $23,500,000 of additional liquidity from our Banerion inventories upon delivery, now enable us to strategically manage our inventory while delivering still meeting our ongoing future sales commitments. In terms of our commercial strategy, we have taken decisive steps to realign our sales approach to better navigate together challenging market environment. In September, Francesco D'Alessio was promoted to Chief Commercial Officer, bringing a wealth of industry experience and a strategic vision to our sales leadership.

Speaker 2

With Francesco expertise, we are implementing a rephrase sale strategy aimed at optimizing inventory, following a stronger customer relationships and positioning Largo as a trusted and related supplier in both the Mannadian and ilmenite markets. Looking forward, our recently announced technical report highlights updates supports Largo long term potential with a 67% increase in mineral reserves and a 64% increase in mineral resources, extending our mine life to 2,000 and 54. This strengthened resources base, paired with our production and cost initiatives sets the stage for future value creation going forward. With that, I will hand it over to Cerno to discuss our operational progress in more detail.

Speaker 3

Thank you, Daniel, and good morning, everyone. This quarter, our team's hard work paid off as we reached a significant production milestone. In Q3, we produced 3,072 tons of 205 equivalent, a testament to the effectiveness of the operational enhancements we put in place earlier this year. Our global V2O5 recovery rate also improved to 81.1%, up from 76.9% last year. On the mining side, we achieved a 34% increase in total ore mined compared to Q3 2023, reaching 600,000 tons.

Speaker 3

These improvements highlight the changes we've made to enhance processing efficiencies and address variability in magnetic and V2O5 ore grades. Our operations are as efficient as possible while maintaining high safety environmental standards. Humanite production also saw strong gains reaching 16,383 tons in Q3, an increase of 90% over the previous quarter. Finally, to maintain optimal operational continuity, we have moved our annual kiln maintenance to Q4 to coincide with the upcoming rainy season, minimizing the impact of any weather related disruptions. And consequently, Q4 production is expected to be impacted by the maintenance period, resulting in lower production levels and higher operating costs for the quarter.

Speaker 3

However, we remain confident in our ability to meet our full year 2024 guidance for production, costs and sales. Before concluding, I'd like to highlight that our results reflect substantial progress in production and cost management. However, we remain focused on further optimizing our vanadium and mnemonite operations, largely still in the process of a broader turnaround initiative aimed at driving consistent improvements across the mine. This includes enhancing operational efficiency, advancing silica control measures and continuing recovery optimizations in our Inmanite plant. While we've made meaningful strides, we remain committed to further progress as we work towards fully realizing our operational goals and fostering a culture of continuous improvement across our team.

Speaker 4

In Q3 2024, Largo reported revenues of $29,900,000 including $27,200,000 from vanadium sales and $2,700,000 from ilmenite sales. Revenue was impacted by lower vanadium prices and reduced sales volumes with the average benchmark price per pound of V2M5 in Europe down to $5.71 compared to $8.03 in Q3 2023. Operating costs decreased from $44,000,000 in Q3 2023 to $29,500,000 this quarter, a 31% reduction from Q3 2023. Cash operating costs excluding royalties were $3.12 per pound sold, a 43% reduction from last year. As Celio highlighted just now, these results underscore our continued focus on cost management, and I'd like to recognize the hard work from our teams who've played a crucial role in realizing these savings.

Speaker 4

The net loss for Q3 was $10,100,000 including non recurring items of $3,300,000 which is an improvement over the net loss of $11,900,000 in Q3 2023. Adjusted EBITDA for our mining operations was $2,400,000 in Q3 2024 compared to $2,700,000 in Q3 2023, reflecting the impact of the vanadium market conditions, but also highlighting ongoing cost management efforts. At the close of the quarter, we had a cash balance of $30,400,000 and a net working capital surplus of $46,700,000 While the recently announced vanadium supply agreement is expected to contribute approximately 23 point $5,000,000 upon delivery of material between Q4 this year and Q1 next year. We continue to focus on managing liquidity carefully to support Largo's financial flexibility. In addition, we are working closely with a group of banks to explore restructuring options for our existing loan facilities.

Speaker 4

These discussions are aimed optimizing our capital structure to ensure that we're well prepared to navigate current market conditions with a continued focus on managing liquidity carefully support Largo's financial flexibility. Before I hand it over to Francesco, I'll reiterate that we remain committed to achieving sustained cost improvements at the Maracas Menchen mine. Are closely monitoring all operational expenses as part of our broader strategy to optimize performance and enhance profitability, and we look forward to updating you on our continued progress in the quarters to come. With that, I'll turn it over to Francesco for an update on our sales and commercial activities.

Speaker 5

Thank you, David, and welcome everyone to the call. It's a privilege to join today as Largo's Chief Commercial Officer and provide an update on our commercial activities for Q3 2024, along with a brief update on Largo Clean Energy. In Q3 2024, we recorded V2O5 equivalent sales of 19 61 tonnes, which includes 124 tonnes of purchased material. This represents an 18% decrease from Q3 2023, driven primarily by softer spot demand in key markets, particularly Asia and Europe. We continue to face significant headwinds affecting vanadium demand, especially within the steel sector.

Speaker 5

Low prices and an oversupply in the Chinese market have contributed to a more challenging supply demand balance, pressuring prices across regions. The average benchmark price per pound of B205 in Europe was $5.71 in Q3, down from $8.03 in the same period last year, reflecting these ongoing market challenges. In response to these conditions, we're refining our sales approach, strengthen direct sales to end users and expand our reach, particularly in North America. With the recent appointment of Randy Doyle, an industry leader with deep vanadium experience to our commercial team, we're enhancing our sales efforts and building closer customers relationships, solidify Largo's position as a trusted supplier of vanadium and ilmenite products. Our recent contract campaign for both high purity and fair vanadium products has been successful, reinforcing our strategy to grow market share and secure stable long term partnerships.

Speaker 5

Additionally, given current geopolitical factors, our increased presence in North America further positions Largo as a key supplier to this market, which is becoming increasingly crucial amid shifting global dynamics. While we continue to see softness in demand in Europe and expect this to extend into 2025, we are encouraged by early signs of recovery in the U. S. Market, which has been less affected by low price vanadium supply from China. This trend is reflected in the growing interest from U.

Speaker 5

S. Based end users, particularly in sectors such as aerospace and defense, where demand is rising for reliable and secure sources of vanadium supply. These factors along with the narrowing production supply gap globally position Largo favorably in the current environment. On the ilmenite front, we achieved a strong performance in Q3 with sales totaling of 19,572 tonnes, a 60% increase over Q2 2024. Demand for ilmenite continues to grow.

Speaker 5

We remain optimistic that this trend will support revenue growth as we build a stable diversified revenue stream alongside our Canadian business. Turning to Lager Clean Energy, we're advancing discussions with Stryten Energy towards a potential joint venture. This partnership will leverage Largo's expertise of vanadium flow battery technology alongside Stryten's manufacturing and market reach, positioning that strongly within the energy storage sector, particularly in North America where demand for grid scale solutions is expanding. We remain focused on maximizing LCEs world and Largo's overall growth strategy, ensuring that our technology aligns with the rising demand for reliable and sustainable energy storage solutions. While we recognize the challenges in the vanadium market, we're optimistic about future demand prospects, bolstered by recent regulatory developments, a recovering U.

Speaker 5

S. Market and increasing demand from key sectors. Our team's strategic focus on efficient production in sales management keeps us well positioned to meet these emerging opportunities. With that, I'll turn it back to Daniel for closing remarks.

Speaker 2

Thank you, Francesco. As we head into Q4, Largo remains committing to improving operational efficiency, reducing costs and diversifying our revenue streams. Despite the current headwinds in the vanadium prices, our recent technical report update and strategic agreements position us to well deliver value in the quarters ahead. Thank you to our entire team for their efforts and our shareholders for their support. We look forward to sharing our continued progress in the future.

Speaker 2

With that, we will now open the call for questions.

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from Heiko Ihle at H. C. Wainwright.

Operator

Please go ahead.

Speaker 3

Hey, good morning everybody.

Speaker 4

Hello. Good morning, Heiko.

Speaker 2

Hello. Good morning. I heard a

Speaker 6

random minute when I spoke. You state that recent data indicated that the oversupply gap is gradually narrowing and that there is some early indications of maybe a touch more favorable market dynamics. Where exactly is this demand coming from? I mean, early on this call, you mentioned the Americas, if I heard you correctly. And we're now halfway through Q4.

Speaker 6

Is this impact going to be showing up in the Q4 results or is this something that's maybe more of a 2025 thing?

Speaker 2

Francisco, can you give us?

Speaker 5

Yes. So it's going to mainly show in next year's contracts, right? We're in the midst of contract season right now. We're seeing the demand from both mainly the aerospace sector. As you probably know, the U.

Speaker 5

S. Market has several restrictions and depending on the origin of the products is anti dumping on Chinese fair vanadium, anti dumping on South African fair vanadium and high duties on Korean fair vanadium, which puts Largo's fair vanadium advantageous position for contracts for the steel sector in the U. S. And then in addition to that there is high demand, much higher demand from the forecast that we're receiving from our aerospace customers, which will be reflected in 2025 contracts for next year.

Speaker 6

Got it. And then just a clarification on that supply that vanadium supply agreement that you signed a couple of weeks ago. I mean, it's going to sound like a fairly large scale thing. Just talk to me a little bit about in your experience, how are prices for these agreements when you compare to spot pricing? Is this a bit like in the uranium space where these agreements tend to trade at a premium since people want to ensure supply?

Speaker 6

Or is this just more or less market based, maybe not even this specific agreement, just in general?

Speaker 2

You mean the agreement we signed recently for $23,500,000

Speaker 3

Yes.

Speaker 6

I mean, that's obviously one agreement, but there's presumably more of those coming.

Speaker 2

Well, at this particular time, this is the only agreement we have planned for something like this and this will complement our shipments for Q4. Out of the 2,100 tons in this agreement, we are planning to ship a good chunk of that quantity during the Q4 and the rest So that will complement our sales and shipments for the Q4. And this is, Jaikode, this is the only agreement we have in place now. The rest of the agreements for 2025 will be standard sales to the steel industry and defense and aerospace industries. It will be normal agreements.

Speaker 2

Will that respond to your question?

Speaker 3

Yes. No, that's pretty good. And with that, I think

Speaker 6

I will get back in queue.

Speaker 3

Thank you.

Speaker 5

Thank you. Thank you.

Operator

Thank you. The next question comes from Andrew Wong at RBC Capital Markets. Please go ahead.

Speaker 7

Hey, good morning. Can you just provide maybe a bit of an outlook on where you think prices could land in 2025 given some of the improvements that you've worked on?

Speaker 2

I'll just cook in. You'll get that question.

Speaker 5

Yes, I can take that Daniel. Look, it's obviously a tricky question talking about pricing forecast, right? If we had a crystal ball, obviously,

Speaker 7

it would be tough.

Speaker 1

But for sure,

Speaker 5

prices in the market for sure you're going to see a 2 tiered market. You're going to see higher prices in the U. S. For the reasons that I mentioned earlier, right, mainly driven by the fact that it's limited in terms of origins that can come into the U. S.

Speaker 5

Market. So that is already being reflected. If you look at the current CRU index versus Metabolic index, you're seeing a disparity between the two markets. And then obviously the bulk of the aerospace volume is obviously done at a premium to the industry, right. So we are expecting a faster recovery in prices in the U.

Speaker 5

S. Visavis Europe or the rest of the world, right?

Speaker 7

And what about on costs for 2025, given some of the operational efficiencies improvements that you've worked on?

Speaker 2

Felio, can you take that question?

Speaker 3

Yes, for sure. We keep moving our turnaround and increasing our efficiencies at the mine. We are now having a very strong look at logistics and input supply. So we expect that the average cost of 2025 should be heading the lower direction based compared to this year.

Speaker 2

Okay. On the cost side, we will continue with this trend of trying to finalize analysis of each of the contracts, concentrating ourselves on logistics. So there is still a way to go in this turnaround process that we started months ago. So we expect that the cost of production will continue to take the benefits of those adjustments and those analysis for next year.

Speaker 7

Okay. And just looking out a little bit here, when we look at the mine plan and the resources and like what the deposits look like longer term, the grades come down Campbell did is a lot higher grade, so best material I think that you have in your resource inventory. Does it still make sense to be depleting your best resource at relatively minimal profitability and prices today?

Speaker 2

Can you take that question, Salveen?

Speaker 3

Yes. Thank you, Daniel. So we have added 2 new pits to our reserve base that we didn't have before. Cantibile is our current pit that we mine. Of course, we have seen weaker prices in this last year.

Speaker 3

But our operational our mining plan for Campbel goes until 2,031,002.

Speaker 5

So it's a

Speaker 3

world class asset with very high grades for V2O5. And we believe that it's strategic to keep mining Campbelt for now and for the next years until we are prepared to move to the lower grades assets and reserves piece that we have in Maracas.

Speaker 7

Okay.

Operator

Thank you. Thank you. The next question comes from Gordon Lawson at Paradigm Capital. Please go ahead. Gordon, your line is open.

Operator

Please proceed with your question.

Speaker 8

Sorry, I was on mute. So the beat on cash cost this quarter was pretty significant and really stands out. What should we expect for you've already talked about what to expect in terms of beating this year, but how much should we add to cost for the ilmenite production on a per pound basis?

Speaker 2

Elio, can you take that question?

Speaker 3

Yes. If we consider that ilmenite is a new revenue stream that we do in the ramp up phase and optimizing recoveries and production, I believe when we reach our full capacity at humanite and optimize all of its process, I think we'll be talking we'll be seeing the $0.30 to $0.50 range in terms of vanadium production costs.

Speaker 8

That's quite cheap. So on that front end, the $22,000,000 investment to double the production of ilmenite seems like a rather low threshold. So what parameters are behind the sanctioning decision going in terms of lining up customers versus return on investment?

Speaker 2

Can you take that question? Most of this is in the technical reporting, so we can get the information from there.

Speaker 3

Yes. Sorry, I didn't understand the investment side of the question. Can you please repeat?

Speaker 8

Well, it seems rather inexpensive to double the production. So I'm just wondering if this is an issue of winding up customers for the product or whether there's more to it beyond simple ROI?

Speaker 3

Yes. The strategy to double the production is linked with the vanadium side as well because the M and A is produced from our non magnetic tailings from our current milling that produces the vanadium concentrate. So the strategy is linked with a 20%, actually it's 33% expansion in our current kiln happening first. And then we will have, of course, an upgrade in the milling and crushing together with this kiln expansion. And after that, we will have more material to process and do the full expansion of the ilmenite.

Speaker 3

So that's more because of the vanadium strategy. We also link this ilmenite strategy ramp up and expansion in the future.

Speaker 8

So the grades of the pits beyond the Campbell pit, that's obviously playing much more of a role than lining up the customers as I stated?

Speaker 3

Yes, correct.

Operator

The next question comes from Gary Brink at Northinsight Asset Management. Please go ahead.

Speaker 9

Good morning. Could you tell me how much debt on the balance sheet is attributable to the Mallorca storage facility? Could you discuss how it's working and whether you're generating any revenue from it? And could you compare that vanadium technology to other battery technologies that you may be competing with? And I have one other question, which I've asked for the last 5 years.

Speaker 9

Could you discuss the elasticity of demand for vanadium?

Speaker 2

Can you take that one, Francesco?

Speaker 5

Yes. So elasticity for demand for vanadium, are you referring to specific industry or what would you like me to elaborate on?

Speaker 9

Well, if you understand the elasticity, maybe you could explain how prices would change if you, for example, reduced your production of vanadium?

Speaker 5

Well, most of the vanadium micro pricing obviously are driven by the 2 largest producing countries, right, which is Russia and China. So you can understand obviously that the current geopolitical situation has affected one of those origins and then the current softness of the market in China has caused the price to drop this year, right. The exports from China have drastically increased. So if you look at the supply demand dynamics are drastically affected by the export and units from the Chinese market, right. But our strategic positioning within the U.

Speaker 5

S. Market is why we have diversified our strategy in going after a region that is not subject to those effects of the Chinese units, right?

Speaker 9

Maybe we can take this question offline. I don't think you understand it. Could you discuss how much debt is on your balance sheet attributable to the Mallorca storage facility? Could you discuss how it's functioning? Could you discuss whether you're generating any revenue from it, whether you're generating any potential sales of new storage facilities?

Speaker 9

And could you discuss your vanadium storage technology to other storage technologies?

Speaker 4

Yes, I'll take the first part. The question on the Yes, just on the debt. There's no debt on the balance sheet that relates to the battery storage facility in Mallorca. That's all been self funded. So there's no debt attributable to that.

Speaker 4

In terms of the project But

Speaker 9

you didn't you borrow $95,000,000 to buy the technology in the first place?

Speaker 4

No, that's not correct. The IP that we have that was acquired, that was acquired for approximately just over $4,000,000 in 2020 and that was sort of a share non cash purchase that was done at the time. Any other funding that's gone in, it's just been funding the LCE activities as a whole. In terms of the delivery of the project, I mean, as you'll note in our MD and A, the final tests and the commissioning activities have not been completed. So the project has not been delivered in such that we have not recognized revenue from delivery of that project as of this time.

Speaker 4

But perhaps, Francesco, you can just comment a bit more in terms of the status of the ramp up and commissioning of the Enel project.

Speaker 5

Yes. Sure. So we replaced the inverter and the transformer. So those activities have been completed and we're now undergoing the final FAT factory accepted testing for the final commissioning of the battery system. So are in the final stages of final hot commissioning of the system.

Speaker 9

Okay. Thank you. I'm sorry, I thought you had this facility running 2 years ago. So it's a good update for me. Thanks.

Operator

Thank you. There are no further questions. I will turn the call back over to Alex Guthrie for closing comments.

Speaker 1

Thank you, operator. This concludes our Q and A session of the quarterly call. Thank you, everyone, and have a great day. Bye now.

Operator

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

Powered by Quartr
Earnings Conference Call
Largo Q3 2024
00:00 / 00:00