Largo Q1 2024 Earnings Call Transcript

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May 16, 2024

There are 7 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to Largo's First 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, Senior Manager of External Relations.

Operator

Please go ahead.

Speaker 1

Thank you, operator, and thanks to all those who could attend our Q1 2024 conference call today. Largo's Q1 2024 financial statements, related MD and A and most recent AIF can be accessed on our website at largoinc.com as well as on our SEDAR Plus and EDGAR profiles. Before continuing the call, I would like to remind you that some of the information you will hear during today's discussion will consist of forward looking statements, including without limitation those regarding future business outlook. Please refer to the cautionary statements in the related MD and A, consolidated financial statements and AIF, which can be found on our website within the Investor Relations section. And finally, all figures are in U.

Speaker 1

S. Dollars unless otherwise stated. On the call today is Daniel Talechea, Largo's Interim CEO and Director Celio Perea, Largo's Brazil's Chief Operating Officer Ernest Cleave, Largo's Chief Financial Officer Paul Blonde, Largo's Chief Commercial Officer and Francesco D'Alessio, the President of Largo Clean Energy. Following delivery of the prepared remarks, we will open the call questions. I'll now turn the call over to Daniel.

Speaker 1

Daniel, please go ahead.

Speaker 2

Yes. Thank you. Good morning, everyone, and thank you for joining us today for Largo's Q1 2024 earnings call. As our team takes you through our Q1 financial results and discusses our strategy moving forward, I will keep my particular remarks brief. At Largo, our main focus remains on improving production efficiencies and reducing cash cost to return to profitability, especially amidst the current period of low vanadium prices.

Speaker 2

We recognize the challenges posed by the current market conditions and our commitment to improving our performance remains top priority. With a new operating team in place, we're confident in our ability to drive productivity improvements and operational excellence going forward at our Maracas mentioned mine. Now, I would like to introduce Helio Pereira, our Chief Operating Officers from Largo, Brazil, who will provide a more comprehensive view of our operational improvement plans going forward. Our productivity initiatives along with his operational leadership are helping us navigate through these challenges to emerge in stronger in the future. Celio, pass to you.

Speaker 2

Okay. Probably the line is busy. If that is the case, I will take over Celia's presentation. I'm going to speak in his name. It is my pleasure to speak to you today for the first time and provide insights into our operational plans moving forward at our Maracas mentioned mine.

Speaker 2

It is very important to stress that maximizing operational output and reducing costs remain our top priorities at Largo. We are working today on 4 key initiatives to maximize output. Number 1, we are improving our grade control capabilities to reduce dilution in mining operations and increase ore grade feeding the crushing plants. These changes were concluded in April 2024 with installation of a dedicated drilling machine and an increased number of sampling and analysis as well as changing in operational procedures to improve grade control. Secondly, we have been increasing our crushing volume over the last quarters and we will add an additional 22% in crushing capacity by the end of Q2, 2024 through the installation of a mobile crusher as well as a dry magnetic separator.

Speaker 2

This is expected to offset the lower grades we are currently mining. Our 3rd initiative is in the focus of an increase in ilmenite concentrate production and we have finished the installation of a system to pump material from non magnetic pumps to our ilmenite concentrator to support this. This will allow us for the continuation of plant production when our milling plant is outstanding as well as increased grades, recovery and quality. Lastly, we will be installing screens and wet magnetic separators in the milling plant in the Q3 of this year to improve the quality of the concentrate. And by doing so improve the kiln recovery as well as reduce the sodium carbonate consumption.

Speaker 2

These initiatives are low cost, high return projects in order to enhance our operational efficiencies and optimize the use of cash. To complement this initiative, we have also implemented extensive measures to reduce production costs, including the reduction and optimization of haulage distance, reduction in drilling and explosive consumption, cost of inputs as well as a review of all contracts at our mine site. We have concluded a reduction in the number of contractors by 20% during April, while improving additional efficiencies through the whole operations. This included reduction of equipment rental, increase in synergies and the testing and development of different inputs to explore lower price alternatives. For the remainder of 2024, we expect a reduction of approximately BRL40 1,000,000 in operating expenditures and approximate BRL12 1,000,000 in capital expenditures.

Speaker 2

When combined with our productivity initiatives, this measure are expected to assist the company in achieving its revised 2024 cost guidance and offset some of the impact of lower vanadium prices. With regards to the operation results in Q1 2024, we conducted the planned annual maintenance at the mine, including the replacement of the keel refractory and other maintenance actions in various sections of the plant. As expected, this maintenance impacted production resulted in V2O5 lower V2O5 production compared to the previous year. In Q1 2024, our B2O5 production was 17 29 tons within the lower range of the company's quarterly production guidance of 17,021,200 tons for the Q1 of 2024. Global recoveries averaged 70.5% in Q1 2024, significant lower than the previous year.

Speaker 2

This decline was largely due to the lower grades mined during the period impacting dry magnetic, wet magnetic as well as kil recoveries. On the ilmenite side, we have been focused on advancing the ramp up of this new facility and continue to make progress with this activity. In Q1 2024, the company produced 9,563 tons, which represented an increase of 6.6% from Q4 of last year. Subsequent to Q1 2024, production was at 753 tons of B2O5 equivalent in April 2024 with 2,500 tons of ilmenite concentrate being produced during the same period. Before I hand the call over to Ernest, I would like to stress that despite the challenges faced in Q1 2024, we are optimistic about achieving our operational targets going forward.

Speaker 2

With our productivity initiatives underway and commitment to operational excellence, our operational team is laser focused on not only meeting our goals, but delivering better results in the future. Now I will turn the call over to Ernest for a detailed financial overview of quarter number 1.

Speaker 3

Thank you, Daniel. In face of the challenges such as the maintenance period and a significant decline in vanadium prices, our primary focus remained unchanged, which is to restore profitability at the company. Despite these challenges detailed on this call, we've been diligently working to implement strategies aimed at achieving this goal. I'll now provide a very brief summary of the financial results we reported yesterday evening on our Q1. Our revenues for Q1 2024 totaled $42,200,000 down from $57,400,000 in Q1 2023 with the decrease being primarily attributable to a decrease in vanadium prices with our realized vanadium prices dropping from 9 point $1.4 per pound in Q1 2023 to $6.91 per pound in Q1 2024.

Speaker 3

Operating costs for Q1 2024 were $49,700,000 and that's up from 45,900,000 in Q1 2023. Our cash operating costs excluding royalties stood at $6.12 per pound of V2O5 equivalent sold in Q1, twenty twenty four, and that compares with $5.15 per pound in Q1, 2023. This increase can largely be attributed to the extended maintenance period as previously mentioned, and it also includes a $4,500,000 write down of produced vanadium products. We recorded a net loss of $13,000,000 in Q1 2024 and that's inclusive of $4,400,000 in non recurring items compared with a net loss of $1,200,000 in Q1 2023, which included 100,000 dollars in non recurring items. Basic loss per share for Q1 was $0.20 compared to $0.02 in Q1 2023.

Speaker 3

We exited the quarter with a cash balance of $45,700,000 a net working capital surplus of 70,800,000 debt of $75,000,000 exiting Q1 2024. Despite the challenges faced, we've been actively implementing measures to reduce cost and enhance productivity as previously pointed out on this call. 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 productivity initiatives materialize. Now, I'll pass it on to Paul to discuss sales in the vanadium market.

Speaker 4

Thanks, Dennis. Our sales results for Q1 2024 were in the upper end of our quarterly guidance. We achieved V2O5 equivalent sales of 2,765 tons, inclusive of 156 tons of purchased material. However, this represented a small decrease compared to the 2,849 tons that we sold in Q1 2023. Subsequently, we sold 7 30 tons of V2O5 equivalent in April.

Speaker 4

Speaking of prices, we sold at an average price of $6.94 per pound of V2O5, a 7.8% premium to the V2O5 European average of $6.44 per pound of V2O5. The average benchmark price experienced a 0.3% decline from $6.46 per pound of V2O5 on average in Q4 2023. The average benchmark price per kilogram of ferrovanadium in Europe increased to $27.96 in Q1 2024 from $26.61 in Q1 in Q4 2023, reflecting a 5% improvement over the period. The most recent average benchmark price per pound of BSWO5 in Europe as of May 10 was $5.87 The softness in spot demand persisted in Q1, primarily driven by adverse condition in the Chinese steel sector. However, spot market is now starting to show signs of improvement in May.

Speaker 4

Looking ahead, the fast growth in demand for battery applications in China and its potential to support the energy transition in the rest of the world gives us hope for future quarters. Also, we're observing continued strength in the high purity sector, which represents promising opportunity for Largo's product. Shifting focus to ilmenite, our sales were 5 13 tonnes in Q1. This is well below our guidance as we experienced initial operational and administrative delays. Nonetheless, we're continuously improving and sold over 9,000 tons in April.

Speaker 4

We anticipate sales to rebound in the coming months and maintain our production and sales guidance for 2024. Now, I'll hand it over to Francesco for a brief update on our clean energy based business.

Speaker 5

Thank you, Paul, and welcome everybody to the call today. Since our last update, our primary focus has been advancing negotiations concerning the strategic evaluation of our Clean Energy business, particularly regarding a proposed joint venture with Stryton Energy as previously announced. These negotiations remain ongoing and are a crucial step forward for us as we look to enhance the value of our clean energy business and energy storage product offering. In addition to this, I'm also pleased to share that we have made considerable progress towards the completion of the 2nd phase of our commissioning for our BRFP deployment in Spain for Enel Green Power. The completion of this phase will take place following the replacement of the inverters and the transformer.

Speaker 5

I'll now hand it over back to Daniel.

Speaker 2

Sorry, I was on mute. To close out, I want to reiterate our commitment to continue enhancing production, efficiency and reducing cost of Largo. As we have navigated through the challenges posed by the current market conditions, I am confident in the capabilities of our dedicated team and the efficiency measures that we are undertaking. The comprehensive initiative we are implemented which include operational enhancement, cost reduction in measurements and productivity initiatives are expected to optimize our operations and achieve profitability in the future. We thank you all for your continued support and we look forward to updating you in our progress in the quarters ahead.

Speaker 2

Now I will hand it back the call back to our operators for our question and answer session. Thank you.

Operator

Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. We have our first question coming from the line of Andrew Wong from RBC. Go ahead please.

Speaker 6

Good morning. Thanks for taking my questions. So your realized prices performed quite well this quarter relative to market prices. Can you just talk about what's contributing to that? Was it high purity sales or maybe your contract prices going into the year?

Speaker 6

And how do you expect your realized prices to perform for the rest of the year?

Speaker 2

Paul, can you take that question?

Speaker 4

Yes, sure Daniel. Hi Andrew. Yes, we overperformed the market this quarter. That's mainly due to 2 main factors. 1 is our high purity sales, which is sold at a premium to market price.

Speaker 4

And 2 is the fact that most of our contracts are trailing the index, right? So, we usually deliver material in the month quoted based on the previous month's price. So, in a downward market like today, structurally we're supposed to perform a bit better than the market. That's the two main reasons that justify this over performance.

Speaker 6

And for the rest of this year?

Speaker 4

Yes, sorry. And for the rest of this year, it really depends on the market trend if and also our share in high purity. That's a number we're going to provide regularly now to each quarter for this call. So, yes, we expect to be around market price probably over performing a bit.

Speaker 6

Okay. Thank you. And then just on the operations side, the grades have come down a bit relative to your historical levels. Is there any expectation for the grades to come back? Or is the expectation for the grades to kind of stay at these levels given that you've installed equipment to handle more ore?

Speaker 6

And then going to 2025, would your second half outlook be a good guide for cost into next year?

Speaker 2

Are you in the call, Celio? Can you answer that question?

Speaker 3

Daniel, I don't think he is.

Speaker 2

He's not on the call. Basically, our as I mentioned before, Andrew, our grade has been affected right now because of the presence of the pegmatite, which appears on the center of the ore body. That is the main reason why while we mine and reduce and eliminate the pegmatite from our mining operations, the grade will continue to be around 0.75, 0.80 P2O5. So once we eliminate the pegmatite and according to our mine plans, that should be around half of next year, our grade should be going up a little bit. So for the time being, we will continue mining and going forward with this 0.75, 0.80 P2O5 grade in our mining operations.

Speaker 2

Also the other thing that has been affecting us is the grade of the magnetics on the material. Remember that Maracas is a mine that we do a lot of blending between the 3 kinds of material, massive, bonded and disseminated. What is happening today and the main reason of increasing our crushing capabilities is that they were mining much were mining and processing much more disseminated ore, who has a lower grade, lower magnetics and that is the main reason where in order to produce the same amount of V2O5 at the end of the period, we are increasing our capacity of crushing and dry mag operation as I explained during the presentation. I didn't hear the second part of your question, Andrew.

Speaker 3

I can talk about it, Daniel. Andrew, so on the cost side, for the remainder of let's talk about the second half of the year. We're going to be in that $4.50 to $5.50 excluding royalties range. Looking into the New Year, it's a bit early, but with the improvements in grade, the throughput, unitary throughput improvements, etcetera, ambition is to be below $4 in 2025. But for now, we are maintaining our cost guidance of that $4.50 to $5.50 with the ambition to go below post that sort of 6 month period.

Speaker 6

Okay. That's excellent. Thank you very much for the additional color.

Speaker 3

You're welcome.

Speaker 2

Thanks.

Operator

Thank you. This ends our question and answer session for today. I'd now like to turn the call back over to Mr. Gaffey for final closing comments.

Speaker 1

Thank you, operator, and thanks to everyone for joining us today. This concludes the Q and A session of our quarterly call.

Speaker 2

Have a

Speaker 1

great day everyone. Thanks again. Bye.

Operator

Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.

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Earnings Conference Call
Largo Q1 2024
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