Largo reports highlights of its fiscal 2016 financial and operating results
TORONTO, March 31, 2017 /CNW/ - Largo Resources Ltd. ("Largo" or the "Company") today released highlights of its financial results for the year ended December 31, 2016, as filed in full on SEDAR at http://www.sedar.com and on the Company's website at http://www.largoresources.com. The reader is cautioned that the below excerpt should be read in conjunction with the Company's annual consolidated financial statements for the years ended December 31, 2016 and 2015 as well as the management's discussion and analysis for the year ended December 31, 2016 ("MD&A"). Note references in this press release refer to the notes contained in Largo's annual consolidated financial statements for the years ended December 31, 2016 and 2015.
| Q4 2016 highlights1 | ||
| Q4 2016 | Q4 2015 | |
| $ | $ | |
| Revenues | 31,482 | 7,600 |
| Direct mine and mill costs | 21,701 | 19,268 |
| Cash provided by / (used in) operating activities | 4,519 | (2,761) |
| Summary of the Company's 2016 financial results2 | ||
| Dec. 31, 2016 | Dec. 31, 2015 | |
| $ | $ | |
| Cash | 758 | 2,869 |
| Total Current Assets | 32,211 | 19,718 |
| Mine properties, plant and equipment | 321,084 | 296,041 |
| Total Assets | 353,295 | 315,759 |
| Total Current Liabilities | 94,082 | 100,313 |
| Total Liabilities | 326,469 | 282,817 |
| 2016 | 2015 | |
| $ | $ | |
| Revenues | 81,233 | 7,600 |
| Operating costs | (113,173) | (29,377) |
| Direct mine and mill costs 3 | (77,226) | (19,268) |
| Net loss | (55,630) | (129,960) |
| Basic loss per share | (0.14) | (0.78) |
| Net cash provided by (used in): | ||
| Operating activities | (15,942) | (8,421) |
| Financing activities | 29,193 | 39,997 |
| Investing activities | (15,565) | (39,818) |
| 1. | Financial numbers are reported in thousands of Canadian dollars, except for per share amounts. |
| 2. | References to "2016" and "2015" refer to the twelve-month periods ended December 31, 2016 and December 31, 2015, respectively, and as reported in the Company's annual consolidated financial statements for the years ended December 31, 2016 and 2015. |
| 3. | Refer to note 21. |
| Cash operating costs since the commencement of commercial production on October 1, 2015 4 | ||||
| Production Tonnes | Production Equivalent | CDN$ Cost per | US$ Cost per | |
| Q4 2015 | 1,654 | 3,646,441 | $5.97 | $4.47 |
| Q1 2016 | 1,169 | 2,577,201 | $6.52 | $4.75 |
| Q2 2016 | 2,311 | 5,094,877 | $4.19 | $3.25 |
| Q3 2016 | 2,182 | 4,810,481 | $4.67 | $3.59 |
| Q4 2016 | 2,304 | 5,079,444 | $4.82 | $3.60 |
| 4. | Refer to the "Non-GAAP Measures" section of the Company's MD&A for a discussion regarding the calculation of these Non-GAAP Measures and additional discussion of cash operating costs elsewhere in the Company's MD&A. |
Mark Smith, President and Chief Executive Officer for Largo, stated: "We delivered substantial financial improvements during Q4 2016, as evidenced by our quarterly results. Revenues for Q4 2016 exceeded direct mine and mill costs by $9,781, which demonstrates our robust financial performance. Similarly, cash generated from operating activities for Q4 2016 was $4,519. These achievements are the direct result of our strong operational improvements and effective management oversight at the Maracás Menchen Mine."
He continued: "We are delighted with the Company's recent results and believe that our strong production record, stabilization of cash operating costs and positive outlook for vanadium prices will underpin Largo's financial performance during fiscal 2017."
Maracás Menchen Mine operating results
The Maracás Menchen Mine operation produced its first vanadium pentoxide flake on August 2, 2014. On October 1, 2015, the Company declared commercial production at the Maracás Menchen Mine. Since this date, attributable borrowing costs and depreciation are no longer capitalized and are recognized in the consolidated statement of loss and comprehensive loss, together with revenues and operating costs.
Expenditures of $12,971 were capitalized to mine properties, plant and equipment during the year ended December 31, 2016 (year ended December 31, 2015 – $45,944).
During Q4 2016, production output was 5.6% higher than in Q3 2016, with new monthly and daily production records of 828 tonnes and 39 tonnes of V2O5, respectively, achieved in December. Recoveries have continued to improve over the course of 2016, with the fusion recovery rate averaging 85% (2015 – 72%). For Q4 2016, the fusion recovery rate of 90% is a significant improvement from the 78% achieved in the same prior year period. The overall recovery rate averaged 62.6% for Q4 2016, an increase of 6.3% from the 58.9% achieved in Q3 2016, primarily due to improvements in milling control and leaching performance. The lowest monthly production in Q4 2016 was in October with an output of 715 tonnes of V2O5, which was lower than expected due to a longer than anticipated scheduled shut-down of the kiln and cooler for refractory repair and availability of the flash dryer. Total production for 2016 was 7,966 tonnes of V2O5, with production levels varying by less than 6% per quarter from Q2 2016 onwards. Nameplate annual production capacity for the Maracás Menchen Mine is 9,634 tonnes of V2O5, or approximately 26.4 tonnes per day.
The cost per pound for Q4 2016 in Canadian dollars ($) (refer to page 5 of the MD&A) was higher than both Q3 2016 and Q2 2016, partially due to a strengthening of the Brazilian real (R$) against the $, with the average rate moving from 0.3675 (R$/$) in Q2 2016 to 0.4052 in Q4 2016. In addition, the Q4 2016 cost per pound is impacted by the recognition of a provision for litigation claims (refer to note 10(a)) in other general and administrative expenses.
During Q1 2017 the Company was focused on stable production and the implementation of improvement projects to support higher recoveries and lower consumption of consumables in the chemical plant. During March 2017 embarked on a planned shutdown of 20 days to replace the kiln refractory. In 2017, the Company plans to implement projects in the leaching and kiln sections of the chemical plant to further increase these recovery levels. In addition, the Company aims to improve the level of consumption of sodium carbonate and ammonium sulphate, two of the Company's key consumables, by improving control of the dosage system. Further, the Company anticipates that its efforts in improving overall recovery levels will enable it to achieve monthly production of 840 tonnes of V2O5 in Q2 2017. The Company will also commence sales of high-purity V2O5 flakes to its offtake partner, as well as making the necessary additions to the plant to enable the handling and packing of V2O5 powder.
The cost per pound for 2016 (see "Non-GAAP Measures" section of the MD&A) was $4.85 (US$3.62), which is lower than the 2016 guidance of $5.07 (US$3.87) as published in the Q3 2016 MD&A. This achievement demonstrates the greater consistency in operations and production achieved at the Maracás Menchen Mine since Q1 2016. Consequently, the Company expects to build on this in 2017. Production guidance for 2017 is as follows:
| Annual Production High-End | Annual Production Low-End | Average Annual Production | Estimated Annual US$/CDN$ Cash Costs Per Tonne 1,2,3 | Estimated Annual Average US$/CDN$ Cash Operating Costs Per Pound 1,2,3 | |
| 2017 2 | 9,777 tonnes 4,5 ~ 21.6 mil. lbs | 8,777 tonnes 4,5 ~ 19.3 mil. lbs | 9,277 tonnes 4,5 ~ 20.5 mil. lbs | US$8,065 CDN$10,767 | US$3.66 CDN$4.88 |
| 1. | The cash operating costs reported are on a non-GAAP basis. Cash operating costs include all cash expenditures, the main categories being mining costs, plant and maintenance costs, sustainability costs, mine and plant administration costs, royalties and SG&A. Cash operating costs excludes depreciation and amortization charges, interest or any other debt servicing costs and commissions on sales. Refer to the "Non-GAAP Measures" section of this MD&A. See also 3. below. The estimated average annual R$/US$ and CDN$/US$ exchange rates used for 2017 are approximately 3.34 and 1.34 respectively. |
| 2. | Excludes corporate SG&A or CAPEX (Capital Expenditures). |
| 3. | The reader is cautioned that the cash operating costs presented are intended to serve as a guide to the magnitude of the Company's monthly operating expenditures on a cash basis and excludes financing costs associated with the operations and non-cash accounting charges (including but not limited to depreciation and amortization expense, accretion, share-based payments, or foreign exchange and derivative gains or losses). The measure may therefore not be comparable to other companies or the results of similar operations and does not meet any definition of GAAP. Refer to the "Non-GAAP Measures" section of this MD&A. |
| 4. | Conversion of tonnes to pounds, 1 tonne = 2,204.62 pounds or lbs. |
| 5. | A total CAPEX of approximately $9.9 million is expected to be required during 2017. The Company periodically reviews its CAPEX needs and will update the market when its estimates change by a material amount. |
2016 Highlights
The Company's Maracás Menchen Mine produced 7,966 tonnes of V2O5 in 2016. The Company's Maracás Menchen Mine achieved a new record production level of 828 tonnes of V2O5 in December 2016, which included new weekly and daily production records of 219 and 39 tonnes, respectively.
On March 2, 2016, the Company announced that it had entered into definitive agreements with the consortium of three commercial banks in Brazil for a new debt facility (the "2016 Facility") (see note 9(b)) and the restructuring of its export credit facilities (see note 9(e)).
Concurrently with the New Facility, the Company agreed to new commercial terms for its US$3,952 short term loan (see note 9(f)). In addition, the Company agreed terms for an additional facility of up to R$80,000 to close out its foreign currency swap contract that indexes a portion of the BNDES facility (see note 9(d)) to the US dollar.
On January 12, 2016, the Company announced it had reached an agreement to restructure the timing of amounts due under the arbitration settlement (refer to note 9(h)). Under the terms of the restructuring, the Company made a payment of US$4,000 on January 29, 2016, with further payments deferred to commence on January 15, 2017.
On January 29 and March 3, 2016, the Company announced the closing of the first and second tranches of a non-brokered offering of units. The Company received gross proceeds of $36,644 from the sale of 209,393 units of the Company. Each unit was sold at a price of $0.175 and consisted of one common share of the Company and one-half of one common share purchase warrant. Each whole warrant will be exercisable into one common share at a price of $0.29 per share for a period of five years from closing of the offering. Funds managed by Arias Resource Capital Management LP (the "ARC Funds") purchased an aggregate of 153,333 units for consideration of $26,834. Prior to the offering, the ARC Funds owned approximately 46.30% of the Company's issued and outstanding common shares and following the closing of the offering, the ARC Funds owned approximately 59.96% of the Company's then issued and outstanding common shares. In addition, Mr. Mark Smith subscribed for an aggregate of 4,218 units. Refer to note 11 for further details.
On May 10, 2016, the Company announced that it had received approval for listing of its common shares for trading on the OTCQB Venture Market ("OTCQB"). The Company commenced trading on the OTCQB under the symbol LGORF at market open on May 10, 2016.
On May 26, 2016, the Company announced a significant increase in the mineral reserves at its Maracás Menchen Mine. Refer to the Operations, Maracás Menchen Mine section of Largo's MD&A for further details.
On June 29, 2016, the Company announced that it had received approval for the listing of its common shares on the TSX. The common shares commenced trading on the TSX effective July 4, 2016.
On July 18, 2016, the Company announced that it had entered into a non-binding memorandum of understanding ("MOU") with Vionx Energy Corporation ("Vionx"), a company which develops, produces and sells vanadium redox flow batteries ("VRBs") for utility grid applications. The MOU summarizes the principal terms upon which Largo and Vionx will continue discussions that may lead to the supply by Largo of vanadium electrolyte to Vionx to further the research and development of advanced VRBs utilizing VNX Grid Energy Storage Systems. The MOU is conditional upon a number of items as set out in the Company's press release dated July 18, 2016.
On September 7, September 12 and October 4, 2016, the Company announced the closing of the first, second and third tranches of a non-brokered offering of units. The Company received gross proceeds of $5,000 from the sale of 11,111 units of the Company. Each unit was sold at a price of $0.45 and consisted of one common share of the Company and one-half of one common share purchase warrant. Each whole warrant will be exercisable into one common share at a price of $0.65 per share for a period of three years from closing of each tranche. Funds managed by the ARC Funds purchased an aggregate of 6,228 units for consideration of $2,803. Prior to the offering, the ARC Funds owned approximately 59.96% of the Company's issued and outstanding common shares and following the closing of the offering, the ARC Funds owned approximately 59.86% of the Company's then issued and outstanding common shares. In addition, Mr. Mark Smith subscribed for an aggregate of 556 units and an entity controlled by Mr. Alberto Beeck, a director of the Company, subscribed for an aggregate of 556 units. Refer to note 11 for further details.
On December 28, 2016, the Company announced it had entered into definitive agreements with the consortium of three commercial banks in Brazil for a new debt facility (the "2017 Facility") (see note 9(c)) and the restructuring of its existing facilities.
Significant events and transactions subsequent to 2016
On January 9, 2017 and January 24, 2017, the Company announced the closing of the first and second tranches of a non-brokered offering of units. The Company received gross proceeds of $16,083 from the sale of 35,740 units of the Company. Each unit was sold at a price of $0.45 and consisted of one common share of the Company and one common share purchase warrant. Each whole warrant will be exercisable into one common share at a price of $0.65 per share for a period of three years from closing of the offering. Funds managed by the ARC Funds purchased an aggregate of 14,396 units for consideration of $6,478. Prior to the offering, the ARC Funds owned approximately 59.86% of the Company's issued and outstanding common shares and following the closing of the offering, the ARC Funds owned approximately 58.62% of the Company's then issued and outstanding common shares. In addition, an entity controlled by Mr. Alberto Beeck, a director of the Company, subscribed for an aggregate of 10,450 units for consideration of $4,703. Refer to note 22 for further details.
On February 27, 2017, the Company announced that its vanadium pentoxide has been qualified for use by a major North American producer of master alloys for the aerospace industry, with further qualification trials underway at master alloy producers in Europe and Russia.
On March 15, 2017, the Company announced that the consortium of three commercial banks in Brazil had agreed to temporarily waive the requirement that the Company inject a further US$5,000 in working capital into Vanadio, a term which the three commercial banks had required in connection with the 2017 Facility (see note 9(c)). In connection with the granting of this temporary waiver, the three commercial banks and the Company are in discussions for the Company to fund certain payment obligations to the three commercial banks which had previously been delayed.
Restructuring of short term loan
The Company is also pleased to announce that it has agreed to a new schedule of payments for its short term loan with a Brazilian commercial bank. As a result of the initial agreement, the Company received a waiver, which included a waiver for the payment of principal and interest previously due on February 28, 2017, to allow the revised loan documents to be negotiated and duly executed. In return for receiving this waiver, the Company was required to pay a restructuring fee equal to US$100 to be satisfied through the delivery of common shares of the Company. The revised loan documents were duly executed on March 24, 2017. The new schedule of payments for the short term loan are as disclosed in note 22.
About Largo
Largo Resources Ltd. is a growing strategic mineral company focused on the production of vanadium pentoxide at its Vanadio de Maracás Menchen Mine. Vanadium is primarily used as an alloy to strengthen steel and reduce its weight. Vanadium enhanced steels are used in a vast and growing range of products that are used and encountered every day; including, rebar, automobiles, transport infrastructure etc. As trends in the steel industry now demand increasingly stronger and lighter products for advanced applications, the use of vanadium is expected to grow over the medium and long term. Largo also has interests in a portfolio of other projects, including: a 100% interest in the Currais Novos Tungsten Tailings Project in Brazil; a 100% interest in the Campo Alegre de Lourdes Iron-Vanadium Project in Brazil; and a 100% interest in the Northern Dancer Tungsten-Molybdenum property in the Yukon Territory, Canada. For more information, please visit www.largoresources.com.
Cautionary Notes:
This press release contains forward-looking information under Canadian securities legislation. Forward-looking information includes, without limitation, statements with respect to completion of a listing on a U.S. stock exchange. Generally, 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 the Largo 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 SEDAR 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.
Neither the Toronto Stock Exchange (nor its regulatory service provider) accepts responsibility for the adequacy or accuracy of this release.
SOURCE Largo Resources Ltd.
Contact
Largo Investor Relations, info@largoresources.com