Largo Reports First Quarterly Net Income and Other Financial and Operational Highlights for Q3 2017
- Largo is for the first time reporting quarterly net income since its Maracás Menchen Mine started commercial production. Net income for Q3 2017 of $13.5 million compares to a loss of $24.7 million for Q3 2016.
- Operating cash flows before changes in non-cash working capital items increased to $29.5 million, from $11.0 million in Q2 2017 and negative $1.4 million in Q3 2016.
- For the nine months ended September 30, 2017 the Company recorded $45.6 million in operating cash flow before changes in non-cash working capital items versus negative $15.7 million for the nine months ended September 30, 2016.
- V2O5 production increased to its highest quarterly level to date of 2,513 tonnes in Q3 2017, from 2,183 tonnes in Q2 2017 and 2,182 tonnes for Q3 2016, with record monthly production of 888 tonnes in August 2017.
- Revenues increased to $53.5 million in Q3 2017 from $35.8 million in Q2 2017 and from $20.8 million in Q3 2016, mainly driven by higher V2O5 prices and increased production.
- Overall metallurgical V2O5 recovery increased to 76.5% in Q3 2017, from 74.3% in Q2 2017 and 71.8% in Q1 2017.
- Cash costs remained at US$3.56/lb, the same level as for Q2 2017, but on a Brazilian real basis represents the lowest cost quarter since the start of commercial production (R$11.27).
- Cash increased to $16.0 million in Q3 2017 from $12.4 million in Q2 2017 and restricted cash reduced to $0.2 million in Q3 2017 from $8.3 million in Q2 2017. The reduction in restricted cash is primarily attributable to the settlement of outstanding bank guarantee fees over the course of Q3 2017.
TORONTO, Nov. 6, 2017 /CNW/ - Largo Resources Ltd. ("Largo" or the "Company") today released highlights of its financial results for the quarter ended September 30, 2017, 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 unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2017 and 2016 as well as management's discussion and analysis for the three and nine months ended September 30, 2017 ("MD&A"). Note references in this press release refer to the notes contained in Largo's unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2017 and 2016.
Q3 2017 financial highlights1
| Q3 | YTD | |||
| 2017 | 2016 | 2017 | 2016 | |
| $ | $ | $ | $ | |
| Revenues | 53.5 | 20.8 | 118.7 | 49.8 |
| Direct mine and mill costs2 | 20.1 | 20.5 | 60.9 | 55.5 |
| Net income (loss) | 13.5 | (24.7) | (10.1) | (44.0) |
| Basic earnings (loss) per Common Share | 0.03 | (0.06) | (0.02) | (0.12) |
| Cash provided (used) before non-cash working capital items | 29.5 | (1.4) | 45.6 | (15.7) |
| Net cash provided by (used in) operating activities | 8.1 | 0.0 | 20.1 | (20.5) |
| 1. | Financial numbers are reported in millions of Canadian dollars, except for per share amounts. |
| 2. | Refer to note 17. |
158% increase in Q3 revenues, driven mainly by higher V2O5 prices and increased production
Revenues for Q3 2017 represent an 158% increase over Q3 2016 and year-to-date revenues represent a 139% increase over the corresponding period last year.
Significant increase in cash generation
Revenues for Q3 2017 exceeded direct mine and mill costs by $33.4 million and cash provided before non-cash working capital items for Q3 2017 was $29.5 million, representing increases of $33.2 million and $30.9 million respectively over Q3 2016.
Mark Smith, President and Chief Executive Officer for Largo, stated: "Our Q3 2017 financial performance is our best to date and the first time Largo has achieved net income and earnings per share. This represents a significant improvement over previous quarters and was driven by excellent operating performance, especially due to our improvements in overall recovery levels and robust vanadium prices. We anticipate continuing to deliver strong financial performance as the vanadium market continues to tighten and place upward pressure on vanadium pricing levels."
Maracás Menchen Mine operating results
During Q3 2017 the overall V2O5 recovery was 76.5%, compared to 74.3% in the second quarter 2017 and 71.8% in the first quarter 2017. The Company continues to improve its metal recovery as it actively works to reduce costs and increase operational efficiencies. Key components of the improved recovery level in Q3 2017 include the leaching recovery, which improved from 95% in the first quarter 2017 to 97.8% in Q3 2017, and the kiln recovery, which increased from 85.4% in the second quarter 2017 to 87.0% in Q3 2017.
The lowest monthly production during Q3 2017 was in July, with an output of 807 tonnes of V2O5. The planned shut-down in July 2017 to implement improvements in the deammoniator exhaust system impacted production for two days. The improvements were successfully implemented, with operations achieving a new production record of 888 tonnes of V2O5 in August 2017.
The Company sold 20 tonnes of "high purity" V2O5 in Q3 2017 (125 tonnes in the nine months ended September 30, 2017). In addition, the Company is proceeding with the installation of the necessary equipment to handle and pack V2O5 powder. "High purity" V2O5 flake yields a price premium to the Company over and above what is received for V2O5 flake.
The cost per pound (in $) for Q3 2017 (refer to page 4 of the MD&A) was 7% lower than the second quarter 2017 primarily due to higher production and higher global metal recovery during Q3 2017. These results are due to the improvements implemented during the kiln refractory shutdown in March and April 2017 and the improvements made in July and August in the deammoniator exhaust system.
In Q4 2017 the Company expects to maintain the higher metal recovery levels achieved in Q3 2017 and to maintain the improved plant performance in order to achieve the targeted production level of 2,493 tonnes of V2O5 in Q4 2017. In addition, the Company expects to realize the benefits from completed improvement projects, including the ammonium sulphate dosage system.
Financing highlights during Q3 2017
On July 12, 2017, the Company announced that effective June 30, 2017, the syndicate of Brazilian commercial lenders under the Company's existing debt facilities have agreed to (i) terminate the US$5,000 March 2017 capital injection requirement, which has been the subject of a temporary waiver since March 15, 2017 and (ii) postpone the additional US$5,000 June 2017 capitalization requirement until December 31, 2017. The March 2017 and June 2017 capitalization requirements had initially been required by the commercial lenders in connection with the 2017 Facility. The commercial lenders have further agreed that if the Company complies with the required payment obligations, then on December 31, 2017, the June 2017 capitalization requirement will also be terminated.
On July 24, 2017, the Company announced that it, along with its operating subsidiary Vanádio de Maracás S.A. ("Vanádio"), have entered into a non-binding term sheet for the restructuring and conversion of the existing short term loan (refer to note 8(f)) and Swap Facility (refer to note 8(d)). Highlights of the proposed arrangement include: (i) conversion of the short term loan into common shares of the Company to be issued within 60 days from the date of the definitive agreement and (ii) renegotiation of the repayment schedule for the Swap Facility and accrued interest and, upon fulfilment of certain payment milestones, the long-term restructuring of the Swap Facility and accrued interest. Refer to the Company's press release dated July 24, 2017 for further details. To allow time for this restructuring to be finalized, the Company executed an amendment to its short term loan on August 28, 2017 to defer payments to October 2017. Refer to note 8(f). Refer also to subsequent events for the subsequent amendment after Q3.
During the nine months ended September 30, 2017, 13,381 warrants were exercised, resulting in proceeds to the Company of $3,906 (refer to note 10).
Summary of the Company's Q3 2017 financial results3
| Sep. 30, 2017 | Dec. 31, 2016 | |
| $ | $ | |
| Cash | 16.0 | 0.8 |
| Restricted Cash | 0.2 | 2.1 |
| Total Current Assets | 58.9 | 32.2 |
| Mine properties, plant and equipment | 300.2 | 321.1 |
| Total Assets | 359.1 | 353.3 |
| Total Current Liabilities | 114.8 | 94.1 |
| Total Liabilities | 318.9 | 326.5 |
| Q3 | YTD | ||||||
| 2017 | 2016 | 2017 | 2016 | ||||
| $ | $ | $ | $ | ||||
| Operating costs | 30.2 | 30.0 | 89.7 | 83.0 | |||
| Net income (loss) | 13.5 | (24.7) | (10.1) | (44.0) | |||
| Basic earnings (loss) per share | 0.03 | (0.06) | (0.02) | (0.12) | |||
| Net cash provided by (used in): | |||||||
| Financing activities | 0.7 | 2.1 | 10.6 | 31.2 | |||
| Investing activities | (5.0) | (4.1) | (14.7) | (12.1) | |||
Cash operating costs since the commencement of commercial production on October 1, 20153
| Production | Production Pounds | Cost per pound | |||
| Tonnes | Equivalent | CDN$ | US$ | R$ | |
| 3rd Quarter 2017 | 2,513 | 5,540,210 | $4.47 | $3.56 | R$11.27 |
| 2nd Quarter 2017 | 2,183 | 4,812,685 | $4.80 | $3.56 | R$11.46 |
| 1st Quarter 2017 | 2,062 | 4,545,926 | $5.19 | $3.90 | R$12.31 |
| 4th Quarter 2016 | 2,304 | 5,079,444 | $4.82 | $3.60 | R$11.90 |
| 3rd Quarter 2016 | 2,182 | 4,810,481 | $4.67 | $3.59 | R$11.61 |
| 2nd Quarter 2016 | 2,311 | 5,094,877 | $4.19 | $3.25 | R$11.40 |
| 1st Quarter 2016 | 1,169 | 2,577,201 | $6.52 | $4.75 | R$18.51 |
| 4th Quarter 2015 | 1,654 | 3,646,441 | $5.97 | $4.47 | R$17.20 |
| 3. | Refer to the "Non-GAAP Measures" section of the Company's MD&A for a discussion regarding the calculation of these Non-GAAP Measures and additional discussion of cash operating costs elsewhere in the Company's MD&A. |
2017 Production guidance
| Annual High-End | Annual Low-End | Average Annual | Estimated Annual US$/CDN$ Cash Costs Per Tonne 1,2,3 | Estimated Annual US$/CDN$ Cash Costs Per Pound 1,2,3 | |
| 2017 2 | 9,751 tonnes 4 ~ 21.5 mil. lbs | 8,751 tonnes 4 ~ 19.3 mil. lbs | 9,251 tonnes 4 ~ 20.4 mil. lbs | US$8,237 CDN$10,991 | US$3.74 CDN$4.99 |
| 1. | The cash operating costs reported are on a non-GAAP basis. Cash operating costs include all cash expenditures, the main categories being mining costs, plant and maintenance costs, sustainability costs, mine and plant administration costs, royalties and SG&A. Cash operating costs excludes depreciation and amortization charges, interest or any other debt servicing costs and commissions on sales. Refer to the "Non-GAAP Measures" section of the MD&A. See also 3. below. The estimated average annual R$/US$ and CDN$/US$ exchange rates used for 2017 are approximately 3.22 and 1.33 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 the MD&A. |
| 4. | Conversion of tonnes to pounds, 1 tonne = 2,204.62 pounds or lbs. |
Significant events and transactions subsequent to Q3 2017
On October 10, 2017, the Company executed an amendment to the terms of the US$2,000 Bridge loan it had entered into with a shareholder of the Company on April 12, 2017 (refer to note 8(g)). Under the revised terms, the maturity date is extended from October 11, 2017 to December 16, 2017 in return for the Company paying an extension fee of US$120 on or before December 16, 2017. Should the Company repay the Bridge loan in full prior to December 16, 2017, the extension fee will be reduced to US$70.
On October 6, 2017, 10,714 warrants with an exercise price of $3.50 and an estimated grant date fair value of $6,400 expired unexercised.
On October 12, 2017, 115 warrants with an exercise price of $0.29 and 128 warrants with an exercise price of $0.65 were exercised, resulting in gross proceeds to the Company of $116. On November 2, 2017, 35 warrants with an exercise price of $0.29 and 50 warrants with an exercise price of $0.65 were exercised, resulting in gross proceeds to the Company of $43.
On October 30, 2017, the Company executed an amendment to the terms of its US$4,425 short term loan (refer to note 8(f)) to extend the US$500 principal, plus interest, due on October 31, 2017 to November 30, 2017.
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