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August 14, 2017
TORONTO, Aug. 14, 2017 /CNW/ – Largo Resources Ltd. (“Largo” or the “Company”) today released highlights of its financial results for the quarter ended June 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 six months ended June 30, 2017 and 2016 as well as management’s discussion and analysis for the three and six months ended June 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 six months ended June 30, 2017 and 2016.
Q2 2017 financial highlights1
89% increase in Q2 revenues, driven mainly by higher V2O5 prices
Revenues for Q2 2017 represent an 89% increase over Q2 2016 and year-to-date revenues represent a 125% increase over the corresponding period last year.
Significant increase in cash generation
Revenues for Q2 2017 exceeded direct mine and mill costs by $15.7 million and cash provided before non-cash working capital items for Q2 2017 was $11.0 million, representing increases of $14.9 million and $15.5 million respectively over Q2 2016.
Mark Smith, President and Chief Executive Officer for Largo, stated: “Our Q2 2017 financial performance improved on the good results of the previous quarter and represents a significant improvement over the corresponding quarter last year. Vanadium prices have strengthened considerably recently and we anticipate that the increasing vanadium price, coupled with strong production and cost performance will drive further increases in cash flow from operations. Largo is very well poised to benefit from the higher V2O5 price environment and the stronger vanadium market fundamentals.”
Maracás Menchen Mine operating results
During Q2 2017 the overall V2O5 recovery was 74.3%, compared to 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 Q2 2017 include the leaching recovery, which increased from 95% in the first quarter 2017 to 96% in Q2 2017 and the chemical plant recovery, which increased from 96% in the first quarter 2017 to 97% in Q2 2017. The lowest monthly production during Q2 2017 was in April, with an output of 645 tonnes of V2O5. The planned kiln shut-down and refurbishment in March 2017 was completed on April 9, 2017, which impacted production for those nine days and operating costs for Q2 2017.
The Company sold 82 tonnes of “high purity” V2O5 in Q2 2017. In addition, the Company is proceeding with the installation of the necessary equipment to handle and pack V2O5 powder. Both “high purity” V2O5 and V2O5 powder yields a price premium to the Company over and above what is received for V2O5 flake.
The cost per pound for Q2 2017 (refer to page 4 of the MD&A) was 7.5% lower than the first quarter 2017 primarily due to higher production (6%) and higher global metal recovery during Q2 2017. These results are due to the improvements implemented during the kiln refractory shutdown in March and April 2017. Partially offsetting these improvements was the higher than anticipated consumption of ammonium sulphate of 6%.
In Q3 2017 the Company expects to maintain the higher metal recovery levels achieved in Q2 2017 and to further improve the performance of the deammoniator to achieve the targeted production level of 840 tonnes of V2O5 per month. In addition, the Company has implemented improvement projects to address the consumption level of ammonium sulphate, to increase leaching recoveries to above 96% and to increase global recoveries to above 75%. The Company produced 807 tonnes of V2O5 in July 2017.
The Company’s Maracás Menchen Mine produced 2,183 tonnes of V2O5 in Q2 2017, compared to 2,311 tonnes in the same prior year period, in part due to impact on production of the shutdown.
Financing highlights during Q2 2017
On April 12, 2017, the Company announced it had entered into a US$2.0 million six-month short term loan at an interest rate of 9% per annum. US$1.0 million was drawn down on April 12, 2017, with US$0.5 million drawn down on each of May 1, 2017 and June 1, 2017. Pursuant to the terms of the loan, the Company issued 0.4 million common share purchase warrants to the lender with each warrant being exercisable to acquire one common share of the Company at a price of $0.50 until December 31, 2020.
During the six months ended June 30, 2017, 13.3 million warrants were exercised, resulting in proceeds to the Company of $3.8 million(refer to note 10).
Summary of the Company’s Q2 2017 financial results3
Cash operating costs since the commencement of commercial production on October 1, 20154
2017 Production guidance
US$/CDN$ Cash Operating
Costs Per Tonne 1,2,3
Costs Per Pound 1,2,3
~ 21.4 mil. lbs
~ 19.2 mil. lbs
~ 20.3 mil. lbs
Significant events and transactions subsequent to Q2 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$5.0 million March 2017 capital injection requirement which has been the subject of a temporary waiver since March 15, 2017 and (ii) postpone the additional US$5.0 million 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.
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