Despite strong vanadium price recovery, Largo still under water

VANCOUVER (miningweekly.com) – The strong price recovery of the industrial metal vanadium pentoxide (V₂O₅) has not yet been enough to lift producer Largo Resources into the black, casting material doubts on the company’s ability to meet its financial obligations should it be unsuccessful in raising more cash.

During the first quarter ended March, the V₂O₅ price has continued to recover, with a price at March 31 of between $5.40/lb and $5.80/lb. By May 12, the market price of V₂O₅ had improved further to a range of between $5.95/lb and $6.40/lb, which will underpin the Toronto-headquartered company’s financial performance for the rest of the year.

In a news release to Mining Weekly Online on Monday, Largo stated that the company’s flagship Maracás Menchen mine, in Bahia state, Brazil, improved its cost performance over the course of 2016, but noted that in this current price environment, expenses, including debt servicing costs, remain more than revenues.

Largo stated that it expects to require additional financing by July 15, for working capital and the repayment of the long-term debt in Canada. The company has about C$70.5-million in accounts payable, accrued liabilities, long-term debt and operating and purchase agreements due in the next six months, and a further C$30.18-million in the following six-month period.

As at March 31, Largo had cash of C$11.1-million, restricted cash of C$2.8-million and trade receivables of C$7.76-million to settle current liabilities of C$94.83-million.

The company is currently pursuing financing alternatives to enable it to meet its obligations. Largo’s continuance as a going concern is dependent upon its ability to obtain adequate financing to meet its obligations in Canada and to reach profitable levels of operations.

QUARTERLY RESULTS
During the first quarter, Largo recorded a net loss of C$9.72-million, compared with a net loss of $9.6-million in the comparable period of 2016, which was mainly attributable to recognising a reduced foreign exchange and derivative gain of C$2.9-million in the period, and an increase in operating costs of C$6.3-million, from C$23.32-million in the first quarter of 2016 to C$29.6-million in the same period this year.

This was partially offset by an increase in revenues of C$19.38-million, from C$10.05-million a year earlier to C$29.43-million.

The increase in first-quarter costs was mainly owing to increased output, with 2 062 t of V₂O₅ produced in the period, 76% more when compared with the 1 169 t produced a year earlier. Largo reported that a planned 20-day shutdown in March to replace the kiln refractory was delayed by seven days, resulting in higher output in the period than planned.

As a result, second-quarter output is expected to be somewhat lower.

Largo took the opportunity during the prolonged shutdown to implement several other improvement projects, which will support an expected production increase of 5%, as well as higher recoveries and lower specific consumption of certain consumable materials.

Largo has guided for total 2017 output of 20.6-million pounds of V₂O₅, at $3.77/lb.

While the company's stock is up 20% over the last 12 months, Largo’s TSX-quoted equities fell nearly 9% on Monday to C$0.52 apiece.