U.S. Markets open in 6 hrs 39 mins

Largo Resources Announces Record Full Year Production and Net Income of $316.0 Million in 2018

All financial figures are in Canadian dollars unless otherwise stated.

Q4 2018 Highlights

  • Net income of $108.0 million and basic earnings per share of $0.21 in Q4 2018
  • Revenues of $177.5 million in Q4 2018, a 262% increase over Q4 2017 and a 19% increase over Q3 2018
  • Cash provided before non-cash working capital items of $134.4 million in Q4 2018, an increase of $112.9 million over Q4 2017
  • Record production of 2,595 tonnes of V2O5 in Q4 2018


Full Year 2018 Highlights

  • Net income of $316.0 million and basic earnings per share of $0.61 in 2018
  • Revenues of $521.4 million in 2018, a 211% increase over 2017
  • Cash provided before non-cash working capital items of $403.2 million in 2018, an increase of $336.1 million over 2017
  • Cash operating costs excluding royalties of $4.41 (US$3.38) in 2018
  • $206.2 million in cash exiting 2018
  • Record production of 9,830 tonnes of V2O5 in 2018, exceeding midpoint guidance of 9,650 tonnes by 2% and a 6% increase over 2017
  • Four consecutive quarters of production growth in 2018
  • Expansion plan completion target of Q2 2019 with ramp up to follow in Q3 2019


TORONTO , March 26, 2019 /CNW/ - Largo Resources Ltd. ("Largo" or the "Company") (TSX: LGO) (OTCQX: LGORF) is very pleased to report exceptional results for 2018, with net income of $316.0 million and basic earnings per share of $0.61 on record production of 9,830 tonnes of V2O5, representing the strongest year of earnings and production for the Company since the commencement of operations in 2014.

Mark Smith , Chief Executive Officer for Largo, stated: "2018 was an outstanding year for Largo as it delivered extremely robust financial results with net income of $316.0 million while also consecutively increasing quarterly production at the Maracás Menchen Mine allowing the Company to exceed its production guidance midpoint by 2%."

"We entered 2019 in a very solid financial position with a cash balance of $206.2 million and the Company currently has approximately US$29.1 million of outstanding debt with plans to eliminate this remaining debt balance in early June 2019 . Largo continues to remain one of the lowest-cost producers of vanadium in the world which allows the Company to generate significant amounts of cash in the current vanadium pricing environment. We look forward to continuing the successes of 2018 and it is our goal to maximize organic value creation at the Company in 2019."

He concluded: "Largo's Board of Directors is examining alternatives for the return of capital to its shareholders in the form of share buybacks and/or dividends as well as using its excess cash and cash flows to finance the potential further expansion of its high-quality vanadium Maracás Menchen mine in Brazil . Acquisitions of other companies or mining projects are not part of Largo's current strategy."

Consolidated Q4 and FY 2018 Financial and Operational Results

Financial








Three months ended


Year ended



December 31,

2018


December 31,

2017


December 31,

2018


December 31,

2017

Revenues

$

177,543

$

48,994

$

521,415

$

167,723

Direct mine and mill costs


(21,332)


(19,478)


(82,037)


(80,401)

Operating costs


(37,637)


(30,711)


(135,746)


(120,402)

Net income (loss) before tax


131,091


1,085


322,654


(9,035)

Income tax expense


(11,694)


(1,379)


(27,467)


(1,379)

Deferred income tax (expense) recovery


(11,436)


-


20,769


-

Net income (loss)


107,961


(294)


315,956


(10,414)

Basic earnings (loss) per share


0.21


(0.00)


0.61


(0.02)

Diluted earnings (loss) per share


0.16


(0.00)


0.49


(0.02)










Cash provided before non-cash working capital items

$

134,357

$

21,542

$

403,157

$

67,132

Net cash provided by operating activities


144,165


38,530


352,074


58,598

Net cash (used in) provided by financing activities


(64,811)


6,983


(177,786)


17,573

Net cash used in investing activities


(6,198)


(4,665)


(18,989)


(19,408)

Net change in cash


78,127


38,676


151,463


53,967


















As at







December 31,


December 31,






$

2018


2017

Cash






206,188


54,725

Restricted cash






21


4,187

Working capital1






137,258


(33,078)
















 

Operational

Maracás Menchen Mine Production



Q4 2018

FY 2018

Q4 2017

FY 2017








Global recovery2 (%)



75.3%

77.0%

79.4%

75.7%

Concentrate produced (tonnes)



92,190

343,126

82,918

358,762

Grade of concentrate (% V2O5)



3.27%

3.41%

3.56%

3.38%

Contained V2O5 (tonnes)



3,016

11,718

2,954

12,139

V2O5 flake produced (flake + powder) (tonnes)



2,595

9,830

2,539

9,297

V2O5 produced (equivalent pounds)[3]



5,720,989

21,671,415

5,597,530

20,496,351

Cash operating4,5 costs including royalties per
pound produced

CAD$

$6.16

$5.45

$4.53

$4.72

US$6

$4.66

$4.19

$3.57

$3.60

Cash operating 7,8 costs excluding royalties per
pound produced

CAD$

$4.60

$4.41

$4.14

$4.40

US$9

$3.48

$3.38

$3.26

$3.35

 

Fourth Quarter and Full Year Operational Results

Total production from the Maracás Menchen Mine in 2018 was 9,830 tonnes of V2O5, exceeding the Company's production guidance midpoint by 2%. This represents an increase of 6% over 2017 and is the strongest full year of production from the mine since operations commenced in 2014. The Company also achieved a new quarterly production record in Q4 2018 with 2,595 tonnes of V2O5 produced, up 1% from the previous quarter and representing the fourth consecutive quarter of production growth during 2018.

Global V2O5 recovery rates averaged 77.0% in 2018 representing an increase of 1.7% over the year prior. Recoveries of 75.3% in Q4 2018 averaged lower when compared to 79.4% in Q4 2017 due to issues with kiln stability.

Sales of V2O5 during Q4 2018 were 2,520 tonnes, including 360 tonnes of high purity V2O5. Total high purity V2O5 sales in 2018 were 1,440 tonnes and the Company remains focused on developing premium products with the commissioning of the high purity and powder screening and packing automated systems completed during Q4 2018.

The expansion project to achieve production of 1,000 tonnes of V2O5 per month is progressing as planned with a target completion date of the end of Q2 2019. The Company anticipates the expansion ramp-up to be completed during Q3 2019 and expects to reach the increased nameplate production rate of 1,000 tonnes of V2O5 per month from the beginning of Q4 2019 and onwards. As a result of additional equipment specification changes to maximize operational reliability, the Company anticipates that its total expansion capital expenditures will be in the range of US$18.0 million to US$21.0 million , an increase from the approximately US$15.5 million forecasted last year.

Kiln Refractory Maintenance Update

Subsequent to Q4 2018, production in January 2019 was 816 tonnes of V2O5, with 735 tonnes of V2O5 produced in February. Production in January 2019 was slightly impacted by maintenance in the fusion section of the plant and an unanticipated power shut-down at the end of the month. Production in February was impacted by a number of unanticipated power outages and corrective maintenance on the fusion pan conveyor. Small kiln refractory replacements were completed during both months to fix hot spots and maintain operational stability. At the end of February, the Company had AMV stock and work-in-process inventory of 326 tonnes to help mitigate the impact of the kiln shutdown in March 2019 and as a result has gained 4 days of production. The Company's latest estimate is that there will be no production on 13 days during the shutdown rather than the 17 days which was previously reported. As a consequence of this shutdown, the Company expects that cash operating costs excluding royalties10 for Q1 2019 will exceed the Company's guidance for 2019.

Fourth Quarter and Full Year 2018 Financial Results

The Company reported extremely robust net income of $316.0 million and basic earnings per share of $0.61 in 2018 after the recognition of an income tax expense of $27.5 million and deferred income tax recovery of $20.8 million . This represents a significant increase over the year prior and is the strongest year of net income in the Company's history. The Company also reported a net income of $108.0 million in Q4 2018 compared to a net loss of $0.3 million in Q4 2017. The Company's cash balance was $206.2 million at the end of 2018.

The Company recognized record revenues in 2018 of $521.4 million , compared to $167.7 million in 2017. This constitutes a 211% increase over 2017 and is the highest recorded revenue by the Company for an annual period to date. The significant increase in revenues over 2017 is primarily attributable to an increase in V2O5 prices and record production achieved in 2018. Revenues in Q4 2018 were $177.5 million being a 262% increase over Q4 2017 and a 19% over the prior quarter.

Cash provided before non-cash working capital items was $403.2 million in 2018, an increase of $336.1 million over 2017. Net cash provided by operating activities was $352.1 million in 2018 as compared to $58.6 million in 2017.

Operating costs in 2018 were $135.7 million compared to $120.4 million in 2017 and include direct mine and mill costs of $82.0 million , depreciation and amortization of $31.0 million and royalties of $22.7 million . In 2017, depreciation and amortization was $33.2 million and royalties were $6.7 million .The increase in royalties in 2018 is primarily attributable to the increases seen in revenues.

Cash operating costs11 in 2018 were $5.45 (US$4.19) per lb compared to $4.72 (US$3.60) in 2017 and cash operating costs excluding royalties14 were $4.41 (US$3.38) per lb compared to $4.40 (US$3.35) per lb in 2017. In Q4 2018, cash operating costs were $6.16 (US$4.66) per lb, compared to $4.53 (US$3.57) per lb for Q4 2017. Cash operating costs excluding royalties14 were $4.60 per lb (US$3.48) , compared to $4.14 (US$3.26) per lb for Q4 2017. The increase seen in Q4 2018 as compared to Q4 2017 is largely due to significantly higher HFO prices and the loss of the Reintegra tax credit. Cash operating costs14 of US$4.19 per lb in 2018 is just outside of the Company's guidance of US$4.15 per lb.

The average price per pound of V2O5 was approximately US$18.30 for 2018, compared to approximately US$6.52 for 2017. In January 2019 the average price per lb of V2O5 was approximately US$16.28 , significantly lower than the average price per lb of V2O5 of approximately US$24.53 seen in Q4 2018. As a consequence, the Company expects to see a significant negative re-measurement of trade receivables as part of its reported revenues in Q1 2019.

Additional Debt Repayment

Debt repayment continues to be a priority for Largo as it aims to eliminate all remaining outstanding debt in early June 2019 . On February 19, 2019 , the Company completed the repurchase and retirement of an additional US$4.5 million in aggregate principal amount of its 9.25% Senior Secured Notes due in 2021, plus premium and accrued interest, at a redemption price of 105.625%. Since May 2018 , the Company has repaid approximately US$120.9 million of its outstanding debt representing a significant decrease of 80.6% and its current outstanding debt balance is approximately US$29.1 million as of February 19, 2019 .

2019 Exploration Program Update

The Company's ongoing 25,000 metre exploration program for 2019 is progressing well and the Company looks forward to providing an update to the market in early Q2 2019. On December 19, 2018 , the Company announced that it had significantly extended vanadium mineralization at the Novo Amparo Norte deposit ("NAN") by 130% to 1.84 km in strike length. In January, the Company initiated this years' exploration program with four drill rigs, following up on the results at NAN received in December. To date, the Company has completed an additional 47 diamond drill holes (5,400 metres) of drilling, primarily focused on increasing the confidence of the resource category within the deposit.  Drilling has also begun on the Novo Amparo target, with the aim to increase the size and confidence level of the current inferred resource. Full analytical results are expected soon, at which point the Company will begin work on a new resource estimate.

NAN lies approximately 6.5 km north of Largo's current mining operation at the Campbell Pit and the Novo Amparo deposit is located 2.8 km south of and along strike from NAN. Including NAN, the company has identified and drilled seven vanadium rich magnetite zones (the "Satellite" deposits) in the Jacaré Sill north of the Campbell pit. The Satellite deposits will see the majority of exploration work in 2019. South of the Campbell Pit, the Rio Jacaré sill has been identified over a strike length of approximately 25 kilometres. This area has seen little focused exploration efforts to date and there remains significant exploration opportunity both north of NAN, and south of the Campbell Pit which the company will focus exploration activities on over the coming years. 

Figure 1: Regional Map (CNW Group/Largo Resources Ltd.)

Conference Call

Largo Resources' management will host a conference call on Wednesday, March 27, 2019 , at 10:00 a.m. EDT , to discuss both operational and financial results for the fourth quarter 2018 and 2018 annual results.

Conference Call Details:

Date:

Wednesday, March 27, 2019

Time:

10:00 a.m. EDT



Dial-in Number:

Local / International: +1 (416) 764-8688


North American Toll Free: (888) 390-0546


Brazil Toll Free:  08007621359



Conference ID:

20542048



Replay Number:

Local / International: + 1 (416) 764-8677


North American Toll Free: (888) 390-0541


Replay Passcode: 542048#



Website:

To view press releases or any additional financial information, please visit our Investor Relations section of the Largo Resources website at:  www.largoresources.com/investors

 

A playback recording will be available on the Company's website for a period of 60-days following the conference call.

The information provided within this release should be read in conjunction with Largo's annual consolidated financial statements for the years ended December 31, 2018 and 2017 and management's discussion and analysis for the year ended December 31, 2018 , which are available on our website at www.largoresources.com and on SEDAR.

Technical Disclosure/Qualified Person

Mr. Paul Sarjeant B.Sc. P.Geo., Manager of Geology at Largo Resources is a Qualified Person as defined under National Instrument 43-101 Standards of Disclosure for Mineral Projects and has reviewed the technical information in this press release.

About Largo Resources

Largo is a Toronto -based strategic mineral company focused on the production of vanadium flake, high purity vanadium flake and high purity vanadium powder at the Maracás Menchen Mine located in Bahia State , Brazil . The Company's common shares are principally listed on the Toronto Stock Exchange under the symbol "LGO". For more information on Largo, please visit our website at www.largoresources.com.

Neither the Toronto Stock Exchange (nor its regulatory service provider) accepts responsibility for the adequacy or accuracy of this release.

Forward Looking Information

Disclaimer: This press release contains forwardlooking information under Canadian securities legislation. Forwardlooking information includes, but is not limited to, statements with respect to timing for and completion of the Maracás Menchen Mine expansion project and the costs associated therewith; Largo's development potential and timetable of its operating, development and exploration assets; Largo's ability to raise additional funds as may be necessary; the future price of vanadium; the estimation of mineral reserves and mineral resources; conclusions of economic evaluations; the realization of mineral reserve estimates; the timing and amount of estimated future production, development and exploration; costs of future activities; capital and operating expenditures; success of exploration activities; mining or processing issues; currency exchange rates; government regulation of mining operations; and environmental risks. Generally, forwardlooking statements can be identified by the use of forwardlooking 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. Forwardlooking 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. Forwardlooking 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 forwardlooking 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 forwardlooking statements. Largo does not undertake to update any forwardlooking 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.

Non-GAAP12 Measures

The Company uses certain non-GAAP financial performance measures in its MD&A, which are described in the following section.

Cash Operating Costs

The Company's MD&A refers to cash operating costs per pound produced, a non-GAAP performance measure, in order to provide investors with information about a key measure used by management to monitor performance. This information is used to assess how well the Maracás Menchen Mine is performing compared to plan and prior periods, and also to assess its overall effectiveness and efficiency.

Cash operating costs includes mine site operating costs such as mining costs, plant and maintenance costs, sustainability costs, mine and plant administration costs, royalties and sales, general and administrative costs, but excludes depreciation and amortization, share-based payments, foreign exchange gains or losses, commissions, reclamation, capital expenditures and exploration and evaluation costs.  These costs are then divided by the pounds of production from the Maracás Menchen Mine to arrive at the cash operating costs per pound produced.

The measure, along with revenues, is considered to be one of the key indicators of the Company's ability to generate operating earnings and cash flow from its Maracás Menchen Mine. These cash operating costs do not have any standardized meaning prescribed by IFRS and differ from measures determined in accordance with IFRS. They are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These measures are not necessarily indicative of net earnings or cash flow from operating activities as determined under IFRS.

In addition, the Company's MD&A refers to cash operating costs excluding royalties.  This is a non-GAAP performance measure and is calculated as cash operating costs less royalties, as disclosed in the following tables.

The following tables provide a reconciliation of cash operating costs per pound produced for the Maracás Menchen Mine to operating costs, excluding depreciation expense as per the 2018 audited consolidated financial statements.



Three months ended




December 31,
2018


December 31,
2017

Operating costs1


$

37,637

$

30,711

Professional, consulting and management fees2



2,612


2,696

Other general and administrative expenses3



2,348


878

Less: depreciation and amortization expense4



(7,347)


(8,920)

Cash operating costs


$

35,250

$

25,365

Less: royalties5



(8,958)


(2,191)

Cash operating costs excluding royalties


$

26,292

$

23,174

V2O5 flake produced (000s lb)



5,721


5,598

Cash operating costs per pound produced ($/lb)


$

6.16

$

4.53

Cash operating costs excluding royalties per pound produced ($/lb)


$

4.60

$

4.14

 i.

Calculated as the amount for the Company's Mine properties segment in note 17, less the amount disclosed for the Mine properties segment for the nine-month period in note 16 of the Company's unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2018: $135,746 – $98,109 = $37,637.

ii. 

Calculated as the amount for the Company's Mine properties segment in note 17, less the amount disclosed for the Mine properties segment for the nine-month period in note 16 of the Company's unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2018: $9,680 – $7,068 = $2,612.

iii.

Calculated as the amount for the Company's Mine properties segment in note 17, less the amount disclosed for the Mine properties segment for the nine-month period in note 16 of the Company's unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2018: $3,759 – $1,411 = $2,348.

iv. 

Calculated as the amount per note 22, less the amount disclosed for the nine-month period in note 20 of the Company's unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2018: $31,031 – $23,684 = $7,347.

v.

Calculated as the amount per note 22, less the amount disclosed for the nine-month period in note 20 of the Company's unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2018: $22,678 – $13,720 = $8,958.

 



Year ended




December 31,
2018


December 31,
2017

Operating costs1


$

135,746

$

120,402

Professional, consulting and management fees2



9,680


8,303

Other general and administrative expenses2



3,759


1,288

Less: depreciation and amortization expense1



(31,031)


(33,216)

Cash operating costs


$

118,154

$

96,777

Less: royalties1



(22,678)


(6,663)

Cash operating costs excluding royalties


$

95,476

$

90,114

V2O5 flake produced (000s lb)



21,671


20,496

Cash operating costs per pound produced ($/lb)


$

5.45

$

4.72

Cash operating costs excluding royalties per pound produced ($/lb)


$

4.41

$

4.40

 i. 

Refer to note 22 in the Company's annual consolidated financial statements for the years ended December 31, 2018 and 2017.

ii.

Refer to the Mine properties segment in note 17 in the Company's annual consolidated financial statements for the years ended December 31, 2018 and 2017.

 

________________________________________

1

 Defined as current assets less current liabilities per the consolidated statements of financial position

2

Global recovery is the product of crushing recovery, milling recovery, kiln recovery, leaching recovery and chemical plant recovery.

3

Conversion of tonnes to pounds, 1 tonne = 2,204.62 pounds or lbs.

4

Largo reports non-GAAP measures such as "Cash Operating Costs" and "Net Debt".  Please see information on this non-GAAP measure in the "Non-GAAPMeasures" section of this new release.

5

Excludes corporate SG&A or CAPEX (Capital Expenditures).

6

 Refer to Management's Discussion and Analysis for the year ended December 31, 2018 for exchange rates used.

7

 Largo reports non-GAAP measures such as "Cash Operating Costs" and "Net Debt".  Please see information on this non-GAAP measure in the "Non-GAAP Measures" section of this new release.

8

Excludes corporate SG&A or CAPEX (Capital Expenditures).

9

Refer to Management's Discussion and Analysis for the year ended December 31, 2018 for exchange rates used.

10

 Largo reports non-GAAP measures such as "Cash Operating Costs" and "Net Debt".  Please see information on this non-GAAP measure in the "Non-GAAP Measures" section of this new release.

11

Largo reports non-GAAP measures such as "Cash Operating Costs" and "Net Debt".  Please see information on this non-GAAP measure in the "Non-GAAP Measures" section of this new release.

12

GAAP – Generally Accepted Accounting Principles.

Largo Resources Ltd. (CNW Group/Largo Resources Ltd.)

SOURCE Largo Resources Ltd.


View original content to download multimedia: http://www.newswire.ca/en/releases/archive/March2019/26/c2622.html