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Largo Resources Announces Second Quarter 2019 Results

All financial figures are in Canadian dollars unless otherwise stated.

Q2 2019 Highlights

  • Production of 2,515 tonnes (5.5 million pounds1) of V2O5, an increase of 20% over Q1 2019 and 2% over Q2 2018
  • New monthly V2O5 production record of 1,042 tonnes in July
  • Global V2O5 recovery rate2 of 79.1%; Second quarter of strong global recoveries in 2019
  • Cash operating costs excluding royalties3 of $4.43 (US$3.30) per pound of V2O5
  • Revenues of $29.5 million (net of the re-measurement of trade receivables / payables of $46.3 million on vanadium sales from a contract with a customer of $75.8 million )
  • Net loss of $20.5 million and a loss per share of $0.04
  • Cash used before non-cash working capital items of $7.8 million
  • Cash balance of $190.3 million exiting Q2 2019
  • Successful start to expansion project ramp up; Ramp up of all areas is expected to be completed by the end of Q3 2019
  • Company remains on track to achieve its production and cost guidance for 2019


TORONTO , Aug. 13, 2019 /CNW/ - Largo Resources Ltd. ("Largo" or the "Company") (TSX: LGO) (OTCQX: LGORF) announces its second quarter 2019 operational and financial results with 2,515 tonnes of vanadium pentoxide ("vanadium" or "V2O5") produced at an average global V2O5 recovery rate2 of 79.1% and cash operating costs excluding royalties3 of US$3.30 per pound of V2O5.

Mark Smith , Chief Executive Officer for Largo, stated: "We are very pleased with operations in Q2 2019 though declining V2O5 prices combined with the re-measurement of trade receivables / payables under the Company's off-take agreement continued to impact profitability. The Company achieved consecutive monthly production records in June and July following the initial expansion project ramp up which included the start-up of the new deammoniator unit. Another key highlight during Q2 2019 was the Company's second quarter of strong global recoveries, which is highlighted by 80.9% achieved in June. He continued: "With the expansion project ramp up expected to conclude by the end of Q3 2019, the Company is well positioned for strong operational performance during the second half of 2019."

A summary of the operational and financial performance for Q2 2019 is provided in the tables below:

Financial







Three months ended

Six months ended




June 30,
2019


June 30,
2018


June 30,
2019


June 30,
2018

Revenues


$

29,462

$

103,321

$

73,776

$

194,414

Direct mine and mill costs



(22,550)


(19,128)


(42,014)


(39,430)

Operating costs



(33,284)


(30,220)


(62,355)


(61,403)

Net income (loss) before tax



(20,279)


50,305


(18,865)


99,829

Income tax (expense) recovery



138


(5,163)


(976)


(8,843)

Deferred income tax (expense) recovery



(360)


45,593


(2,828)


45,593

Net income (loss)



(20,501)


90,735


(22,669)


136,579

Basic earnings (loss) per share



(0.04)


0.17


(0.04)


0.26

Diluted earnings (loss) per share



(0.04)


0.14


(0.04)


0.22











Cash provided (used) before non-cash working capital items


$

(7,829)

$

77,654

$

13,859

$

139,509

Net cash provided by operating activities



21,759


69,530


117,175


94,470

Net cash (used in) financing activities



(6,936)


(22,250)


(99,295)


(48,811)

Net cash (used in) investing activities



(18,969)


(5,082)


(27,171)


(8,796)

Net change in cash



(422)


34,010


(15,910)


29,469










As at








June 30,
2019


December 31,
2018

Cash






$

190,278


206,188

Restricted cash







-


21

Working capital4







100,159


135,258


Operational





Maracás Menchen Mine Production


Q2 2019

Q2 2018





Total Ore Mined (tonnes)


308,858

173,059

Ore Grade Mined - Effective Grade5 (%)


1.21

1.07





Effective Grade of Ore Milled (%)


1.49

1.85

Concentrate Produced (tonnes)


102,320

85,639

Grade of Concentrate (%)


3.30

3.37

Contained V2O5 (tonnes)


3,380

2,889





Crushing Recovery (%)


98.0

97.2

Milling Recovery (%)


97.9

95.8

Kiln Recovery (%)


88.8

89.7

Leaching Recovery (%)


95.7

97.6

Chemical Plant Recovery (%)


97.1

97.2

Global Recovery (%)2


79.1

79.2





V2O5 produced (Flake + Powder) (tonnes)


2,515

2,458

V2O5 produced (equivalent pounds)1


5,544,619

5,418,956

Cash operating costs3 per pound produced

CAD$

$4.75

$4.97

US$6

$3.54

$3.85

Cash operating costs excluding royalties3 per pound produced

CAD$

$4.43

$4.32

US$6

$3.30

$3.35

Revenues per pound sold 7, 8

CAD$

$5.39

$18.91

US$

$4.02

$14.62

Vanadium sales per pound sold7, 8

CAD$

$13.86

$18.42

US$

$10.33

$14.24


Second Quarter 2019 Financial Results

Total sales of V2O5 in Q2 2019 were 2,480 tonnes which includes 360 tonnes of high purity V2O5. The Company's total sales of high purity V2O5 in the six months ended June 30, 2019 are 800 tonnes.

The Company recorded a net loss of $20.5 million in Q2 2019 after the recognition of an income tax recovery of $0.1 million and a deferred income tax expense of $0.4 million . This compares to net income of $90.7 million in Q2 2018 and is primarily due to a decrease in revenues and an increase in operating and finance costs during the quarter.

Following the $46.3 million reduction in revenues as a result of the remeasurement of trade receivables / payables under the Glencore contract, the Company recognized revenues of $29.5 million in Q2 2019 compared with revenues of $103.3 million in Q2 2018. Revenues per pound sold7 in Q2 2019 was $5.39 (US$4.02) compared with $18.91 (US$14.62) per pound in Q2 2018.

Vanadium sales from a contract with a customer was $75.8 million in Q2 2019, compared with $100.7 million in Q2 2018. Vanadium sales per pound sold 7  in Q2 2019 was $13.86 (US$10.33) compared to $18.42 (US$14.24) per pound in Q2 2018. This decrease is primarily attributable to a decrease in the V2O5 price, with the average price per lb of V2O5 of approximately US$8.59 for Q2 2019, compared with approximately US$15.44 for Q2 2018. Assuming the quarterly average price per lb of V2O5 of approximately US$8.59 and quarterly V2O5 sales of 2,480 tonnes, the Company could have earned estimated revenue8 of $62.9 million ( US$46.7 million ) in Q2 2019. The most recent European Metal Bulletin price range quotation for V2O5 posted as of August 9, 2019 was US$7.00 – 7.50 per lb.


Three months ended

Six months ended

June 30,
2019

June 30,
2018

June 30,
2019

June 30,
2018

Vanadium sales from a contract with a customer

$

75,786

100,664

177,189

167,223

Vanadium sales per pound sold7 ($/lb)

$

13.86

18.42

17.55

16.14

Vanadium sales per pound sold7 (US$/lb)

$

10.33

14.24

13.13

12.60







Re-measurement of trade receivables / payables

$

(46,324)

2,657

(103,413)

27,191

Revenue adjustment per pound9 ($/lb)

$

(10.15)

0.49

(10.24)

2.63

Revenue adjustment per pound9 (US$/lb)

$

(7.57)

0.38

(7.66)

2.06







Revenues

$

29,462

103,321

73,776

194,414

Revenues per pound sold7 ($/lb)

$

5.39

18.91

7.31

18.77

Revenues per pound sold7 ($US/lb)

$

4.02

14.62

5.47

14.65


The Company's trade payables balance at June 30, 2019 was $67.4 million and the revenue adjustment payable9 was $78.9 million . Assuming V2O5 prices remain the same as at June 30, 2019 , the Company's total estimated revenue adjustment payable9 to June 30, 2019 is $94.9 million . At the date of this press release, the Company's estimated revenue adjustment payable for V2O5 sold9 to July 31, 2019 is approximately $99.5 million .

Operating costs for Q2 2019 were $33.3 million compared to $30.2 million in Q2 2018 and include direct mine and mill costs of $22.6 million , depreciation and amortization of $9.0 million and royalties of $1.8 million . The increase in operating costs over Q2 2018 is primarily attributable to an increase in production, the impact of the ramp-up in production following the completion of the kiln refractory replacement in March 2019 and increased HFO and diesel costs.

Cash operating costs excluding royalties3 in Q2 2019 were $4.43 (US$3.30) per pound compared to $4.32 (US$3.35) in Q2 2018, representing an increase of 3%. The increase seen in Q2 2019 compared with Q2 2018 is largely due to the impact of foreign exchange as well as increased HFO and diesel costs, with a decrease seen in the US$ values and consistent global recovery and production levels between the two periods.

Finance costs in Q2 2019 were $10.9 million , representing an increase of $2.5 million from $8.4 million in Q2 2018. The increase is primarily attributable to the expensing of the deferred transaction costs on the long-term debt as a result of the committed redemption of the Company's 9.25% Senior Secured Notes due 2021 (the "Notes") that was completed in July 2019 .

The Company generated positive cash from operating activities, with net cash provided by operating activities of $21.8 million , compared with $69.5 million in Q2 2018. This decrease was primarily due to revenues exceeding direct mine and mill costs and royalties by $5.1 million in Q2 2019, compared with $80.7 million in Q2 2018. This contributed to cash used before non-cash working capital items of $7.8 million , compared with cash provided before non-cash working capital items of $77.7 million in Q2 2018.

Cash used in investing activities in Q2 2019 was $19.0 million representing an increase of $13.9 million from the $5.1 million seen in Q2 2018. This increase is primarily due to the expansion project being undertaken by the Company in 2019 which remains on budget.

Second Quarter 2019 Operational Results

Total production during Q2 2019 from the Maracás Menchen Mine was 2,515 tonnes of V2O5, representing a 20% increase over Q1 2019 and a 2% increase over Q2 2018. Production increased throughout Q2 2019 following the completion of the kiln refractory replacement in March, with 755 tonnes of V2O5 produced in April and 834 tonnes in May. The Company achieved a monthly V2O5 production record in June of 926 tonnes following the installation and start-up of the new deammoniator unit as part of the expansion project ramp up. This was superseded by a new monthly V2O5 production record set in July of 1,042 tonnes, representing an increase of 13% over the month prior.

In Q2 2019, 308,858 tonnes of ore with an effective V2O5 grade5 of 1.21% were mined and the crushing unit was fed with 296,325 tonnes with an effective V2O5 grade of 1.11%. Milling was fed with 102,320 tonnes of pre-concentrate ore with an effective V2O5 grade of 1.49%, reflecting the increase provided by the dry-magnetic separator. Crushing, milling, calcining and the chemical plant performed well throughout the quarter by achieving budget targets and increasing the in-process stocks of V2O5.

Global V2O5 recovery rates2 averaged 79.1% in Q2 2019, which are in line with Q2 2018 and demonstrate another quarter of strong global recoveries2 for the Company. The performance during the quarter is mainly due to the operational stability throughout all sections of the plant and significant process control improvements made by the operational teams. In April, the global recovery was impacted by the lower kiln recovery rate as the kiln returned to optimal operation following its shutdown for the refractory replacement.

The expansion project to increase production capacity by 25% at the Maracás Menchen Mine continues to progress successfully following the start-up of the new deammoniator unit. The expansion project is expected to be completed during Q3 2019 with the start-up of the new ball mill and evaporator units. The ramp up of all areas is expected to be completed by the end of Q3 2019. The Company anticipates that total capital expenditures for its expansion project will remain in the range of $27.0 to $29.0 million for 2019, with between $8.0 and $10.0 million expected in the remainder of the year.

Repayment of All Outstanding Debt

On July 8, 2019 , the Company announced that following its election to redeem its outstanding Notes, it had redeemed in full its outstanding Notes.  The Notes were redeemed on July 8, 2019 at a price equal to 104.625% of the principal amount of the Notes plus accrued and unpaid interest to, but not including, the redemption date. The total amount paid was US$23.6 million , including the principal amount of Notes outstanding of US$22.4 million . Following this redemption, the Company is debt-free representing a significant milestone achieved for Largo.

Appointment of Paul Vollant as Director of Sales and Trading

On June 19 , the Company announced that Mr. Paul Vollant will be joining the Largo team as Director of Sales and Trading effective September 2019 . In this position, Mr. Vollant will lead the development of Largo's sales and trading business and work to further enhance the Company's presence in the global vanadium market. Mr. Vollant brings extensive commodity sales and trading experience with a focus in specialty metals, including vanadium and titanium.

Novo Amparo Norte Mineral Resource Estimate Update

The Company announced an updated mineral resource for its Novo Amparo Norte deposit ("NAN") at its Maracás Menchen Mine on June 11, 2019 . The Company's exploration program successfully delivered a significant increase to the overall resource base at NAN with the successful conversion of resources from the Inferred category to the Measured and Indicated categories in addition to increasing the Inferred Resources. The updated resource estimate is based on approximately 12,912 m of diamond drilling over 88 holes (including 5,404 m in 47 drill holes completed in 2019) and 5,549 sample intervals across the deposit. NAN is located approximately 6.5 km north of the Company's current mining operation at the Maracás Menchen Mine, Campbell Pit.

Novo Amparo Norte Mineral Resource Estimate as of May 31, 2019

Category

Tonnes
(Mt)

Head Grade
V2O5 %

%
Magnetics

Magnetic
Concentrate
V2O5 %

Contained V2O5 in
Magnetic
Concentrate
(Tonnes)

Measured

6.25

0.91

33.1

2.32

45,274

Indicated

5.98

0.85

28.1

2.50

37,811

Total M & I

12.23

0.88

30.7

2.41

83,086







Inferred

11.33

0.90

31.2

2.46

78,782

1.

Mineral Resources have been classified using the Canadian Institute of Mining,
Metallurgy and Petroleum ("CIM"), CIM Standards on Mineral Resources and
Reserves, Definitions and Guidelines prepared by the CIM Standing Committee
on Reserve Definitions and adopted by the CIM Council.

2.

Mineral Resources which are not Mineral Reserves do not have demonstrated
economic viability.  The Inferred Mineral Resource in this estimate has a lower
level of confidence than that applied to the Measured and Indicated Mineral
Resource.  It is reasonably expected that a portion of the Inferred Mineral
Resource could be upgraded to an Indicated Mineral Resource with continued
exploration.

3.

Magnetite content is determined by Davis Tube Test methodology.  V2O5 content
of the magnetite concentrate was determined by XRF79C methodology at the SGS
facility in Belo Horizonte, Brazil.

4.

Assuming only mineralized zones grading 0.45% V2O5 or greater.

5.

Numbers may not add up exactly due to rounding.


Following the successful increase to NAN's overall resource base, the Company has postponed any further geological, engineering and economic studies to further upgrade the understanding of the deposit and will instead continue its focus on planned exploration of the other Satellite Deposits during the second half of 2019. Drilling will focus on the Gulçari A Norte mineralized zone which lies to the north of the Campbell Pit and on the Gulçari A South target which lies just south of the Campbell Pit.

Conference Call

Largo Resources' management will host a conference call on Wednesday, August 14, 2019 , at 11:30 a.m. EDT , to discuss both operational and financial results for the second quarter of 2019. In addition, the Company's third-party independent consultant, Mr. Terry Perles , will provide an update on the vanadium market during the call.

Conference Call Details:

Date:

Wednesday, August 14, 2019

Time:

11:30 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:

69944520



Replay Number:

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


North American Toll Free: (888) 390-0541


Replay Passcode: 944520#

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 unaudited condensed interim consolidated financial statements for the three and six months ended June 30, 2019 and 2018 and its management's discussion and analysis for the three and six months ended June 30, 2019 , which are available on our website at www.largoresources.com and on SEDAR.

Quality Assurance and Quality Control

All drill core samples were delivered to the SGS facility in Belo Horizonte, Brazil for analysis of select elements by XRF79C. Davis Tube test work is carried out on all mineralized samples. Quality control entailed the insertion of company blanks and standards into the drill core sample stream. In addition, SGS routinely inserts blanks, standards and duplicate analysis. 

Qualified Person

Mr. Paul Sarjeant B.Sc. P.Geo., Manager of Geology at Largo 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

This press release contains forward-looking information under Canadian securities legislation, some of which may be considered "financial outlook" for the purposes of application Canadian securities legislation ("forward-looking statements"). Forwardlooking information in this press release 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; the timing and amount of estimated future production; costs of future activities and operations; and the extent of capital and operating. 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 which also apply.

Non-GAAP10 Measures

The Company uses certain non-GAAP financial performance measures in its Management's Discussion and Analysis for the three and six months ended June 30, 2019 , which are described in the following section.

Revenues Per Pound

This press release refers to revenues per pound sold, including vanadium sales per pound sold and revenue adjustment per pound sold.  These are non-GAAP performance measures and are used to provide investors with information about key measures used by management to monitor performance of the Maracás Menchen Mine.

These measures, along with cash operating costs, are 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 revenues per pound measures do not have any standardized meaning prescribed by IFRS and differ from measures determined in accordance with IFRS. These measures 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.

The following tables provide a reconciliation of these measures per pound sold for the Maracás Menchen Mine to revenues as per the Q2 2019 unaudited condensed interim consolidated financial statements.






Three months ended




June 30,
2019


June 30,
2018

Revenues1


$

29,462

$

103,321

V2O5 sold (000s lb)



5,467


5,465

Revenues per pound sold ($/lb)


$

5.39

$

18.91

Revenues per pound sold (US$/lb)2


$

4.02

$

14.62







Vanadium sales from a contract with a customer1


$

75,786

$

100,664

V2O5 sold (000s lb)



5,467


5,465

Vanadium sales per pound sold ($/lb)


$

13.86

$

18.42

Vanadium sales per pound sold (US$/lb)2


$

10.33

$

14.24







Re-measurement of trade receivables / payablesi


$

(46,324)

$

2,657

V2O5 sold subject to re-measurement (000s lb)



4,564


5,423

Revenue adjustment per pound ($/lb)


$

(10.15)

$

0.49

Revenue adjustment per pound (US$/lb)ii


$

(7.57)

$

0.38

i.

As per note 19 in the Company's unaudited condensed interim consolidated financial
statements for the three and six months ended June 30, 2019 and 2018.

ii.

Calculated from "$/lb" using average CDN$/US$ foreign exchange rates of 1.34 and
1.29 for Q2 2019 and Q2 2018, respectively.







Six months ended




June 30,
2019


June 30,
2018

Revenuesii


$

73,776

$

194,414

V2O5 sold (000s lb)



10,097


10,360

Revenues per pound sold ($/lb)


$

7.31

$

18.77

Revenues per pound sold (US$/lb)ii


$

5.47

$

14.65







Vanadium sales from a contract with a customeri


$

177,189

$

167,223

V2O5 sold (000s lb)



10,097


10,360

Vanadium sales per pound sold ($/lb)


$

17.55

$

16.14

Vanadium sales per pound sold (US$/lb)ii


$

13.13

$

12.60







Re-measurement of trade receivables / payablesi


$

(103,413)

$

27,191

V2O5 sold subject to re-measurement (000s lb)



10,097


10,318




Six months ended

Revenue adjustment per pound ($/lb)


$

(10.24)

$

2.63

Revenue adjustment per pound (US$/lb)ii


$

(7.66)

$

2.06

i.

As per note 19 in the Company's unaudited condensed interim consolidated financial
statements for the three and six months ended June 30, 2019 and 2018.

ii.

Calculated from "$/lb" using average CDN$/US$ foreign exchange rates of 1.34 and
1.28 for the six months ended June 30, 2019 and 2018, respectively.


Cash Operating Costs

This press release 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.

These measures, 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 measures do not have any standardized meaning prescribed by IFRS and differ from measures determined in accordance with IFRS. These measures 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 press release 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 Q2 2019 unaudited condensed interim consolidated financial statements.




Three months ended



June 30,
2019


June 30,
2018

Operating costsi

$

33,284

$

30,220

Professional, consulting and management feesii


1,604


3,823

Other general and administrative expensesii


389


501

Less: depreciation and amortization expensei


(8,953)


(7,593)

Cash operating costs

$

26,324

$

26,951

Less: royaltiesi


(1,781)


(3,499)

Cash operating costs excluding royalties

$

24,543

$

23,452

V2O5 produced (000s lb)


5,545


5,419

Cash operating costs per pound produced ($/lb)

$

4.75

$

4.97

Cash operating costs per pound produced (US$/lb)iii

US$

3.54

US$

3.85

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

$

4.43

$

4.32

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

US$

3.30

US$

3.35

i. 

As per note 20 in the Company's unaudited condensed interim consolidated financial statements for the three
and six months ended June 30, 2019 and 2018.

ii.

As per the Mine properties segment in note 16 in the Company's unaudited condensed interim consolidated
financial statements for the three and six months ended June 30, 2019 and 2018.

iii.

Calculated from "$/lb" using average CDN$/US$ foreign exchange rates of 1.34 and 1.29 for Q2 2019 and Q2
2018, respectively.


Revenue Adjustment Payable

This press release refers to revenue adjustment payable, a non-GAAP performance measure used to provide investors with information about a key measure used by management as part of its monitoring of the financial liquidity of the Company.

This measure is considered to be one of the key components monitored relating to the Company's projected financial liquidity and capital resources. This revenue adjustment payable does not have any standardized meaning prescribed by IFRS and differs from measures determined in accordance with IFRS. This measure is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance, financial liquidity or capital resources prepared in accordance with IFRS. This measure is not necessarily indicative of cash flow from operating activities or disclosed commitments as determined and presented under IFRS.

The following table provides a reconciliation of this measure to trade receivables / payables as per the Q2 2019 unaudited condensed interim consolidated financial statements.








June 30,
2019

Trade payablesi


$

67,401

Add: amounts to be received included in trade payables



11,501

Revenue adjustment payable


$

78,902

Add: estimated future re-measurement for V2O5 soldii



15,958

Estimated revenue adjustment payable for V2O5 sold


$

94,860

i.

As per note 9 in the Company's unaudited condensed interim consolidated
financial statements for the three and six months ended June 30, 2019 and
2018.

ii.

Estimated based on the quantity of V2O5 sold in the six months ended June
30, 2019 that is subject to re-measurement. The estimate assumes there is
no change in the price per pound of V2O5 for the remainder of the duration
of the Company's off take agreement from that stated as being the price at
June 30, 2019 in the "Liquidity and Capital Resources" section of the
Company's Management's Discussion and Analysis for the Three and
Six Months Ended June 30, 2019  and it assumes no receipt or payment
of cash in relation to any amount in this table.


________________________________

1 Conversion of tonnes to pounds, 1 tonne = 2,204.62 pounds or lbs.
2 Global recovery is the product of crushing recovery, milling recovery, kiln recovery, leaching recovery and chemical plant recovery.
3 The cash operating costs per pound produced and cash operating costs excluding royalties per pound produced reported are on a non-GAAP basis. Refer to the "Non-GAAP Measures" section of this press release.
4 Defined as current assets less current liabilities per the consolidated statements of financial position.
5 Effective grade represents the percentage of magnetic material mined multiplied by the percentage of V2O5 in the magnetic concentrate.
6 Refer to Management's Discussion and Analysis for the three and six months ended June 30, 2019 for exchange rates used.
7 Revenues per pound sold and vanadium sales per pound sold are calculated based on the quantity of V2O5 sold during the stated period. Revenue adjustment per pound is calculated based on the quantity of V2O5 sold that is subject to re-measurement. This may or may not differ to the quantity sold. Accordingly, these three measures may not, and are not intended to, sum.
8 Estimated revenue is on a non-GAAP basis and calculated from "$/lb" using average CDN$/US$ foreign exchange rate of 1.34, the average European Metal Bulletin V2O5 price for Q2 2019 and the quantity of V2O5 produced during the quarter
9 The revenue adjustment payable is on a non-GAAP basis. Refer to the "Non-GAAP Measures" section of this press release.
10 GAAP – Generally Accepted Accounting Principles.

SOURCE Largo Resources Ltd.


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