Largo Resources Ltd. (OTCQX: LGORF) 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 also listed on the Toronto Stock Exchange under the symbol “LGO.”
The fundamental situation for vanadium is rapidly improving, with V2O5 prices continued to edge higher, which puts the company in a good starting position for the third quarter. Management continues to remain very optimistic for the year ahead as the Company begins the construction phase of the Maracás Menchen Mine expansion plan which will see capacity increase at the mine from a total of 800 tonnes produced per month of V2O5 to 1,000.
On July 17th, 2018, the company provided guidance on its expected revenue for the three-month period ending June 30, 2018, anticipating revenue of between CDN$99 million and CDN$107 million, a new quarterly revenue record for the Company.
The Company’ anticipated Q2 2018 revenue would represent an increase of between approximately 176.6% and 198.9% over Q2 2017 if realized. The increase to revenue is expected to be primarily driven by the upward movement in vanadium pentoxide (“V2O5”) pricing and increased production when compared to Q2 2017. The price range of V2O5 for the last week of Q2 2018, as reported by the European Metal Bulletin, was US$17.00/lb V2O5 to US$17.50/lb V2O5 as compared to US$5.35/lb V2O5 to US$6.00/lb V2O5 for the last week of Q2 2017.
Management anticipates that the overall benefit of the increased revenues will be tempered by increases in corresponding royalty expenses and certain mostly non-cash foreign exchange adjustments anticipated to be required as a result of the weakening of the Brazilian Real against the USD given that certain of the Company’s debts in Brazil are denominated in USD. The Company expects the foreign exchange loss in Q2 2018 to exceed the loss recorded in Q2 2017.
Analysts tracking the stock believes that Largo has up-and-coming prospects, as it is the only pure-play producer of the Vanadium globally. In the recent past, Vanadium has featured as the best performing “battery metal” and has outperformed all other ‘battery metals’ due to its unique characteristics and a deep-seated shift in demand/supply dynamics. Over the years the metal has proven to be a disruptive force of electric vehicles, clean energy storage and fuel efficiency driving ‘battery metal’ fundamentals.
Key and unique differentiating factor of Largos and Vanadium:
Other recent announcement/highlights:
Closure of secondary Offering: On July 24th, the company announced the closing of the secondary offering of 60,000,000 common shares and an additional 9,000,000 common shares (offering price of $1.40 per share) representing the exercise in full of the over-allotment option which was exercised on closing by the underwriters.
Credit Facility Repayment Consent: On July 13, 2018, the Brazilian National Economic and Social Development Bank provided its consent for the early repayment of the Company’s credit facility with them. The receipt of this consent is a condition to the release from escrow of the first tranche of the net proceeds from the Company’s recently completed offering of senior secured notes (the “Note Offering”) of approximately US$143 million which have, to date, been held in escrow (the “Escrowed Funds”).
The Company anticipates making a payment using the released portion of the Escrowed Funds of USD$84,138,367 to BNDES on or about July 23, 2018, representing payment in full of amounts owing to BNDES. Once repayment in full of the BNDES has occurred, the remaining Escrowed Funds will be released from escrow and used to repay the Company’s remaining credit facilities held with a syndicate of commercial lenders on or about July 31, 2018.
Latest Quarter Financial position:
Revenues of $91.0 million in Q1 2018, a 210% increase over Q1 2017.
Profitability: The Company recorded quarterly net income of $45.8MM in Q1 2018 and earnings per share of $0.09 as a result of an increased vanadium price environment.
Liquidity and financial flexibility: Cash Balance at March 31st, 2018 of $50.2 million and restricted cash of $4.4 million.
2018 Guidance: The management believes that Elevated commodity prices and consistent production rates to drive exceptional operational performance in 2018.
Key risk factors and potential stock drivers:
Continuing increases in the market price of vanadium could act as a catalyst for company shares.
The company’ business and operational risk profile are susceptible to fluctuations in metal prices and the end-user industry, and exposure to the risk of product concentration.
The Company’ Revenue and profitability have strong linkages to the overall economic growth and demand in the end user industry. Fluctuations in Vanadium prices and the downturn in the end-user industry would continue to impinge growth.
On Monday, July 30th, 2018, LGORF was at $1.58 on volume of 603K shares exchanging hands. Market capitalization is $798 million. The current RSI is 65.34
In the past 52 weeks, shares of LGORF have traded as low as $0.38 and as high as $2.05
At $1.58, shares of LGORF are trading above its 50-day moving average (MA) at $1.37 and above its 200-day moving average (MA) at $1.10
The present support and resistance levels for the stock are at $1.50 & $1.62 respectively.
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