Shares of Largo Resources hit record high in expectation of the start of production
Canada’s Largo Resources (‘Largo’, TSXV: LGO) is about to launch production at the largest vanadium mine in Brazil and the first vanadium mine of the Americas. It is located in Maracas, Bahia state. With an estimated investment of over USD$ 550 million, the mining company will have an initial capacity to produce 9,600 tons of vanadium oxide annually at a cost of about USD$ 5.50 to USD$ 6.00 per kilogram. This means that the Maracas Vanadium will be the lowest cost and highest vanadium content mine in the world. The state of Bahia, in turn, will become the largest supplier of vanadium in Brazil. The mine is close to Porto Alegre and it is expected to generate some 300 well paying jobs at the start of operations and 400 new jobs when it reaches full capacity. In late May, Largo said it had begun feeding vanadium concentrate into the kiln and this week the Company’s stock has been trading at an all time high of CAD$ 0.35/share in expectation of the imminent launch of commercial production as some 10,000 tons of vanadium concentrate are ready to be fed to the kiln. Largo has an offtake agreement to supply Glencore International with 100% of its vanadium for six years. Under the agreement, Largo will not have to worry about shipping because Glencore will actually come to the site itself and literally ‘pick it up’- such is vanadium’s importance and demand.
Vanadium is an essential mineral in the steel industry, used in steel processing, aerospace, oil and gas extraction, production of hand tools and surgical materials. According to Bahia Mineral Exploration Company (CBPM), which holds the mineral rights in the region, the Maracas deposit is considered to be the best in the world, which gives Largo a strategic advantage among producers worldwide. Largo could soon account for as much as eight percent of the world’s total production of vanadium pentoxide. Largo Resources has taken the Maracas property from Brazilian companies Odebrecht and Vale in 2007 and it has received strong support from the Brazilian state development bank BNDES. In Brazil, Largo Resources also owns a tungsten mine in Currais Novos (State of Rio Grande do Norte) and deposits of iron ore, titanium and vanadium in Campo Alegre do Lourdes in the state of Bahia – these have yet to reach production stage. Maracas will not only offer quantity; in economic terms it offers a level of quality that translates to lowest cost production. Largo has the highest grade vanadium deposit in the world featuring relatively low silica content, which makes it easier and cheaper to process. It is a big project with an initially projected 29-year mine, which has the potential for to be extended.
Vanadium is becoming essential for the production of steel as aircraft and automotive manufacturers address demand for lighter and tougher materials, which contribute to reducing fuel consumption and reduce emissions. Steel companies are now offering high strength low alloy steels which the fastest growing segment of the steel market and vanadium is an essential metal for its production. China is another important driver of vanadium demand because of its use in high strength steel for construction. Demand for such steel in China has been booming because of new anti-earthquake compliance standards. Until recently China has been using in the range of 0.02-0.023% of vanadium per ton of steel. Japanese and Western steel uses anywhere from 0.06 to 0.08% per ton of steel, triple the amount or more. China has decided, better late than never, to improve the quality of the steel used for construction, which might well prompt a doubling of demand for vanadium over the next two to three years. About 90% of vanadium is used for steel making and its use is spreading, particularly in China, India, Brazil and other emerging countries, especially in Africa. Vanadium reinforces steel and it is an important ingredient in modern steel alloys but vanadium output has not increased at the same pace as steel, which suggests there is a potential vanadium shortfall, and that’s where the supply from Brazil will be really important…and really profitable.
Get our daily investorintel update