Largo’s plans to expand vanadium production capacity by 25% garners more interest
Largo Resources Ltd. (TSX: LGO | 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. The Company’s focus is on their 99.84% owned open pit Maracás Menchen Mine located in Bahia State, Brazil. The property totals 17,690 hectares and has excellent access to the national electricity grid and access from Salvador via a paved 405 km secondary road connected to the main coastal highway. The town of Maracás has a population of approximately 25,000.
Vanadium is traditionally used to harden steel. China’s recent regulations that require stronger steel rebar, is pushing the demand for vanadium required in the hardening process. CEO Mark A Smith explains: “I think the best thing to think about vanadium is rebar, because that’s where 50% of the vanadium is used today. Rebar is of course used to strengthen buildings, roads and bridges, and give them much better seismic strength.” The trends in the steel industry, are now demanding increasingly stronger and lighter products for advanced applications. Vanadium demand has a compound annual growth rate of over 6% for the past several years; however recently vanadium has become a burgeoning commodity.
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Additionally, Vanadium Redox Batteries (VRB) are becoming increasingly popular especially for large scale commercial energy storage in China. China has an enormous amount of solar and wind capacity that blend perfectly with this type of energy storage. In terms of green energy these batteries are very efficient as they can absorb energy, as well as release the energy simultaneously and very quickly. The type of vanadium used in energy storage applications is vanadium pentoxide (V2O5).
According to the Company, Largo’s Maracás Menchen Mine boasts the highest grade (1.15% V2O5, or 3.4% concentrate grade) vanadium deposit yet discovered and has accomplished a unique feat in the mining industry, by successfully financing, building and bringing a project to production in a trying market environment and in a unique commodity. V2O5 cost of production is US$4.11/lb. The Company states: “Our vision is to be the lowest cost, highest grade vanadium producer in the world, while maximizing overall shareholder value and continually maintaining the respect of our employees, communities we operate in and with all relevant stakeholders.”
Largo has contracted a take-or-pay, off-take agreement with Glencore International Plc. for 100% of its vanadium material. The mine is projected to produce between 8,950 and 9,950 tonnes of vanadium pentoxide in 2018. On July 10 the Company announced: “Largo Resources reports second quarter 2018 production results. Total production of 2,458 tonnes of V2O5 in Q2 2018, a 13% increase over Q2 2017 and a 11% increase over Q1 2018. New average daily production record for June of 29.4 tonnes of V2O5 produced per day. Overall V2O5 recovery rate of 79.2% achieved in Q2 2018.” President and Chief Executive Officer Mark A Smith stated: “V2O5 prices continued to edge higher with the latest European Metal Bulletin price range posted during the week of July 6 being US $18.50-$19.00/lb, which puts us in a good starting position for the third quarter.”
Largo Resources has a market cap of CAD$992M, and an analyst target price of C$3.60.
Largo announced in April 2018 its plans to expand production capacity by 25% at the mine with construction beginning in June 2018. The 25% increase in capacity translate to 200 tonnes of additional vanadium pentoxide (V2O5) being produced per month from June 2019, thereby lifting the Company’s total to 1,000t per month. As Largo continues to ramp up production at its Maracás Menchen Mine and generates strong cash-flows, it will present an excellent opportunity for investors to gain exposure to the vanadium market.
In conclusion, Largo Resources offers investors a high grade, low cost, well valued pure play vanadium producer with growing production in a hot sector.
Matthew Bohlsen holds a Graduate Diploma in Applied Finance and Investment (similar to CFA), and a Graduate Diploma in Financial Planning. He has 30 years ... <Read more about Matthew Bohlsen>