Winning from higher vanadium prices, Largo Resources expands into the clean energy storage (VRFB production) market

US energy storage installations grew a massive 182% QoQ in Q4 2020. BloombergNEF forecasts a 122x increase in global energy storage from 2018 to 2040. WoodMac forecasts global energy storage capacity to grow at a CAGR of 31% through 2030. One of the more exciting areas of energy storage is vanadium redox flow batteries (VRFB) as they are able to hold a longer duration of energy storage for aggressive cycling as well as lasting longer (>20 years or > 10,000 cycles) and are ideally suited for large scale utility style energy storage typically combined with a wind or solar farm.

As the vanadium price continues to recover (Europe Vanadium Pentoxide (V2O5) now at US$9.70) the vanadium miners are starting to do very well again. One key area for the vanadium miners to gain a greater share of the profits is by moving into value-add products such as making energy storage products such as vanadium redox flow batteries (VRFB).

Today’s company is doing just that.

Largo Resources Ltd. (TSX: LGO | NASDAQ: LGO) (“Largo”) is best known for its successful very low cost vanadium producing Maracás Menchen mine in Brazil. The Maracás Menchen mine has industry leading grades of 1.17% vanadium pentoxide (V2O5). Production in Q2, 2021 achieved 3,070 tonnes of V2O5. At that run rate, Largo is on track to hit its 2021 guidance of 12-12,500 tonnes pa in 2021. Costs are guided at US$3.30–3.50/lb V2O5 and are also on track.

Largo Resources is on track to meet their 2021 guidance on costs, production, and sales

Source: Largo Resources website

Largo has recently begun commissioning of the Company’s vanadium trioxide (V2O3) processing plant and production is expected by the end of Q3, 2021. V2O3 is an important high purity material required in the manufacturing of master alloys, chemical products and electrolyte used in VRFB.

Largo Clean Energy (“LCE”)

Largo Clean Energy plans to become a leading supplier of safe, durable, long-duration grid-scale vanadium redox flow batteries (VRFB) for the fast growing global energy storage market.

On July 20, 2021, the Company announced that LCE entered into its first VCHARGE± VRFB system sales contract with Enel Green Power España (EGPE). Under the contract, LCE is obligated to deliver a 5 hour 6.1 MWh VCHARGE± system for a project in Spain with expected commissioning in Q4 2022, subject to receipt of notice to proceed from EGPE within the next 180 days. Note that the notice to proceed has now been issued.

Largo’s updated report on their Clean Energy division states:

During Q2 2021, Largo Clean Energy Corp. (“LCE”) remained focused on obtaining certification of its VCHARGE± VRFB system under UL1973 and UL9540 requirements to support expected 2022 project deployments. In addition, building modifications of its product development and stack manufacturing center are expected to commence shortly which will enable the installation and commissioning of stack manufacturing capacity and test equipment. The Company continues the hiring of additional personnel to support the achievement of its set targets and timelines.”

Largo Clean Energy creates a vertically integrated energy storage provider for the growing renewable energy storage market

Source: Largo Clean Energy

Regarding the Enel contract and Largo Clean Energy business, Paulo Misk, President and Chief Executive Officer of Largo, stated: “We are excited to have been selected by Enel Green Power España as the preferred energy storage solution partner on this project. Integrating Largo’s leading high purity vanadium production with the disruptive capabilities of our VCHARGE± system, including superior performance, long life, optimal cost structure and proven durability, should position Largo as an emerging leader in the VRFB industry……The world is in need of clean and safe long-duration energy storage and we believe our VCHARGE± system can be a significant part of this solution going forward. We look forward to the successful deployment of this system.”

Closing remarks

Largo Resources continues to fire on all cylinders. V2O5 production and cost guidance are on track in 2021 which should lead to a very profitable year boosted by rising V2O5 prices in 2021.

Furthermore, Largo’s expansion into clean energy storage (VRFB production) is already starting to potentially deliver results with a large contract to supply Enel Green Power in Spain with Largo’s VCHARGE± VRFB system. As time goes by this will potentially add a second value-add revenue for Largo, assuming the initial success with Enel continues. Largo did also state that “advanced discussions with additional energy storage customers ongoing”.

Largo Resources trades on a market cap of C$1.3 billion and the future looks very bright indeed, especially if VRFBs become increasingly more popular. It looks likely VRFBs will be needed in order to meet the BNEF forecast 122x increase in global energy storage demand from 2018 to 2040 and the global move towards renewable energy and zero emissions targets. Don’t miss this one.

Are you ready for the Vanadium price explosion?

I have long championed vanadium as a metal of choice for the modern investor; the super-metal is predominantly used to strengthen steel, yet many more advanced uses currently litter the horizon. Decreasing prices of the last fifteen years are finally on the up, and the trend is set to continue amid a complex cocktail of mine closures, rising demand and decreasing stockpiles. As the only pure-play producer of Vanadium, Largo Resources Ltd. (TSX: LGO | OTCQB: LGORF) (“Largo”) have successfully weathered the storm with impressive financial and operational results from 2016 and Q1 2017, and CEO Mark Smith is entirely confident that vanadium is rapidly approaching a significant high, an outlook corroborated by numerous analysts.

The steady historic decline in vanadium prices is, in part, due to the fact that China has been overproducing the metal for years, exporting the excess and undercutting a myriad of global producers, as well as the considerable market share obtained by South African producers up until 2014. In spite of the tough market conditions, Largo have continued to increase revenues, production quantities and recovery rates, and, in my opinion, the company is now sitting pretty at the bottom of a rather steep price curve.

The last couple of years has witnessed some significant shifts in the structure of supply; since 2014, output from China has been reduced, some major South African mines have ceased operations, and Russia has now become the second largest contributor to feedstocks, overtaking South Africa post-2014. Even so, growth in Russian production has stagnated somewhat, but it’s the fall in South African production that has caused the largest change to the metrics. Demand now exceeds supply, and moreover, according to Mark Smith, global vanadium stockpiles have been diminishing for a number of years. Couple this with further increasing requirements and readers may see why prices have doubled since the low-point of 2015.

Looking forward, the US steel industry is to be heavily bolstered by President Trump’s planned infrastructure boom, which should see offtake increased to meet the massive demands that will be placed on American steelmakers. Furthermore, new battery technologies are emerging constantly, and vanadium is pegged to feature in the energy storage boom of the next decade. While 90% of vanadium is currently used in steelmaking, the considerable interest in vanadium redox batteries for their ability to safely store industrial levels of energy is likely to be a disruptive influence on demand from 2020 onwards.

These factors should see the sharp-edge of vanadium prices come about within five years, providing an incentive for juniors the world over to reactivate older mines and begin exploring new claims, but Largo are already eminently positioned to ride the wave, and the company’s consistent increases to production amid bottomed-out prices is a testament to the strength of both the team and the operation.

Maracas Menchen is the only recently commissioned vanadium project in the world, and while many others will be scrabbling to join them for the coming fair weather, there’s really no substitute for experience. Company stocks are currently trading at C$0.46 (Source: Yahoo Finance, 14 June) with a market capitalization of just under C$205m; any investor that’s heard the vanadium buzz should be able to see that this is a portfolio opportunity that comes around very rarely indeed.