Last year was a disaster with the sp dropping from C$8.04 at the end of 2022 to C$2.26 at the end of 2023. A painful loss of 72% in value in 1 year. The analysts too were wrong in their estimation as the actual results came out more than 200% below expectation. And 2024 started with the bad omen of a whopping 300% negative surprise.
As Vanadium prices are still in the gutter, it is likely that 2024 will be another challenging red year. How long can Largo stay afloat in a sea of red ink?
How about our new Ilmenite revenue stream? Well, let’s see:
In 2023 Largo had a Net Loss of US$32M out of a Revenue of $199M. In 2024 Largo Guidance expects an annual Ilmenite sale of 60,000 - 67,000T. In Q1-24, Largo sold 513T of Ilmenite for a revenue of $69,000 or $135 per tonne. The Q1-24 Ilmenite costs = $47,000 or $92 per tonne of Ilmenite sold thus a gross profit margin of 32%.
Let’s assume that 2024 Ilmenite annual sale = 67,000T @ a generous sale price of $200 per tonne, therefore the annual Ilmenite revenue = 200 x 67,000 = $14M.
Let’s assume a gross profit margin of 50%. Then the Ilmenite gross profit for 2024 would = 14 x 50% = US$7M or about $2.3M/Q for the remaining 3 Qs of 2024. This new revenue stream is better than nothing but still too little to stop the Red tide without a strong Vanadium recovery.
How about the cost side?
In Q4-23 Largo incurred $60.5M in total costs including some major “one-time” cost items. Considering the non-recurring nature of those costs and the fanfare relating to management cost reduction measures, I was expecting a serious cost decrease in Q1-24. Surprise, surprise, Q1-24 registered the exact same cost level as the previous quarter @ $60.5M with a new bunch of new one-time cost items. Management costs reduction measures are not sufficient to stop the Red tide without a strong Vanadium recovery.
In summary, without a strong Vanadium recovery, Largo’s struggling mining pillar will not be able to continue to support the energy storage pillar which has not been able to generate a single $ of revenue to date. Since Aug 2023 Largo has commenced a comprehensive and thorough review of strategic alternatives for LCE. It’s long overdue for Largo to find a merger partner in hope to share the heavy burden of LCE or get rid of it all together to keep the mining pillar afloat. We need hundreds of millions of $ to build the TiO2 plant ( and then explore the platinum potential). Phase 1 of the TiO2 project is expected to bring in a truckload of cash in the short term.
| | | | Q4 2022 | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | Q1 2024 | Q2 2024 | Q3 2024 |
| Number of Analysts | | | 3 | 3 | 2 | 3 | 2 | 1 | 1 | 1 |
| Earnings Per Share Estimate | | | -0.08 | 0.01 | -0.10 | -0.07 | -0.06 | -0.05 | -0.10 | -0.06 |
| Earnings Per Share Actual | | | -0.24 | -0.02 | -0.09 | -0.19 | -0.21 | -0.20 | -- | -- |
| Difference | | | -0.16 | -0.03 | +0.01 | -0.12 | -0.15 | -0.15 | 0.00 | 0.00 |
| Surprise % | | | -190.36% | -385.71% | +5.26% | -183.58% | -281.82% | -300.0% | 0.0% | 0.0% |
| Price When Announced | | | 8.04 | 6.87 | 5.58 | 3.00 | 2.26 | 2.20 | -- | -- |
DYODD