RE:RE:RE:RBCThe RBC report from Nov 10th had better info...weird.
Setting the table for improved operations in 2024
Our view:
Largo has met a confluence of challenges in 2023, both operationally and through a softening vanadium market. However, we continue to see potential value if the company can execute on operational improvements and successfully ramp-up value-add projects (ilmenite plant in the near-term, LCE longer-term).
Key points: Operational challenges still weighing on results, but improvement could be on the way: Largo is planning to produce ~11Kt of V2O5 in 2024, in line with our expectations and up from our estimate of 9.6Kt in 2023 as operations are set to improve after several unexpected challenges (rain, accident). We are also encouraged by management's plan to focus on cost reduction through capturing operational efficiencies, headcount rationalization, and lower reagent consumption and costs. We forecast $4.52/lb costs for 2024, down from $5.17/lb in 2023.
Ilmenite plant ramping up with top line contribution coming into focus: Largo continues to ramp up operations at the new ilmenite plant with 700 tonnes produced in September and first commercial shipment by the end of November. Starting in Q2/24, the company expects the plant to be ramped up and producing 8-9kt/month which implies a quarterly run-rate revenue contribution of ~$6M (~10% of revenue) assuming a ~$250/t realized price.
Further progress on validating LCE: Largo completed site testing of its 6.1MWh vanadium redox flow battery for Spanish utility, Enel, and expects provisional acceptance in Q4 and hot commissioning in Q1/24. Meanwhile, Largo is actively reviewing strategic alternatives to maximize the value of LCE and remains focused on near-term cost reduction.
Vanadium market headwinds remain: Vanadium prices have continued to weaken reflecting soft demand in the Chinese and European steel markets. However, Largo continues to see strong demand for high-purity vanadium (aerospace & energy storage end-markets) and plans to further increase proportion of high-purity production (~38% in Q3), which can help offset the broader market weakness through stronger realized pricing and diversified end-market revenue. Reiterate
Outperform, lower PT to $8 (from $9): We reduce 2023E/2024E EBITDA to $7M/$53M, from $20M/$56M and lower our P/NAV multiple on Maracas Menchen to 0.75x, from 1.0x, due to recent operational challenges