A company must test its assets for potential impairment periodically. Impairment exists when the fair value of the company assets is less than its book value. If any impairment exists, the difference between the fair value and the book value must be written off the books.
An asset fair value is calculated based on the sum of the asset's undiscounted expected future cash flows and its expected salvage value, which is what the company expects to receive from selling or disposing of the asset at the end of its useful life. Book value is the carrying value on the balance sheet.
“At December 31, 2023, the decline in the Company’s market capitalization and significant deficit compared with the carrying amount of the Company’s net assets was considered by the Company to be an indicator of impairment for the Company’s Mine Properties and Largo Clean Energy CGUs (cash generation units).
An impairment test was performed for the Mine Properties CGU and it was determined that its estimated recoverable amount exceeded its carrying amount and no impairment charge was required.
An impairment test was performed for the Largo Clean Energy CGU and it was determined that, based on market indications, its estimated recoverable amount exceeded its carrying amount of $7,370,000 and no impairment charge was required”.
Conclusion: The fact that the impairment tests have established without a doubt that Largo’s book value is valid/solid is indeed very good news. The stock being traded at well below the company’s book value is clearly oversold.
Taking into consideration the fact that short positions = +1M shares, I bet that short-sellers have also been taking advantage of the current crisis to keep the sp down.
DYODD