Post-LOI Largo ReportIt's been a month since the new financing LOI was announced which means that we now have a new Largo report and a new target price. To give those of you not subscribed the highlights:
Higher Concentration Grades: Apparently they've talked with Les Ford (Largo's Technical Director) who has provided a ballpark concentration grade of 3.4% compared to the previous grade they (and I) used of 1.9%. Very good news!
Lower Discount: As a result of the new LOI and certainty of closing, they lowered their discount rate from 9% to 8%.
Currais Novos: This evaluation includes half year's production of tungsten and three more years thereafter at $192.50/MTU which, especially for this year is pretty conservative.
Summary:
Recommendation: Strong Buy
New target price: $1.01
My Notes: Still nothing in here about the remaining 10% of Maracas and whether or not they have factored that into their analysis. They also don't appear to factor in Glencore's Offtake agreement, which could be interpreted as a Vanadium forecast price of ~$35 for 2013 and $38 thereafter. Finally, it's worth noting that this number is before the additional $5 million in financing was lumped in with this, so their fully-diluted share total is 793 M instead of 800 M. The combined effect of increased concentration grade and their use of Vanadium at a price of $5/kg more than my very conservative estimate is why there is a difference between my final target and theirs.
In summary, this is a very positive development for an already low-cost producer and in considering future V demand, I find this a very reasonable estimate of Largo's current value although Northern Dancer remains entirely devalued. I personally wouldn't sell at a cent below $2 but I'm already a long-term investor and I have high hopes for the future uses of vanadium and expect a Northern Dancer joint venture sooner rather than later although defining those terms requires a crystal ball that I don't have.
Happy Sunday!