Largo Inc T.LGO

Dundee: Neutral rating and $0.80 target for Largo Resources

[shakerman640]

According to Dundee Capital Markets:

https://personal.crocodoc.com/nEUb5oT

Largo Resources Ltd.

(LGO-T: C$0.83)

May 13, 2015

NEUTRAL, Speculative Risk

Dundee target: C$0.80

Adjusting Valuation After Successful $70M Financing

LGO Raises $70M Through Issuance Of 87.5M Shares

On May 7, 2015 LGO announced a financing of up to $50M through a private placement of shares. In a further press release this morning, LGO announced that they have increased the raise by approximately $20M, for a total raise of $68.6M through the issuance of 87.5M units at $0.80 per unit. Each unit will be comprised of one LGO common share and one half of one common share purchase warrant. Each whole warrant will be redeemable for one LGO common share at an exercise price of $1.50 per warrant share for a period of 12 months following the closing of the placement. The funds will be used by LGO for the continued development of the Maracas Menchen Mine, and for general corporate purposes.

Debt Facility Restructuring

Late April 2015, LGO signed a term sheet from its lenders to defer debt amortization schedules and extend the maturities on its construction debt facility and export credit facilities for the Maracas Menchen Mine. LGO has since received firm commitment from its lenders for the re-structuring, under certain conditions. One of the main conditions was a minimum equity raise of US$35M, which LGO has now addressed. With the cash raise of $70M (~US$58M at today's exchange rate), LGO's liquidity position has improved significantly. LGO expects definitive documentation for the debt facility restructuring to be completed on or before May 31, 2015.

Maintaining Rating But Lowering Our Target Price

Following the $70M financing, our NAV has decreased by roughly 33%, to $0.95/sh (from $1.43/sh). We are maintaining our NEUTRAL rating, but lowering our target to $0.80 based on a 0.8x (unch.) to our NAV. We will maintain our neutral rating until we receive further clarity on the progress of ramp up operations at Maracas and the future of the global vanadium market.

Bottom Line: We believe the Maracas Menchen Mine is a viable operation. LGO has made significant progress in restructuring their debt facilities and addressing liquidity issues, which is a very positive step forward for the company. We are maintaining our NEUTRAL rating, but lowering our target to $0.80 based on a 0.8x (unch.) to our NAV of $0.95/sh (from $1.43/sh).