Q2 2018 Highlights
(unless otherwise noted, all financial amounts in this news release are expressed in Canadian dollars)
- Net income of $90.7 million and earnings per share of $0.17 after a deferred income tax recovery of $45.6 million
- Revenues of $103.3 million in Q2 2018, a 189% increase over Q2 2017 and a 13% increase over Q1 2018
- Cash provided before non-cash working capital items of $77.7 million in Q2 2018, an increase of $66.7 million over Q2 2017
- Total production of 2,458 tonnes of V2O5 in Q2 2018, a 13% increase over Q2 2017 and an 11% increase over Q1 2018
- Average Vanadium Pentoxide (V2O5) price of ~US$15.44/lb V2O5 in Q2 2018
- Cash balance at June 30, 2018 of $84.2 million (excluding restricted cash of $201.2 million)
TORONTO, Aug. 13, 2018 /CNW/ - Largo Resources Ltd. ("Largo" or the "Company") (TSX: LGO) (OTCQX: LGORF) is very pleased to report record net income of $90.7 million ($0.17 per share) and cash flows provided before non-cash working capital items of $77.7 million on revenues of $103.3 million in the three-month period ended June 30, 2018..
Mark Smith, President and Chief Executive Officer for Largo, stated: "We are extremely pleased with our financial and overall operational performance during the second quarter of 2018. In continuing the success of Q1 2018, Largo recognized revenues of $103.3 million during the quarter and achieved net income of $90.7 million, including a non-cash deferred income tax recovery of $45.6 million. Importantly, because of this ongoing strong performance, our net debt level as at June 30, 2018 was approximately $115 million, or approximately US$87 million)."1
He continued: "The Maracs Menchen Mine continued to produce strong results operationally during the second quarter of 2018. Our operations team continues to focus on implementing improvements in maintenance and production practices. The Company's consistent low cash costs combined with the continued strengthening of V2O5 prices makes Largo one of the most profitable vanadium producers in the world."
Total production at the Maracs Menchen Mine in the second quarter of 2018 was 2,458 tonnes of vanadium pentoxide ("V2O5") compared to 2,214 tonnes of V2O5 in the first quarter of 2018, and 2,183 in the second quarter of 2017. The Company also achieved a new daily average production record in the month of June with 29.4 tonnes of V2O5 produced per day.
The global recovery rate (from ore to flake) averaged 79.2% in the second quarter of 2018, representing an increase of 4.3% over the first quarter of 2018 and 6.6% over the second quarter of 2017. Higher global recovery rates for the quarter are primarily due to greater operational control of the kiln and cooler. The Company forecasts an overall recovery rate of 79% for the remainder of 2018.
Maintenance performed during May as a result of the national truckers' strike in Brazil allowed the operations team at the Maracs Menchen Mine to replace the flaking wheel, assess the furnace refractory, change the de-ammoniator wires in the fusion section, and complete minor repairs to the kiln and cooler refractory. Further, the Company has postponed the planned seven-day shutdown to replace the refractory in the cooler and kiln to fourth quarter of 2018.
Total sales of high purity V2O5 flake was 420 tonnes in the second quarter of 2018, representing a 5% increase from the first quarter of 2018 and brings the total high purity sales in the six months ended June 30, 2018 to 820 tonnes. This represents a significant increase from the 205 tonnes sold in the during the full year of 2017. In addition, the Company expects to complete the ramp up to handle and pack high purity V2O5 powder.
Consolidated Q2 2018 Financial and Operational Results
Financial
All financial figures are in Canadian dollars unless otherwise stated.
| | Three months ended |
| | | | | |
| | | June 30, 2018 | | June 30, 2017 |
| Revenues | $ | 103,321 | $ | 35,797 |
| Direct mine and mill costs | | (19,128) | | (20,074) |
| Operating costs | | (30,220) | | (29,925) |
| Net income (loss) before tax | | 50,305 | | (13,885) |
| Income tax expense | | (5,163) | | - |
| Deferred income tax recovery | | 45,593 | | - |
| Net income (loss) | | 90,735 | | (13,885) |
| Basic earnings (loss) per share | | 0.17 | | (0.03) |
| Diluted earnings (loss) per share | | 0.14 | | (0.03) |
| | Three months ended |
| | | | | |
| | | June 30, 2018 | | June 30, 2017 |
| Cash provided before non-cash working capital items | $ | 77,654 | $ | 10,991 |
| Net cash provided by operating activities | 69,530 | 7,733 |
| Net cash used in financing activities | (22,250) | (2,083) |
| Net cash used in investing activities | (5,082) | (3,861) |
| | |
| | As at |
| | | June 30, 2018 | | December 31, 2017 |
| Cash | $ | 84,194 | $ | 54,725 |
| Restricted cash | | 201,230 | | 4,187 |
| Working capital1 | | 70,743 | | (33,078) |
| | |
| 1. | Defined as current assets less current liabilities per the consolidated statements of financial position |
Operational
| | Q2 2018 | Q2 2017 | 2017 Total |
| V2O5 flake produced (tonnes) | 2,458 | 2,183 | 9,297 |
| Crushing recovery (%) | 97.2 | 95.3 | 95.7 |
| Milling recovery (%) | 95.8 | 97.6 | 98.0 |
| Kiln recovery (%) | 89.7 | 85.4 | 86.1 |
| Leaching recovery (%) | 97.6 | 96.4 | 97.0 |
| Chemical plant recovery (%) | 97.2 | 97.2 | 96.7 |
| Global recovery (%)1 | 79.2 | 74.4 | 75.7 |
| | |
| 1. | Global recovery is the product of crushing recovery, milling recovery, kiln recovery, leaching recovery and chemical plant recovery. |
| | | Q2 2018 | Q2 2017 |
| V2O5 flake produced (equivalent pounds)1 | | 5,418,956 | 5,094,877 |
| Cash operating costs2, 3 per pound | CDN$ | $4.97 | $4.19 |
| | US$4 | $3.85 | $3.25 |
| | R$4 | $13.87 | $11.40 |
| | |
| 1. | Conversion of tonnes to pounds, 1 tonne = 2,204.62 pounds or lbs. |
| 2. | The cash operating costs reported are on a non-GAAP basis. Cash operating costs include all cash expenditures, the main categories being mining costs, plant and maintenance costs, sustainability costs, mine and plant administration costs, royalties and sales, general and administrative costs ("SG&A"). Cash operating costs excludes depreciation and amortization charges, interest or any other debt servicing costs and commissions on sales. Refer to the "Non-GAAP Measures" section of this MD&A. See also 4. below. The reader is cautioned that the cash operating costs presented are intended to serve as a guide to the magnitude of the Company's monthly operating expenditures on a cash basis and excludes financing costs associated with the operations and non-cash accounting charges (including but not limited to depreciation and amortization expense, accretion, share-based payments, or foreign exchange and derivative gains or losses). The measure may therefore not be comparable to other companies or the results of similar operations and does not meet any definition of GAAP. Refer to the "Non-GAAP Measures" section of this MD&A. |
| 3. | Excludes corporate SG&A or CAPEX (Capital Expenditures). |
| 4. | Refer to Management's Discussion and Analysis for the three-month period ended March 31, 2018 for exchange rates used. |
Second Quarter 2018 Financial Results
The Company reported net income of $90.7 million or $0.17 earnings per share in the second quarter of 2018, continuing the strength shown in Q1 2018. The Company recorded net income before tax of $50.3 million in the second quarter of 2018 and net income of $90.7 million after the recognition of a deferred income tax recovery of $45.6 million.
The Company also reported record revenues for the quarter of $103.3 million, compared to $35.8 million in the second quarter of 2017 and $91.1 million in the first quarter of 2018. The significant increase in revenues over the second quarter of 2017 is attributable to an increase in V2O5 prices. The average price per pound of V2O5 was approximately US$15.44 for the second quarter of 2018, compared to approximately $5.76 for the second quarter of 2017.
Cash provided before non-cash working capital items was $77.7 million in the second quarter of 2018, representing a 25.5% increase over the first quarter of 2018 and compared to $11.0 million in the second quarter of 2017.
Cash operating costs decreased from the first quarter of 2018 by 4% to $4.97(US$3.85) per pound of V2O5 in the second quarter of 2018. The cost per pound for the second quarter of 2018 was lower when compared with the first quarter of 2018 primarily due to the higher production level and actions taken to control the issues encountered with the cooler refractory. The consequent production stability resulted in lower specific consumption of sodium carbonate and fuel for kiln roasting during the quarter and the Company executed a new agreement for the supply of ammonium sulphate in April, reversing the increase seen in the first quarter of 2018 due to an underlying rise in the price of ammonia gas and sulphur.
The overall benefit of the increased revenues was tempered by increases in corresponding royalty expenses and certain largely non-cash foreign exchange adjustments required as a result of the weakening of the Brazilian Real against the USD (and given that certain of the Company's debts in Brazil are denominated in USD).
Secured Note Offering and Subsequent Repayment of Brazilian Debt
The Company announced in May that it had completed the private placement offering of US$150,000 aggregate principal amount of senior secured notes due in 2021 with a coupon of 9.25%. In addition, the Company announced that on August 2, 2018, it had repaid in full its indebtedness with the Brazilian National Economic and Social Development Bank and its remaining credit facilities held with a syndicate of commercial lenders (see press release dated August 2, 2018). The repayment represents a fundamental step in the Company's development and will allow Largo to realize the benefits of its recently completed note offering through the improvement in capital structure, reduction in interest costs and the simplification of reporting obligations.