Largo Inc T.LGO

RE:Paulo Misk, President and Chief Executive Officer for Largo,

[SKiamforsure]

Revenues		$	27,474			$	24,131			$		77,733			$					79,299
Operating costs			(20,977)				(23,673)					(56,786)								(70,271)
Direct mine and production costs			(11,354)				(16,691)					(31,028)								(48,058)
Net income (loss) before tax			3,352				(6,852)					1,700								(20,968)
Income tax (expense) recovery			(421)				724					(421)								(8)
Deferred income expense			(382)				179					(1,399)								(1,690)
Net income (loss)			2,549				(5,949)					(120)								(22,666)
Basic earnings (loss) per share			0.00				(0.01)					(0.00)								(0.04)
Diluted earnings (loss) per share			0.00				(0.01)					(0.00)								(0.04)
Cash provided (used) before non-cash working capital items		$	4,820			$	(3,809)			$		4,526			$					7,888
Net cash (used in) provided by operating activities			382				6,376					(64,249)								95,247
Net cash provided by (used in) financing activities			126				(21,510)					27,643								(94,560)
Net cash (used in) investing activities			(4,435)				(11,896)					(13,036)								(32,251)
Net change in cash			(3,320)				(28,749)					(52,604)								(34,614)
												As at
												September 30, 2020				December 31, 2019
Cash												$	74,895				127,499
Debt													24,788				-
Working capital4													84,671				78,380

Operational

Maracs Menchen Mine Production		Q3 2020	Q3 2019
Total Ore Mined (tonnes)		287,969	267,257
Ore Grade Mined - Effective Grade5 (%)		1.28	1.52
Effective Grade of Ore Milled5 (%)		1.26	1.44
Concentrate Produced (tonnes)		104,921	92,629
Grade of Concentrate (%)		3.32	3.26
Contained V2O5 (tonnes)		3,487	3,016
Crushing Recovery (%)		98.1	96.5
Milling Recovery (%)		96.5	97.0
Kiln Recovery (%)		92.5	88.8
Leaching Recovery (%)		99.7	97.2
Chemical Plant Recovery (%)		96.4	96.7
Global Recovery (%)2		84.2	78.1
V2O5 produced (Flake + Powder) (tonnes)		3,092	2,952
V2O5 produced (equivalent pounds)1		6,816,685	6,508,038
Cash operating costs per pound3	$	$3.50	$3.256
Cash operating costs excluding royalties3 per pound	$	$3.14	$3.026
Total cash costs3	$	$3.69
Revenues per pound sold 7	$	$5.37	$4.02

Third Quarter 2020 Financial Performance
In Q3 2020, the Company recognized revenues of $27.5 million from sales of 2,320 tonnes of V₂O₅ equivalent, representing an increase of 14% in revenues over Q3 2019 ($24.1 million). Revenues per pound sold were $5.37 in Q3 2020 compared to $4.02 per pound sold in Q3 2019, representing an increase of 34%. Q3 2020 marked Largo's first full quarter of independent sales and the Company delivered both VPURE™ and VPURE+™ products as well as ferrovanadium ("FeV") powered by VPURE™ to customers in Brazil, North America, Europe and Asia. The Company's total V₂O₅ equivalent sales in the nine months ended September 30, 2020 are 6,508 tonnes.
The Company recorded net income of $2.6 million in Q3 2020 following the recognition of an income tax expense of $0.4 million and a deferred income tax expense of $0.4 million. This compares to net loss of $6.0 million in Q3 2019 and is primarily due to an increase in revenues and decrease in operating costs.
Operating costs for Q3 2020 were $21.0 million compared to $23.7 million in Q3 2019 and include direct mine and production costs of $11.4 million ($16.7 million in Q3 2019), royalties of $1.6 million ($1.4 million in Q3 2019), product acquisition costs of $3.9 million, distribution costs of $0.9 million, inventory write-down of $2 thousand and depreciation and amortization of $3.3 million ($5.6 million in Q3 2019). The decrease in direct mine and production costs is primarily attributable to the decrease in V₂O₅ equivalent sold in Q3 2020.
Cash operating costs excluding royalties³ in Q3 2020 were $3.14 per lb V₂O₅ sold compared to $3.02 in Q3 2019. The increase seen in Q3 2020 compared with Q3 2019 is largely due to a decrease in produced pounds of V₂O₅ sold as well as the incurrence of distribution costs in Q3 2020. In Q3 2020, the Company's total cash costs³ were $3.69 per lb. The Company's total cash costs³ measure excludes royalties, includes total professional, consulting and management fees and other general and administrative expenses and are calculated on total pounds of V₂O₅ sold.
In Q3 2020, cash provided before working capital items was $4.8 million compared to cash used in Q3 2019 of $3.8 million. Net cash provided by operating activities decreased from $6.4 million in Q3 2019 to $0.4 million in Q3 2020. This is primarily due to the change in accounts receivable of $4.6 million in Q3 2020 as the payment terms with the Company's customers is greater than with its former off-take partner. A further factor is the change in inventory of $3.8 million in Q3 2020, which is a consequence of the increased time for the Company to deliver its products and recognize sales. This was offset by the change in deferred revenue of $6.6 million in Q3 2020 as cash payments were received for sales not yet recognized.
The Company's trade payables balance at September 30, 2020 with its former off-take partner was $0.09 million. This is attributable to the re-measurement of trade receivables / payables for V₂O₅ sold in the period to April 30, 2020 and is the last such re-measurement.
Third Quarter 2020 Operational Performance
Q3 2020 production of 3,092 tonnes of V₂O₅ was a new quarterly production record for the Company, being 5% higher than Q3 2019 and 3% higher than the previous record of 3,011 tonnes in Q4 2019. V₂O₅ production in July 2020 was 1,055 tonnes, with 1,100 tonnes produced in August 2020 and 937 tonnes produced in September 2020. Operational stability and an increase in the global recovery² drove the Q3 2020 production performance. Subsequent to Q3 2020, production in October 2020 was 1,119 tonnes of V₂O₅.
The global recovery² record of 84.2% achieved in Q3 2020 was 8% higher than the 78.1% achieved in Q3 2019 and 4% higher than the 80.8% achieved in Q2 2020. This is primarily due to the completion of continuous improvement projects in the plant that focused on recovery levels. This was highlighted by the performance of the kiln and leaching areas in Q3 2020, with record quarterly recovery levels of 92.5% and 99.7%, respectively, being achieved. The global recovery² in July 2020 was 86.0%, with 84.0% achieved in August and 82.1% achieved in September.
In Q3 2020, 287,969 tonnes of ore were mined with an effective grade⁵ of 1.28% of V₂O₅. The ore mined in Q3 2020 was 8% higher than in Q3 2019 and 12% higher than in Q2 2020, which was impacted by the COVID-19 restrictions put in place as well as operational restrictions due to the rainy season. The Company produced 104,921 tonnes of concentrate with an effective grade⁵ of 3.32%. The operational performance in Q3 2020 has remained in-line with the Company's plans despite the COVID-19 restrictions put in place.
The Company's planned upgrades to the kiln and improvements in the cooler to increase nameplate capacity to 1,100 tonnes of V₂O₅ per month are now scheduled for Q1 2021 as a result of precautionary measures taken by the Company in light of the COVID-19 pandemic.
Successful Sales Strategy Implementation – Strong Sales Results in August and September 2020
The Company progresses its sales strategy for 2020 is in line with expectations, highlighted by V₂O₅ equivalent sales of 1,062 tonnes in August 2020 and 1,060 tonnes in September 2020. From May to July 2020, the Company successfully built the necessary inventories to fill its sales pipeline and meet customer commitments as planned. As a result of Largo's new commercial independence and sales flexibility, the Company increased its sales in China to take advantage of higher prices and greater overall demand in Q3 2020. This further highlights the positive effect of the Company's commercial strategy on its reputation, visibility and financial performance. Delivery times to Asia have increased in Q3 2020 due to logistical constraints related to the COVID-19 pandemic. The Company continues to actively manage this process to provide premium products and service to its customers and remains confident in its ability to deliver on its 2020 sales guidance of 9,500 to 10,000 tonnes of V₂O₅.
For Q3 2020, the average price per lb of V₂O₅ in Europe was approximately $5.33, compared with approximately $7.16 for Q3 2019. During Q3 2020, the average price per lb of V₂O₅ in Europe increased by 1%, ending the period with an average price of approximately $5.35, compared with approximately $5.30 at June 30, 2020. In Q3 2020, the average price per lb of V₂O₅ in China was approximately $5.90 on a cost, insurance, and freight ("CIF") equivalent basis. In Q3 2020, China continued to be the driver of global vanadium demand from increased infrastructure spending and the development of green technology applications. Going forward, Largo expects additional global vanadium demand growth as a result of recently announced stimulus packages and a focus on carbon footprint reduction. These significant, long-term trends are forecast to increase the consumption of vanadium in rebar, high-quality steel applications and through new vanadium redox flow battery deployments around the world.
Exploration Drilling Program Ramped Up in Q3 2020
After delays experienced in early 2020 due to the COVID-19 pandemic, exploration drilling was ramped up and 14,007 metres of drilling (80 holes) was completed in Q3 2020. Drilling focused on definition drilling at Novo Amparo Norte, Gulcari A Norte and additional drilling at the Campbell Pit. In early October 2020, drills were moved to the So Jos and Novo Amparo deposits for further expansion and resource definition drilling to gain a greater level of understanding of these deposits. As of November 12, 2020, the Company has drilled 19,465 metres (109 holes).
The Company does not anticipate any further disruptions to the overall 2020 exploration plan. The So Jos and Novo Amparo targets, as well as depth extension drilling at the Campbell Pit, will be the focus of exploration activities in Q4 2020.
Conference Call
Largo Resources' management will host a conference call on Friday, November 13, 2020, at 10:00 a.m. ET, to discuss both operational and financial results for the third quarter of 2020.
Conference Call Details:

Date:	Friday, November 13, 2020
Time:	10:00 a.m. ET
Dial-in Number:	Local / International: [phone]
	North American Toll Free: [phone]
	Brazil Toll Free:  08007621359
Conference ID:	63665793
Replay Number:	Local / International: + 1 [phone]
	North American Toll Free: [phone]
	Replay Passcode: 537676 #
Website:	To view press releases or any additional financial information, please visit the Investor Relations section of the Largo Resources website at:  www.largoresources.com/investors

A playback recording will be available on the Company's website for a period of 60-days following the conference call.