Largo’s Titanium Project
Largo started an ilmenite (Titanium-iron oxide) pilot plant in October 2019. Based on the promising results, the BoD approved construction of a full-scale plant to be part of the larger Titanium Project of which the 3 Phases are as follows:
Phase 1: Full-scale ilmenite concentration plant and TiO2 pigment plant
In Phase 1 Largo plans to invest US$121.6M with the expectation to generate a new revenue stream estimated to be US$104.6M per annum (US$11.6M from the sale of 55K tonnes of ilmenite and US$93M from the sale of 30K tonnes of TiO2 pigment) starting from 2024.
A) The full-scale ilmenite concentration plant is on schedule to be commissioned in Q2-23. The ramp-up period is expected to be about 5 months before reaching the production capacity of 145,000-150,000 tonnes of ilmenite.
Capex estimated to be US$25.2M
Ilmenite Estimated Processing Costs = ~US$28/T
Ilmenite Estimated Selling Price = ~US$210/T
Ilmenite Estimated Gross Profit = ~US$182/T
If Largo could produce and sell 70,000T of ilmenite in 2023 then the new source business would bring in ~US$15M in new revenue and ~US$13M in estimated gross profit. (According to Paulo Misk, the ilmenite gross profit could even be as high as US$393 per tonne. So imagine a gross profit of US$393 x 70,000T = US$27.5M out of a revenue of US$400 x 70,000T = US$28M. But that could be an error in translation….LOL).
The full capacity production of 145,000 - 150,000T is expected to start in 2024. The company plans to use the majority of the production of ilmenite (which is the main source of titanium dioxide) to produce 30,000 tonnes of Titanium Dioxide (TiO2) pigment with any surplus of ilmenite being sold on the open market. However, with the postponement of the TiO2 pigment plant the totality of the ilmenite production is now expected to be sold on the open market. The sale of all the 150,000T on the open market would bring in ~US$32M in revenue and ~US$27M in gross profit in 2024.
Note: In the Q1-22 CC Paulo Misk: “The titanium profitability from the metals is we produced the feedstock (?) in a very low cost $7 per ton, and there's getting the current price of the feedstock (?) is $400, we consider $210 in our tech report…”
B) The construction of the Titanium Dioxide (TiO2) pigment was originally planned to be completed in 2024 to produce 30,000 tonnes of TiO2 pigment per annum. The plan is now postponed.
Capex estimated to be US$96.4M
TiO2 Pigment Estimated Processing Costs = US$1,300/T
TiO2 Pigment Estimated Selling Price = ~US$3,100/T (Note: Roskill long-run price = US$3,800)
TiO2 Pigment Estimated Gross Profit = ~US$1,800/T
Notes:
From today’s NR: “Management has made the decision to postpone the company's existing plans to further develop its titanium dioxide (TiO2) pigment plant until additional funds are made available, either internally or externally. At this time, the company is exploring alternative debt financing or strategic association options with advisers and will provide an update as things progress”
Due to the huge amount (~US$100M) of funds needed to complete the TiO2 pigment plant and considering the current bargain price of our stock, it is, IMHO, prudent to have more time to explore the best financing source, be it equity, debt or a combination of both.
Phase 2: Expansion of the TiO2 pigment plant
This phase calls for an expansion of the TiO2 pigment plant to double the annual production capacity from 30,000T to 60,000T starting from 2026.
CAPEX estimated to be US$59.8M
Phase 3: More expansion of the TiO2 pigment plant
This phase calls for another expansion of the TiO2 pigment plant to further increase the annual production capacity to 120,000T starting from 2028.
CAPEX estimated to be US$132M
DYODD