Andrew wong...some key pointsSetting up operations for a better H2 and beyond: Q1 operating results were weaker than expected, with production impacted by kiln maintenance, lower recoveries, and lower grades. Management has implemented operational improvement initiatives aimed at stabilizing production output, notably improving grade control of mill feed which was completed at the end of April, and increasing crushing capacity by ~20% which is expected to complete by the end of Q2 to help offset lower grades. Largo maintained 2024 guidance for production, sales, and costs. Cash costs are expected to remain elevated for Q2, before decreasing in H2 as operational improvement and cost reduction measures, such as reduced haulage distances, contractor staff, and reagent consumption, take hold. We model 2024 and 2025 V2O5 production of 9.1Kt and 10Kt at cash costs of $5.24/lb and $4.46/lb with management indicating possible cost improvements to below $4.00/lb in 2025.
Attractive value on any incremental improvement in vanadium prices: We assume benchmark vanadium prices of $6.00/lb V2O5 in 2024 and $7.00/lb in 2025 with an average realized price to Largo of ~$6.50/~$7.50/ lb in 2024/2025 due to the benefit of high-purity vanadium sales (~35-40% of volume). Our base case has Largo generating -$5M/$47M of EBITDA in 2024/2025 (implying ~3x multiple on 2025 EBITDA). An incremental $0.50/lb (~7%) increase in the vanadium benchmark corresponds to a ~15% increase in 2025 EBITDA.
Reiterate Outperform rating and maintain C$5 PT: We reduce our 2024 EBITDA to -$5M from -$2M and maintain our 2025 EBITDA of $47M