Largo Inc T.LGO

Full Potential

[kha341]

We are among  the largest highest-grade vanadium primary producers in the world. So the question is: When can we reach the full potential of our world-class asset? Imho, more likely starting from Q3-2021 at which time I would not be surprised to see Largo in the $3-$4 range even if the prices of the standard V2O5 = around US$6-7/lb. A strong increase in the prices of the standard V2O5 would be the icing on the cake. So imho things will turn around in 2021 and 2022 will be a great year.

Q3 was our first Q of full commercial independence. 

Commercial Independence key strategy: Focus on High Purity vanadium which include price premium. This will not be achieved any time soon due to the covid-19 impact on the market especially the aerospace industry.

The company's V2O3 processing plant at Maracs Menchen Mine is expected to increase sales in the high-purity aerospace market, chemical industry and vanadium electrolytes used in the vanadium redox flow batteries.  The V2O3 processing plant is expected to commence in Q1 2021 and the ramp-up and commissioning of the plant to conclude in Q3 2021.

When complete, the Ferrovanadium (FeV) Conversion Plant is anticipated to create downstream advantages as it vertically integrates the conversion of the Company’s V2O5, eliminating third party convertors, and will enable the Company to supply ferrovanadium consumers directly. FeV has a considerable higher margin than V2O5.  The completion of the FeV conversion plant which was expected to be ready in Q1 2021 has been postponed until the end of 2021. 

The preliminary study on the economic viability of the Titanium Dioxide project will be ready in Q1 2021 and Paulo has a lot of confidence in it: “But I'm sure that you're going to be happy when you see the final numbers by Q1 next year”.

If the BRL continued to weaken vis-a-vis the US$ our operational costs would continue to decrease further. 

The share price will face a major headwind as the huge warrant conversion scheduled in Q1 2021 will create a massive dilution. 

[ninja123]

Kha,  Thank you for your excellent insights, as always.  re: upcoming warrant conversions .. do you have readily availlable info re: strikes/size? on pag 16 of the latest MD&A, i see approx of 104,000 outstanding warrants expiring between Dec 31 2020 and Dec 2022 .. with an avg .weighted price of .41C$.  How much do u see maturing in q1 of 2021? thanks.

[kha341]

There are ~104M outstanding warrants of which some 86% (strike = C$0.29) will expire in Q1 - 21 and the remaining ~14% Dec 2022 (strike= C$1.15). These 104M o/s warrants are already included in the fully diluted share count. Hoping that Largo can build up a solid cash position from now to Q1 -21 to have good alternatives on the table. Not sure about the BoD decision on the subject but the

[ninja123]

thank you. i remember this conversation ... as long as V increases in value, u are correct.. the cash build will offset the share supply and perhaps, they can resume the goal of buying back shares or talking up a dividend again (subject to loan covenents on the new debt). i would like to think that the market has already accounted for the shares that will hit the market, but given that i forgot

[kha341]

Considering the fact that Largo is currently so undervalued it is very likely that the market has anticipated and already accounted for the dilution. It will be clearer as we move closer to the end of the year. I would not be surprised if the analysts have already taken into consideration the impact of the dilution in their estimation of the one-year price targets (the average of which is

[jcw604]

If the analysts have not taken account into the dilution, they failed as an analyst. It was in their reports multiple times.

[ninja123]

i think that's right. it's not like this is a broadly followed, widely held stock!

[jcw604]

It depends on the SP at the expiry of those warrants, if they were like the current price and if people were going for the cashless option, the dilution will be reduced by 1/4 of the outstanding amount. As it has been mentioned, these warrants has already been accounted in the fully diluted outstanding shares and unless Canadian investors were stupid uninformed investors, their dilution effect

[ninja123]

thinking about this some more .. what does the current short position look like? given how far away we are from the strike price (deep in the money) i suspect that some % of these warrants are hedged vs. delivery .. given how f'd up the world is, if i owned these warrants, i certainly would be hedging.. that is possibly what transpired when we had the run-up a # of months ago. would love to

[kha341]

Personally I don’t think that there is any material warrant hedging here at all. A warrant hedge mainly consists of a long position in a warrant and a short position in the underlying common stock. Currently Largo’s short position = merely 230K while there are 88.5M warrants exercisable in 2-3 months with a strike price of C$0.29. The majority of these warrants were acquired by Arias via cheap PP

[jcw604]

From the historical track record, Arias are staying and not selling any of their cashless exercised warranty. They probably will do the same thing for the coming quarter. 11% dilution is significant, but should have been digested by the market. It may still goes down when they announce it happening, because irrational behavior is the norm of Canadian market. I hope that the share price will be

[ninja123]

Makes sense. Thanks

[ninja123]

thank you. meant to reply last week .. was just reviewing this chain. hard not to agree with your analysis. the short position at the moment is definately not matierial.. i am assuming that it would not at all be rational to sell all of these newly issued shares upon excercise of the warrants.   - we went from no debt & buyback/dividend mode to V price crash end of Glencorp & small

[SKiamforsure]

Thanks for your thoughs KHA The share price will face a major headwind as the huge warrant conversion scheduled in Q1 2021 will create a massive dilution.  So well be watching to add after the dilution? SK