GE21 based on a whole bunch of assumptions to prepare the NI-43-101 Tech Report which indicated the impressive “US$2.8 Billion Pre-Tax / $2.0 Billion After-Tax NPV7% and US$5.8 Billion Pre-Tax / $4.2 Billion After-Tax Life of Mine Cash Flow”. How valid are those numbers? We all know that the numbers of the first few years have a bigger impact on the NPV calculation than those of the outer years. So let’s have a quick look at GE21 estimation for 2022 in
“Table 22-4: Base Case Life of Mine Annual Cash Flow” (page 456):
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Gross Revenue
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Sales of V = 28,941,000 lbs = 13,100T which is ~14% higher than the company’s annual sales guidance of 11,000T - 12,000T for 2022
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Gross Revenue = US$260.9M = ~US$9/lb.
The actual H1 gross revenue = US$127.5M so Largo needs to realize US$133.4M in H2 to reach US$260.9M. Largo sold 5,523T in H1-22. Annual sales guidance = 11,000T - 12,000T thus H2-22 sales expectation = 5,477T - 6,477T or an average of 5,977T or 13.2M lbs. So to realize US$133.4M in revenue out of an average sale volume of 13.2M lbs the average sales price per lb must = US$10.12/lb.
Imho, it’s possible but not probable for the H2-22 sales price to be = US$10.12 / lb. Btw, the revenue consensus (among 4 analysts) for 2022 = C$283.07M = ~US$221M (as compared toGE21’s US$260.9M)
B) Net Income
Net Income = US$118.3M out of a Gross Revenue of US$260.9M thus a Net Margin of 45.3%.
Actual H1-22 Net Income = US$16M out of a Gross Revenue of US$127.5M thus a Net Margin of 12.5%.
Actual Q2-22 Net Income = US$18M out of a Gross Revenue of US$84.8M thus a Net Margin of 21.2%.
So GE21 was very optimistic (to say the least) in their estimation of Net Income and Net Margin. There is no way that Largo can realize US$118.3M in Net Income for 2022.
Conclusion: As GE21 estimation seemed to be so out of whack for 2022 should we not take its “US$2.8 Billion Pre-Tax / $2.0 Billion After-Tax NPV7% and US$5.8 Billion Pre-Tax / $4.2 Billion After-Tax Life of Mine Cash Flow” with a pinch of salt (to say the least)?