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'Strong Operational Performance into Year-end Bodes Well' for Vanadium Firm

Streetwise Reports, Streetwise Reports
0 Comments| February 18, 2020

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Largo Resources' Q4/19 results and 2020 guidance are reviewed in a CIBC research report.

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In a Feb. 6 research note, CIBC analyst Bryce Adams purported that Largo Resources Ltd.'s (LGO:TSX) record Q4/19 production and 2020 operational guidance portend a positive outlook for the company after its contract with Glencore will expire in May, a near-term catalyst.

"The [Glencore] agreement, coupled with declining commodity prices, has been particularly punitive in 2019 and a significant overhang on the stock," Adams wrote. "In three months' time, this overhang should be removed."

The firm has an Outperformer rating and a CA$2.50 per share price target on Largo Resources. The stock is trading now at around CA$1.105 per share. "We believe current trading levels offer compelling risk to reward," wrote Adams.

As for Q4/19, Largo achieved "strong operational performance," Adams noted. The company produced 3,011 tons of vanadium pentoxide, or V2O5, from its Maracás Menchen operation in Brazil. This was nearly identical to CIBC's projection of 3,108 tons. The company achieved a record with its full-year 2019 V2O5 production, which came in at 10,577 tons, around the midpoint of guidance.

Adams relayed Largo's guidance for full-year 2020, which he described as "solid." It calls for production of 11,750–122,500 tons of V2O5 and sales of 9,500–10,000 tons of V2O5, "with the delta attributable to working capital as it takes sales in-house after the Glencore offtake agreement expires," the analyst explained. Largo projects cash operating costs, excluding royalties, to be US$3.30–3.50 per pound.

Looking even further into the future, CIBC expects Largo will "focus on supply contracts in 2021 that should disconnect from the vanadium spot price due to its high-purity product," Adams indicated. Accordingly, the company already has branded its high-quality product as VPURE and VPURE+.

Adams reported that CIBC revised its model on Largo to reflect a Q4/19 average vanadium price of US$5.25 an ounce, a Q4/19 earnings per share of CA$0.03 (from CA$0.01) and an EBITDA of CA$14.3M (from CA$4.7 million). Also, it accounted for the Q4/19 pricing revisions in Largo's CA$25 million due to Glencore.

1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article until three business days after the publication of the interview or article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.

Disclosures from CIBC, Largo Resources Ltd., February 6, 2020

Analyst Certification:
Each CIBC World Markets Corp./Inc. research analyst named on the front page of this research report, or at the beginning of any subsection hereof, hereby certifies that (i) the recommendations and opinions expressed herein accurately reflect such research analyst's personal views about the company and securities that are the subject of this report and all other companies and securities mentioned in this report that are covered by such research analyst and (ii) no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by such research analyst in this report.

Analysts employed outside the U.S. are not registered as research analysts with FINRA. These analysts may not be associated persons of CIBC World Markets Corp. and therefore may not be subject to FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Potential Conflicts of Interest:
Equity research analysts employed by CIBC World Markets Corp./Inc. are compensated from revenues generated by various CIBC World Markets Corp./Inc. businesses, including the CIBC World Markets Investment Banking Department. Research analysts do not receive compensation based upon revenues from specific investment banking transactions. CIBC World Markets Corp./Inc. generally prohibits any research analyst and any member of his or her household from executing trades in the securities of a company that such research analyst covers. Additionally, CIBC World Markets Corp./Inc. generally prohibits any research analyst from serving as an officer, director or advisory board member of a company that such analyst covers.

In addition to 1% ownership positions in covered companies that are required to be specifically disclosed in this report, CIBC World Markets Corp./Inc. may have a long position of less than 1% or a short position or deal as principal in the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon.

Recipients of this report are advised that any or all of the foregoing arrangements, as well as more specific disclosures set forth below, may at times give rise to potential conflicts of interest.

Important Disclosure Footnotes for Largo Resources Ltd. (LGO.TO)

· 2g CIBC World Markets Inc. expects to receive or intends to seek compensation for investment banking services from these companies in the next 3 months: Largo Resources Ltd.

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