Largo Inc (LGO)

[Slashnuts]

Largo On Track For Further Quarterly Improvements

http://www.miningweekly.com/article/largo-on-track-for-further-quarterly-ops-improvement-as-vanadium-market-turns-2016-10-23/rep_id:3650

Valuing vanadium with Largo Resources CEO Mark Smith

http://www.mining-technology.com/features/featurevaluing-vanadium-with-largo-resources-ceo-mark-smith-5035609/


MARACÁS, Brazil (miningweekly.com) – A string of quarterly performance improvements by Canadian vanadium producer Largo Resources bodes well for third-quarter numbers at the Maracás Menchen mine, in Bahia state, Brazil, to follow the same record-setting trend.
“The company is looking to beat previous numbers,” president and CEO Mark Smith told Mining Weekly Online on a sponsored site visit to Maracás Menchen, otherwise remaining tight-lipped about the third-quarter results due for publication on November 14.
Advertisement

Maracás Menchen achieved a new quarterly production record of 2 311 t of vanadium pentoxide (V2O5) in the second quarter, with a new monthly production record of 801 t in June, which was subsequently improved further in the recent September record of 806 t V2O5.
Production in May 2016 was 780 t, with 730 t produced in April 2016.
Meanwhile, the TSX-V-listed company announced a management shakeup in April, which saw Paulo Misk promoted to president of Brazilian operations of subsidiary Vanadio de Maracas, succeeding Kurt Menchen, after whom the then struggling mine was named.

HIGH-GRADE ADVANTAGE
Misk stressed to Mining Weekly Online the advantages the operating team had compared with other vanadium producers in the world, as they were working with the world’s highest-grade vanadium deposit by a significant margin. The Campbell openpit has proven and probable reserves of 18.4-million tonnes grading 1.17% V2O5, while the measured and indicated categories boast 24.6-million tonnes grading 1.11% V2O5, and 20.4-million tonnes grading 0.83% V2O5 located in the inferred resource.
He explained that Largo produced the world's highest magnetic concentrate grade of 3.2% to 3.6% V2O5.
Misk further pointed out that the high-grade deposit helps save costs, since the concentrate is upgraded at each step along the process, using conventional technologies. In particular, the high-grade ore goes a long way in terms of reducing costs at the kiln, which is the most expensive part of the process.
He explained that the higher head grade and higher iron content translates into mining cost savings, which, combined with the high V2O5 content in the concentrate resulting in metallurgy cost savings, as well as fewer concentrate contaminants such as silica, resulted in low-cost production, with a high product quality.
During the site visit, Mining Weekly Online observed a planned partial shutdown of the plant, involving a three-day shutdown of the kiln to replace refractory and other maintenance items. However, despite this, production continued unaffected, as Smith pointed out the company had deliberately built up stockpiles of material along nearly every step of the process.
Largo controls 40 km of prospective strike lengths over ten exploration permits and two mining licences. There are several possible satellite deposits that will feed the plant in years to come. The high-grade ore is 97% associated with magnetite.

GROWING INTENSITY
Vanadium is produced by China, Russia, South Africa and formerly, Australia also. Brazil's forecast annual production (from Largo's operations) is 9 600 t of V2O5. Smith noted that South Africa-based Highveld Steel’s bankruptcy has turned the market upside down, improving the market share of current producers incrementally and pushing spot prices higher.
Sources of vanadium include by-product fossil fuel deposits, the by-product of certain uranium production, various types of sediment-hosted deposits and layered mafic and ultramafic intrusion-related deposits, including primary producers Maracás and Rhovan, in South Africa.
About 91% of all vanadium output is consumed by the steel industry, where steel is significantly strengthened by adding minute quantities of vanadium. When about 2 lb of vanadium is added to a tonne of steel, it increases the strength by about 30%. It improves steel’s tensile strength, supports fuel efficiency, increases weather resistance and limits regular wear and tear.
Around the world, governments are imposing higher building standards, calling for stronger steel, which also bodes well for vanadium demand.
Because of this, vanadium has green credentials, in that less coking coal has to be burned to smelt less steel for the same purpose. "It is a 'green metal' due to its positive environmental impact in the whole steel industry," Misk points out.
Demand for lightweight steel from both the automotive and aerospace industries is expected to drive demand for vanadium in the future.
Interestingly, Misk notes that while crude steel output increased at 3.6% compound annual growth rate (CAGR) between 2006 to 2014, the intensity of vanadium use grew at about 8% CAGR over the same period.
Though crude steel production is expected to have a modest CAGR of less than 1% through 2025, increasing intensity of vanadium use, coupled with specific end-use growth drivers will allow vanadium demand to continue to expand.
Vanadium production is expected to grow at about 3.4 CAGR from 2015 to 2025, with demand outstripping supply by 20 000 t in 2025, at 241 000 t.

SOARING DEMAND
The bulk of demand is expected to come from China, which has implemented modern building standards requiring the use of stronger types of steel. China has been imposing reforms following recent negative media attention on the quality of Chinese rebar exports, amidst anti-dumping tariffs and quality concerns, China plans to refocus on improving quality rather than quantity. The increased enforcement of regulations presents a further avenue for significant demand growth, Misk states.
He adds that China is the largest producer of vanadium as a co-product of iron-ore containing vanadium, but this is proving to be an Achilles heel since China is losing market share owing to its high cost of production.
With this in mind, the Largo team’s focus continues to be on fine-tuning the plant for cost savings and ramping up output.
Intriguingly, Smith points out that every $0.25 reduction in operating costs translates into a $5-million gain to the bottom line. Conversely, this also goes for every $0.25/lb in price improvement.
A more than 40% increase in the price of V2O5 since December lows is invigorating the industry. The commodity started 2015 with a mid price of $5.03/lb of V2O5, but it had all but halved by December 31, falling to $2.38/lb. However, prices showed signs of recovery in the first quarter, with a price of between $2.70/lb and $3/lb at March 31, and a current mid price of $3.85/lb, according to Metal Bulletin.
Vanadium consumption is projected to grow at an annual rate of 3.4% a year, excluding the burgeoning new demand coming from the vanadium-redox-flow battery (VRB) sector.

RAW CALL
All of Largo’s output is covered by a six-year offtake agreement with commodities giant Glencore. Smith stated that this agreement was essential to get the company through the worst of the significant price downturn of the past several years.
However, it expires in about four-and-a-half years, at which point the company will be keen to renegotiate the contract, potentially freeing Largo supply to several other potential offtake partners in the steel industry, and the emerging VRB market, to which end Largo already has a potential partner lined up.
Smith pointed out that, despite Largo currently being unable to furnish any other clients with finished product, it has still received proposals from no fewer than seven interested steel mills for vanadium, which bodes well for the future, when it can once more decide who it wants to sell products to. However, Smith also pointed out that the visible global vanadium inventory has been in decline, and the current consensus is that there is only about a month’s worth out there.
The vanadium price is typically very opaque, as only about 20% of all output reaches the spot market but, even then, visibility is hampered by companies keeping numbers close to their chests.

PEOPLE
Misk noted that Bahia state is not historically a mining state, so finding the right mix of talent and skills was a challenge. “We had to train most of our employees from the ground up regarding mine safety and our procedures, making people by far our biggest asset,” he said, noting that, combined, management has more than 150 years of experience.
Smith stressed that, since the management shakeup around April this year, the company realised the importance of having a Brazilian team at the helm of operations. “We have a young, energetic, engaged workforce comprising 99.9% Brazilian workers,” he says, emphasising the high performance culture and good management system the team had implemented.
“There are three pillars to success at Largo – the high-grade nature of the ore, the technology, and the people,” Misk adds.
While in Maracás, Mining Weekly Online also witnessed the opening ceremony, staged by Largo, of a local judo and jujitsu club for disadvantaged children, where they can spend time in a positive environment free of charge. Largo sponsored the buildings, while the municipality and the local community chipped in to prepare the facilities, where about 160 local youths now practise sport. 

Good Luck To All!$!$!$!$