Largo Inc (LGO)

[Slashnuts]

Largo Competitor To Suspend V2O5 Production...

I want to make it clear my intentions are not to promote another company on this board. I simply found the market commentary insightful and of relevance to Largo.
I own Largo, not Energy Fuels. I'm not considering buying Energy Fuels stock but I am considering buying more Largo for the first time in years.

The following are comments made by Energy Fuels for Q219.
To Summarize:
*At full production, they produce up to 200,000 pounds per month of high purity vanadium.
*Cost of production is at or near the current V2O5 spot price (as of August 2, 2019) not including fixed Mill overhead.
*They plan to stockpile V2O5 production through Q319 with limited sales.
*The company will suspend V205 production at the end of Q319 unless prices improve dramatically.
*They do expect prices to increase in the future and have 600,000 pounds of inventory.

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"During Q2-2019, a disparity between V2O5 prices in China versus Europe began to develop, which accelerated into July 2019. According to weekly price data from Metal Bulletin, the mid-point spot price for V2O5 in China was $13.50 per pound on March 28, 2019 and $8.00 per pound of V2O5 on June 28, 2019, representing a drop of 41% during the quarter. By August 1, 2019, the spot price in China had risen back to $9.25 per pound of V2O5. During the same period, according to weekly price data from Metal Bulletin, the mid-point spot price for V2O5 in Europe was $12.63 per pound on March 28, 2019 and $7.48 per pound of V2O5 on June 28, 2019, again representing a drop of 41%. However, by July 26, 2019, the spot price in Europe had further dropped to $7.10 per pound of V2O5. As can be seen from the month-end data for July, vanadium prices in China were approximately 7% higher than in Europe. However, by August 2, 2019, the gap widened considerably, as the V2O5 price in China was approximately 23% higher than in Europe.

The Company believes a shortage of raw material in China continues due to production cutbacks and new potential demand due to the rebar standards implemented in China in late-2018. After the announcement of the new standards, global vanadium prices rose significantly to $28.83 per pound in Europe and $32.00 per pound in China. However, as vanadium prices rose to multi-year highs, the Company believes Chinese steel mills began to substitute niobium for vanadium, thereby causing demand for vanadium, and hence prices, to drop off their highs. In recent weeks, the Company believes niobium substitution has abated, and that this, combined with recently reported strong growth in China, has firmed vanadium prices in China, causing the 23% disparity between Chinese and European prices being observed today. At the same time, the Company believes that the European and Russian steel industries are stressed, mainly due to the effects of sanctions on Russia and tariffs in the U.S. This has created less demand, and hence lower prices, for vanadium in Europe and Russia. Because of continued tightness in China, it is the Company’s belief that Russian and European producers and traders may redirect some of their vanadium stocks into China, thereby leading to higher prices in Europe and possibly somewhat lower prices in China.

The Company believes that in 2018, global production cutbacks caused vanadium supply to fall below demand, thereby creating a deficit in the market, leading to significant price increases. In the short term, the Company believes that the market dynamics that led to the increased prices in 2018 generally still exist, including increased demand due to new Chinese rebar standards, continued economic growth in China, and decreased supply due to environmental regulations. However, as vanadium prices rise, substitution (primarily niobium) is likely to continue to occur, thereby moderating potential price increases somewhat. In addition, Russian, European, and US steel industries are experiencing lower levels of activity, which is also likely to have a moderating influence on further price increases. Longer-term, the Company expects vanadium prices to continue to be volatile, and mainly dictated by policies in, and the economy of, China. The Company also believes there could be increased demand for vanadium in the energy storage industry.

Vanadium production totaled 437,000 pounds of V2O5 for the quarter, and the Company expects to continue to produce 160,000 to 200,000 pounds of V2O5 per month through Q3-2019, subject to continued successful recovery and suitable sales prices.
The Company completed 98,000 pounds of vanadium sales into the steel industry during the quarter at an average price of $7.87 per pound of V2O5, following conversion of the Company's V2O5 product into ferrovanadium. At the current time, the Company is selling only small quantities of vanadium, while mainly focusing on building V2O5 inventory for sale in the future as the Company expects prices to increase.

"We are also very happy with our vanadium production campaign; except prices failed to cooperate during the quarter. We brought our vanadium product to market very quickly and achieved extremely high purities. But, as it turned out, it wasn't quick enough. At the current time, we expect to continue producing vanadium through Q3-2019, due in large part to seasonal considerations, while only making selective sales. We are also moving forward with discussions to potentially sell our product at premium pricing to customers who require higher purities. If vanadium prices do not make a dramatic recovery in the next few months, we expect to build inventory to capture future price spikes and then shut down production to save this valuable asset for later recovery.

The Company also recovered approximately 760,000 pounds of high-purity vanadium pentoxide ("V2O5" or "black flake") during the six months ended June 30, 2019 and expects to continue to recover approximately 160,000 to 200,000 pounds of V2O5 per month during the third quarter of 2019, at which time the Company expects to place vanadium recovery operations at the Mill on standby, pending improvements in vanadium prices.

The Company is currently producing at full production rates of 160,000 to 200,000 pounds of V2O5 per month and approximately 6,500 pounds of U3O8 per month under this program. The Company expects to continue to recover vanadium and uranium at these rates during the third quarter of 2019, at which time the Company expects to place this program on standby, pending improvements in vanadium prices and taking into account seasonal considerations. Despite currently low vanadium prices, the Company plans to continue this program through the end of the third quarter of 2019, rather than place it on standby at this time, for two reasons: first, vanadium recoveries from Pond Returns are highest in the warm summer months, due to the higher concentrations of dissolved vanadium in the solutions as a result of the normal evaporative process during the warm summer months and other chemical reasons, thereby enabling us to produce vanadium at the lowest cost possible, with the marginal cost of production not including fixed Mill overhead currently at or near spot V2O5 prices; and secondly, the Company believes the price of vanadium is likely to increase at some point in the future, and running the program through the end of the third quarter will provide the Company with a significant quantity of V2O5 produced that can be sold opportunistically as future price volatility occurs. One of the benefits of the Mill's vanadium Pond Return program is that it can be stopped and restarted relatively quickly in response to changes in vanadium market conditions.

The Company continued V2O5 shipments during the six months ended June 30, 2019 with initial quantities being allocated for conversion to ferrovanadium ("FeV"), which was sold into spot metallurgical markets on a selective basis. At the current time, the Company is selling only small quantities of vanadium, while mainly focusing on building V2O5 inventory for sale in the future as prices are expected to increase. During the six months ended June 30, 2019, the Company completed sales of 150,000 pounds of vanadium at an average price of $12.83 per pound. The Company expects to continue to sell finished vanadium product when justified into the metallurgical industry, as well as other markets that demand a higher purity product, including the aerospace, chemical, and potentially the vanadium battery industries. The Company expects to sell to a diverse group of customers in order to maximize revenues and profits. The Company is continuing to produce a high-purity vanadium product of 99.6%-99.7% V2O5. The Company believes there may be opportunities to sell certain quantities of this high-purity material at a premium to reported spot prices. The Company may also retain vanadium product in inventory for future sale, depending on vanadium spot prices at the time of production."

https://www.sec.gov/Archives/edgar/data/1385849/000138584919000049/efr-2019063010xq.htm

Good Luck To All!$!$