Largo Inc 6-K, filed Aug 11, 2022
Largo Inc. (LGO)
About this 6-K
Largo Inc filed this 6-K on August 11, 2022.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of August 2022
Commission File Number: 001-40333
LARGO INC.
(Translation of registrant's name into English)
55 University Avenue
Suite 1105
Toronto, Ontario M5J 2H7
Canada
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ☐ Form 40-F ☒
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐
Exhibit Index
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: August 10, 2022
LARGO INC.
By: /s/ Ernest Cleave
Name: Ernest Cleave
Title: Chief Financial Officer
Largo Inc.
Unaudited Condensed Interim Consolidated Financial Statements
For the Three and Six Months Ended June 30, 2022 and 2021
(Expressed in thousands / 000's of U.S. dollars)
Largo Inc.
Expressed in thousands / 000's of U.S. dollars
Condensed Interim Consolidated Statements of Financial Position
| As at | |||||||
| June 30, | December 31, | ||||||
| Notes | 2022 | 2021 | |||||
| Assets | |||||||
| Current Assets | |||||||
| Cash | $ | 52,878 | $ | 83,790 | |||
| Restricted cash | 15 | 23,410 | 448 | ||||
| Amounts receivable | 4 | 34,237 | 23,684 | ||||
| Inventory | 5 | 68,846 | 45,322 | ||||
| Prepaid expenses | 11,202 | 6,734 | |||||
| Total Current Assets | 190,573 | 159,978 | |||||
| Non-current Assets | |||||||
| Deferred income tax asset | 13(b) | 3,671 | 3,343 | ||||
| Other intangible assets | 6 | 5,593 | 3,929 | ||||
| Mine properties, plant and equipment | 7 | 158,902 | 146,659 | ||||
| Total Non-current Assets | 168,166 | 153,931 | |||||
| Total Assets | $ | 358,739 | $ | 313,909 | |||
| Liabilities | |||||||
| Current Liabilities | |||||||
| Accounts payable and accrued liabilities | 8 | $ | 31,424 | $ | 19,723 | ||
| Deferred revenue | 2,524 | 5,469 | |||||
| Current portion of lease liability | 572 | 563 | |||||
| Current portion of provisions | 4,173 | 913 | |||||
| Subscription receipts | 15 | 7,933 | - | ||||
| Debt | 9 | 15,000 | 15,000 | ||||
| Total Current Liabilities | 61,626 | 41,668 | |||||
| Non-current Liabilities | |||||||
| Non-current accounts payable and accrued liabilities | 8 | 193 | - | ||||
| Lease liability | 1,735 | 1,987 | |||||
| Provisions | 4,772 | 4,557 | |||||
| Total Non-current Liabilities | 6,700 | 6,544 | |||||
| Total Liabilities | 68,326 | 48,212 | |||||
| Equity | |||||||
| Issued capital | 10 | 417,208 | 415,982 | ||||
| Equity reserves | 11 | 17,750 | 17,814 | ||||
| Accumulated other comprehensive loss | (111,479 | ) | (118,772 | ) | |||
| Deficit | (33,036 | ) | (49,327 | ) | |||
| Equity attributable to owners of the Company | 290,443 | 265,697 | |||||
| Non-controlling Interest | (30 | ) | - | ||||
| Total Equity | 290,413 | 265,697 | |||||
| Total Liabilities and Equity | $ | 358,739 | $ | 313,909 | |||
| Commitments and contingencies | 7, 16 | ||||||
Largo Inc.
Expressed in thousands / 000's of U.S. dollars and shares (except per share information)
Condensed Interim Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
| Three Months ended | Six Months ended | ||||||||||||
| June 30, | June 30, | ||||||||||||
| Notes | 2022 | 2021 | 2022 | 2021 | |||||||||
| Revenues | 18 | $ | 84,804 | $ | 54,292 | $ | 127,492 | $ | 94,093 | ||||
| Expenses | (50,704 | ) | (34,966 | ) | (79,662 | ) | (63,138 | ) | |||||
| Operating costs | 19 | (6,380 | ) | (4,424 | ) | (12,296 | ) | (8,053 | ) | ||||
| Professional, consulting and management fees | 2,410 | 3,113 | 943 | 1,357 | |||||||||
| Foreign exchange gain | (5,102 | ) | (2,294 | ) | (6,757 | ) | (3,271 | ) | |||||
| Other general and administrative expenses | (491 | ) | (1,032 | ) | (1,301 | ) | (1,404 | ) | |||||
| Share-based payments | 11 | (314 | ) | (132 | ) | (491 | ) | (423 | ) | ||||
| Finance costs | 19 | 213 | 110 | 397 | 164 | ||||||||
| Interest income | (1,847 | ) | - | (4,817 | ) | - | |||||||
| Technology start-up costs | (180 | ) | (487 | ) | (285 | ) | (698 | ) | |||||
| Exploration and evaluation costs | (62,395 | ) | (40,112 | ) | (104,269 | ) | (75,466 | ) | |||||
| Net income before tax | $ | 22,409 | $ | 14,180 | $ | 23,223 | $ | 18,627 | |||||
| Income tax expense | 13(a) | (7,115 | ) | (2,138 | ) | (7,717 | ) | (2,459 | ) | ||||
| Deferred income tax recovery (expense) | 13(a) | 2,671 | (3,597 | ) | 505 | (3,579 | ) | ||||||
| Net income | $ | 17,965 | $ | 8,445 | $ | 16,011 | $ | 12,589 | |||||
| Other comprehensive income | |||||||||||||
| Items that subsequently will be reclassified to operations: | |||||||||||||
| Unrealized (loss) gain on foreign currency translation | (19,319 | ) | 17,746 | 7,293 | 6,219 | ||||||||
| Comprehensive income (loss) | $ | (1,354 | ) | $ | 26,191 | $ | 23,304 | $ | 18,808 | ||||
| Net income attributable to: | |||||||||||||
| Owners of the Company | $ | 18,140 | $ | 8,445 | $ | 16,291 | $ | 12,589 | |||||
| Non-controlling interests | $ | (175 | ) | $ | - | $ | (280 | ) | $ | - | |||
| $ | 17,965 | $ | 8,445 | $ | 16,011 | $ | 12,589 | ||||||
| Comprehensive income (loss) attributable to: | |||||||||||||
| Owners of the Company | $ | (1,176 | ) | $ | 26,191 | $ | 23,584 | $ | 18,808 | ||||
| Non-controlling interests | $ | (178 | ) | $ | - | $ | (280 | ) | $ | - | |||
| $ | (1,354 | ) | $ | 26,191 | $ | 23,304 | $ | 18,808 | |||||
| Basic earnings per Common Share | 12 | $ | 0.28 | $ | 0.13 | $ | 0.25 | $ | 0.20 | ||||
| Diluted earnings per Common Share | 12 | $ | 0.28 | $ | 0.13 | $ | 0.25 | $ | 0.20 | ||||
| Weighted Average Number of Shares Outstanding (in 000's) | |||||||||||||
| - Basic | 12 | 64,824 | 64,574 | 64,786 | 63,381 | ||||||||
| - Diluted | 12 | 65,133 | 65,703 | 65,208 | 64,470 | ||||||||
Largo Inc.
Expressed in thousands / 000's of U.S. dollars and shares
Condensed Interim Consolidated Statements of Changes in Equity
| Attributable to owners of the Company | |||||||||||||||||||||
| Issued | Equity | Accumulated Other | Non-controlling | Shareholders' | |||||||||||||||||
| Shares | Capital | Reserves | Comprehensive Loss | Deficit | interest | Equity | |||||||||||||||
| Balance at December 31, 2020 | 58,779 | $ | 406,214 | $ | 21,291 | $ | (108,438 | ) | $ | (71,903 | ) | $ | - | $ | 247,164 | ||||||
| Share-based payments | - | - | 1,404 | - | - | - | 1,404 | ||||||||||||||
| Exercise of warrants | 5,702 | 7,641 | (5,219 | ) | - | - | - | 2,422 | |||||||||||||
| Exercise of stock options | 97 | 624 | (254 | ) | - | - | - | 370 | |||||||||||||
| Exercise of restricted share units | 65 | 795 | (795 | ) | - | - | - | - | |||||||||||||
| Expiry of warrants | - | - | (5 | ) | - | 5 | - | - | |||||||||||||
| Currency translation adjustment | - | - | - | 6,219 | - | - | 6,219 | ||||||||||||||
| Net income for the period | - | - | - | - | 12,589 | - | 12,589 | ||||||||||||||
| Balance at June 30, 2021 | 64,643 | $ | 415,274 | $ | 16,422 | $ | (102,219 | ) | $ | (59,309 | ) | $ | - | $ | 270,168 | ||||||
| Balance at December 31, 2021 | 64,727 | $ | 415,982 | $ | 17,814 | $ | (118,772 | ) | $ | (49,327 | ) | $ | - | $ | 265,697 | ||||||
| Share-based payments | - | - | 1,301 | - | - | - | 1,301 | ||||||||||||||
| Exercise of warrants | 10 | 124 | (34 | ) | - | - | - | 90 | |||||||||||||
| Exercise of stock options | 18 | 162 | (68 | ) | - | - | - | 94 | |||||||||||||
| Exercise of restricted share units | 81 | 1,263 | (1,263 | ) | - | - | - | - | |||||||||||||
| Share repurchase | (25 | ) | (323) | - | - | - | - | (323 | ) | ||||||||||||
| Sale of non-controlling interest | - | - | - | - | - | 250 | 250 | ||||||||||||||
| Currency translation adjustment | - | - | - | 7,293 | - | - | 7,293 | ||||||||||||||
| Net income for the period | - | - | - | - | 16,291 | (280 | ) | 16,011 | |||||||||||||
| Balance at June 30, 2022 | 64,811 | $ | 417,208 | $ | 17,750 | $ | (111,479 | ) | $ | (33,036 | ) | $ | (30 | ) | $ | 290,413 | |||||
Largo Inc.
Expressed in thousands / 000's of U.S. dollars
Condensed Interim Consolidated Statements of Cash Flows
| Three Months ended | Six Months ended | ||||||||||||
| June 30, | June 30, | ||||||||||||
| Notes | 2022 | 2021 | 2022 | 2021 | |||||||||
| Operating Activities | |||||||||||||
| Net income for the period | $ | 17,965 | $ | 8,445 | $ | 16,011 | $ | 12,589 | |||||
| Adjustment for Non-cash Items | |||||||||||||
| Depreciation | 5,972 | 5,892 | 10,695 | 11,259 | |||||||||
| Share-based payments | 11 | 491 | 1,032 | 1,301 | 1,404 | ||||||||
| Unrealized foreign exchange (gain) | (2,455 | ) | (4,032 | ) | (3,044 | ) | (1,724 | ) | |||||
| Finance costs | 19 | 314 | 132 | 491 | 423 | ||||||||
| Interest income | (213 | ) | (110 | ) | (397 | ) | (164 | ) | |||||
| Income tax expense | 13(a) | 7,115 | 2,138 | 7,717 | 2,459 | ||||||||
| Deferred income tax (recovery) expense | 13(a) | (2,671 | ) | 3,597 | (505 | ) | 3,579 | ||||||
| Income tax paid | (1,118 | ) | (879 | ) | (1,118 | ) | (879 | ) | |||||
| Cash Provided Before Working Capital | |||||||||||||
| Items | 25,400 | 16,215 | 31,151 | 28,946 | |||||||||
| Change in amounts receivable | (10,319 | ) | (2,925 | ) | (9,933 | ) | (6,074 | ) | |||||
| Change in inventory | (8,692 | ) | (1,347 | ) | (20,991 | ) | (4,239 | ) | |||||
| Change in prepaid expenses | (4,758 | ) | (1,178 | ) | (4,012 | ) | (1,481 | ) | |||||
| Changes in accounts payable and accrued | |||||||||||||
| liabilities and provisions | 5,816 | 3,996 | 5,582 | 1,399 | |||||||||
| Change in deferred revenue | (4,545 | ) | 4,366 | (2,945 | ) | 2,287 | |||||||
| Net Cash Provided by (Used in) Operating Activities | 2,902 | 19,127 | (1,148 | ) | 20,838 | ||||||||
| Financing Activities | |||||||||||||
| Receipt of debt | 9 | 15,000 | 15,000 | 15,000 | 15,000 | ||||||||
| Repayment of debt | 9 | (15,000 | ) | - | (15,000 | ) | (24,788 | ) | |||||
| Interest received | 213 | 110 | 397 | 164 | |||||||||
| Lease payments | (139 | ) | - | (278 | ) | - | |||||||
| Change in restricted cash | 15 | (15,524 | ) | - | (15,524 | ) | (146 | ) | |||||
| Sale of non-controlling interest | - | - | 250 | - | |||||||||
| Share repurchase | (323 | ) | - | (323 | ) | - | |||||||
| Issuance of common shares | 11 | 94 | 332 | 184 | 2,792 | ||||||||
| Net Cash (Used in) Provided by Financing Activities |
(15,679 | ) | 15,442 | (15,294 | ) | (6,978 | ) | ||||||
| Investing Activities | |||||||||||||
| Mine properties, plant and equipment | (10,667 | ) | (5,194 | ) | (13,962 | ) | (14,269 | ) | |||||
| Intangible assets | (716 | ) | - | (1,689 | ) | - | |||||||
| Net Cash Used in Investing Activities | (11,383 | ) | (5,194 | ) | (15,651 | ) | (14,269 | ) | |||||
| Effect of foreign exchange on cash | (1,356 | ) | 2,601 | 1,181 | 1,933 | ||||||||
| Net Change in Cash | (25,516 | ) | 31,976 | (30,912 | ) | 1,524 | |||||||
| Cash position - beginning of the period | 78,394 | 48,693 | 83,790 | 79,145 | |||||||||
| Cash Position - end of the period | $ | 52,878 | $ | 80,669 | $ | 52,878 | $ | 80,669 | |||||
Largo Inc.
Expressed in thousands / 000's of U.S. dollars and shares (except per share information)
Notes to the Unaudited Condensed Interim Consolidated Financial Statements
1) Nature of operations
Largo Inc. ("the Company") is a producer and supplier of high-quality vanadium products, which are sourced from one of the world's highest-grade vanadium deposits at the Company's Maracás Menchen Mine located in Brazil. The Company is also focused on the advancement of renewable energy storage solutions through Largo Clean Energy and its vanadium redox flow battery technology. The Company is in the process of vertically integrating its vanadium production operations with its vanadium redox flow battery technology. While the Company's Maracás Menchen Mine has reached commercial production, future changes in market conditions and feasibility estimates could result in the Company's mineral resources not being economically recoverable.
On November 8, 2021, the Company changed its legal name from Largo Resources Ltd. to Largo Inc.
The Company is a corporation governed by the Business Corporations Act (Ontario) and domiciled in Canada whose shares are listed on the Toronto Stock Exchange ("TSX") and on the Nasdaq Stock Market ("Nasdaq"). The head office, principal address and records office of the Company are located at 55 University Avenue, Suite 1105, Toronto, Ontario, Canada M5J 2H7.
2) Statement of compliance
These unaudited condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standard ("IAS") 34, Interim Financial Reporting.
The unaudited condensed interim consolidated financial statements were approved by the Board of Directors of the Company on August 9, 2022.
3) Basis of preparation, significant accounting policies, and future accounting changes
The basis of presentation, and accounting policies and methods of their application in these unaudited condensed interim consolidated financial statements, including comparatives, are consistent with those used in the Company's audited annual consolidated financial statements for the year ended December 31, 2021 and should be read in conjunction with those statements.
In addition to the Company's subsidiaries disclosed in note 3 of the Company's audited annual consolidated financial statements for the year ended December 31, 2021, at June 30, 2022 the Company owned 50% of Largo Physical Vanadium Corp. and accounted for it as a consolidated subsidiary.
These unaudited condensed interim consolidated financial statements are presented in thousands of U.S. dollars, unless otherwise noted. References to the symbol "C$" or "CAD" mean the Canadian dollar, references to the symbol "EUR" mean the Euro and references to the symbol "R$" or "BRL" mean the Brazilian real, the official currency of Brazil.
a) Critical judgements and estimation uncertainties
The preparation of unaudited condensed interim consolidated financial statements requires the Company's management to make judgments, estimates and assumptions about the carrying amount of its assets and liabilities that are not readily apparent from other sources. These estimates and assumptions are disclosed in note 3(d) of the Company's audited annual consolidated financial statements for the year ended December 31, 2021. There have been no significant changes to the areas of estimation and judgment during the three and six months ended June 30, 2022.
b) Significant accounting policies
These unaudited condensed interim consolidated financial statements, including comparatives, have been prepared following the same accounting policies and methods of computation as the audited annual consolidated financial statements for the year ended December 31, 2021.
Largo Inc.
Expressed in thousands / 000's of U.S. dollars and shares (except per share information)
Notes to the Unaudited Condensed Interim Consolidated Financial Statements
4) Amounts receivable
| June 30, | December 31, | |||||
| 2022 | 2021 | |||||
| Trade receivables | $ | 31,940 | $ | 22,144 | ||
| Current taxes recoverable - Brazil | 1,960 | 1,154 | ||||
| Current taxes recoverable - Other | 274 | 358 | ||||
| Other receivables | 63 | 28 | ||||
| Total | $ | 34,237 | $ | 23,684 |
5) Inventory
| June 30, | December 31, | |||||
| 2022 | 2021 | |||||
| Finished products | $ | 53,043 | $ | 32,069 | ||
| Work-in-process | 1,774 | 967 | ||||
| Stockpiles | 1,111 | 593 | ||||
| Warehouse materials | 12,918 | 11,693 | ||||
| Total | $ | 68,846 | $ | 45,322 |
During the three and six months ended June 30, 2022, the Company recognized a net realizable value write- down of $2,285 and $2,285 for finished products (three and six months ended June 30, 2021 - $nil and $2) and $287 and $287 for warehouse materials (three and six months ended June 30, 2021 - $nil and $nil). At June 30, 2022, the net realizable value write-down was $2,285 for finished products and $287 for warehouse materials (note 19) (December 31, 2021 - $558 and $nil). As inventory is sold, previously recorded net realizable value write-downs are reclassified from inventory write-down to direct mine and mill costs or product acquisition costs as appropriate (note 19).
6) Other intangible assets
During the three and six months ended June 30, 2022, the Company began capitalizing costs relating to a software implementation. Once fully implemented the estimated useful life will be 5 years.
Largo Inc.
Expressed in thousands / 000's of U.S. dollars and shares (except per share information)
Notes to the Unaudited Condensed Interim Consolidated Financial Statements
| Intellectual | |||||||||
| Property | Software | Total | |||||||
| Cost | |||||||||
| Balance at December 31, 2020 | $ | 4,366 | $ | - | $ | 4,366 | |||
| Additions | - | - | - | ||||||
| Balance at December 31, 2021 | $ | 4,366 | $ | - | $ | 4,366 | |||
| Additions | - | 1,882 | 1,882 | ||||||
| Balance at June 30, 2022 | $ | 4,366 | $ | 1,882 | $ | 6,248 | |||
| Accumulated Depreciation | |||||||||
| Balance at December 31, 2020 | - | $ | - | $ | - | ||||
| Depreciation | 437 | - | 437 | ||||||
| Balance at December 31, 2021 | $ | 437 | $ | - | $ | 437 | |||
| Depreciation | 218 | - | 218 | ||||||
| Balance at June 30, 2022 | $ | 655 | $ | - | $ | 655 | |||
| Net Book Value | - | ||||||||
| At December 31, 2021 | $ | 3,929 | $ | - | $ | 3,929 | |||
| At June 30, 2022 | $ | 3,711 | $ | 1,882 | $ | 5,593 |
7) Mine properties, plant and equipment
At June 30, 2022 and December 31, 2021, the Company's economic interest in the Maracás Menchen Mine totaled 99.94%. The remaining 0.06% economic interest is held by Companhia Baiana de Pesquisa Mineral ("CBPM") owned by the state of Bahia. CBPM retains a 3% net smelter royalty ("NSR") in the Maracás Menchen Mine. The property is also subject to a royalty of 2% on certain operating costs under the Brazilian Mining Act. Under a separate agreement, Anglo Pacific Plc receives a 2% NSR in the Maracás Menchen Mine.
| Office and | Buildings, | |||||||||||||||||
| Computer | Mine | Plant and | Construction | |||||||||||||||
| Equipment | Vehicles | Properties | Equipment | In Progress | Total | |||||||||||||
| Cost | ||||||||||||||||||
| Balance at December 31, 2020 | $ | 919 | $ | 261 | $ | 91,444 | $ | 153,743 | $ | 8,308 | $ | 254,675 | ||||||
| Additions | 3,278 | - | 7,884 | 6,122 | 11,639 | 28,923 | ||||||||||||
| Disposals | (177 | ) | - | - | (6 | ) | - | (183 | ) | |||||||||
| Reclassifications | - | - | - | 14,862 | (14,862 | ) | - | |||||||||||
| Effects of changes in foreign exchange rates |
(52 | ) | (18 | ) | (4,851 | ) | (11,487 | ) | 28 | (16,380 | ) | |||||||
| Balance at December 31, 2021 | $ | 3,968 | $ | 243 | $ | 94,477 | $ | 163,234 | $ | 5,113 | $ | 267,035 | ||||||
| Additions | 1,748 | - | 2,646 | 4,895 | 6,693 | 15,982 | ||||||||||||
| Reclassifications | - | - | - | 1,089 | (1,089 | ) | - | |||||||||||
| Effects of changes in foreign exchange rates |
34 | 16 | 4,502 | 10,271 | 1 | 14,824 | ||||||||||||
| Balance at June 30, 2022 | $ | 5,750 | $ | 259 | $ | 101,625 | $ | 179,489 | $ | 10,718 | $ | 297,841 |
Largo Inc.
Expressed in thousands / 000's of U.S. dollars and shares (except per share information)
Notes to the Unaudited Condensed Interim Consolidated Financial Statements
| Office and | Buildings, | |||||||||||||||||
| Computer | Mine | Plant and | Construction | |||||||||||||||
| Equipment | Vehicles | Properties | Equipment | In Progress | Total | |||||||||||||
| Accumulated Depreciation | ||||||||||||||||||
| Balance at December 31, 2020 | $ | 523 | $ | 261 | $ | 26,940 | $ | 77,986 | $ | - | $ | 105,710 | ||||||
| Depreciation | 194 | - | 7,069 | 15,031 | - | 22,294 | ||||||||||||
| Disposals | (177 | ) | - | - | (6 | ) | - | (183 | ) | |||||||||
| Effects of changes in foreign exchange rates | (32 | ) | (18 | ) | (1,559 | ) | (5,836 | ) | - | (7,445 | ) | |||||||
| Balance at December 31, 2021 | $ | 508 | $ | 243 | $ | 32,450 | $ | 87,175 | $ | - | $ | 120,376 | ||||||
| Depreciation | 329 | - | 2,308 | 9,015 | - | 11,652 | ||||||||||||
| Effects of changes in foreign exchange rates | 19 | 16 | 1,474 | 5,402 | - | 6,911 | ||||||||||||
| Balance at June 30, 2022 | $ | 856 | $ | 259 | $ | 36,232 | $ | 101,592 | $ | - | $ | 138,939 | ||||||
| Net Book Value | ||||||||||||||||||
| At December 31, 2021 | $ | 3,460 | $ | - | $ | 62,027 | $ | 76,059 | $ | 5,113 | $ | 146,659 | ||||||
| At June 30, 2022 | $ | 4,894 | $ | - | $ | 65,393 | $ | 77,897 | $ | 10,718 | $ | 158,902 |
8) Accounts payable and accrued liabilities
| June 30, | December 31, | |||||
| 2022 | 2021 | |||||
| Accounts payable | $ | 19,601 | $ | 14,050 | ||
| Accrued liabilities | 4,404 | 2,962 | ||||
| Accrued financial costs | 103 | 174 | ||||
| Other taxes | 7,509 | 2,537 | ||||
| Total | $ | 31,617 | $ | 19,723 | ||
| Current | $ | 31,424 | $ | 19,723 | ||
| Non-current | 193 | - | ||||
| Total | $ | 31,617 | $ | 19,723 |
9) Debt
| June 30, | December 31, | |||||
| 2022 | 2021 | |||||
| Total debt | $ | 15,000 | $ | 15,000 |
| Cash flows | ||||||||||||
| December 31, | June 30, | |||||||||||
| 2021 | Proceeds | Repayment | 2022 | |||||||||
| Total debt | $ | 15,000 | $ | 15,000 | $ | (15,000 | ) | $ | 15,000 | |||
| Total liabilities from financing activities | $ | 15,000 | $ | 15,000 | $ | (15,000 | ) | $ | 15,000 | |||
Largo Inc.
Expressed in thousands / 000's of U.S. dollars and shares (except per share information)
Notes to the Unaudited Condensed Interim Consolidated Financial Statements
| Cash flows | ||||||||||||
| December 31, | December 31, | |||||||||||
| 2020 | Proceeds | Repayment | 2021 | |||||||||
| Total debt | $ | 24,788 | $ | 15,000 | $ | (24,788 | ) | $ | 15,000 | |||
Credit facilities
In April 2022, the Company repaid in full its $15,000 working capital facility with a bank in Brazil. At the same time, the Company secured a new working capital facility with another bank in Brazil. This facility was fully drawn down and proceeds of $15,000 (R$69,000) were received. This facility is due to be repaid as a lump sum payment in April 2023, together with accrued interest at a rate of 3.65% per annum.
10) Issued capital
a) Authorized
Unlimited common shares without par value.
b) Issued
| Six months ended | Year ended | |||||||||||
| June 30, 2022 | December 31, 2021 | |||||||||||
| Number of | Number of | |||||||||||
| Shares | Cost | Shares | Cost | |||||||||
| Balance, beginning of the period | 64,727 | $ | 415,982 | 58,779 | $ | 406,214 | ||||||
| Exercise of warrants (note 11) | 10 | 124 | 5,723 | 7,982 | ||||||||
| Exercise of stock options (note 11) | 18 | 162 | 156 | 944 | ||||||||
| Exercise of restricted share units (note 11) | 81 | 1,263 | 69 | 842 | ||||||||
| Share repurchase | (25 | ) | (323 | ) | - | - | ||||||
| Balance, end of the period | 64,811 | $ | 417,208 | 64,727 | $ | 415,982 | ||||||
During the six months ended June 30, 2022, the Company paid $323 for the repurchase of shares, with 25 of these shares repurchased and cancelled during the six months ended June 30, 2022, and the remaining 20 repurchased and cancelled in July 2022.
On March 4, 2021, the Company completed the consolidation of its issued and outstanding common shares on the basis of one post-consolidation common share for every 10 pre-consolidation common shares. Any quantity relating to common shares, RSUs, stock options and warrants or any per unit price such as exercise prices disclosed throughout the condensed interim consolidated financial statements have been retrospectively adjusted for the share consolidation, including the weighted average number of shares outstanding and the basic and diluted earnings (loss) per share for the periods presented.
Largo Inc.
Expressed in thousands / 000's of U.S. dollars and shares (except per share information)
Notes to the Unaudited Condensed Interim Consolidated Financial Statements
11) Equity reserves
| RSUs | Options | Warrants | |||||||||||||||||||||||||
| Weighted | Weighted | ||||||||||||||||||||||||||
| average | average | ||||||||||||||||||||||||||
| exercise | exercise | Total | |||||||||||||||||||||||||
| Number | Value | Number | price | Value | Number | price | Value | value | |||||||||||||||||||
| December 31, 2020 | 226 | $ | 1,329 | 588 | C$ | 8.27 | $ | 3,207 | 8,366 | C$ | 4.88 | $ | 16,755 | $ | 21,291 | ||||||||||||
| Share-based payments | - | 587 | - | - | 998 | - | - | - | 1,585 | ||||||||||||||||||
| Granted | 76 | 499 | 467 | 15.59 | 1,081 | - | - | - | 1,580 | ||||||||||||||||||
| Exercised | (81 | ) | (842 | ) | (164 | ) | (4.68 | ) | (421 | ) | (6,527 | ) | (2.94 | ) | (5,344 | ) | (6,607 | ) | |||||||||
| Expired | - | - | - | - | - | (7 | ) | (2.90 | ) | (5 | ) | (5 | ) | ||||||||||||||
| Forfeited | (5 | ) | (22 | ) | (2 | ) | (6.70 | ) | (8 | ) | - | - | - | (30 | ) | ||||||||||||
| December 31, 2021 | 216 | $ | 1,551 | 889 | C$ | 12.78 | $ | 4,857 | 1,832 | C$ | 11.78 | $ | 11,406 | $ | 17,814 | ||||||||||||
| Share-based payments | - | 388 | - | - | 837 | - | - | - | 1,225 | ||||||||||||||||||
| Granted | 111 | 274 | 230 | 14.59 | 384 | - | - | - | 658 | ||||||||||||||||||
| Exercised | (118 | ) | (1,263 | ) | (18 | ) | (6.70 | ) | (68 | ) | (10 | ) | (11.50 | ) | (34 | ) | (1,365 | ) | |||||||||
| Forfeited | (1 | ) | (7 | ) | (150 | ) | (13.88 | ) | (575 | ) | - | - | - | (582 | ) | ||||||||||||
| June 30, 2022 | 208 | $ | 943 | 951 | C$ | 13.16 | $ | 5,435 | 1,822 | C$ | 11.78 | $ | 11,372 | $ | 17,750 |
a) RSUs
During the three and six months ended June 30, 2022, the Company granted 111 RSUs to officers and employees of the Company. These RSUs vest over time, with one-third vesting during each of the three month periods ending June 30, 2023, June 30, 2024 and June 30, 2025. The value of the vested RSUs includes the Company's expected forfeiture rate of 0%. Upon vesting, the RSUs provide the holders with common shares of the Company.
20 shares were issued in July 2022 in connection with the exercise of 20 RSUs included in the table above.
b) Stock options
| Weighted | Weighted | Weighted | ||||||||||||||
| average | average | average | ||||||||||||||
| No. | No. | remaining | exercise | grant date | ||||||||||||
| Range of prices | outstanding | exercisable | life (years) | price | share price | |||||||||||
| C$ | 6.70 - 10.00 | 344 | 255 | 2.7 | C$ | 6.70 | C$ | 6.70 | ||||||||
| 10.01 - 15.00 | 204 | - | 1.6 | 13.17 | 13.17 | |||||||||||
| 15.01 - 20.00 | 342 | 108 | 4.3 | 17.11 | 17.11 | |||||||||||
| 20.01 - 25.00 | 29 | 29 | 1.1 | 24.00 | 24.00 | |||||||||||
| 30.01 - 30.40 | 32 | 32 | 1.5 | 30.40 | 30.40 | |||||||||||
| 951 | 424 | C$ | 13.16 | |||||||||||||
During the six months ended June 30, 2022, the Company granted 230 (year ended December 31, 2021 - 467) stock options with a weighted average exercise price of C$14.59. The options vest over time, with one-third of a grant of 176 vesting during each of the three month periods ending June 30, 2023, June 30, 2024 and June 30, 2025. One-third of a grant of 54 vesting during each of the three month periods ending March 31, 2023 and March 31, 2024.
The estimated weighted average grant date fair value for these grants was C$9.15 per stock option, as determined using the Black-Scholes valuation model and the following assumptions: risk free interest rate - 2.46%, expected life in years - 5, expected volatility - 76.3%, expected dividends - 0% and expected forfeiture rate - 0%.
Largo Inc.
Expressed in thousands / 000's of U.S. dollars and shares (except per share information)
Notes to the Unaudited Condensed Interim Consolidated Financial Statements
The remaining weighted average contractual life of options outstanding at June 30, 2022 was 3.0 years (December 31, 2021 - 2.6 years).
c) Warrants
| Expected | Risk-free | |||||||
| No. | No. | Grant | Expiry | Exercise | Expected | Expected | dividend | Interest |
| outstanding | exercisable | Date | Date | price | volatility | life (years) | yield | rate |
| 339 | 339 | 12/01/17 | 12/01/22 | C$11.50 | 93% | 5.00 | 0% | 2% |
| 1,142 | 1,142 | 12/13/17 | 12/13/22 | C$11.50 | 93% | 5.00 | 0% | 2% |
| 341 | 341 | 12/07/20 | 12/08/25 | C$13.00 | 88% | 5.00 | 0% | 0% |
| 1,822 | 1,822 | C$11.78 |
12) Earnings (loss) per share
The total number of shares issuable from options, warrants and RSUs that are excluded from the computation of diluted earnings (loss) per share because their effect would be anti-dilutive was 1,004 and 1,004 for the three and six months ended June 30, 2022 (three and six months ended June 30, 2021 - 141 and 141).
13) Taxes
a) Tax expense
| Three months ended | Six months ended | |||||||||||
| June 30, | June 30, | June 30, | June 30, | |||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||
| Income tax expense | $ | (7,115 | ) | $ | (2,138 | ) | $ | (7,717 | ) | $ | (2,459 | ) |
| Deferred income tax recovery | ||||||||||||
| (expense) | 2,671 | (3,597 | ) | 505 | (3,579 | ) | ||||||
| Total | $ | (4,444 | ) | $ | (5,735 | ) | $ | (7,212 | ) | $ | (6,038 | ) |
b) Changes in deferred tax assets and liabilities
| Six months | ||||||
| ended | Year ended | |||||
| June 30, | December 31, | |||||
| 2022 | 2021 | |||||
| Net deferred income tax asset, beginning of the period | $ | 3,343 | $ | 7,178 | ||
| Deferred income tax recovery (expense) | 505 | (3,758 | ) | |||
| Effect of foreign exchange | (177 | ) | (77 | ) | ||
| Net deferred income tax asset, end of the period | $ | 3,671 | $ | 3,343 |
| June 30, | December 31, | |||||
| 2022 | 2021 | |||||
| Deferred income tax asset | $ | 3,671 | $ | 3,343 | ||
| Net deferred income tax asset | $ | 3,671 | $ | 3,343 |
Largo Inc.
Expressed in thousands / 000's of U.S. dollars and shares (except per share information)
Notes to the Unaudited Condensed Interim Consolidated Financial Statements
14) Related party transactions
In accordance with IAS 24, key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company directly or indirectly, including any directors (executive and non-executive) of the Company.
The remuneration of directors and other members of key management personnel during the period was as follows:
| Three months ended | Six months ended | |||||||||||
| June 30, | June 30, | June 30, | June 30, | |||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||
| Short-term benefits | $ | 1,889 | $ | 690 | $ | 2,523 | $ | 2,174 | ||||
| Share-based payments | 578 | 915 | 1,261 | 1,173 | ||||||||
| Total | $ | 2,467 | $ | 1,605 | $ | 3,784 | $ | 3,347 | ||||
Refer to note 16 for additional commitments with management.
15) Segmented disclosure
The Company has six operating segments: sales & trading, mine properties, corporate, exploration and evaluation properties ("E&E properties") (included as part of inter-segment transactions & other), Largo Clean Energy and Largo Physical Vanadium. Corporate includes the corporate team that provides administrative, technical, financial and other support to all of the Company's business units, as well as being part of the Company's sales structure. Largo Physical Vanadium was incorporated by the Company during the three and six months ended June 30, 2022. The Company sold a 50% interest in Largo Physical Vanadium during the three and six months ended June 30, 2022.
In connection with a proposed qualifying transaction, Largo Physical Vanadium initiated a now closed brokered private placement of subscription receipts. The Company participated in this private placement for an amount of C$20,000 ($15,524). Total proceeds raised by Largo Physical Vanadium of $23,457 are held in escrow (less commissions and underwriting fees paid) until completion of the qualifying transaction and accordingly, this amount has been classified as restricted cash. Should the qualifying transaction not be completed, the proceeds received will be returned to the investors. Amounts that would be returned to investors other than the Company are classified as the subscription receipts liability of $7,933.
Largo Inc.
Expressed in thousands / 000's of U.S. dollars and shares (except per share information)
Notes to the Unaudited Condensed Interim Consolidated Financial Statements
| Largo | Largo | Inter- | |||||||||||||||||||
| Sales & | Mine | Clean | Physical | segment | |||||||||||||||||
| trading | properties | Corporate | Energy | Vanadium | transactions | Total | |||||||||||||||
| Three months ended June 30, 2022 | |||||||||||||||||||||
| Revenues | $ | 74,471 | $ | 66,027 | $ | 57,922 | $ | - | $ | - | $ | (113,616 | ) | $ | 84,804 | ||||||
| Operating costs | (61,844 | ) | (42,319 | ) | (55,776 | ) | - | - | 109,235 | (50,704 | ) | ||||||||||
| Professional, consulting and management fees | (568 | ) | (1,567 | ) | (1,584 | ) | (2,337 | ) | (324 | ) | - | (6,380 | ) | ||||||||
| Foreign exchange (loss) gain | (57 | ) | 2,651 | (202 | ) | 1 | 17 | - | 2,410 | ||||||||||||
| Other general and administrative expenses | (137 | ) | (3,051 | ) | (390 | ) | (1,354 | ) | (41 | ) | (129 | ) 1 | (5,102 | ) | |||||||
| Share-based payments | - | - | (491 | ) | - | - | - | (491 | ) | ||||||||||||
| Finance costs | (8 | ) | (264 | ) | (3 | ) | (21 | ) | (1 | ) | (17 | ) 1 | (314 | ) | |||||||
| Interest income | - | 153 | 60 | - | - | - | 213 | ||||||||||||||
| Technology start-up costs | - | - | - | (1,730 | ) | - | (117 | ) 1 | (1,847 | ) | |||||||||||
| Exploration and evaluation costs | - | (178 | ) | - | - | - | (2 | ) 2 | (180 | ) | |||||||||||
| (62,614 | ) | (44,575 | ) | (58,386 | ) | (5,441 | ) | (349 | ) | 108,970 | (62,395 | ) | |||||||||
| Net income (loss) before tax | 11,857 | 21,452 | (464 | ) | (5,441 | ) | (349 | ) | (4,646 | ) | 22,409 | ||||||||||
| Income tax expense | (810 | ) | (6,305 | ) | - | - | - | - | (7,115 | ) | |||||||||||
| Deferred income tax recovery (expense) | (340 | ) | 3,435 | (424 | ) | - | - | - | 2,671 | ||||||||||||
| Net income (loss) | $ | 10,707 | $ | 18,582 | $ | (888 | ) | $ | (5,441 | ) | $ | (349 | ) | $ | (4,646 | ) | $ | 17,965 | |||
| Revenues (after elimination of inter-segment transactions) | $ | 74,471 | $ | 10,333 | $ | - | $ | - | $ | - | $ | $ | 84,804 | ||||||||
| At June 30, 2022 | |||||||||||||||||||||
| Total non-current assets | $ | 574 | $ | 131,658 | $ | 19,292 | $ | 14,162 | $ | - | $ | 2,480 | $ | 168,166 | |||||||
| Total assets | $ | 93,957 | $ | 228,300 | $ | 106,041 | $ | 21,457 | $ | 23,839 | $ | (114,855)3 | $ | 358,739 | |||||||
| Total liabilities | $ | 65,153 | $ | 49,173 | $ | 44,975 | $ | 6,162 | $ | 8,374 | $ | (105,511)4 | $ | 68,326 |
1. Amounts relating to Largo Titânio Ltda. and Largo Tech Ltda., which are not an operating segment.
2. Amount relating to E&E properties.
3. Inter-segment transaction elimination of $117,604 partially offset by Largo Titânio Ltda. and Largo Tech Ltda. total assets of $2,742 and E&E properties total assets of $7.
4. Inter-segment transaction elimination of $105,524 partially offset by Largo Titânio Ltda. and Largo Tech Ltda. total liabilities of $12 and E&E properties total liabilities of $1.
Largo Inc.
Expressed in thousands / 000's of U.S. dollars and shares (except per share information)
Notes to the Unaudited Condensed Interim Consolidated Financial Statements
| Largo | Inter- | |||||||||||||||||
| Sales & | Mine | Clean | segment | |||||||||||||||
| trading | properties | Corporate | Energy | transactions | Total | |||||||||||||
| Three months ended June 30, 2021 | ||||||||||||||||||
| Revenues | $ | 45,338 | $ | 45,462 | $ | 38,089 | $ | - | $ | (74,597 | ) | $ | 54,292 | |||||
| Operating costs | (38,154 | ) | (30,224 | ) | (36,769 | ) | - | 70,181 | (34,966 | ) | ||||||||
| Professional, consulting and management fees | (393 | ) | (949 | ) | (1,931 | ) | (1,151 | ) | - | (4,424 | ) | |||||||
| Foreign exchange (loss) gain | (41 | ) | 2,810 | 343 | 1 | - | 3,113 | |||||||||||
| Other general and administrative expenses | (108 | ) | (544 | ) | (904 | ) | (738 | ) | - | (2,294 | ) | |||||||
| Share-based payments | - | - | (1,032 | ) | - | - | (1,032 | ) | ||||||||||
| Finance costs | (10 | ) | (97 | ) | (2 | ) | (23 | ) | - | (132 | ) | |||||||
| Interest income | - | 75 | 35 | - | - | 110 | ||||||||||||
| Exploration and evaluation costs | - | (485 | ) | - | - | (2) 1 | (487 | ) | ||||||||||
| (38,706 | ) | (29,414 | ) | (40,260 | ) | (1,911 | ) | 70,179 | (40,112 | ) | ||||||||
| Net income (loss) before tax | 6,632 | 16,048 | (2,171 | ) | (1,911 | ) | (4,418 | ) | 14,180 | |||||||||
| Income tax expense | (836 | ) | (1,302 | ) | - | - | - | (2,138 | ) | |||||||||
| Deferred income tax expense | - | (3,291 | ) | (306 | ) | - | - | (3,597 | ) | |||||||||
| Net income (loss) | $ | 5,796 | $ | 11,455 | $ | (2,477 | ) | $ | (1,911 | ) | $ | (4,418 | ) | $ | 8,445 | |||
| Revenues (after elimination of inter-segment transactions) | $ | 44,030 | $ | 8,954 | $ | 1,308 | $ | - | $ | 54,292 | ||||||||
| At December 31, 2021 | ||||||||||||||||||
| Total non-current assets | $ | 961 | $ | 123,783 | $ | 18,303 | $ | 10,884 | $ | - | $ | 153,931 | ||||||
| Total assets | $ | 56,631 | $ | 191,086 | $ | 111,703 | $ | 18,084 | $ | (63,595 | ) | $ | 313,909 | |||||
| Total liabilities | $ | 39,907 | $ | 34,604 | $ | 21,467 | $ | 6,488 | $ | (54,254 | ) | $ | 48,212 |
1. Amount relating to E&E properties.
Largo Inc.
Expressed in thousands / 000's of U.S. dollars and shares (except per share information)
Notes to the Unaudited Condensed Interim Consolidated Financial Statements
| Inter- | |||||||||||||||||||||
| Largo | Largo | segment | |||||||||||||||||||
| Sales & | Mine | Clean | Physical | transactions | |||||||||||||||||
| trading | properties | Corporate | Energy | Vanadium | & other | Total | |||||||||||||||
| Six months ended June 30, 2022 | |||||||||||||||||||||
| Revenues | $ | 108,621 | $ | 102,893 | $ | 88,950 | $ | - | $ | - | $ | (172,972 | ) | $ | 127,492 | ||||||
| Operating costs | (93,792 | ) | (69,132 | ) | (85,667 | ) | - | - | 168,929 | (79,662 | ) | ||||||||||
| Professional, | |||||||||||||||||||||
| consulting and | |||||||||||||||||||||
| management fees | (1,061 | ) | (2,603 | ) | (3,474 | ) | (4,650 | ) | (508 | ) | - | (12,296 | ) | ||||||||
| Foreign exchange (loss) | |||||||||||||||||||||
| gain | (83 | ) | 944 | 78 | (2 | ) | 6 | - | 943 | ||||||||||||
| Other general and | |||||||||||||||||||||
| administrative | (130 | ) 1 | |||||||||||||||||||
| expenses | (248 | ) | (3,318 | ) | (808 | ) | (2,197 | ) | (56 | ) | (6,757 | ) | |||||||||
| Share-based payments | - | - | (1,301 | ) | - | - | - | (1,301 | ) | ||||||||||||
| Finance costs | (14 | ) | (413 | ) | (6 | ) | (39 | ) | (1 | ) | (18 | ) 1 | (491 | ) | |||||||
| Interest income | - | 297 | 100 | - | - | - | 397 | ||||||||||||||
| Technology start-up | (251 | ) 1 | |||||||||||||||||||
| costs | - | - | - | (4,566 | ) | - | (4,817 | ) | |||||||||||||
| Exploration and | (4 | ) 2 | |||||||||||||||||||
| evaluation costs | - | (281 | ) | - | - | - | (285 | ) | |||||||||||||
| (95,198 | ) | (74,506 | ) | (91,078 | ) | (11,454 | ) | (559 | ) | 168,526 | (104,269 | ) | |||||||||
| Net income (loss) | |||||||||||||||||||||
| before tax | 13,423 | 28,387 | (2,128 | ) | (11,454 | ) | (559 | ) | (4,446 | ) | 23,223 | ||||||||||
| Income tax expense | (956 | ) | (6,761 | ) | - | - | - | - | (7,717 | ) | |||||||||||
| Deferred income tax | |||||||||||||||||||||
| recovery (expense) | (387 | ) | 1,587 | (695 | ) | - | - | - | 505 | ||||||||||||
| Net income (loss) | $ | 12,080 | $ | 23,213 | $ | (2,823 | ) | $ | (11,454 | ) | $ | (559 | ) | $ | (4,446 | ) | $ | 16,011 | |||
| Revenues | |||||||||||||||||||||
| (after elimination of | |||||||||||||||||||||
| inter-segment | |||||||||||||||||||||
| transactions) | $ | 108,621 | $ | 18,557 | $ | 314 | $ | - | $ | - | $ | 127,492 | |||||||||
1. Amounts relating to Largo Titânio Ltda. and Largo Tech Ltda., which are not an operating segment.
2. Amount relating to E&E properties.
Largo Inc.
Expressed in thousands / 000's of U.S. dollars and shares (except per share information)
Notes to the Unaudited Condensed Interim Consolidated Financial Statements
| Largo | Inter- | |||||||||||||||||
| Sales & | Mine | Clean | segment | |||||||||||||||
| trading | properties | Corporate | Energy | transactions | Total | |||||||||||||
| Six months ended June 30, 2021 | ||||||||||||||||||
| Revenues | $ | 80,338 | $ | 69,946 | $ | 59,094 | $ | - | $ | (115,285 | ) | $ | 94,093 | |||||
| Operating costs | (68,146 | ) | (50,719 | ) | (56,710 | ) | - | 112,437 | (63,138 | ) | ||||||||
| Professional, consulting and management fees | (759 | ) | (1,979 | ) | (3,345 | ) | (1,970 | ) | - | (8,053 | ) | |||||||
| Foreign exchange (loss) gain | (64 | ) | 899 | 522 | - | - | 1,357 | |||||||||||
| Other general and administrative expenses | (181 | ) | (767 | ) | (1,302 | ) | (1,021 | ) | - | (3,271 | ) | |||||||
| Share-based payments | - | - | (1,404 | ) | - | - | (1,404 | ) | ||||||||||
| Finance costs | (16 | ) | (379 | ) | (5 | ) | (23 | ) | - | (423 | ) | |||||||
| Interest income | - | 99 | 65 | - | - | 164 | ||||||||||||
| Exploration and evaluation costs | - | (694 | ) | - | - | (4) 1 | (698 | ) | ||||||||||
| (69,166 | ) | (53,540 | ) | (62,179 | ) | (3,014 | ) | 112,433 | (75,466 | ) | ||||||||
| Net income (loss) before tax | 11,172 | 16,406 | (3,085 | ) | (3,014 | ) | (2,852 | ) | 18,627 | |||||||||
| Income tax expense | (836 | ) | (1,623 | ) | - | - | - | (2,459 | ) | |||||||||
| Deferred income tax expense | - | (3,038 | ) | (541 | ) | - | - | (3,579 | ) | |||||||||
| Net income (loss) | $ | 10,336 | $ | 11,745 | $ | (3,626 | ) | $ | (3,014 | ) | $ | (2,852 | ) | $ | 12,589 | |||
| Revenues (after elimination of inter-segment transactions) | $ | 78,791 | $ | 13,744 | $ | 1,558 | $ | - | $ | $ | 94,093 |
1. Amount relating to E&E properties.
16) Commitments and contingencies
At June 30, 2022, the Company was party to certain management and consulting contracts. Minimum commitments under the agreements are approximately $2,725 and all payable within one year. These contracts also require that additional payments of up to approximately $4,087 be made upon the occurrence of certain events such as change of control. As the triggering event has not occurred, the contingent payments have not been reflected in these consolidated financial statements.
In 2021, the Company signed a 10-year exclusive off-take agreement with a third party for the purchase of all standard and high purity grade vanadium products they produce. The annual quantity to be delivered to the Company in 2022 is 220 tonnes of V2O5, with the Company having a right of first refusal over additional amounts.
The Company's Largo Clean Energy business is required to pay a royalty of 7.5% of the net sales price of each VRFB which contains a manufactured licensed product or uses or transfers a licensed product on or after January 1, 2022. Refer to note 7 for details of the royalties payable at the Maracás Menchen Mine.
The Company is committed to a minimum amount of rental payments under five leases of office space which expire between December 31, 2022 and May 1, 2027. Minimum rental commitments remaining under the leases are approximately $551, including $276 due within one year.
At the Company's Maracás Menchen Mine and at Largo Clean Energy, the Company has entered into purchase order contracts with remaining amounts due related to goods not received or services not rendered as of June 30, 2022 of $12,096.
The Company and its subsidiaries are party to legal proceedings regarding labour matters. A provision was recorded at December 31, 2021 for such proceedings in Brazil in an amount of R$469 ($84). At June 30, 2022, the provision recognized was R$542 ($103). The outcome of these proceedings remains dependent on the final judgment. Management does not expect the outcome of any of the remaining proceedings to have a materially adverse effect on the results of the Company's financial position or results of operations. Should any losses result from the resolution of these claims and disputes, they will be charged to operations in the period that they are determined.
Largo Inc.
Expressed in thousands / 000's of U.S. dollars and shares (except per share information)
Notes to the Unaudited Condensed Interim Consolidated Financial Statements
17) Financial instruments
Financial assets and financial liabilities at June 30, 2022 and December 31, 2021 were as follows:
| June 30, | December 31, | |||||
| 2022 | 2021 | |||||
| Cash | $ | 52,878 | $ | 83,790 | ||
| Restricted cash | 23,410 | 448 | ||||
| Trade and other receivables | 32,003 | 22,172 | ||||
| Accounts payable and accrued liabilities (including non-current) | 31,617 | 19,723 | ||||
| Subscription receipts | 7,933 | - | ||||
| Lease liability (including non-current) | 2,307 | 2,550 | ||||
| Debt | 15,000 | 15,000 |
Refer to the liquidity risk discussion below regarding liabilities.
The Company's risk exposures and the impact on the Company's financial instruments are summarized below. There have been no changes in the risks, objectives, policies and procedures from the previous year.
a) Fair value
IFRS requires that the Company disclose information about the fair value of its financial assets and liabilities. Fair value estimates are made based on relevant market information and information about the financial instrument.
These estimates are subjective in nature and involve uncertainties in significant matters of judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect these estimates.
The fair value hierarchy categorizes into three levels the inputs to valuation techniques used to measure fair value. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs).
• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.
• Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly such as those derived from prices.
• Level 3 inputs are unobservable inputs for the asset or liability.
The carrying amounts for cash, restricted cash, trade receivables and amounts receivable, accounts payable and accrued liabilities and debt in the condensed interim consolidated statements of financial position approximate fair values because of the limited term of these instruments.
There have been no changes in the classification of financial instruments in the fair value hierarchy since December 31, 2021. The Company does not have any financial instruments measured using Level 3 inputs. The Company does not offset financial assets with financial liabilities and there were no transfers between Level 1 and Level 2 input financial instruments.
Largo Inc.
Expressed in thousands / 000's of U.S. dollars and shares (except per share information)
Notes to the Unaudited Condensed Interim Consolidated Financial Statements
b) Credit risk
The Company's maximum amount of credit risk is primarily attributable to cash, restricted cash and amounts receivable.
The Company minimizes its credit risk with respect to cash by placing its funds on deposit with the highest rated banks in Canada, Ireland, the U.S. and Brazil. Financial instruments included in amounts receivable consist primarily of receivables from unrelated companies. Sales to customers outside of Brazil are protected either by the Company's credit insurance policies, which establishes credit limits for each customer, or by the Company requiring letters of credit or up-front payment prior to delivery occurring.
Of the total trade receivables balance of $31,940, $13,905 relates to customers in Brazil, which are not covered by the Company's credit insurance policies. The ratings for these companies range from B- to AAA. The Company applies the IFRS 9 simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance for all trade receivables.
To measure expected credit losses, trade receivables are grouped based on risk characteristics and due dates. At June 30, 2022, no amounts are past due and in the six months ended June 30, 2022, the Company has not experienced any credit losses. At June 30, 2022, the loss allowance for trade receivables was determined to be $58 (December 31, 2021 - $58), with any movement recognized as a component of finance costs (note 19). There have been no write offs of trade receivables.
c) Liquidity risk
The following table details the Company's expected remaining contractual cash flow requirements at June 30, 2022 for its financial liabilities with agreed repayment periods.
| Less than | 6 months | |||||||||||
| 6 months | to 1 year | 1 to 3 years | Over 3 years | |||||||||
| Accounts payable and accrued liabilities (note 8) | $ | 31,424 | $ | - | $ | 193 | $ | - | ||||
| Subscription receipts (note 15) | 7,933 | - | - | - | ||||||||
| Debt (note 9) | - | 15,000 | - | - | ||||||||
| Total | $ | 39,357 | $ | 15,000 | $ | 193 | $ | - |
The Company's principal sources of liquidity are its cash flows from operating activities and cash of $52,878 (December 31, 2021 - $83,790).
d) Market risk
Interest rate risk
The Company's interest rate exposure is limited to that portion of its debt that is subject to floating interest rates. At June 30, 2022, the Company had no debt that is subject to floating interest rates and does not have any exposure to floating interest rates.
Foreign currency risk
At June 30, 2022, the Company's outstanding debt is 100% denominated in U.S. dollars (December 31, 2021
- 100% U.S. dollar denominated).
The impact of fluctuations in foreign currency on cash and restricted cash balances and debt relates primarily to fluctuations between the U.S. dollar, the Canadian dollar, the Brazilian real and the Euro. At June 30, 2022, the Company's U.S. dollar functional currency entities had cash denominated in Canadian dollars, Euros and Swiss francs and the Company's Brazilian real functional currency entities had cash and debt denominated in U.S. dollars.
Largo Inc.
Expressed in thousands / 000's of U.S. dollars and shares (except per share information)
Notes to the Unaudited Condensed Interim Consolidated Financial Statements
A 5% change in the value of the Canadian dollar, the Euro and the Swiss franc relative to the U.S. dollar would affect the value of these cash balances at June 30, 2022 by approximately $1,292. A 5% change in the value of the Brazilian real relative to the U.S. dollar would affect the value of Brazilian real cash balances by approximately $238.
Price risk
The Company does not have any financial instruments with significant exposure to price risk.
18) Revenues
| Three months ended | Six months ended | |||||||||||
| June 30, | June 30, | June 30, | June 30, | |||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||
| Vanadium sales from contracts with customers | $ | 84,804 | $ | 54,292 | $ | 127,492 | $ | 94,093 | ||||
| Total | $ | 84,804 | $ | 54,292 | $ | 127,492 | $ | 94,093 | ||||
| Three months ended | Six months ended | |||||||||||
| June 30, | June 30, | June 30, | June 30, | |||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||
| V2O5 revenues | ||||||||||||
| Produced products | $ | 45,976 | $ | 25,896 | $ | 67,790 | $ | 47,754 | ||||
| Purchased products | 1,143 | 85 | 1,529 | 455 | ||||||||
| 47,119 | 25,981 | 69,319 | 48,209 | |||||||||
| FeV revenues | ||||||||||||
| Produced products | $ | 22,883 | $ | 25,530 | $ | 41,911 | $ | 41,287 | ||||
| Purchased products | 14,802 | 2,781 | 16,262 | 4,597 | ||||||||
| 37,685 | 28,311 | 58,173 | 45,884 | |||||||||
| Total | $ | 84,804 | $ | 54,292 | $ | 127,492 | $ | 94,093 | ||||
19) Expenses
| Three months ended | Six months ended | |||||||||||
| June 30, | June 30, | June 30, | June 30, | |||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||
| Operating costs: | ||||||||||||
| Direct mine and production costs | $ | 23,905 | $ | 19,599 | $ | 41,465 | $ | 35,143 | ||||
| Conversion costs | 2,337 | 2,394 | 4,184 | 4,623 | ||||||||
| Product acquisition costs | 9,568 | 3,669 | 11,118 | 6,177 | ||||||||
| Royalties | 3,742 | 2,411 | 5,768 | 3,881 | ||||||||
| Distribution costs | 2,851 | 1,339 | 4,306 | 2,508 | ||||||||
| Inventory write-down (note 5) | 2,572 | - | 2,572 | 2 | ||||||||
| Depreciation and amortization | 5,507 | 5,638 | 9,812 | 10,888 | ||||||||
| Iron ore costs (margin) | 222 | (84 | ) | 437 | (84 | ) | ||||||
| $ | 50,704 | $ | 34,966 | $ | 79,662 | $ | 63,138 | |||||
Largo Inc.
Expressed in thousands / 000's of U.S. dollars and shares (except per share information)
Notes to the Unaudited Condensed Interim Consolidated Financial Statements
| Three months ended | Six months ended | |||||||||||
| June 30, | June 30, | June 30, | June 30, | |||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||
| Finance costs: | ||||||||||||
| Interest expense | $ | 237 | $ | 79 | $ | 354 | $ | 339 | ||||
| Interest on lease liabilities | 35 | 20 | 53 | 20 | ||||||||
| Accretion | 42 | 37 | 84 | 69 | ||||||||
| Loss allowance for trade receivables | - | (4 | ) | - | (5 | ) | ||||||
| $ | 314 | $ | 132 | $ | 491 | $ | 423 | |||||
Management's Discussion and Analysis
For The Three and Six Months Ended June 30, 2022
Table of contents
To Our Shareholders
The following Management's Discussion and Analysis ("MD&A") relates to the financial condition and results of operations of Largo Inc. ("we", "our", "us", "Largo", or the "Company") for the quarter ended June 30, 2022 ("Q2 2022") and should be read in conjunction with (i) the unaudited condensed interim consolidated financial statements and related notes for the same period, (ii) the audited annual consolidated financial statements and related notes for the year ended December 31, 2021 and (iii) the MD&A for the year ended December 31, 2021. Note references in the following discussion refer to the note disclosures contained in the Q2 2022 unaudited condensed interim consolidated financial statements. References in the following discussion to "Q2 2021" refer to the quarter ended June 30, 2021.
The financial statements and related notes of Largo have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") applicable to a going concern. Certain non-GAAP measures are discussed in this MD&A, which are clearly disclosed as such. Additional information, including the Company's press releases, has been filed electronically through the System for Electronic Document Analysis and Retrieval ("SEDAR") and is available online under the Company's profile at www.sedar.com and www.sec.gov.
This MD&A reports the Company's activities through August 9, 2022, unless otherwise indicated. References to "date of this MD&A" mean August 9, 2022. Except as otherwise set out herein, all amounts expressed herein are in thousands of U.S. dollars, denominated by "$". The Company's shares, options, units and warrants are expressed in thousands. Prices are not expressed in thousands. References to the symbol "C$" mean the Canadian dollar and references to the symbol "R$" mean the Brazilian real.
Mr. Emerson Ricardo Re, MSc, MBA, MAusIMM (CP) (No. 305892), Registered Member (No. 0138) (Chilean Mining Commission), is a Qualified Person as defined under National Instrument 43-101 Standards of Disclosure for Mineral Projects ("NI 43-101") and has reviewed the technical information in the MD&A.
The Company
Largo is a Canadian based company that is one of the world's leading high-quality vanadium suppliers with its VPURETM and VPURE+TM products, which are sourced from the Company's Maracás Menchen Mine in Brazil. In addition to advancing its U.S.-based clean energy storage business, the Company is in the process of implementing an ilmenite concentration plant using feedstock from its existing operations. Largo's VCHARGE vanadium batteries offer an efficient, safe, and long-life storage system that is fully recyclable at the end of its expected 25+ year lifetime. The Company's strategy is centered around two important pillars: a profitable supply of its industry-preferred vanadium products from Brazil combined with its emerging clean energy storage business to support the world's low carbon future.
On November 8, 2021, the Company changed its legal name from Largo Resources Ltd. to Largo Inc.
The Company is organized and exists under the Business Corporations Act (Ontario) and its common shares are listed on the Toronto Stock Exchange ("TSX") under the symbol "LGO" and on the Nasdaq Stock Market ("Nasdaq") under the symbol "LGO".
Q2 2022 Highlights
• The Company recorded net income before tax of $22,409 for Q2 2022 and net income of $17,965.
• The Company's Maracás Menchen Mine produced 3,084 tonnes of vanadium pentoxide ("V2O5") in Q2 2022 and had sales of 3,291 tonnes of V2O5 equivalent.
• On April 19, 2022, the Company announced that Largo Physical Vanadium Corp. ("LPV") and Column Capital Corp. ("CPC"), a capital pool company, had entered into a definitive agreement that will result in CPC acquiring all of the issued and outstanding securities of LPV in exchange for securities of CPC and the reverse-takeover of CPC by LPV to form a combined entity (the "Resulting Issuer"). Upon completion of a proposed qualifying transaction and associated regulatory approvals amongst other things, it is anticipated that the Resulting Issuer will be a publicly listed physical vanadium holding company. Further, in April 2022 the Company participated in a private placement of subscription receipts of LPV for an amount of C$20,000 ($15,524). Each subscription receipt entitles the holder to a common share of the Resulting Issuer upon the completion of the Qualifying Transaction.
• In April 2022, the Company repaid in full its $15,000 working capital facility with a bank in Brazil. At the same time, the Company secured a new working capital facility with another bank in Brazil. This facility was fully drawn down and proceeds of $15,000 (R$69,000) were received. This facility is due to be repaid as a lump sum payment in April 2023, together with accrued interest at a rate of 3.65% per annum.
• On May 30, 2022, the Company announced that the TSX had accepted its notice of intention to make a normal course issuer bid ("NCIB") to purchase for cancellation its common shares (the "Common Shares"). Largo may purchase up to 3,641,098 Common Shares under the NCIB. Purchases of Common Shares may be effected through the facilities of the TSX, NASDAQ, and alternative trading systems during the period starting on June 1, 2022 and ending no later than May 31, 2023. Other than purchases made under block purchase exemptions, daily purchases on the TSX under the NCIB will be limited to 24,510 Common Shares. The price that Largo will pay for any Common Shares will be the market price at the time of purchase. The actual number of Common Shares that may be purchased pursuant under the NCIB and timing of any such purchases will be determined by Largo
Significant Events and Transactions Subsequent to Q2 2022
• On July 4, 2022, the Company announced voting results from its Annual and Special Meeting of Shareholders (the "Meeting") held on Thursday, June 30, 2022. Shareholders voted to approve all matters brought before the Meeting including the election of all director nominees and the appointment of KPMG LLP as auditors for the ensuing year.
• On July 14, 2022, the Company announced that it had implemented an automatic securities purchase plan (the "Automatic Repurchase Plan") with its designated broker in order to facilitate purchases of its Common Shares under its previously announced NCIB. The Automatic Repurchase Plan is intended to allow for the purchase of Common Shares by the Company's designated broker pursuant to the NCIB at times when the Company ordinarily would not be active in the market due to regulatory restrictions or self-imposed blackout periods.
• On July 19, 2022, the Company announced that it had published its 2021 Sustainability Report detailing the Company's approach and progress towards integrating sustainability into all aspects of its business. Largo's 2021 Sustainability Report has been compiled in accordance with the Global Reporting Initiative ("GRI") Standards: Core option, as well as Value Reporting Foundation - Sustainability Accounting Standards Board ("SASB") Metals & Mining Industry Standard requirements.
• On August 4, 2022, the Company announced that Largo Clean Energy ("LCE") has signed a non-binding memorandum of understanding ("MOU") with Ansaldo Green Tech to negotiate the formation of a joint venture for the manufacturing and commercial deployment of vanadium redox flow batteries ("VRFB") in the European, African and Middle East power generation markets.
Q2 2022 Summary
Financial
| Three months ended | ||||||||||||
| June 30, | June 30, | |||||||||||
| 2022 | 2021 | Movement | ||||||||||
| Revenues | $ | 84,804 | $ | 54,292 | $ | 30,512 | 56% | |||||
| Operating costs | (50,704 | ) | (34,966 | ) | (15,738 | ) | 45% | |||||
| Direct mine and production costs | (23,905 | ) | (19,599 | ) | (4,306 | ) | 22% | |||||
| Professional, consulting and management fees | (6,380 | ) | (4,424 | ) | (1,956 | ) | 44% | |||||
| Foreign exchange gain | 2,410 | 3,113 | (703 | ) | (23%) | |||||||
| Other general and administrative expenses | (5,102 | ) | (2,294 | ) | (2,808 | ) | 122% | |||||
| Share-based payments | (491 | ) | (1,032 | ) | 541 | (52%) | ||||||
| Finance costs | (314 | ) | (132 | ) | (182 | ) | 138% | |||||
| Interest income | 213 | 110 | 103 | 94% | ||||||||
| Technology start-up costs | (1,847 | ) | - | (1,847 | ) | (100%) | ||||||
| Exploration and evaluation costs | (180 | ) | (487 | ) | 307 | (63%) | ||||||
| (62,395 | ) | (40,112 | ) | (22,283 | ) | 56% | ||||||
| Net income before tax | $ | 22,409 | $ | 14,180 | $ | 8,229 | 58% | |||||
| Income tax expense | (7,115 | ) | (2,138 | ) | (4,977 | ) | 233% | |||||
| Deferred income tax recovery (expense) | 2,671 | (3,597 | ) | 6,268 | (174%) | |||||||
| Net income | $ | 17,965 | $ | 8,445 | $ | 9,520 | 113% | |||||
| Unrealized (loss) gain on foreign currency translation | (19,319 | ) | 17,746 | (37,065 | ) | (209%) | ||||||
| Comprehensive income (loss) | $ | (1,354 | ) | $ | 26,191 | $ | (27,545 | ) | (105%) | |||
| Basic earnings per share | $ | 0.28 | $ | 0.13 | $ | 0.15 | 115% | |||||
| Diluted earnings per share | $ | 0.28 | $ | 0.13 | $ | 0.15 | 115% | |||||
| Cash provided before working capital items | $ | 25,400 | $ | 16,215 | $ | 9,185 | 57% | |||||
| Net cash provided by operating activities | 2,902 | 19,127 | (16,225 | ) | (85%) | |||||||
| Net cash (used in) provided by financing activities | (15,679 | ) | 15,442 | (31,121 | ) | (202%) | ||||||
| Net cash used in investing activities | (11,383 | ) | (5,194 | ) | (6,189 | ) | 119% | |||||
| Net change in cash | (25,516 | ) | 31,976 | (57,492 | ) | (180%) | ||||||
| Six months ended | ||||||||||||
| June 30, | June 30, | |||||||||||
| 2022 | 2021 | Movement | ||||||||||
| Revenues | $ | 127,492 | $ | 94,093 | $ | 33,399 | 35% | |||||
| Operating costs | (79,662 | ) | (63,138 | ) | (16,524 | ) | 26% | |||||
| Direct mine and production costs | (41,465 | ) | (35,143 | ) | (6,322 | ) | 18% | |||||
| Professional, consulting and management fees | (12,296 | ) | (8,053 | ) | (4,243 | ) | 53% | |||||
| Foreign exchange gain | 943 | 1,357 | (414 | ) | (31%) | |||||||
| Other general and administrative expenses | (6,757 | ) | (3,271 | ) | (3,486 | ) | 107% | |||||
| Share-based payments | (1,301 | ) | (1,404 | ) | 103 | (7%) | ||||||
| Finance costs | (491 | ) | (423 | ) | (68 | ) | 16% | |||||
| Interest income | 397 | 164 | 233 | 142% | ||||||||
| Technology start-up costs | (4,817 | ) | - | (4,817 | ) | (100%) | ||||||
| Exploration and evaluation costs | (285 | ) | (698 | ) | 413 | (59%) | ||||||
| (104,269 | ) | (75,466 | ) | (28,803 | ) | 38% | ||||||
| Net income before tax | $ | 23,223 | $ | 18,627 | $ | 4,596 | 25% | |||||
| Income tax expense | (7,717 | ) | (2,459 | ) | (5,258 | ) | 214% | |||||
| Deferred income tax recovery (expense) | 505 | (3,579 | ) | 4,084 | (114%) | |||||||
| Net income | $ | 16,011 | $ | 12,589 | $ | 3,422 | 27% | |||||
| Unrealized gain on foreign currency translation | 7,293 | 6,219 | 1,074 | 17% | ||||||||
| Comprehensive income | $ | 23,304 | $ | 18,808 | $ | 4,496 | 24% | |||||
| Basic earnings per share (note 12) | $ | 0.25 | $ | 0.20 | $ | 0.05 | 25% | |||||
| Diluted earnings per share (note 12) | $ | 0.25 | $ | 0.20 | $ | 0.05 | 25% | |||||
| Cash provided before working capital items | $ | 31,151 | $ | 28,946 | $ | 2,205 | 8% | |||||
| Net cash (used in) provided by operating activities | (1,148 | ) | 20,838 | (21,986 | ) | (106%) | ||||||
| Net cash used in financing activities | (15,294 | ) | (6,978 | ) | (8,316 | ) | 119% | |||||
| Net cash used in investing activities | (15,651 | ) | (14,269 | ) | (1,382 | ) | 10% | |||||
| Net change in cash | $ | (30,912 | ) | $ | 1,524 | $ | (32,436 | ) | (2,128%) | |||
The movements in the discussion below refer to those shown in the previous tables.
• The Company recorded net income of $17,965 in Q2 2022, compared with a net income of $8,445 in Q2 2021. This movement was primarily due to a 56% increase in revenues, partially offset by a 45% increase in operating costs and a 44% increase in professional, consulting and management fees. For the six months ended June 30, 2022, the Company recorded net income of $16,011, compared with a net income of $12,589 for the same prior year period. This movement was primarily attributable to similar factors as noted for Q2 2022.
Commercial
• In Q2 2022, the Company sold 3,291 tonnes of V2O5 equivalent (Q2 2021 - 3,027 tonnes), including 508 tonnes of purchased products (Q2 2021 - 208 tonnes). Produced V2O5 equivalent sold decreased, with 6,135 (000s lb) sold in Q2 2022, as compared with 6,215 (000s lb) sold in Q2 2021. The Company delivered both standard grade and high purity V2O5as well as ferrovanadium ("FeV") to customers globally.
• The Company continues to actively manage its logistics and supply chain operations to provide premium products and service to its customers. Persistent logistical challenges and elevated transport costs have impacted all aspects of the Company's supply chain. However, the Company continued to deliver on all its commercial commitments through careful planning. The Company does not expect the logistics situation to improve until late-2022, at which point the Company anticipates being able to reduce its inventory in transit through increased sales.
• During Q2 2022, the average benchmark price per lb of V2O5 in Europe was $11.08, an increase of 3% from the average of $10.72 seen in Q1 2022 and an increase of 35% from the average of $8.19 seen in Q2 2021. The average benchmark price at June 30, 2022 was approximately $9.15, compared with approximately $12.25 at March 31, 2022 and $8.75 at June 30, 2021. During Q2 2022, the average benchmark price per kg of FeV in Europe was $44.22, a decrease of 4% from the average of $46.17 seen in Q1 2022 and an increase of 24% from the average of $35.79 seen in Q2 2021. The average benchmark price at June 30, 2022 was approximately $38.15, compared with approximately $58.00 at March 31, 2022 and $39.80 at June 30, 2021. The Company is now selling products with pricing based on several different V2O5 and FeV benchmarks. The Company's revenues will be driven by the movements in these prices.
• At June 30, 2022, the Company recognized an inventory write-down of $2,572 for its purchased products. This was primarily due to the decrease in the average benchmark price of FeV at the end of Q2 2022 as noted above.
• Demand in all of the Company's key markets remained strong in Q2 2022, which was reflected in strong price increases over the course of the period. Demand from the steel industry was healthy in all key regions. The aerospace industry's demand continues to increase but is still significantly below pre-COVID levels. The chemical industry has remained robust and demand from energy storage continues to grow.
• Subsequent to Q2 2022, sales in July 2022 were 946 tonnes of V2O5 equivalent.
• The Company maintains a strong focus on developing new markets for its high purity products and will be supported by the addition of vanadium trioxide ("V2O3") to its product range for that purpose.
• During Q2 2022, the Company recognized revenues of $84,804 (Q2 2021 - $54,292) from sales of 3,291 tonnes of V2O5 equivalent (Q2 2021 - 3,027 tonnes). Of the total revenues, $74,471 is related to the Sales & trading segment, $10,333 is related to the Mine properties segment and $nil is related to the Corporate segment (after the elimination of inter-segment transactions).
• During the six months ended June 30, 2022, the Company recognized revenues of $127,492 (2021 - $94,093 in the same prior year period) from the sales of 5,523 tonnes of V2O5 equivalent (2021 - 5,810 tonnes in the same prior year period). Of the total, $108,621 is related to the Sales & trading segment, $18,557 is related to the Mine properties segment and $314 is related to the Corporate segment(after the elimination of inter- segment transactions).
| Three months ended | Six months ended | |||||||||||
| June 30, | June 30, | June 30, | June 30, | |||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||
| V2O5 revenues per pound of V2O5 sold1, 2 | ||||||||||||
| - Produced material | $ | 10.48 | $ | 7.60 | $ | 9.58 | $ | 6.86 | ||||
| - Purchased material | $ | 12.99 | $ | 7.73 | $ | 11.58 | $ | 8.27 | ||||
| - Total | $ | 10.53 | $ | 7.60 | $ | 9.61 | $ | 6.88 | ||||
| FeV revenues per kg of FeV sold1, 2 | ||||||||||||
| - Produced material | $ | 41.61 | $ | 28.37 | $ | 35.46 | $ | 25.72 | ||||
| - Purchased material | $ | 46.69 | $ | 27.53 | $ | 45.55 | $ | 25.97 | ||||
| - Total | $ | 43.47 | $ | 28.28 | $ | 37.80 | $ | 25.75 | ||||
| Revenues per pound sold1, 2 | $ | 11.69 | $ | 8.14 | $ | 10.47 | $ | 7.35 | ||||
1. V2O5 revenues per pound of V2O5 sold, FeV revenues per kg of FeV sold and revenues per pound sold are non-GAAP ratios with no standard meaning under IFRS, and may not be comparable to similar financial measures disclosed by other issuers. Refer to the "Non-GAAP Measures" section of this MD&A.
2. Calculated based on the quantity sold during the stated period.
Costs
• Operating costs of $50,704 in Q2 2022 (Q2 2021 - $34,966) include direct mine and production costs of $23,905 (Q2 2021 - $19,599), conversion costs of $2,337 (Q2 2021 - $2,394), product acquisition costs of $9,568 (Q2 2021 - $3,669), royalties of $3,742 (Q2 2021 - $2,411), distribution costs of $2,851 (Q2 2021 - $1,339), inventory write-down of $2,572 (Q2 2021 - $nil), depreciation and amortization of $5,507 (Q2 2021 - $5,638) and iron ore costs of $222 (Q2 2021 - net margin of $84). The increase in direct mine and production costs is primarily attributable to cost increases in critical consumables, including HFO and diesel, as well as production impacts from the de-ammoniator and kiln availability during the period. Conversion costs relate to the costs incurred in converting quantities of V2O5 into FeV for delivery to customers and distribution costs relate to the costs incurred in delivering products to customers. Of the total operating costs, $41,331 is related to the Sales & trading segment, $9,291 is related to the Mine properties segment and $82 is related to the Corporate segment (after the elimination of inter-segment transactions).
• Operating costs of $79,662 for the six months ended June 30, 2022 (2021 - $63,138 in the same prior year period) include direct mine and production costs of $41,465 (2021 - $35,143 in the same prior year period), conversion costs of $4,184 (2021 - $4,623 in the same prior year period), product acquisition costs of $11,118 (2021 - $6,177 in the same prior year period), royalties of $5,768 (2021 - $3,881 in the same prior year period), distribution costs of $4,306 (2021 - $2,508 in the same prior year period), inventory write-down of $2,572 (2021 - $2 in the same prior year period), depreciation and amortization of $9,812 (2021 - $10,888 in the same prior year period) and iron ore costs of $437 (2021 - net margin of $84 in the same prior year period)). The increase in direct mine and production costs is primarily attributable to the impacts seen in Q1 2022 from the abnormally elevated levels of rainfall experienced in Q4 2021 and the plant shutdowns in January and February 2022 to perform maintenance on the cooler engine system and power substations and to repair the cooler support bearing and the cost increases for critical consumables as noted above. Of the total, $62,316 is related to the Sales & trading segment, $16,913 is related to the Mine properties segment and $433 is related to the Corporate segment (after the elimination of inter-segment transactions).
| Three months ended | Six months ended | |||||||||||
| June 30, | June 30, | June 30, | June 30, | |||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||
| Cash operating costs per pound1 | $ | 4.84 | $ | 3.78 | $ | 4.65 | $ | 3.46 | ||||
| Cash operating costs excluding royalties per pound1 | $ | 4.23 | $ | 3.39 | $ | 4.12 | $ | 3.14 | ||||
1. Cash operating costs per pound and cash operating costs excluding royalties per pound are non-GAAP ratios with no standard meaning under IFRS, and may not be comparable to similar financial measures disclosed by other issuers. Refer to the "Non-GAAP Measures" section of this MD&A.
• Cash operating costs excluding royalties per pound were $4.23 per lb in Q2 2022, compared with $3.39 for Q2 2021. The increase seen in Q2 2022 compared with Q2 2021 is largely due to the reasons noted above for operating costs, including the impact of cost increases for critical consumables, including HFO and diesel. The residual impact of the abnormally elevated levels of rainfall experienced in Q4 2021 and the plant shutdowns for repairs and maintenance negatively impacted the operational performance and contributed to increased costs. Produced V2O5 equivalent sold decreased, with 6,135 (000s lb) sold in Q2 2022, as compared with 6,215 (000s lb) sold in Q2 2021.
• Professional, consulting and management fees in Q2 2022 increased from Q2 2021 by 44%. The increase is primarily attributable to costs incurred in Q2 2022 in connection with LCE, which was not fully operational in Q2 2021 and costs related to LPV, which was incorporated in 2022. In addition, the Company's Mine properties segment incurred increased compensation costs in Q2 2022 as a result of management turnover. Of the total professional, consulting and management fee expense in Q2 2022, $568 related to the Sales & trading segment (Q2 2021 - $393), $1,567 related to the Mine properties segment (Q2 2021 - $949), $1,584 related to Corporate (Q2 2021 - $1,931), $2,337 related to Largo Clean Energy (Q2 2021 - $1,151) and $324 related to Largo Physical Vanadium (Q2 2021 - $nil). For the six months ended June 30, 2022, total professional, consulting and management fees increased from the same prior year period by 53%. Of the total, $1,061 related to the Sales & trading segment ($759 in the same prior year period), $2,603 related to the Mine properties segment ($1,979 in the same prior year period), $3,474 related to Corporate ($3,345 in the same prior year period), $4,650 related to Largo Clean Energy ($1,970 in the same prior year period) and $508 related to Largo Physical Vanadium ($nil in the same prior year period).
• The foreign exchange gain in Q2 2022 is primarily attributable to a strengthening of the U.S. dollar against the Brazilian real by approximately 11% since March 31, 2022 on U.S. dollar denominated cash and liabilities in Brazil. Of the total foreign exchange gain in Q2 2022, a loss of $57 related to the Sales & trading segment (Q2 2021 - loss of $41), a gain of $2,651 related to the Mine properties segment (Q2 2021 - gain of $2,810) and a loss of $202 related to Corporate (Q2 2021 - gain of $343), with small gains relating to both Largo Clean Energy and Largo Physical Vanadium. For the six months ended June 30, 2022, a loss of $83 related to the Sales & trading segment (loss of $64 in the same prior year period), a gain of $944 related to the Mine properties segment (a gain of $899 in the same prior year period) and a gain of $78 related to Corporate (gain of $522 in the same prior year period).
• Other general and administrative expenses in Q2 2022 increased from Q2 2021 by 122% (or $2,808), which is primarily attributable to an increase in legal provisions in the Mine properties segment of $2,842. Of the total other general and administrative expenses in Q2 2022, $137 related to the Sales & trading segment (Q2 2021 - $108), $3,051 related to the Mine properties segment (Q2 2021 - $544), $390 related to Corporate (Q2 2021 - $904), $1,354 related to Largo Clean Energy (Q2 2021 - $738) and $41 related to Largo Physical Vanadium (Q2 2021 - $nil). In addition, $129 in Q2 2022 related to initial activities for the titanium project (Q2 2021 - $nil). For the six months ended June 30, 2022, total other general and administrative expenses increased from the same prior year period by 107%, primarily due to the increase in provisions noted above. Of the total, $248 related to the Sales & trading segment ($181 in the same prior year period), $3,318 related to the Mine properties segment ($767 in the same prior year period), $808 related to Corporate ($1,302 in the same prior year period), $2,197 related to Largo Clean Energy ($1,021 in the same prior year period) and $56 related to Largo Physical Vanadium ($nil in the same prior year period)). In addition, $129 related to initial activities for the titanium project.
• Technology start-up costs relate to activities at LCE focussed on the establishment and ramp up of operations for the deployment of its VCHARGE VRFB system (Q2 2022 - $1,730 and the six months ended June 30, 2022 - $4,566) and costs related to initial activities for the titanium project (Q2 2022 and the six months ended June 30, 2022 - $251).
• Comprehensive loss for Q2 2022 decreased from Q2 2021 by 105% after a decrease in the unrealized gain on foreign currency translation of 209%. For the six months ended June 30, 2022, comprehensive income increased from the same prior year period by 24% after an increase in the unrealized gain on foreign currency translation of 17%. The unrealized gain on foreign currency translation in the six months ended June 30, 2022 is primarily due to a strengthening of the Brazilian real against the U.S. dollar by approximately 6% since December 31, 2021.
Cash Flows
• Cash provided by operating activities of $2,902 in Q2 2022 is a decrease from cash provided by operating activities of $19,127 in Q2 2021. This is primarily due to a net decrease in working capital items of $25,410, partially offset by an increase in cash provided before working capital items of $9,185. The change in working capital items is primarily attributable to increases in amounts receivable and inventory. For the six months ended June 30, 2022, cash used in operating activities was $1,148, compared with cash provided by operating activities of $20,838 in the same prior year period. This movement is primarily attributable to a net change in working capital items of $(24,191), which is largely driven by increases in inventory and amounts receivable balances.
• Cash used in financing activities in Q2 2022 increased from cash provided by financing activities in Q2 2021 by $31,121. The movement is primarily due to the repayment of debt of $15,000 and the classification of $15,524 as restricted cash following the investment in LPV. For the six months ended June 30, 2022, cash used in financing activities increased from cash used in financing activities in the same prior year period by $8,316. The movement is primarily attributable to the repayment of debt of $15,000 ($24,788 in the same prior year period), negative change in restricted cash of $15,524 (negative $146 in the same prior year period), and cash received from the issuance of common shares of $184 ($2,792 in the same prior year period).
• Cash used in investing activities in Q2 2022 of $11,383 is an increase of $6,189 from the $5,194 seen in Q2 2021. For the six months ended June 30, 2022, the increase from the same prior year period was $1,382. Expenditures in 2022 primarily relate to the ilmenite project and costs relating to a software implementation.
• The net change in cash in Q2 2022 was a decrease of $25,516, compared with an increase of $31,976 for Q2 2021. For the six months ended June 30, 2022, the net change in cash was a decrease of $30,912 (an increase of $1,524 in the same prior year period).
Net income reconciliation
| Q2 2022 | |||||||
| Total V2O5 equivalent sold | 000s lbs | 7,255 | A | ||||
| tonnes1 | 3,291 | ||||||
| Produced V2O5 equivalent sold | 000s lbs | 6,135 | B | ||||
| tonnes1 | 2,783 | ||||||
| Revenues per pound sold | $/lb | $ | 11.69 | C | |||
| Cash operating costs per pound | $/lb | $ | 4.84 | D |
1. Conversion of tonnes to pounds, 1 tonne = 2,204.62 pounds or lbs.
| Q2 2022 | |||||||
| Revenues | $ | 84,804 | A x C 3,291 tonnes of V2O5 equivalent sold (Q2 2021 - 3,027 tonnes), with revenues per pound sold of $11.69 (Q2 2021 - $8.14) |
||||
| Cash operating costs | (29,710) | B x D Global recovery of 81.8% (Q2 2021 - 79.9%), residual impact of abnormal rainfall in Q4 2021, impact of shutdowns and cost increases for critical consumables, including HFO and diesel |
|||||
| Other operating costs | |||||||
| Conversion costs (costs incurred in converting V2O5 to FeV that are recognized on the sale of FeV) |
(2,337 | ) | Note 19 550 tonnes of produced FeV sold |
||||
| Product acquisition costs (costs incurred in purchasing products from 3rd parties that are recognized on the sale of those products) |
(9,568 | ) | Note 19 508 tonnes of V2O5 equivalent of purchased products sold, compared with 208 tonnes in Q2 2021 with a cost of $3,669 |
||||
| Distribution costs | (2,851 | ) | Note 19 | ||||
| Depreciation | (5,507 | ) | Note 19 | ||||
| Inventory write-down | (2,285 | ) | Note 19 Primarily attributable to purchased FeV inventory |
||||
| Increase in legal provisions | (2,842 | ) | See "other general and administrativeexpenses" section on page 7 | ||||
| Iron ore costs (margin) | (222 | ) | Note 19 | ||||
| (25,612 | ) |
| Q2 2022 | |||||||
| Commercial & Corporate costs | |||||||
| Professional, consulting and management fees |
(2,152 | ) | Note 15 (Sales & trading plus Corporate) Lower regulatory and compliance costs in Q2 2022 as compared with Q2 2021 due to the impact of the Nasdaq listing in 2021 |
||||
| Other general and administrative expenses |
(527 | ) | |||||
| Share-based payments | (491 | ) | |||||
| (3,170 | ) | ||||||
| Note 15 (excluding finance costs and foreign exchange) 2022 guidance between $15,000 and $18,000. $11,413 in the six months ended June 30, 2022 Note 15 (excluding finance costs and foreign exchange) Note 15 - "other" |
|||||||
| Largo Clean Energy | (5,421 | ) | |||||
| Largo Physical Vanadium | (365 | ) | |||||
| Titanium project | (246 | ) | |||||
| Foreign exchange gain | 2,410 | ||||||
| Finance costs | (314 | ) | |||||
| Interest income | 213 | ||||||
| Exploration and evaluation costs | (180 | ) | |||||
| Net income before tax | 22,409 | ||||||
| Income tax expense | (7,115 | ) | |||||
| Deferred income tax recovery | 2,671 | ||||||
| Net income | $ | 17,965 |
Note references in the table above refer to the note disclosures contained in the Q2 2022 unaudited condensed interim consolidated financial statements.
Operations
• V2O5 production in April 2022 was 958 tonnes, with 1,168 tonnes produced in May and 958 tonnes produced in June, for a total of 3,084 tonnes of V2O5 produced in Q2 2022. The improvement in production levels in Q2 2022 was due to improved operational stability as well as the re-establishment of intermediate inventories after the abnormally elevated levels of rainfall experienced in Q4 2021.
• Production quantities and non-GAAP unit cost measures are summarized in the following table:
| Production | Average Quarterly | Cash operating costs | ||
| Production | Pounds | V2O5 price2 | excluding royalties | |
| Period | Tonnes | Equivalent1 | $/lb | per pound3 $/lb |
| Q2 2022 | 3,084 | 6,799,048 | $11.08 | $4.23 |
| Q1 2022 | 2,442 | 5,383,682 | $10.72 | $3.97 |
| Q4 2021 | 2,003 | 4,415,854 | $8.30 | $3.68 |
| Q3 2021 | 3,260 | 7,187,061 | $9.40 | $3.53 |
| Q2 2021 | 3,070 | 6,768,184 | $8.19 | $3.39 |
| Q1 2021 | 1,986 | 4,378,375 | $7.09 | $2.87 |
| Q4 2020 | 3,340 | 7,363,431 | $5.29 | $2.56 |
| Q3 2020 | 3,092 | 6,816,685 | $5.33 | $3.14 |
1. Conversion of tonnes to pounds, 1 tonne = 2,204.62 pounds or lbs.
2. Average benchmark price per lb of V2O5 in Europe for the stated period.
3. Cash operating costs excluding royalties per pound is a non-GAAP ratio with no standard meaning under IFRS, and may not be comparable to similar financial measures disclosed by other issuers. Refer to the "Non-GAAP Measures" section of this MD&A.
• The global recovery achieved in Q2 2022 was 81.8%, an increase of 2.4% from the 79.9% achieved in Q2 2021 and 5.5% higher than the 77.5% achieved in Q1 2022. The global recovery in April 2022 was 78.5%, with 83.2% achieved in May and 83.2% achieved in June.
• Subsequent to Q2 2022, production in July 2022 was 811 tonnes of V2O5, following a shutdown for the annual refractory refurbishment in the kiln and cooler.
Selected Quarterly Information
Summary financial information for the eight quarters ended June 30, 2022, prepared in accordance with IFRS (in thousands of U.S. dollars, except for basic earnings (loss) per share and diluted earnings (loss) per share):
| Net Income | Basic Earnings | Diluted Earnings | Non-current | |||||||||||||||
| Period | Revenue | (Loss) | (Loss) per Share1 | (Loss) per Share1 | Total Assets | Liabilities | ||||||||||||
| Q2 2022 | $ | 84,804 | $ | 17,965 | $ | 0.28 | $ | 0.28 | $ | 358,739 | $ | 6,700 | ||||||
| Q1 2022 | 42,688 | (1,954 | ) | (0.03 | ) | (0.03 | ) | 348,755 | 8,883 | |||||||||
| Q4 2021 | 50,326 | 789 | 0.01 | 0.01 | 313,909 | 6,544 | ||||||||||||
| Q3 2021 | 53,861 | 9,193 | 0.14 | 0.14 | 315,577 | 6,911 | ||||||||||||
| Q2 2021 | 54,292 | 8,445 | 0.13 | 0.13 | 318,276 | 8,259 | ||||||||||||
| Q1 2021 | 39,801 | 4,144 | 0.07 | 0.07 | 261,018 | 5,440 | ||||||||||||
| Q4 2020 | 42,254 | 6,881 | 0.12 | 0.11 | 297,806 | 6,295 | ||||||||||||
| Q3 2020 | 27,474 | 2,549 | 0.05 | 0.04 | 272,099 | 5,857 |
1. Basic earnings (loss) per share and diluted earnings (loss) per share have been adjusted in order to reflect the effect of the share consolidation that was completed on March 4, 2021 (refer to note 10).
2022 Guidance
The Company has committed a significant proportion of its monthly production in 2022 to sales of its VPURE+TM and VPURETM products, as well as FeV produced from VPURETM.
The Company's Maracás Menchen Mine continued operations during the six months ended June 30, 2022. The Company continues to monitor the evolving COVID-19 pandemic and has taken preventative measures at its mine site and corporate offices to mitigate potential risks. Although there have been some challenges with logistics, including delays and higher costs, there continues to be no significant impact on the Company's production or on the shipment of products out of Maracás. To date, there continues to be no significant disruption to the Company's supply chain for its operations and the level of critical consumables continues to be at normal levels. In addition, the restrictions imposed by the government in Brazil have not significantly impacted operations. The Company continues to follow the recommendations provided by health authorities and the Company continues to staff critical functions at the Maracás Menchen Mine.
The Company's 2022 guidance is presented on a "business as usual" basis. The Company continues to monitor measures being imposed by governments globally to reduce the spread of COVID-19 and the impact that this may have on the Company's operations, sales and guidance for 2022. Although these restrictions have not, to date, had a material impact on the Company's operations and sales, the potential future impact of COVID-19 both in Brazil and globally could have a significant impact on the Company's operations, sales efforts and logistics. The Company is continuing to monitor the rapidly developing impacts of the COVID-19 pandemic and will take all possible actions to help minimize the impact on the Company and its people. However, these actions may significantly change the guidance and forecasts presented and will, if and when necessary, update its guidance accordingly. Refer to the Company's Annual Information Form for the year ended December 31, 2021 for the full discussion of the Company's Risks and Uncertainties.
The Company's updated guidance for 2022 is presented below.
| 2022 Guidance | ||
| Annual V2O5 equivalent production | tonnes | 11,000 - 12,000 |
| Annual V2O5 equivalent sales1 | tonnes | 11,000 - 12,000 |
| Cash operating costs excluding royalties per pound2 | $/lb | 4.10 - 4.50 |
| Distribution costs | $ | 7,000 - 8,000 |
| Corporate and Sales & trading administrative costs3 | $ | 10,000 - 11,000 |
| Largo Clean Energy expenditures4 | $ | 15,000 - 18,000 |
| Capital expenditures - components | $ | 9,000 - 10,000 |
| Sustaining capital expenditures (excluding capitalized stripping costs) | ||
| Capitalized stripping costs | $ | 10,000 - 11,000 |
| Ilmenite concentration plant capital expenditure | $ | 19,000 - 21,000 |
| TiO2 processing plant capital expenditure | $ | 2,000 - 3,000 |
| Carry-over capital expenditures | $ | 2,000 - 3,000 |
| Largo Clean Energy capital expenditures | $ | 1,500 - 2,500 |
1. Includes sales of up to 1,000 tonnes of V2O5 equivalent purchased products.
2. Cash operating costs excluding royalties per pound is a non-GAAP ratio with no standard meaning under IFRS, and may not be comparable to similar financial measures disclosed by other issuers. Refer to the "Non-GAAP Measures" section of this MD&A.
3. Consists of the total of professional, consulting and management fees and other general and administrative expenses for the Corporate and Sales & Trading segments.
4. Consists of the total of professional, consulting and management fees, other general and administrative expenses and technology start-up costs for the Largo Clean Energy segment.
Operations
Largo Clean Energy
Recent Developments
During Q2 2022, LCE made significant progress on several fronts. The Enel Green Power España ("EGPE") contract remains a priority focus with ratable progress being made in the face of continued supply chain obstacles, which has had a significant impact on the project delivery timelines. LCE currently projects the VCHARGE battery being commissioned for EGPE in Q4 2022 or Q1 2023.
LCE has completed its previously announced strategic review of costing and pricing practices related to its VCHARGE product offering. LCE is satisfied with the review process and resumed sales activities following the completion of this strategic review. LCE has seen an increase in prospective customer interest as well as in the potential size and duration of future VCHARGE battery deployments.
While the final configuration of the LCE headquarters has been delayed by supply chain challenges for some critical components, LCE has reinitiated scale production of stacks and electrolyte purification. LCE achieved ISO 9001 certification of the Quality Management System ("QMS") and continues to pursue CE certification of the VCHARGE system in Spain.
In July 2022, LCE was awarded $4,200 in future funding from the Department of Energy's ("DOE") Advanced Manufacturing Office ("AMO") to develop and demonstrate efficient manufacturing processes that are capable of being readily scaled up to the high production volumes required to meet projected demands for grid-scale redox-flow batteries. LCE's total DOE budget is $6,000, for which the DOE will provide funding of $4,200. LCE expects to complete the DOE project in three years.
Subsequent to June 30, 2022, Mr. Stephen Prince resigned as President of LCE.
Maracás Menchen Mine
Recent Developments
Expenditures of $15,982 were capitalized to mine properties, plant and equipment during the six months ended June 30, 2022 (2021 - $28,923), including $2,646 of capitalized waste stripping and push back costs (2021 - $8,726) and $2,480 relating to the titanium project.
The production of 3,084 tonnes of V2O5 V2O5in Q2 2022 was consistent with the 3,070 tonnes of V2O5 produced in Q2 2021. In Q2 2022, 378,273 tonnes of ore were mined with an effective grade of 1.18% of V2O5. The ore mined in Q2 2022 was 11% higher than in Q2 2021. The Company produced 124,317 tonnes of concentrate with an effective grade of 3.28%.
The COVID-19 restrictions put in place did not have an impact on the Company's operational performance in Q2 2022.
The following table is a summary of production statistics at the Maracás Menchen Mine.
| Q2 2022 | Q2 2021 | YTD 2022 | YTD 2021 | |||||||||
| Total Ore Mined (tonnes) | 378,273 | 340,734 | 681,925 | 604,700 | ||||||||
| Ore Grade Mined - Effective Grade1 (%) | 1.18 | 1.15 | 1.22 | 1.18 | ||||||||
| Effective Grade of Ore Milled (%) | 1.40 | 1.20 | 1.33 | 1.23 | ||||||||
| Concentrate Produced (tonnes) | 124,317 | 98,372 | 216,641 | 198,839 | ||||||||
| Grade of Concentrate (%) | 3.28 | 3.23 | 3.25 | 3.22 | ||||||||
| Contained V2O5 (tonnes) | 4,072 | 3,181 | 7,033 | 6,404 | ||||||||
| Crushing Recovery (%) | 98.3 | 98.0 | 97.9 | 97.4 | ||||||||
| Milling Recovery (%) | 97.9 | 97.5 | 97.0 | 97.3 | ||||||||
| Kiln Recovery (%) | 89.2 | 89.7 | 88.9 | 89.3 | ||||||||
| Leaching Recovery (%) | 99.5 | 97.9 | 98.7 | 97.6 | ||||||||
| Chemical Plant Recovery (%) | 95.7 | 95.2 | 95.8 | 95.2 | ||||||||
| Global Recovery2 (%) | 81.8 | 79.9 | 79.9 | 78.7 | ||||||||
| V2O5 Produced (Flake + Powder) (tonnes) | 3,084 | 3,070 | 5,526 | 5,056 |
1. Effective grade represents the percentage of magnetic material mined multiplied by the percentage of V2O5 in the magnetic concentrate.
2. Global recovery is the product of crushing recovery, milling recovery, kiln recovery, leaching recovery and chemical plant recovery.
Exploration Developments
During Q2 2022, the Company continued working towards obtaining the necessary authorizations and environmental permits to carry out diamond drilling at a number of target areas, primarily in the South Block of the Maracás land package. Work also continues on geological modelling at the Novo Amparo Norte ("NAN") and São José deposits located north of the Campbell Pit. Completed models are expected in Q3 and Q4 2022. Soil geochemical surveying was completed in selected areas of the South Block, with processing and evaluation expected to be completed in Q3 2022. The Campbell Pit geological model was reviewed during Q2 2022 from which a short-term model was developed and completed by the end of July 2022. This model will be updated quarterly going forward.
The Company is planning for approximately 2,000 metres of infill drilling in 2022 in the Campbell Pit, which is expected to be completed in Q3 2022. The goal of this drilling is to provide more detail to the operational planning in order to improve the mineralization contact.
In 2021 the Company completed 8,838 metres of drilling (56 holes) at various targets across the Maracás Menchen Mine. At the Campbell Pit, 2,337 metres were drilled in seven holes to explore depth extension opportunities. A further 2,248 metres of drilling (26 holes) were completed within the pit as part of a short-term drill program focused on defining ore/waste contacts and increasing grade control for short-term modelling and mining purposes. Limited drilling was completed at NAN (483 metres in two holes) and Gulçari A Norte ("GAN") (706 metres in four holes) in support of the technical report. Two holes (809 metres) were drilled to test geophysical anomalies adjacent to the existing mine operations, east of the Campbell Pit. Finally, 2,255 metres of drilling (15 holes) were completed on two targets in the South Block.
On November 3, 2021 the Company announced the results of a new NI 43-101 technical report titled "An Updated Life of Mine Plan ("LOMP") for Campbell Pit and Pre-Feasibility Study for GAN and NAN Deposits" (the "Technical Report"). The Technical Report was filed on December 20, 2021. A summary of the report outcomes can be found in the aforementioned press release and the full report can be accessed via SEDAR (www.sedar.com) and EDGAR (www.sec.gov).
Exploration Outlook
The Company is planning for approximately 7,200 metres of exploration drilling in 2022 at the Maracás Menchen Mine. Efforts will focus on areas in the South Block with known magnetic anomalies and coincident geochemical anomalies. Efforts will also be prioritized on concessions that require work to maintain them in good standing in accordance with the applicable rules and regulations in Brazil. Exploration will continue to develop early stage targets for diamond drilling and resource evaluation as deemed appropriate.
Campo Alegre de Lourdes
Recent Developments
No field work was undertaken at Campo Alegre de Lourdes in Q2 2022. Work is underway to identify landowners and initiate access agreements and secure environmental permits required for planned exploration activities in 2022.
During Q2 2022, the Company incurred $nil in expenditures (Q2 2021 - $nil) at Campo Alegre de Lourdes.
Outlook
A limited program of approximately 1,500 metres of drilling is planned in 2022 in support of future metallurgical work and to ensure the concessions are maintained in good order in accordance with the applicable rules and regulations in Brazil. Diamond drilling will aid the Company in further evaluating the economic potential of the project and will provide additional sample material for ongoing metallurgical testing.
Northern Dancer
Recent Developments
Management is not conducting any further work at this time on the Northern Dancer property, as the majority of the Company's efforts are focused on the Maracás Menchen Mine.
No work was performed in Q2 2022 on the project.
During Q2 2022, the Company incurred $2 in expenditures (Q2 2021 - $2) at the Northern Dancer project.
Outlook
Management is not planning any significant expenditures for the foreseeable future.
Currais Novos Tungsten Tailings Project
Recent Developments
Management is not conducting any work at this time on the Currais Novos Tungsten Tailings Project, as the majority of the Company's efforts are focused on the Maracás Menchen Mine.
Outlook
Management is not planning any significant expenditures for the foreseeable future.
Financial Instruments
Financial assets and financial liabilities at June 30, 2022 and December 31, 2021 were as follows:
| June 30, | December 31, | |||||
| 2022 | 2021 | |||||
| Cash | $ | 52,878 | $ | 83,790 | ||
| Restricted cash | 23,410 | 448 | ||||
| Trade and other receivables | 32,003 | 22,172 | ||||
| Accounts payable and accrued liabilities (including non-current) | 31,617 | 19,723 | ||||
| Subscription receipts | 7,933 | - | ||||
| Lease liability (including non-current) | 2,307 | 2,550 | ||||
| Debt | 15,000 | 15,000 |
The Company's risk exposures and the impact on the Company's financial instruments are summarized in note 17. There have been no changes in the risks, objectives, policies and procedures from the previous year.
Liquidity And Capital Resources
The Company's continuance as a going concern is dependent on its ability to maintain profitable levels of operations.
At December 31, 2021, the benchmark price per lb of V2O5 was between $8.50 and $9.00. This increased to a range of between $8.80 and $9.50 at June 30, 2022, with an average of approximately $11.08 for Q2 2022, compared with approximately $10.72 for Q1 2022 and $8.19 for Q2 2021.
The average benchmark price per lb of V2O5 was approximately $8.45 and the average benchmark price per kg of FeV was approximately $36.69 for July 2022. At the date of the MD&A, the market price of V2O5 was in a range of $7.50 to $8.50 per lb and the market price of FeV was in a range of $33.25 to $35.00 per kg.
The Company is continuing to monitor the rapidly developing impacts of the COVID-19 pandemic and will take all possible actions to help minimize the impact on the Company and its people.
The adequacy of the Company's capital structure is assessed on an ongoing basis and adjusted as necessary after taking into consideration the Company's strategy, vanadium prices, economic conditions and associated risks. To maintain or adjust its capital structure, the Company may adjust capital expenditures, issue new common shares or take on new debt. At June 30, 2022, the Company's debt balance was $15,000.
Credit facilities
In April 2022, the Company repaid in full its $15,000 working capital facility with a bank in Brazil. At the same time, the Company secured a new working capital facility with another bank in Brazil. This facility was fully drawn down and proceeds of $15,000 (R$69,000) were received. This facility is due to be repaid as a lump sum payment in April 2023, together with accrued interest at a rate of 3.65% per annum.
Capital resources
At June 30, 2022, the Company had an accumulated deficit of $33,036 since inception (December 31, 2021 - $49,327) and had a net working capital surplus of $128,947 (December 31, 2021 - $118,310) (defined as current assets less current liabilities). At June 30, 2022, the total amount due within 12 months on the Company's debt was $15,000 (December 31, 2021 - $15,000).
The following table details the Company's expected remaining contractual cash flow requirements at June 30, 2022 for its liabilities and commitments with agreed repayment periods. The amounts presented are based on the undiscounted cash flows and therefore, may not equate to the carrying amounts on the consolidated statement of financial position.
| Less than | 6 months | |||||||||||
| 6 months | to 1 year | 1 to 3 years | Over 3 years | |||||||||
| Accounts payable and accrued liabilities | $ | 31,424 | $ | - | $ | 193 | $ | - | ||||
| Subscription receipts | 7,933 | - | - | - | ||||||||
| Debt | - | 15,000 | - | - | ||||||||
| Operating and purchase commitments | 13,596 | 1,500 | 245 | 31 | ||||||||
| $ | 52,953 | $ | 16,500 | $ | 438 | $ | 31 |
The Company's approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. The Company's principal sources of liquidity are its cash flow from operating activities and cash of $52,878 (December 31, 2021 - $83,790). As a consequence of vanadium price fluctuations in recent years, a risk may exist that the Company will not have sufficient liquidity to meet its obligations as they come due.
Outstanding Share Data
(Exercise prices presented in this section are in Canadian dollars and also not thousands).
At June 30, 2022, there were 64,811 common shares of the Company outstanding. At the date of this MD&A, there were 64,130 common shares of the Company outstanding.
At June 30, 2022, under the share compensation plan of the Company, 208 RSUs were outstanding and 951 stock options were outstanding with exercise prices ranging from C$6.70 to C$30.40 and expiry dates ranging between February 1, 2023 and April 1, 2027. If exercised, the Company would receive proceeds of C$12,503. The weighted average exercise price of the stock options outstanding is C$13.16.
As of the date of this MD&A, 204 RSUs and 933 stock options were outstanding with exercise prices ranging from C$6.70 to C$30.40 and expiry dates ranging between February 1, 2023 and April 1, 2027.
At June 30, 2022, 1,822 common share purchase warrants were outstanding with exercise prices ranging from C$11.50 to C$13.00 and expiring between December 1, 2022 and December 8, 2025. If these warrants were exercised, the Company would receive proceeds of C$21,465. The weighted average exercise price of the warrants is C$11.78.
As of the date of this MD&A, 1,822 common share purchase warrants were outstanding with exercise prices ranging from C$11.50 to C$13.00 and expiring between December 1, 2022 and December 8, 2025.
Transactions With Related Parties
The Q2 2022 unaudited condensed interim consolidated financial statements include the financial statements of the Company and its subsidiaries. There have been no changes in the Company's ownership interests in its subsidiaries since December 31, 2021 except as disclosed in note 3. The Company had transactions with related parties during Q2 2022. Refer to note 14.
Additional information regarding the compensation of officers and directors of the Company is disclosed in the Company's management information circular, which is available under the Company's profile at www.sedar.com and www.sec.gov.
Commitments and Contingencies
At June 30, 2022, the Company was party to certain management and consulting contracts. Minimum commitments under the agreements are approximately $2,725 and all payable within one year. These contracts also require that additional payments of up to approximately $4,087 be made upon the occurrence of certain events such as change of control. As the triggering event has not occurred, the contingent payments have not been reflected in these consolidated financial statements.
In 2021, the Company signed a 10-year exclusive off-take agreement with a third party for the purchase of all standard and high purity grade vanadium products they produce. The annual quantity to be delivered to the Company in 2022 is 220 tonnes of V2O5, with the Company having a right of first refusal over additional amounts.
The Company's Largo Clean Energy business is required to pay a royalty of 7.5% of the net sales price of each VRFB which contains a manufactured licensed product or uses or transfers a licensed product on or after January 1, 2022. Refer to note 7 for details of the royalties payable at the Maracás Menchen Mine.
The Company is committed to a minimum amount of rental payments under five leases of office space which expire between December 31, 2022 and May 1, 2027. Minimum rental commitments remaining under the leases are approximately $551, including $276 due within one year.
At the Company's Maracás Menchen Mine and at Largo Clean Energy, the Company has entered into purchase order contracts with remaining amounts due related to goods not received or services not rendered as of June 30, 2022 of $12,096.
The Company and its subsidiaries are party to legal proceedings regarding labour matters. A provision was recorded at December 31, 2021 for such proceedings in Brazil in an amount of R$469 ($84). At June 30, 2022, the provision recognized was R$542 ($103). The outcome of these proceedings remains dependent on the final judgment. Management does not expect the outcome of any of the remaining proceedings to have a materially adverse effect on the results of the Company's financial position or results of operations. Should any losses result from the resolution of these claims and disputes, they will be charged to operations in the period that they are determined.
Disclosure Controls And Procedures And Internal Controls Over Financial Reporting
Disclosure Controls and Procedures
The Company's disclosure controls and procedures ("DC&P") are designed to provide reasonable assurance that all relevant information is communicated to management to allow timely decisions regarding required disclosure. An evaluation of the effectiveness of the Company's DC&P, as defined under the rules of the Canadian Securities Administration, was conducted as at December 31, 2021 under the supervision of the Chief Executive Officer ("CEO") and the Chief Financial Officer ("CFO") and with the participation of management. Based on the results of that evaluation, the CEO and CFO concluded that the Company's DC&P were effective as at December 31, 2021 providing reasonable assurance that the information required to be disclosed in the Company's annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported in accordance with securities legislation.
Since the December 31, 2021 evaluation, there have been no material changes to the Company's DC&P.
Internal Control over Financial Reporting
Internal control over financial reporting ("ICFR") is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. ICFR should include those policies and procedures that establish the following:
• maintenance of records in reasonable detail, that accurately and fairly reflect the transactions and dispositions of assets;
• reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with applicable IFRS;
• receipts and expenditures are only being made in accordance with authorizations of management or the Board of Directors; and
• reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial instruments.
The Company's management, under supervision of the CEO and CFO, assessed the effectiveness of the Company's ICFR based on the criteria established in Internal Control - Integrated Framework (2013) issued by The Committee of Sponsoring Organizations of the Treadway Commission and concluded that as at December 31, 2021, the Company's ICFR was effective.
During the three months ended June 30, 2022, the Company did not make any significant changes to its ICFR that would have materially affected, or reasonably likely to materially affect, its ICFR.
Limitations of Disclosure Controls and Procedures and Internal Control over Financial Reporting
The Company's management, including the CEO and CFO, believe that due to inherent limitations, any DC&P or ICFR, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that any design will not succeed in achieving its stated goals under all potential future conditions. Accordingly, because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Additionally, management is required to use judgment in evaluating DC&P and ICFR.
Significant Accounting Judgments, Estimates And Assumptions
The preparation of the unaudited condensed interim consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Actual outcomes could differ from these estimates. These unaudited condensed interim consolidated financial statements include estimates, which, by their nature, are uncertain. The impacts of such estimates are pervasive throughout the unaudited condensed interim consolidated financial statements and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised, and the revision affects both current and future periods.
Significant areas requiring the use of estimates and assumptions relate to the determination of mineral reserve estimates and the impact on stripping costs, useful lives of mine properties, plant and equipment, impairment analysis of non-financial assets, estimates of the timing of outlays for asset retirement obligations and the determination of functional currencies. Other significant areas include the valuation of mine properties, plant and equipment and development properties, estimates of provisions for environmental rehabilitation, current and deferred taxes and contingencies. Refer to note 3(d) of the annual consolidated financial statements for the year ended December 31, 2021 for a detailed description of these areas of significant judgment, estimates and assumptions. Actual results could differ from those estimates.
Changes In Accounting Policies
The basis of presentation, and accounting policies and methods of their application in the Q2 2022 unaudited condensed interim consolidated financial statements are consistent with those used in the Company's annual consolidated financial statements for the year ended December 31, 2021, except for any changes as disclosed in note 3.
Non-GAAP1 Measures
The Company uses certain non-GAAP measures in its MD&A, which are described in the following section. Non-GAAP financial measures and non-GAAP ratios are not standardized financial measures under IFRS, the Company's GAAP, and might not be comparable to similar financial measures disclosed by other issuers. These measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.
Revenues Per Pound
The Company's MD&A refers to revenues per pound sold, V2O5 revenues per pound of V2O5 sold and FeV revenues per kg of FeV sold, which are non-GAAP financial measures that are used to provide investors with information about a key measure used by management to monitor performance of the Company.
These measures, along with cash operating costs, are considered to be key indicators of the Company's ability to generate operating earnings and cash flow from its Maracás Menchen Mine and sales activities. These measures differ from measures determined in accordance with IFRS, and are not necessarily indicative of net earnings or cash flow from operating activities as determined under IFRS.
The following table provides a reconciliation of revenues per pound sold, V2O5 revenues per pound of V2O5 sold and FeV revenues per kg of FeV sold to revenues and the revenue information presented in note 16 as per the Q2 2022 unaudited condensed interim consolidated financial statements.
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1 GAAP - Generally Accepted Accounting Principles.
| Three months ended | Six months ended | |||||||||||
| June 30, | June 30, | June 30, | June 30, | |||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||
| Revenues - V2O5 produced1 | $ | 45,976 | $ | 25,896 | $ | 67,790 | $ | 47,754 | ||||
| V2O5 sold - produced (000s lb) | 4,385 | 3,408 | 7,079 | 6,957 | ||||||||
| V2O5 revenues per pound of V2O5 sold -produced ($/lb) | $ | 10.48 | $ | 7.60 | $ | 9.58 | $ | 6.86 | ||||
| Revenues - V2O5 purchased1 | $ | 1,143 | $ | 85 | $ | 1,529 | $ | 455 | ||||
| V2O5 sold - purchased (000s lb) | 88 | 11 | 132 | 55 | ||||||||
| V2O5 revenues per pound of V2O5 sold - purchased ($/lb) | $ | 12.99 | $ | 7.73 | $ | 11.58 | $ | 8.27 | ||||
| Revenues - V2O51 | $ | 47,119 | $ | 25,981 | $ | 69,319 | $ | 48,209 | ||||
| V2O5 sold (000s lb) | 4,473 | 3,419 | 7,211 | 7,012 | ||||||||
| V2O5 revenues per pound of V2O5 sold ($/lb) | $ | 10.53 | $ | 7.60 | $ | 9.61 | $ | 6.88 | ||||
| Revenues - FeV produced1 | $ | 22,883 | $ | 25,530 | $ | 41,911 | $ | 41,287 | ||||
| FeV sold - produced (000s kg) | 550 | 900 | 1,182 | 1,605 | ||||||||
| FeV revenues per kg of FeV sold - produced ($/kg) | $ | 41.61 | $ | 28.37 | $ | 35.46 | $ | 25.72 | ||||
| Revenues - FeV purchased1 | $ | 14,802 | $ | 2,781 | $ | 16,262 | $ | 4,597 | ||||
| FeV sold - purchased (000s kg) | 317 | 101 | 357 | 177 | ||||||||
| FeV revenues per kg of FeV sold - purchased ($/kg) | $ | 46.69 | $ | 27.53 | $ | 45.55 | $ | 25.97 | ||||
| Revenues - FeV1 | $ | 37,685 | $ | 28,311 | $ | 58,173 | $ | 45,884 | ||||
| FeV sold (000s kg) | 867 | 1,001 | 1,539 | 1,782 | ||||||||
| FeV revenues per kg of FeV sold ($/kg) | $ | 43.47 | $ | 28.28 | $ | 37.80 | $ | 25.75 | ||||
| Revenues1 | $ | 84,804 | $ | 54,292 | $ | 127,492 | $ | 94,093 | ||||
| V2O5 equivalent sold (000s lb) | 7,255 | 6,673 | 12,176 | 12,808 | ||||||||
| Revenues per pound sold ($/lb) | $ | 11.69 | $ | 8.14 | $ | 10.47 | $ | 7.35 | ||||
1. As per note 18.
Cash Operating Costs and Cash Operating Costs Excluding Royalties
The Company's MD&A refers to cash operating costs per pound and cash operating costs excluding royalties per pound, which are non-GAAP ratios based on cash operating costs and cash operating costs excluding royalties, which are non-GAAP financial measures, in order to provide investors with information about a key measure used by management to monitor performance. This information is used to assess how well the Maracás Menchen Mine is performing compared to plan and prior periods, and also to assess its overall effectiveness and efficiency.
Cash operating costs includes mine site operating costs such as mining costs, plant and maintenance costs, sustainability costs, mine and plant administration costs, royalties and sales, general and administrative costs (all for the Mine properties segment), but excludes depreciation and amortization, share-based payments, foreign exchange gains or losses, commissions, reclamation, capital expenditures and exploration and evaluation costs. Operating costs not attributable to the Mine properties segment are also excluded, including conversion costs, product acquisition costs, distribution costs and inventory write-downs.
Cash operating costs excluding royalties is calculated as cash operating costs less royalties.
Cash operating costs per pound and cash operating costs excluding royalties per pound are obtained by dividing cash operating costs and cash operating costs excluding royalties, respectively, by the pounds of vanadium equivalent sold that were produced by the Maracás Menchen Mine.
Cash operating costs, cash operating costs excluding royalties, cash operating costs per pound and cash operating costs excluding royalties per pound, along with revenues, are considered to be key indicators of the Company's ability to generate operating earnings and cash flow from its Maracás Menchen Mine. These measures differ from measures determined in accordance with IFRS, and are not necessarily indicative of net earnings or cash flow from operating activities as determined under IFRS.
The following table provides a reconciliation of cash operating costs and cash operating costs excluding royalties, cash operating costs per pound and cash operating costs excluding royalties per pound for the Maracás Menchen Mine to operating costs as per the Q2 2022 unaudited condensed interim consolidated financial statements.
| Three months ended | Six months ended | |||||||||||
| June 30, | June 30, | June 30, | June 30, | |||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||
| Operating costs1 | $ | 50,704 | $ | 34,966 | $ | 79,662 | $ | 63,138 | ||||
| Professional, consulting and management fees2 | 1,567 | 949 | 2,603 | 1,979 | ||||||||
| Other general and administrative expenses3 | 209 | 544 | 476 | 767 | ||||||||
| Less: iron ore costs1 | (222 | ) | 84 | (437 | ) | 84 | ||||||
| Less: conversion costs1 | (2,337 | ) | (2,394 | ) | (4,184 | ) | (4,623 | ) | ||||
| Less: product acquisition costs1 | (9,568 | ) | (3,669 | ) | (11,118 | ) | (6,177 | ) | ||||
| Less: distribution costs1 | (2,851 | ) | (1,339 | ) | (4,306 | ) | (2,508 | ) | ||||
| Less: inventory write-down1 | (2,285 | ) | - | (2,285 | ) | (2 | ) | |||||
| Less: depreciation and amortization expense1 | (5,507 | ) | (5,638 | ) | (9,812 | ) | (10,888 | ) | ||||
| Cash operating costs | 29,710 | 23,503 | 50,599 | 41,770 | ||||||||
| Less: royalties1 | (3,742 | ) | (2,411 | ) | (5,768 | ) | (3,881 | ) | ||||
| Cash operating costs excluding royalties | 25,968 | 21,092 | 44,831 | 37,889 | ||||||||
| Produced V2O5 sold (000s lb) | 6,135 | 6,215 | 10,882 | 12,065 | ||||||||
| Cash operating costs per pound ($/lb) | $ | 4.84 | $ | 3.78 | $ | 4.65 | $ | 3.46 | ||||
| Cash operating costs excluding royalties per pound ($/lb) | $ | 4.23 | $ | 3.39 | $ | 4.12 | $ | 3.14 | ||||
1. As per note 19.
2. As per the Mine properties segment in note 15.
3. As per the Mine properties segment in note 15 less the increase in legal provisions of $2,842 as noted in the "other general and administrative expenses" section on page 7 of this MD&A.
Risks And Uncertainties
The Company is subject to various business, financial and operational risks that could materially adversely affect the Company's future business, operations and financial condition. These risks could cause such future business, operations and financial condition to differ materially from the forward-looking statements and information contained in this MD&A and as described in the Cautionary Statement Regarding Forward-Looking Information found in this MD&A.
The Company's business activities expose it to significant risks due to the nature of mining, development and exploration activities, as well as due to the nature of its VRFB business. The ability to manage these risks is a key component of the Company's business strategy. Management is forward looking in its assessment of risks. Identification of key risks occurs in the course of business activities, pursuing approved strategies and as part of the execution of risk oversight responsibilities at the management and Board of Directors' level.
For a full discussion of the Company's Risks and Uncertainties, please refer to the Annual Information Form for the year ended December 31, 2021, which is filed on www.sedar.com and www.sec.gov.
Cautionary Statement Regarding Forward-Looking Information
The information presented in this MD&A contains "forward-looking information" and "forward-looking statements" within the meaning of applicable Canadian and United States securities laws concerning the Company's projects, capital, anticipated financial performance, business prospects and strategies and other general matters. Forward-looking statements can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved". All information contained in this MD&A, other than statements of current and historical fact, is forward looking information. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company or Largo Clean Energy to be materially different from those expressed or implied by such forward-looking statements, including but not limited to those risks described in the Annual Information Form of the Company and in its public documents filed on www.sedar.com and available on www.sec.gov from time to time. Forward-looking statements are based on the opinions and estimates of management as of the date such statements are made. Although management of the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. The Company does not undertake to update any forward-looking statements, except in accordance with applicable securities laws.
Trademarks are owned by Largo Inc. (formerly Largo Resources Ltd).
Forward-looking information in this MD&A includes, but is not limited to, statements with respect to the timing and amount of estimated future production and sales; costs of future activities and operations; the extent of capital and operating expenditures; the timing and cost related to the build out of the ilmenite plant and the titanium project, eventual production from the ilmenite plant and/or the titanium project, the ability to sell ilmenite, titanium dioxide pigment, V2O5 or other vanadium commodities on a profitable basis; anticipated timing of V2O3 shipments, the ability to produce V2O3 according to customer specifications, the extent and overall impact of the COVID-19 pandemic in Brazil and globally, the extent and impact of global freight delays and higher inventory transit time, the completion of the qualifying transaction, which is required, amongst other things, for the public listing of LPV on the terms disclosed to date. Forward-looking information in this MD&A also includes, but is not limited to, statements with respect to the Company's ability to build, finance and operate a profitable VRFB business including the expected manufacturing capacity of the LCE plant, the projected timing and cost of the completion of the EGPE project, the Company's ability to protect and develop its technology, the Company's ability to maintain its IP, the Company's ability to market, sell and fulfill orders for its VCHARGE battery system on specification and at a competitive price, the Company's ability to secure the required resources to build its VCHARGE battery, and the adoption of VFRB technology generally in the market.
The following are some of the assumptions upon which forward-looking information is based: that general business and economic conditions will not change in a material adverse manner; demand for, and stable or improving price of V2O5, other vanadium commodities, iron ore, ilmenite and titanium dioxide pigment; receipt of regulatory and governmental approvals, permits and renewals in a timely manner; that the Company will not experience any material accident, labour dispute or failure of plant or equipment or other material disruption in the Company's operations at the Maracás Menchen Mine or relating to Largo Clean Energy; the availability of financing for operations and development; the ability to mitigate the impact of future heavy rainfall; the Company's ability to procure equipment and operating supplies in sufficient quantities and on a timely basis; that the estimates of the resources and reserves at the Maracás Menchen Mine are within reasonable bounds of accuracy (including with respect to size, grade and recovery); the competitiveness of the Company's VRFB technology; that the Company's current plans for iron ore, ilmenite, titanium dioxide pigment and VRFBs can be achieved; the Company's "two-pillar" business strategy will be successful; the Company's ability to attract and retain skilled personnel and directors; the ability of management to execute strategic goals; and the accuracy of the Company's mineral resource estimates (including size, grade and recoverability) and the geological, operational and price assumptions on which these are based.
Actual results could differ materially from those anticipated in this forward-looking information as a result of the risks and uncertainties including, without limitation: volatility in prices of, and demand for, V2O5, ilmenite, titanium dioxide and other vanadium commodities; risks inherent in mineral exploration and development; uncertainties associated with estimating mineral resources; uncertainties related to title to the Company's mineral projects; the risks inherent with the introduction and reliance on recently developed VRFB technology; revocation of government approvals; tightening of the credit markets, global economic uncertainty and counterparty risk; failure of plant, equipment or processes to operate as anticipated; unexpected operational events and delays; competition for, among other things, capital and skilled personnel; geological, technical and drilling problems; fluctuations in foreign exchange or interest rates and stock market volatility; rising costs of labour and equipment; risks associated with political and/or economic instability in Brazil; inherent uncertainties involved in the legal dispute resolution process, including in foreign jurisdictions; changes in income tax and other laws of foreign jurisdictions; and other factors discussed under "Risk Factors" in the Company's Annual Information Form for the year ended December 31, 2021 which is filed on www.sedar.com and www.sec.gov, and any additional risks as included in "Risks and Uncertainties" above. Assumptions relating to the potential mineralization of the Maracás Menchen Mine are discussed in the Technical Report. Statements relating to mineral resources are also forward-looking information, as they involve the implied assessment, based on certain estimates and assumptions that the mineral resources described can be profitably produced in the future. There is no certainty that it will be commercially viable to produce any portion of the mineral resources.
The forward-looking information is presented in this MD&A for the purpose of assisting investors in understanding the Company's plans, objectives and expectations in making an investment decision and may not be appropriate for other purposes. This forward-looking information is expressly qualified in its entirety by this cautionary statement. Forward-looking information contained in this MD&A or documents incorporated herein by reference are made as of the date hereof or the document incorporated herein by reference, as applicable, and are accordingly subject to change after such date. The Company disclaims any obligation to update any such forward-looking information to reflect events or circumstances after the date of such information, or to reflect the occurrence of anticipated or unanticipated events, except as required by law.
Certain terms appearing in the following table are defined previously in this MD&A. This table contains the material forward-looking statements made by the Company in this MD&A, the assumptions made by the Company in making those statements and the risk factors associated with those assumptions.
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The Q2 2022 unaudited condensed interim consolidated financial statements were prepared on a going concern basis. The going concern basis assumes that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. |
The Company has assumed that it will be able to continue in operation for the foreseeable future and will be able to discharge its liabilities and commitments in the normal course of business, as it anticipates that it will address working capital and other shortfalls through positive cash flow from operations. |
The Company's continuance as a going concern is dependent on its ability to maintain profitable levels of operations. The adequacy of the Company's capital structure is assessed on an ongoing basis and adjusted as necessary after taking into consideration the Company's strategy, vanadium prices, economic conditions and associated risks. To maintain or adjust its capital structure, the Company may adjust capital expenditures, issue new common shares or take on new debt. At the date of this MD&A, the Company's debt balance was $15,000. Refer to note 9. |
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Production volumes are expected to achieve the expanded nameplate capacity of 1,100 tonnes per month during 2022. 2022 Production Guidance: 11,000 - 12,000 tonnes |
The Company assumes that consistent production levels will achieve a level of or in excess of 1,100 tonnes per month in 2022 during normal operation. |
The Company prepares future production estimates with respect to existing operations. Actual production and costs may vary from the estimates for a variety of reasons such as estimates of grade, tonnage, dilution and metallurgical and other characteristics of the ore varying from the actual ore mined, revisions to mine plans, risks and hazards associated with mining, adverse weather conditions, unexpected labour shortages or strikes, equipment or design failures and other interruptions in production. Production costs may also be affected by increased mining costs, variations in predicted grades of the deposits, increases in level of ore impurities, labour costs, raw material costs, inflation and fluctuations in currency exchange rates. Failure to achieve production targets or cost estimates could have a material adverse impact on the Company's sales, profitability, cash flow and overall financial performance. In the event that the Company obtains debt financing, repayment terms associated with such financing will likely be based, among other things, on production schedule estimates. Any failure to meet such timelines or to produce amounts forecast may constitute defaults under such debt financing, which could result in the Company having to repay loans. |
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2022 Costs Guidance: Cash operating costs excluding royalties per pound $4.10 - $4.50 |
The Company assumes that its current estimation of future operating costs is accurate, as it is largely based on the current cost profile of operations at the Maracás Menchen Mine. |
Capital and operating cost estimates made by management with respect to future projects, or current operations in the early stages of production are estimates which are in turn based, among other things, on interpretation of geological data, feasibility studies, anticipated climactic conditions and other information. Any or all of the above could affect the accuracy of the estimates including unanticipated changes in grade and tonnage to be mined and processed; incorrect data on which engineering assumptions are made; unanticipated transportation costs; accuracy of equipment and construction cost estimates; difficulty or failure to meet scheduled construction completion dates, facility or equipment commissioning dates, or metal production dates; poor or unsatisfactory construction quality resulting in failure to meet completion, commissioning or production dates; increased expenditures required as a failure to meet completion, commissioning or production dates; capital overrun related to the completion of any construction phase including capital overrun associated with demobilization of construction workers and contractors; labour negotiations; unanticipated costs relating to the commencement of operations, ramp up and production sustainment; changes in government regulation (including regulations regarding prices, cost of consumables, royalties, duties, taxes, permitting and restrictions on production quotas or exportation of the Company's products; and change in commodity input costs and quantities). |
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Sustaining capital expenditures of approximately $9,000 to $10,000 are expected to be required in 2022 to sustain the operational capacity to produce 1,100 tonnes per month (excluding capitalized waste stripping costs). |
Management assumes that its current estimation of capital expenditures is accurate, as based on operational estimates produced and current experience with operations. |
Capital and operating costs estimates made by management with respect to future projects, or current operations in production, or not yet in the production phase are estimates which are in turn based, among other things, on interpretation of geological data, feasibility studies, anticipated climactic conditions and other information. Any or all of these can affect the accuracy of the estimates including unanticipated changes in grade and tonnage to be mined and processed; incorrect data on which engineering assumptions are made; unanticipated transportation costs; accuracy of equipment and construction cost estimates; difficulty or failure to meet scheduled construction completion dates, facility or equipment commissioning dates, or metal production dates; poor or unsatisfactory construction quality resulting in failure to meet completion, commissioning or production dates; increased expenditures required as a failure to meet completion, commissioning or production dates; capital overrun related to the completion of any construction phase including capital overrun associated with demobilization of construction workers and contractors; labour negotiations; unanticipated costs relating to the commencement of operations, ramp up and production sustainment; changes in government regulation (including regulations regarding prices, cost of consumables, royalties, duties, taxes, permitting and restrictions on production quotas or exportation of the Company's products; and change in commodity input costs and quantities). |
Forward-looking statements and forward looking information are based on the opinions and estimates of management as of the date such statements are made, and they are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking statements or forward looking information, including, but not limited to, unexpected events during operations; variations in ore grade; risks inherent in the mining industry; delay or failure to receive board approvals; timing and availability of external financing on acceptable terms; risks relating to international operations; actual results of exploration activities; conclusions of economic valuations; changes in project parameters as plans continue to be refined; and fluctuating metal prices and currency exchange rates.
Although management of the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements or forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements and forward-looking information. The Company does not undertake to update any forward-looking statements or forward-looking information that are incorporated by reference herein, except in accordance with applicable securities laws.
Investors are advised that National Instrument 43-101 of the Canadian Securities Administrators ("NI 43-101") requires that each category of mineral reserves and mineral resources be reported separately. Mineral resources that are not mineral reserves do not have demonstrated economic viability.
A Note for US Investors Regarding Estimates of Measured, Indicated and Inferred Mineral Resources and Proven and Probable Mineral Reserves
This MD&A uses the terms "Mineral Reserve", "Proven Mineral Reserve", "Probable Mineral Reserve", "Mineral Resource", "Measured Mineral Resource", "Indicated Mineral Resource" and "Inferred Mineral Resource", which are Canadian mining terms as defined in and required to be disclosed in accordance with National Instrument 43-101 - Standards of Disclosure for Mineral Projects ("NI 43-101"), which references the guidelines set out in the Canadian Institute of Mining, Metallurgy and Petroleum (the "CIM") - CIM Definition Standards on Mineral Resources and Mineral Reserves ("CIM Standards"), adopted by the CIM Council, as amended. Until recently, the CIM Standards differed significantly from standards in the United States. The U.S. Securities and Exchange Commission (the "SEC" or the "Commission") adopted amendments to its disclosure rules to modernize the mineral property disclosure requirements for issuers whose securities are registered with the SEC under the Exchange Act. These amendments became effective February 25, 2019 (the "SEC Modernization Rules") with compliance required for the first fiscal year beginning on or after January 1, 2021. The SEC Modernization Rules replace the historical disclosure requirements for mining registrants that were included in SEC Industry Guide 7. As a result of the adoption of the SEC Modernization Rules, the SEC now recognizes estimates of "Measured Mineral Resources", "Indicated Mineral Resources" and "Inferred Mineral Resources". In addition, the SEC has amended its definitions of "Proven Mineral Reserves" and "Probable Mineral Reserves" to be "substantially similar" to the corresponding definitions under the CIM Standards, as required under NI 43-101.
United States investors are cautioned that while the above terms are "substantially similar" to the corresponding CIM Definition Standards, there are differences in the definitions under the SEC Modernization Rules and the CIM Standards. Accordingly, there is no assurance any Mineral Reserves or Mineral Resources that the Company may report as "Proven Mineral Reserves", "Probable Mineral Reserves", "Measured Mineral Resources", "Indicated Mineral Resources" and "Inferred Mineral Resources" under NI 43-101 would be the same had the Company prepared the reserve or resource estimates under the standards adopted under the SEC Modernization Rules.
United States investors are also cautioned that while the SEC now recognizes "Indicated Mineral Resources" and "Inferred Mineral Resources", investors should not assume that any part or all of the mineralization in these categories will ever be converted into a higher category of Mineral Resources or into Mineral Reserves. Mineralization described using these terms has a greater amount of uncertainty as to their existence and feasibility than mineralization that has been characterized as reserves. Accordingly, investors are cautioned not to assume that any "Indicated Mineral Resources" or "Inferred Mineral Resources" that the Company reports are or will be economically or legally mineable. Further, "Inferred Mineral Resources" have a greater amount of uncertainty as to their existence and as to whether they can be mined legally or economically. Therefore, United States investors are also cautioned not to assume that all or any part of the "Inferred Mineral Resources" exist. In accordance with Canadian securities laws, estimates of "Inferred Mineral Resources" cannot form the basis of feasibility or other economic studies, except in limited circumstances where permitted under NI 43-101.
Accordingly, information contained in this MD&A and the documents incorporated by reference herein containing descriptions of the Company's mineral deposits may not be comparable to similar information made public by U.S. companies subject to the reporting and disclosure requirements under the United States federal securities laws and the rules and regulations thereunder.
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Paulo Misk, Chief Executive Officer of LARGO INC., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A (together, the "interim filings") of LARGO INC. (the "issuer") for the interim period ended June 30, 2022.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
4. Responsibility: The issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings, for the issuer.
5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer's other certifying officer(s) and I have, as at the end of the period covered by the interim filings
(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that
(i) material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and
(ii) information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
(b) designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer's GAAP.
5.1 Control framework: The control framework the issuer's other certifying officer(s) and I used to design the issuer's ICFR is the Internal Control - Integrated Framework (2013 COSO Framework) published by The Committee of Sponsoring Organizations of the Treadway Commission.
5.2 ICFR - material weakness relating to design: N/A
5.3 Limitation on scope of design: N/A
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6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer's ICFR that occurred during the period beginning on April 1, 2022 and ended on June 30, 2022 that has materially affected, or is reasonably likely to materially affect, the issuer's ICFR.
Date: August 10, 2022
"Signed"
__________________
Paulo Misk
Chief Executive Officer
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Ernest Cleave, Chief Financial Officer of LARGO INC., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A (together, the "interim filings") of LARGO INC. (the "issuer") for the interim period ended June 30, 2022.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
4. Responsibility: The issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings, for the issuer.
5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer's other certifying officer(s) and I have, as at the end of the period covered by the interim filings
(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that
(i) material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and
(ii) information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
(b) designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer's GAAP.
5.1 Control framework: The control framework the issuer's other certifying officer(s) and I used to design the issuer's ICFR is the Internal Control - Integrated Framework (2013 COSO Framework) published by The Committee of Sponsoring Organizations of the Treadway Commission.
5.2 ICFR - material weakness relating to design: N/A
5.3 Limitation on scope of design: N/A
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6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer's ICFR that occurred during the period beginning on April 1, 2022 and ended on June 30, 2022 that has materially affected, or is reasonably likely to materially affect, the issuer's ICFR.
Date: August 10, 2022
"Signed"
__________________
Ernest Cleave
Chief Financial Officer