Largo Inc.

Good day and thank you for standing by. Welcome to Largo's fourth quarter and full year 2022 webcast and conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. Please limit it to two questions. I would now like to hand the conference over to your speaker today, Alex Guthrie, Senior Manager of External Relations. Please go ahead.

Good morning, everyone, and thanks for joining our fourth quarter and annual 2022 earnings conference call and webcast. On the call today is Danielle Talicea, Largo's interim CEO and director, Ernest Cleave, Largo's chief financial officer, and Paul Vallant, Largo's VP of commercial. To accompany the call today, we've uploaded a supplemental webcast presentation, which is available on our website at LargoInc.com. Our annual 2022 financial statements related MD&A and most recent AIF are also available on the website, as well as on CDAR and EDGAR. Before continuing the call, I would like to remind you all that some of the information you will hear during today's discussion will consist of forward-looking statements, including, without limitation, those regarding future business outlook. Please refer to slide two for a full description of the company's cautionary notes. The agenda for our call today is as follows. Daniel will provide an update on the company's Q4 and year-end progress with an outlook for the year ahead, followed by Ernest who will provide an overview of our fourth quarter and annual financial results, and Paul will close the call with an update on the company's sales and trading progress, the vanadium market, and an update on Largo physical vanadium. Following these updates, we will then open the call for questions. We ask that participants restrict their questions to two and then re-queue if there are additional questions to allow others the opportunity to participate. So with that, I'll now turn the call over to Daniel.

Thank you, Alex, and good morning and good afternoon for those here in Toronto and elsewhere across the globe. As you know, we're going to be discussing our four-quarter and year 2022 results today. Let me start with slide number five. 2022 was a challenging 12 months for us, and it led to an underperformance on both production and cost metrics. In Q4, we produced just over 2,000 metric tons of P205 at a cash cost excluding royalties of $515 per pound. As we noted previously in our pre-reported operational update in January, Q4 production was heavily affected by abnormally high rainfall in December, which flooded the peat and made it difficult to access for ore. We typically have sufficient stockpiles to have a cease with unexpected impacts to the various checkpoints along our operational route. However, our mining contractor transition in September resulted in a lack of stockpiles to help mitigate the impact of heavy rains. These impacts, when combined with preventive and corrected maintenance on the plant facility in Q1-22 and the plant kiln and cooler refractory reinforcement in Q3-22, made for a less than favorable annual production of just over 10,400 tons of B205 at an annual cash operating cost excluding royalties or $5.57 per pound. Production came in 6% below our revised production guidance, and cash costs were 2% above our revised cash cost guidance for 2022. Unfortunately, downspills effect from the rainfall in December continue to impact production in January and February. Despite these impacts, we expect to remain in line with the quarterly production guidance for Q1 2023, likely landing closer to the midpoint of 2050 tons or just under. Since I started assuming the role of interim CEO by mid last month, I have spent a fair bit of time with our operations team in Maracas. And I am very optimistic about the expected improvements in production levels for the remaining of the year. We expect a 10% increase in production in 2023 over 2022, which includes an aggressive high purity vanadium production plan to meet the increased demand and expect to sell over 25 of our production into this sector in 2023. To support this production growth, management changes have been implemented in Maracas, including the promotion of Mr. Álvaro Resende from operation director to CEO of our Brazilian operations and projects. Álvaro has spent the last seven years at our operations in Maraca, and he has the full support of our operations team to get the job done. Cost management is a tough priority for Largo, and we expect cash costs, including royalties, to decrease as the year progresses. With half of the year in 2023 costs being closer to the lower end of our reported guidance range or 485 through 525 per pound of B2O5 sold. Due to elevated operating costs and working capital requirements, as well as growth cap is related to our Illmanite plan, we secure additional working capital facilities in December and January to effectively manage our cash need during this the first half of the year. However, we are in the process of implementing cost control procedures, including an analysis of productivity to identify areas of business where we can reduce costs and improve performance. Today, we're already seeing distribution costs ease and expect to recognize some additional cost savings on some of our key consumables these years. I will let Ernest to discuss these matters in detail later on the call. This is a good moment also to discuss some of our expected catalysts in our key priorities for the remainder of the year. In addition to growing production level this year and increasing our vanadium sales in the high purity sector, Largo Illmanite plans remains on track for completion and is expected to generate a new revenue source for the company. We anticipate providing guidance on Illmanite production for the year closer to the completion of the plan starting in the second half of the year. We also remain on track with the completion of our inaugural BRFP deployment for Enel Green Power in Spain and ship the remaining 612 electrolyte storage containers in early 2023. Provisional acceptance, which includes the completion of our operational testing by Enel, is expected to be completed by the end of May 2023. Also, as Largo Clean Energy and Ansaldo Green Tech continues to focus on the formation of a joint venture for the manufacturing and commercial deployment of BRFDs in the European, African, and Middle East power generation market, as noted in an operational update in January, the company previously announced MOUs has been extended to March 31, 2023 to allow for the negotiation and entering into a joint venture and other ancillary agreements. I think it's safe to say that the manufacture and installation of our first battery project was a significant learning curve for the team at LCE. As you are aware, we have encountered some delays with this deployment, but we are confident that this first battery project will be a crucial step forward for our clean energy business. And we anticipate that the completion of this project will present additional deployment opportunities in the future. With one of our most advanced VRFB technologies and a technical team that is among the most knowledgeable in the industry, we are confident that we have one of the best long-duration solutions in the world. I think it is important to note that we continue to receive and address various inquiries of our product from significant players in the sector. both in the US and in Europe. As our negotiation with Ansaldo progress and we finalize installation of our battery in Spain, I hope to share more with you regarding developments of LCE very soon. Lastly, I want to touch on Largo's continuous focus on ESG principles at the company. We continue to improve our overall ESG performance and public disclosure in 2022, and this is reflected in additional improved ratings and scores. This is most evident in our Standard & Poor's Global CSA rating, having improved approximately by 38% placing the company in the top quartile of its mining peer group for 2022. We look forward to issuing our fifth consecutive sustainability report at the start of the second half of this year. I would like to reiterate our focus to returning to steady state operations and cost management as we experienced in previous banner years. This year, I believe Largo is an inflection point as our production begins strengthening and more of our units are placed in the premium markets. Our Clean Energy Division continues to focus on delivering our first BRFV in Spain, which we believe will unlock additional potential for additional deployments in the future. This time, at an opportune time, as vanadium demand remains quite strong, the long-term market fundamentals for the commodity looks extremely attractive, driven by the resurgence in demand from the aerospace sector and from new deployments and capacity addition for new deployment of DRFBs. As we embark on the next chapter at Largo, I am confident we have the right team in place, and I look forward to assisting the company in advancing our strategy while the board continues its search for a permanent CEO. Underpinned by significant growth in vanadium demand, as we continue the execution on our two-pillar strategy as a Tier 1 vanadium supplier with an emerging clean energy business, I sincerely believe that they will close the valuation gap for Largo and offer considered upside opportunity for new and existing shareholders of the company. With that, let me turn the call over to our CFO, Ernest Cleave, to review our financial performance for the quarter and the year. Ernest.

Thank you, Daniel. Good afternoon to those on the call today. Presented on slide 10 is a brief overview of the company's financial performance in the fourth quarter and year end 2022. I'll begin with the review of our consolidated financial results before touching on our 2023 guidance and the balance sheet. The year was marked by favorable increases in vanadium prices, which led to top line growth of 16% in 2022 over 2021. particularly driven by revenues recognized in Q2 of last year. In 2022, revenues per pound sold were $9.38, and that represents a 19% increase over 2021. In Q4 of 2022, we generated $47.5 million in revenues from the sale of 2,772 tons of V2 of 5 equivalent, or $7.77 per pound sold. Revenues decreased around 6% when compared with Q4 2021, while revenues per pound sold were largely in line with the same comparative period last year. I think last year can really be defined by costs, both from an inflationary perspective, but also from increases and operational impacts and write-downs throughout the year. For 2022, operating costs increased 28% to approximately 170 million. This was largely driven by 26% increase in direct mine and production costs and a 73% increase in distribution costs. The increase in direct mine and production costs were largely driven by increases in our critical consumables, including HFO, ammonium sulfate, and sodium carbonate, which was further compounded by the increased consumption of these critical consumables due to operational impacts throughout the year. The increase in product acquisition costs reflects the company realizing costs from the sale of purchase vanity material during the year, which was required to effectively manage customer contract commitments. As Daniel mentioned earlier, as we move through the year and our unit cost should begin to decrease, ending closer to the lower range of our guidance by year end. We're already seeing some transportation costs easing this year, and are expecting additional savings on sodium carbonate as the year progresses. For 2022, I think what's important to note is that the company's core mining business was profitable with net income of 23.5 million. The company incurred various non-recurring expenditures of around 15 million, including approximately 5.1 million in legal provisions and approximately 6.4 million, which related to an inventory write-down at LCE. The increase in legal provisions relates to a supply agreement for the Marrakesh Mention Mine, which was filed with the courts way back in October 2014, and the ruling requires the company to pay amounts due plus interest and legal fees. Additionally, the company wrote down battery component inventory to the expected net realizable value, which relates to our first VRFB project at our clean energy division. As Daniel mentioned, this is the case for most first-time endeavors and is not uncommon in this particular sector, as these type of demonstration projects generally exhibit learning opportunities and development growth. Moving to slide 11, we plan to invest approximately 50 million on capital expenditures in 2023, including 13 to 14 million on sustaining CAPEX, 12 to 13 million on capitalized stripping, and 17.5 to 18.5 million on completing the Illmanite plant. The increase in sustaining cap is largely driven by maintenance required at the crushing and V2O3 circuits, with increases for cap stripping being driven by the movement of waste in the pit in accordance with the mine plan. We've also allocated a few million dollars to purchase an additional dry magnetic separator, which will provide greater throughput and flexibility in the processing of ores. Moving on to the statement of financial position, cash at year end was approximately $54 million with debt of $40 million and a net working capital surplus of $116 million. Subsequent to year end, we acquired additional debt of $25 million, as is described in the annual financial statements. I'll close out by mentioning that management has made the decision to postpone the company's existing plans to develop its titanium plant until additional funds are made available, either internally or externally. At this time, we continue to explore alternative debt financing or strategic association options with advisors, and we will provide an update as things progress. Let me now turn the call over to Paul.

Thanks, Ernest, and thanks, everyone, for joining today.

Moving on to slide 13, I'd like to briefly discuss our sales results for last year and move on to some very exciting developments in the vanadium sector. Annual sales were within our revised guidance range, and we sold 11,091 tons of B205 equivalent in 2022. which included 1057 tons of purchase material. Sales for the year are down slightly compared to 2021, largely due to production impacts throughout the year. As Ernest mentioned, our purchase product sales increased this year quite significantly in order to meet contractual obligations. However, As we begin to normalize production level, I expect purchase product sales to be lower in 2023. Improved logistical situation post-COVID should also help to increase sales throughout a gradual reduction of our stock levels. Moving on to exciting developments in the Venetian market, We're pleased with the recent strengthening on Vanadium prices, and as of today, the benchmark price for B2O5 in Europe is trading just below $11 per pound. This compares to about $9.50 at the end of the previous year and a 44% increase from the lows of 2022. This increase is due to healthy consumption from all key markets, and especially in the high purity sectors. Aerospace demand came back faster and stronger than anyone expected after the lows of 2020 to 2021 and are now back to pre-COVID levels. We're in an advantageous position as a key supplier of both high-grade V205 and V203 and are able to place more units in the sector so as to benefit from the associated price premiums. We intend to capitalize on this demand growth for many years to come. However, the most significant change in consumption and future expectations is coming from the energy storage industry, especially in China, where new VRP deployments could total around 2 GWh or approximately 10% of global vanadium output in 2023. Additionally, recent announcements from China also indicate the potential for new VRFB manufacturing capacity of around 20 GWh over the coming years. As Daniel mentioned, Largo itself is at an inflection point. But I have to add that the Venetian industry is also at one as well. To supply this energy storage capacity and maintain the current level of consumption in our traditional market, the vanadium industry would have to grow by over 100% over that period. Already, according to Vanitech, a global vanadium organization, the VRFB sector was the second largest source of vanadium demand just after steel in Q3 2022. Government support is also growing as long duration energy storage is becoming a key priority towards decarbonization. Let's pause here and put this into perspective in terms of market overview. As most of you are aware, the VRB technology was invented in the 70s by a professor in Australia. From that point until the end of 2021, there have been approximately 400 megawatt hours of VRB installed across the globe. In 2022 alone, there was another 400 MWh of VIFB deployments, essentially doubling deployments in one year than all other deployments over the last 40 to 50 years. This is quite remarkable. But more importantly, it is estimated that another 2 GWh of VIFB will be installed in 2023, representing another 2.5 times increase from the previous installation amount. Historically, VRV have accounted for approximately 1 to 2% of global vanadium consumption. In 2022, that number is estimated to be around 6%. And in 2023, it could represent more than 10% of global consumption. I think it's safe to say that this is the definition of exponential growth. At Largo, we're extremely excited about it, and it gives strong credence to the VRFB commercialization story, but also supports our Vanadium Supplier pillar with additional sources of demand. Historically, supply has been slow to respond to dramatic demand shocks, and it's important to position ourselves with these structural changes. Let's move on to another potential source of increased demand for the vanadium sector, Largo Physical Vanadium, or LPV, an entity we are very proud of having created. As we see it, it's a truly innovative tool for investors seeking exposure to a key metal and will be a cornerstone to assist Largo in advancing its clean energy strategy. LPV's net assets are now over 90% held in physical vanadium products and near-term delivery commitments. The launch of LPV in September 2022 coincided with lower vanadium price, which allowed us to purchase vanadium units at favorable market prices. As of March 8th, LPV's NAV is now C$ 2.56 per share, a 35% above the closing share price of Canadian dollar 1.9 on the same day. Keeping the LPV add-on, we believe our extreme nab to share price discounts offers current and new investors an attractive investment case, and closing this disconnect is now LPV's key focus. We are now working on a broad marketing and communication campaign to raise awareness and its investment proposal going forward. I'll stop there and turn it back to Daniel.

Thank you, Paul. Before moving into Q&A, I want to highlight this slide 14 that summarizes our key priorities for 2023. As I mentioned at the beginning of this call, the return of normalized production level, cost control, and advancing our clean energy divisions remains front and center in the ensuing year. This comes on the back of increased demand in the vanadium sector and a very healthy demand outlook for the future for both the commodity and the new global BRFB deployments. By successfully achieving all these priorities, We hope to reach the end of 2023 with a solid foundation to maximize shareholder value of the company. With that, let's go ahead and open it up for questions.

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. Please limit to two questions. If you would like to ask more questions, please press star 1 again. If you're using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press star one to ask a question.

We'll pause for just a moment.

Our first question comes from the line of Andrew Wong with RBC Capital Markets.

Hi, good afternoon. So I just want to ask about Insaldo and the potential partnership there a little bit more to the degree that you can talk about it before an actual agreement is concluded. Can you maybe just provide a little bit more details on how a potential partnership might work? What does Insaldo bring? What does Largo bring? And what's the plan for growing that business in Europe?

Thank you, Andrew.

I think I can start by saying that we believe that any potential deal with Ansaldo would be a very significant milestone and catalyst for the organization. Ansaldo brings a number of things to the table, but not least of which is their industrial capacity, their technical nous, their know-how in the energy industry. So we look forward to hopefully concluding a successful joint venture arrangement with them. It would be a traditional JV-type structure, basically 50-50, where Insoda would fund some of the early development costs and startup costs to some degree, and after that point, share equally in the operations of the business and its outcomes. We think that the ability of Insaldo to engender and enable our European business is very significant. So we're extremely excited about it. The deal is not done yet. There's certainly no guarantees, but our negotiations have been very strong. We have a great relationship with Insaldo, so we look forward to hopefully having a very positive outcome there.

That's great. Then maybe just for Paul here, you talked a little bit about titanium prices and strengths. Maybe just discuss a little bit more about how much of the recent strength is attributed to things like China reopening or the battery project that's being built there, and how sustainable are current prices right now?

Sure. Thanks, Andrew. You know, it's always very hard to predict where prices are going, but being in the Venetian market every day, I'm very confident looking at the number. Demand in our traditional market, essentially, you know, steel and chemicals is strong, and there is a lot of reasons to be happy about these numbers. But the outliers there are two. One is the aerospace industry. We have to think back about two, three quarters ago. The aerospace industry was still suffering from the effect of COVID, and it was the general industry expectation that there will be a gradual recovery to pre-COVID level and will be there by 2025 to 2026. Six months later, I think everyone in the industry is convinced that we'll be back to pre-COVID level this year. So we really accelerated that recovery by two to three years, which is extremely good news for us. A challenge to adapt, but definitely a great opportunity in front of us. The other outlier, as I mentioned during my part of the call, is BRB. the the growth in deployment of the vanadium redox flow battery and the growth in capacity to build this battery has just been you know nothing short of amazing they they they are planning over two gigawatt hours to be deployed in 2023 at 2 GWh will represent roughly 20,000 tons of B2O5 equivalent. That's about 10% of the world's production. That's truly amazing, right? We're coming from 1% to 2% of the vanadium industry just a few years ago to about 10%. So it's truly amazing growth. The amount of capacity that is being built is also mind-blowing. There's about 20 GWh of new capacity announced just in the month of February. So, yeah, you know, I think the current prices level are justified. There is nothing in the market that is telling us that things will be slowing down. And as I said, it's hard to predict where it's going to go, but we feel very comfortable with the state of demand at this stage.

Okay. And let me just one quick follow-up on the China VRB. Like, do we know if they have the vanadium already secured or is that something that they might be purchasing in the market? Like, how does that impact the market today?

Yeah, it's a very good question. Just as a background, China produces and consumes about 55% of the Venetian units globally, right? So it's really by far the largest market globally. So they have the units, right? They have enough units to cater to the VRB. But unless there's a significant change in supply structure, which no one thinks can happen in the short term, there's going to be extra demand that would have to be met by extra supply. And if China becomes a net importer in the quarters to come, it's a possibility. China over the past few years has been either a marginal exporter or marginal importer, very balanced market. It could be that China becomes an importer, but we'll see what happens in the coming quarters. There are some good official statistics about that that we follow very closely. But yeah, China has a lot of energy and resources, but if they need an extra, you know, more than 10% units, you know, the structure of the market will have to change.

Hello, Ernest. Hi, Carol. Ali with HCU Wainwrights.

Hey there. Thanks for taking my questions. Can you hear me all right?

Yes, great. Thank you.

Perfect. Hey, thanks, Ernest. In 2022, the company's net loss included about 15 million of non-recurring stuff. Q4 was 6.3 million of that. We're two weeks away from the end of Q1. I mean, given the fairly large and consistent numbers, is there any non-recurring but cash expenses that we should expect to see in Q1?

Michael, at every reporting period, end of period, we would do NRV analysis on inventories, etc., but There's nothing that we're anticipating at this stage. So that's certainly not something that we should plan for.

Got it. And since I got you anyways, you gave a little bit of color on the Illmanite project earlier on this call. Everything's on track. Everything's fine. And I know you'll be giving guidance after commissioning of the plant, but can you just maybe give a bit of color on what's been spent year to date and also maybe just go through the the requirements of cash spend by quarter, if you could?

Yeah, so I'm not going to be able to do cash spend by quarter, but last year on the Illman outside, we spent just shy of $19 million, and our guidance was $19 to $21 million. And then remaining to be spent this year, We're looking at another $17.5 to $18.5 million to be spent this year. Relatively even, I guess, ultimately between Q1 and Q2 because we're supposed to be up and running and selling ilmenite by Q3 of this year.

So I hope that gives some color.

We'll go next to Gordon Lawson with Paradigm Capital.

Hey, good afternoon. Thanks for taking my call. Pretty simple question for you here. The lower recoveries at the mill, was that simply a reflection of processing the stockpiled material?

I think it's a function of stockpiled material and the actual progression through the pit at the time. Because we couldn't access higher-grade magnetite at the bottom of the Purdue terrains, it had some impact. So I wouldn't overstate it, but I'll hand it over to Daniel that may have some additional color on this.

It's a matter of the combination between disseminated material that, as you know, has lower magnetics and massive material who has the highest magnetics. So when you mix the blending between the disseminated and the massive material, that's when you have an effect in the recovery of the kill. So that is something that they were working right now in order to keep the right blending. And you can keep the right blending when you have these stockpiles from when you can reach that combination of different materials. But sometimes recoveries are being affected when you don't have the right blending.

Okay. Thank you very much. And my second, if I may, are we at or around the current run rate for ferrovanadium production, or do you expect that to fluctuate with market?

We had lower production, as everyone is aware, in Q1 from the leftover impacts of the rainfall. We're back up and running, and so we're not predicting any variation or deviance from our ferrovanadium production. We produce V2O5 and send that off for conversion at ferrovanadium converters, but the amount of ferro, let's say, that we're anticipating selling for the year is still roughly the same, no change.

It's been no change at all. Basically, the affectation of the heavy rain with a lot of stress on the sequence of mining at the open pit. But right now, in the month of February, we are almost back to normal. And our intention, as we described it during my presentation, was that our intention is to try to normalize operation as we move along during the year.

Okay, great. Thank you very much.

We'll go next to Carlos De Alba with Morgan Stanley.

Mr. De Alba, your line is open. You may be on mute.

Yeah. Thank you very much. I was indeed. Thank you. Good afternoon, everyone. I just have one question. Would you mind sharing with us how much of the electrolyte, pure vanadium electrolyte that is going to go into the Enel Green Power Spain battery will be produced or has been produced by Largo Clean Energy. Is it 100% of that electrolyte?

It's 100% with one small caveat. When we acquired the assets of Vionics back in the day, some of the assets we acquired were some inventories of electrolyte. And so we've actually used some of it in this particular project, but largely it's coming from LCEs and own production.

So that's coming from the stockpile, if I understood correctly. Are you currently in a position to produce that electrolyte yourself, or would you have to rely on third-party purchases?

We would purify electrolytes. So the first stage of electrolyte production, we would send to third parties to produce the electrolyte from vanadium that we provide to them. And then we have patented purification processes to further refine that electrolyte. So again, it's a mixed bag answer.

Is there a reason why you are not able to produce 100% of the process in-house or do 100% of the process in-house?

No, we could certainly choose to do it. It's basically just a very simple chemical process, the first part of the process. We send it to toll converters right now because it's very cheap to do that, and it's not consequential to the overall process. But if we wanted to spend a couple of million to buy some tanks and do some mixing ourselves, we could do so. But it's not key or critical to the process.

All right. Thank you very much. You're welcome.

We'll go next to Steve Silver with Argus Research.

Thank you, and thank you for taking the questions. I appreciate all the details in the prepared remarks, and between that and the Q&A so far, most of my questions have already been asked. But I was hoping we could just ask broadly if you could provide any color on quantifying the high demand in the aerospace market, just as it relates to the overall production capacity for the company. just trying to size up the potential to recognize the premium for the high purity market in the total product sold.

Paul? Yeah, sure. Thanks, Steve.

As I said, the aerospace industry is expected to get back to pre-COVID levels this year. We can expect around 5,000 to 6,000 mtp, so about 10,000 to 12,000 tons of V2O5 equivalent required by this industry this year. Largo's total capacity, nameplate capacity, is around 12,000 tons. And we have the largest capacity globally for high purity production. So essentially, I think with our entire production, we could cover the whole demand. Obviously, we won't be able to do that. We have competition in the market, but I'm very confident that this year, Largo will be the largest supplier to the aerospace industry. So it's our target. We have the capacity in-house to supply close to the entire market, and we will do our best to perform in this market.

Great. That's helpful. And one last one. Just trying to size up as you move forward with the clean energy business and getting close to servicing one deal, potentially establishing the JV for other opportunities. Given the potential for long contracting for new opportunities in the space, Just trying to get a sense of how you look at the progress in the clean energy business in terms of when you might expect recognition from the market as you continue to execute on that plan.

Sure. You're 100% correct. The negotiation and the commissioning and construction of these projects take a long time. We're very hopeful and anticipatory around our ability to enter into contracts at some point this year, but you would not see those contracts being delivered until earliest next year, and some of them maybe even two years out. But during that time, obviously, you would be constructing and involved in any number of those projects. So we're working hard on that right now. We're very optimistic, you know, and that could come from a number of sources. You know, we have potential projects in the wing should the joint venture actually see fruition. And we're talking with other parties in the U.S. as well on potential projects as well, which are all ongoing. So we hope to bring some good news to the market in the future.

Okay, fantastic. Thanks again for taking the questions.

We'll go next to Jim Young with Midwest Investments.

Yeah, hi. Thank you for taking my questions. And Daniel, nice to have you aboard Largo. My first question really is, talk about the high-purity marketplace. What's your definition of high-purity, please? And also, secondly, is what price premium are you realizing for the high-purity premium? Thank you.

Thank you, Jim. Paul, can you take care of this?

Sure. Hi, Jim. There's no clear-cut definition of high purity, but essentially it's a grade that is above what is required by the steel industry to have a broad range in V205 equivalent if there are, you know, grades between 99% plus and 99.5% plus. What is also very important in the high-purity product is the low contaminants, so low impurities. Your question on premium, as you can imagine, is extremely confidential and very, very key aspect of our negotiation with our customers, so I won't be able to share that. What I can share, though, is that Different customers have different specifications in terms of V205 purity and also contaminant allowance. And the higher the requirement is, the higher the premium. So there is a fairly wide range, depending on specific application in the aerospace, chemical, and vanadium redox flow battery applications.

Okay, thank you. And the second question pertains to, is back to the electrolyte issue. Because it seems that the way you describe it is that you're not really producing any electrolyte, but you're actually taking your Vinate, your V125 that you produce at the Maricopa facility in Brazil, and you're sending that to a outside third party, and they're making the electrolyte, and you're kind of cleaning it up. Also, could you just explain how this is going to work going forward?

That's correct, Jim. So, you know, initially while let's say volumes are low, you wouldn't expend the capital cost to create your own mixing for the first stage, which is just producing the electrolytes. Again, it's a simple chemical process. So we send that off to toll converters and thereafter we put it through our patented purification process. There are two steps to it. But if you have sufficient volumes and a number of different contracts, then we would spend some additional capex to actually have the first part of the process in-house as well. So I don't think you'd start with it, but eventually you'd have it in-house as well. Okay, so is the

The veneer that you're delivering to get this converted to the electrolyte is happening in Europe or in Brazil or where is it taking place? And is this being cleaned up at your facility in Boston or what? Can you say that it's getting further refined in Boston? Is it happening in Boston?

So we currently have facility in Boston to do that. That's correct. But once you enter into contracts, logistics are very important. So you would likely, in the absence of having your own first stage of the process, probably use toll converters in whichever region your project is in. And then we have the ability to actually put in place in situ, on site, our electrolyte purification. So you would not send it back to Massachusetts and then back to the project. Let's say if it was in Europe, you would actually do the purification close to the project. So logistics are super important, but it would not go back and forth to a Wilmington facility. That's just where we have it right now.

You will save a lot of money, Jim, by doing the conversion close to where the site of the project is. Otherwise, you're moving liquid. from Boston or from Brazil to the different places where you are building batteries. In order to save costs, it's much better to have all this conversion of the electrolyte where the project is, and that is the intention that we're planning into the near future.

We'll go next to Brian Robson with Breakout Investors.

Good afternoon. The first question is for Paul, and it's kind of a two-part question. The market price for both Q3 22 and Q4 22 was relatively consistent, and your realized price was about a dollar less quarter over quarter. And then as we look back a couple quarters before that, your realized price was higher than the market price for each of the last two quarters, and then it was lower this quarter. Can you first explain why you had the drop in realized price in Q4, and then how we should be looking at realized price versus market price as we enter into 2023?

Sure, Brian. I think there's two main points that I'd like to make on your question. Number one is the timing. And you're right in saying that sometimes our realized price is not perfectly aligned with the market price. And that's because the vast majority of our contracts are based on a quotational period that trades one to two months the actual market price. I'll give you a simple example. When we deliver a material this month, let's say in March, at the time of delivery most of our contract will be some sort of a formula based on the february price so that when we deliver the material the price is known right so at the end of the day over long periods of time we follow exactly the trend but we're just training so that's the first thing on timeline it is sometimes not perfectly adjusted um the second um that I'd like to make, and you've said it, you know, some quarters we make slightly lower and sometimes slightly higher than the published price. It's because I think what most people are looking at is the published vanadium pentoxide price, right? But a large portion of our sales are done on our ferrovanadium price, right? Ferrovanadium is the product that goes into the steel industry. These two indexes are very correlated, but depending on supply and demand situation from time to time, they vary. Currently, ferrovanadium on a vanadium unit basis is trading at a deep discount to V2O5, right? So for our V2O5 sales, we're getting a better price on a V unit basis compared to ferrovanadium sales. It was not always the case. Last year, Ferrovenidium was trading at the premium to V205. But that probably explains the first part of your question. If you're only looking at one index, it's difficult to get the full picture. You need to look at the various indexes. And by the way, we sell products in Europe. We sell products in Asia. We sell products in the U.S. And all these regions have different pricings from time to time. Very correlated over a long period of time, but at specific point of time, they could be very significant premium or discount. So if you're only looking at one index of one product in one region, you don't always get the full picture.

Okay, thanks. This question is for Ernest. The product acquisition cost, it's something that you don't provide guidance on. It was $24 million in 2022, and that's $24 million that you're, you know, not getting margin on. And so I guess my question has two parts to it, again, is what is the amount of purchased inventory that you have on hand at 1231? And at this point in time, I think you'd have a good feel as to how much purchased inventory you'd have in Q1. And I'm guessing that you perhaps have a bit more just because of the low production of light. So if you can comment on that.

Yeah. So let me just quickly deal with the actual acquisition cost. It is not something to be concerned about because think of it as essentially a wash. So there is a cost for it, but you're earning the revenue at the same time. The only times that we do that is, for instance, when we've run into issues on logistics where there are delivery timelines that are different from what was anticipated. And this was especially true in 2022. you're sometimes forced to go out into the market and purchase material to make sure that you fulfill your contractual obligations. But it's not a method for us to essentially trade in the market. It really just fulfills a practical necessity. So last year we actually made money on purchased material, but that wasn't our plan. We made in the region of, and Paul can elucidate on it as well, but we probably made $4 million on that material last year. It wasn't our plan to trade. It was pure happenstance at the time that we purchased the product and sold it later. We'd gotten a gain. So I would not focus on it, and we certainly don't plan for it or budget for it. At this stage, our objective is to sell what we produce. And if there is some unforeseen or untoward event that requires us to go and purchase in the market, we will do so. but it's not something that we forecast or even anticipate. In terms of what's at hand at year-end, it's about 400, just over 400 tons right now. We've already taken, you know, whatever NOV write-down would have been required at the end of December. So in theory, we look forward when we're preparing the year-end financial statements, we already know what we would have made on the material. So you don't make additional gains or losses on the material. They're again a wash. So it's not something that I would have investors focus on. It really does only serve a practical purpose. It's not there as a trading mechanism or a way for us to make additional profits, even though we may have made some profits last year on it.

Also, we didn't have any purchases in the fourth quarter of last year. and none has happened during January and February of this year. What is happening is that right now we are just selling and disposing of the inventory we have from last year, and most of that will disappear in the first quarter or first four months of 2023.

This does conclude the Q&A portion of the call. I would like to turn the presentation back over to Alex Guthrie.

Thanks, operator, and I just want to say thanks again for everyone who has joined the call today. That concludes our Q&A session and the quarterly investor call. Have a great day, everyone. Take care.

This does conclude today's call. You may now disconnect.