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spk00: Good day and thank you for standing by. Welcome to Largo's fourth quarter and full year 2023 financial results 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. I would now like to hand the conference over to your speaker today, Alex Guthrie, Senior Manager of External Relations. Please go ahead.
spk01: Thank you, Operator, and thanks to all those who could attend our fourth quarter and full year 2023 Financial Results Conference Call. Our annual financial statements related MD&A and most recent AIF can be accessed on our website at LargoInc.com, as well as on CDAR Plus and EDGAR. Before continuing the call, I would like to remind you 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 the cautionary statements in the related MD&A consolidated financial statements and AIF, which can be found on our website within the investor relations resources section. And finally, all figures discussed today are in U.S. dollars unless otherwise stated. On the call today is Danielle Talatia, Largo's Interim Chief Executive Officer and Director, Ernest Cleave, Largo's CFO, Paul Vallon, Largo's Chief Commercial Officer and Francesco D'Alessio, the President of Largo Clean Energy. Following delivery of our prepared remarks, we'll 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 the others the opportunity to participate. I'll now turn the call over to Danielle.
spk04: Thank you, Alex, and thank you all for joining us today. as we discuss Largos' performance over the last past year. Despite facing a mix of accomplishments and challenges, we remain committed to ensuring the longevity and success of Largos well into the future. As we have pre-reported our results yesterday evening, I will stick to providing the important highlights before we open it up for questions from the audience. Our primary focus has been on enhancing operational efficiency at the Maracas mentioned mine to meet production and sales targets, particularly given the current depressed vanadium prices. Despite the industry-wide pressure, we have diligently worked to control what we can within Largo and believe that the that our lower cost profile position us better than others to weather these challenging times. Throughout the year, we encounter various hurdles such as delay in our infield drilling program, a traffic accident, a tragic accident at our mine facility, and technical setbacks with equipment commissioning due to engineering and design problems. However, we remain focused on enhancing operational efficiency at the Maracas Mention Mine, investing significantly in West Rock Restricting, a new crushing system, and refining our operational management practice and policies, resulting in notable improvements in the latter quarters of 2023, particularly in Q4. In Q4 2023, our B205 equivalent production saw a 38 increase compared to Q4 2022, with total oil mine and crash also experiencing substantial growth. Notably, we achieved record high purity vanadium production in Q4 2023, achieving a record production of 1,670 tons of high purity B2O5 equivalent, representing 60% of the company quarterly B2O5 output. Although our annual B2O5 production is slightly deep compared to the previous year, we remain our annual production guidance range. Also, 2023 marked several significant milestones for Largo. including the successful construction and commissioning of a new ilmenite concentration plant. We have seen a steady improvement in ilmenite concentrate production and quality over the last quarter, which will contribute to the diversification of our revenue stream beyond vanadium in the future. Our exploration programs surrounding the Maracanã Mention Mine have been common increasingly important part of our story over the last few quarters, and I'd like to spend a brief moment discussing some of the highlights. We are conducting exploration efforts in the areas surrounding the camp and field to both optimize current operations and plan for future developments and expansion through the identification and conversion of resources. Our ongoing program aims to expand our understanding of the mineralization surrounding the Camber Pit so that we may gauge the possibility of continued mineralization north and south of the pit. As part of this program, we have also identified significant PGM grades in non-magnetic tailing ponds. The major significance of this discovery is that the higher grades of PGMs could be associated with our non-magnetic material, rather than massive vanadium ore as previously thought. We plan to conduct further studies to evaluate the potential to recover PGMs as an additional byproduct of Largo vanadium and ilmenite operations, following the completion of our ilmenite concentration plant. Additionally, our clean energy division reached a significant milestone in 2023, following the delivery of our six-megawatt-hour BRFB to our clean energy partner, Enel Green Power in Spain. This installation represents the largest BRFB installed in Europe and has become a key catalyst in our recent announcement regarding striping energy and Largo Clean energy. I will let Francesco touch more on that later in the call. While the current Banarian market presents great challenges... Give me one second. great challenges to our financial performance. We remain focused on executing on our strategic initiatives, reducing costs, and meeting production and sales targets in the year ahead. We appreciate continued support as we navigate through these dynamic times and remain committed to creating long-term value for our shareholders. With that, I will turn the call over to Ernest to provide an overview of our financial performance in 2023.
spk07: Thanks, Daniel. As highlighted on this call, the impact of declining vanadium prices on our financial performance over the last year has been significant. In Q4 2023, our revenues were $44.2 million. down 7% from Q4 2022, with revenues per pound sold of $7.69 compared to $7.77 in the same period last year. For the full year 2023, revenues stood at 198.7 million, a 13% reduction from 2022, with revenues per pound sold at $8.66 compared to $9.38 in 2022. This decline is primarily attributed to the substantial reduction in the European Vanadium price, which dropped by 22% in Q4 2023 compared to Q4 2022, and a 31% year-over-year reduction, with the most recent price hitting $5.90 per pound. Despite these challenges, our focus remains on optimizing operations to mitigate costs. As discussed in previous quarters, we made notable progress in this area seeing reductions in key consumable costs such as sodium carbonate and overhead costs through targeted headcount reductions. Our operating costs in Q4 2023 totaled $43.2 million, slightly down from $44.5 million in Q4 2022, while for the full year, 2023, operating costs were $174.8 million compared to $169.7 million in 2022. Direct mine and production costs increased in 2023 due to higher total ore mined, cost impacts from low ore availability earlier in the year, and planned shutdowns for maintenance. However, direct mine and production costs decreased in Q4 2023 compared to the same period last year, reflecting cost saving initiatives and softer prices for consumables. Cash operating costs excluding royalties per pound or V205 equivalent sold were $5.30 for 2023, and this compares with $4.57 last year remaining within our revised annual guidance for 2023. In terms of other expenses, total professional consulting and management fees decreased by 9% in 2023 compared to 2022. and other general and administrative expenses decreased by 18%, primarily due to reduced activity and headcounted log of clean energy during the strategic review. Additionally, technology startup costs decreased by 52% in 2023 compared to the same period last year. We reported a net loss of $13.3 million in Q4 2023 versus a net loss of $15.6 million in Q4 2022. which included $8 million in non-recurring items. For the full year, we recorded a net loss of $32.4 million compared to a net loss of $2.2 million in 2022, which also included $10.3 million in non-recurring items. To provide better insight into our financial performance, we've introduced a new metric to our financial reporting this quarter, adjusted EBITDA. In Q4 2023, adjusted EBITDA increased by 138% compared to Q4 2022, reaching 1.4 million. For the full year, adjusted EBITDA was 12.1 million, and that compares with 41.6 million in 2022. Exiting the year, we maintained a cash balance of 42.3 million, a net working capital surplus of 94.7 million, and debt of 75 million. It's evident that our financial performance, along with the broader market conditions, presents significant challenges. As Daniel emphasized, our primary focus remains on implementing cost reduction initiatives driven by operational efficiencies to combat this downward pressure. I'll now turn it over to Paul for his update.
spk03: Thanks, Danette, and thank you all for joining us today. I'd like to echo the sentiments shared by my colleagues regarding the ongoing challenges we face in the Veneto market, particularly with the continued downward trend in prices through 2023, culminating in a significant decline in Q4. In Europe, V205 ended the year 2023 31% lower than at December 31st, 2022. and ferrovanadium dropped 21% over the same period. Despite soft demand in 2023, largely driven by challenges in the Chinese steel industry, we observed continued strong demand from the aerospace and VFB sector, which presents promising opportunities for future quarters. Looking at Largo's results, we sold 2,605 tons of V205 equivalent in Q4, inclusive of 139 tons of purchased material, compared to 2,774 tons in Q4 2022. Annual V205 equivalent sales for 2023 totaled 10,396 tons, inclusive of 9,000 tons of purchased material. 29 tons of purchased material, which is on the high side of our sales guidance of 8,700 to 10,700 tons. Subsequent to Q4, we maintain sales momentum with 1,072 tons sold in January 2024, followed by 1,065 tons sold in February. On the Ilmenai front, we're excited about the prospect of diversifying Largos products, offering and revenues in 2024. We completed our first 500 tons Ilmenite sale in January and anticipate selling between 18,000 and 22,000 tons at a healthy profit in the first half of this year. Finally, I'd like to highlight the significance of our exclusive off-take agreement with Gladium Metals Recycling signed in 2021. In December 2023, we got delivery of the first lot of vanadium pentoxide produced by Gladio in Texas, and after converting it in Canada, we will soon deliver our first fully American-made ferrovanadium to a U.S. customer. Largo has a 10-year off-take agreement covering the entire vanadium production from Gladio, further solidifying our presence in the American and global markets. In conclusion, despite the challenges, we remain fully committed to navigating these conditions strategically while capitalizing on emerging opportunities to drive growth for Largo. Let me now turn it over to Francesco.
spk02: Great. Thanks, Paul. Welcome, everyone. And again, I appreciate the opportunity to update everyone on some significant developments within our clean energy business. Firstly, I'd like to revisit a milestone we mentioned during our last quarterly update, which has now been officially announced by our partners this week. Back in October, Largo Clean Energy successfully deployed its 6 MWh Redux flow battery at the San Orlando's plant in Mallorca, Spain. This deployment marks a significant achievement, as it now stands as the largest energy storage deployment in Europe utilizing vanadium flow batteries. The integration of our vanadium redox flow battery system with a 3.34 megawatt peak photovoltaic plant at Sotterland is truly special. With a specific management system in place, the battery optimizes loading and unloading operations based on renewable production and grid requirements, thereby effectively managing demand peaks. This technological advancement is a crucial step towards establishing long-term storage solutions, particularly vital for energy management in regions like Mallorca. Furthermore, the implementation of the battery system will play a pivotal role in enhancing grid stability and facilitating the increased adoption of renewable energy sources, thereby reducing reliance on fossil fuels and hastening the journey towards energy self-sufficiency for the islands. Now, alongside this significant achievement, I'm thrilled to share another major development that was announced just this past Monday. Building on the success of our partnership with Enel, we've taken a significant step forward in concluding the strategic review of Largo Clean Energy with the announcement of a proposed joint venture with Stratton Energy. The proposed JV is a testament to the unique value proposition that Largo Clean Energy brings to the vanadium flow battery market, particularly in the realm of long-duration energy storage. This includes our patented vanadium flow battery stack technology, electrolyte purification technology, and access to vanadium through Largo Physical Vanadium. It strengthens extensive experience in the U.S.-based manufacturing and their robust infrastructure, including five North American R&D facilities with more than 2 million square feet of manufacturing space, and a team of 2,500 employees make them an ideal partner to capitalize on our efforts to make thus far in clean energy. Together, we envision transforming the landscape of long-duration energy storage in North America. While discussions are ongoing, it's important to note that the proposed joint venture is subject to various conditions, including the negotiation of definitive agreements completion of due diligence, and regulatory approvals. Now I'll turn it back over to the operator to begin our question and answer sessions. Thank you.
spk00: Thank you. And ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star, followed by the number one on your telephone keypad. You will hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order you received. Should you wish to decline from the polling process, please press the star, followed by the number two. One moment, please, for your first question. Your first question comes from the line of Heiko Ille from HC Wainwright. Your line is open.
spk06: Hello, Daniel, Ernest, Alex, and team. I appreciate you taking my questions. Hi, Heiko. Hey, let's talk about Ilma and I concentrate a little bit, a few things. First of all, how come there is such strong variability between January and February? I mean, I get that this is going up and running, but nonetheless, how do you think we should best model this out by quarter for the remainder of the year, please?
spk04: Do you have that, Paul?
spk03: Yeah, sure. Thanks for the question. Just to clarify, are you mainly focusing on sales or production?
spk06: I meant production, but I mean, either is probably useful.
spk04: I can give you the production number for the year. We are expecting to produce 88,000 tons of ilmenite during the full year of 2024. You were referring that we have some issues during January and February. I didn't mean issues.
spk06: I meant variability.
spk04: Okay. All right. Our expectation is to produce 88,000 tons of film a night for the whole year. And quarterly?
spk03: If I can complement, maybe, you know, the variability that you're seeing, you know, we're still somewhat in a – we're at the end of our ramp-up phase, right? But we're still ramping up. And now that production is getting more stable with the grade that we were aiming for, there's a process of getting our product vetted by customers. We've already went through a large campaign to vet small sample from our initial production, and now customers are requesting much larger commercial trials. So that's why you're going to see in the first months some months with very large sales, some months with much lower sales, but over time we are modeling that by probably the end of Q2, early Q3, you're going to see much more regular sales. We're seeing it in kind of a ramp-up phase.
spk06: Okay, so that's extremely helpful. So essentially, if we start trendlining Q2, Q3, and beyond, we'll be on the same page.
spk03: Yeah, I think you'll see like a normal run rate by Q3 in terms of sales and probably Q2 in terms of production.
spk06: Got it. Very helpful. Speaking of ilmenite, prices for globally sourced ilmenite, there's obviously some variability. I know that hedging manadium is quite tough price-wise. Is there a way to hedge ilmenite pricing? And if so, have you looked into it? And also, what prices are you seeing, please? Thank you.
spk03: Yeah, so there's no way to edge Ilmenite such as other kind of electronically traded commodities. But the good news is that Ilmenite is a much more stable commodity in terms of price if you compare it to Vanadium, right? The variations are much lower. We're able to secure some contracts forward at a fixed price. but you know we cannot really say that we're edging right we we can uh we can fix prices you know two three months ahead maybe you know as long as six months ahead but not much more and uh and um yes so our strategy is also to follow the market but again i mean this price is much more stable than uh than what you've been used to in in benedict in terms of price uh level it's it's still you know somewhat, you know, we're still in a price discovery phase because the price of ilmenite is not increasing linearly with quality. Actually, you've got massive premium for higher quality product, which, you know, which is where we're getting to now. So the prices that we achieved in our initial sales for ilmenite it's a material that we produce during the ramp-up at lower quality, should be very different in a few quarters when we have stable production at higher grade. So we can probably give you more color on that in the next, you know, either next quarter or the following month.
spk06: Very helpful answer. Thank you all. I'll get back to you.
spk04: Thanks.
spk00: Your next question comes from the line of Andrew Wong from RBC Capital Markets. Your line is open.
spk05: Hi. Thanks for taking my question. So with prices hovering in the $5 to $6 per pound range, how close are we to marginal cost? And does that provide some downside support to prices at this level? And how does Largo think about the production decisions as those prices are nearing your cost structure? And I just probably was sure I'll look for prices for the rest of this year. Thanks.
spk07: Daniel, I'll take the first part. Okay. Andrew, as you know, we've guided on cost, you know, $4.50 to $5.50. Obviously, at the current prices, we're seeing $5.90 on the market. We will not be making cash at those levels. But it's very hard for us to forecast where things go. We want to see, and I think as I mentioned to you before, we want to see a couple of months of production at our full production run rate to actually fully assess cost. We have an ambition to get to the lower end of our cost guidance. But obviously, given where the price is right now, You know, this is not a cash positive territory for us. So I'll leave it at that and I'll let Paul talk about his expectation on prices.
spk03: Yeah, thanks, Andrew. As you know, we do not give guidance on pricing. The only thing, you know, that we can do is just looking back, you know, we're well below historical average. We're seeing also primary producer really struggling to turn a profit at these levels. Altogether, primary producer represent about 20% of the global supply. So we hope at some point, you know, that the, you know, prices will allow primary producer to turn a profit. Otherwise, you know, we'll see other events happening to address. So, yeah, we're well below historical average. We don't know, you know, when we'll revert to the mean. But, yeah, we believe we're in a very low price environment, especially accounting for all the inflation that we had in the past few years.
spk05: Could you maybe just talk about what marginal cost looks like for the industry right now?
spk03: No, sorry, I cannot do that, Andrew.
spk05: Can you talk about what marginal cost looks like for the industry?
spk03: Sure. Yeah, it's very hard to say, you know, the only, let's say, producers that are publishing straightforward prices are the primary producers, you know, Largo, Bushveld, the other primary producer in South Africa is not publishing its pricing directly. And you can see that, you know, People are losing money at these levels. The other type of production, either from steel slag or what we call secondary sources from oil and gas manufacturing, it's indirect cost, which is very difficult to have clarity on. But yeah, we're seeing the oil industry struggling at the moment.
spk05: Okay. Okay. Just maybe switching to the JV was trying, can you just talk a little bit more about that potential partnership? You know, how does that benefit LCE? What do both parties bring to the JV? And how do you see this as a path to kind of commercialize the technology for VRFs? Thanks.
spk04: I'll take that. Yes, sure.
spk02: So as you know, Australian Energy brings large-scale manufacturing domestic presence in the U.S. They've been in the battery space for over 100 years. So these are key essential factors when trying to establish a go-to-market strategy and large-scale availability of these technologies for utility-scale deployment and CNI applications as well. Combined with LPV, our stack technology, proprietary purification and capabilities too, set up our electrolyte facility, pretty much we control all the aspects of the deployment for this technology in the Western world, which, as you know, has made great strides in China that has struggled in the last 20 years to make headway in the Western world. And with the growing demand of long duration energy storage, specifically here in the US for domestic content and a lot of incentives being provided by the DOE, we feel that this partnership really complements the skill sets of both companies to achieve this target and provide a viable alternative for a long-duration energy storage solution for the U.S. market.
spk05: That's great. Thank you very much for taking my questions.
spk00: Thank you. And there are no further questions at this time. I would like to turn it back to Alex Guthrie for closing remarks.
spk01: Thank you, operator. With that concludes our question and answer session of the quarterly investor conference call. Have a great day, everyone. Thanks. Thank you. Bye-bye. Thank you.
spk00: Thank you. And ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
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