Title

Presentation

Operator: Good day and thank you for standing by. Welcome to Largo’s First Quarter 2023 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. I would now like to hand the conference over to your speaker today, Alex Guthrie, Senior Manager of External Relations. Please go ahead.

Alex Guthrie: Good morning, everyone, and thanks for joining our first quarter earnings conference webcast and call. As with previous calls, we have uploaded a supplemental webcast presentation, which is available on our website at largoinc.com. Our Q1 2023 financial statements related MD&A and most recent AF are also available on the website as well as on SEDAR and EDGAR. Before continuing the call today, 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 2 for a full description of the Company’s cautionary notes. On the call today is Daniel Tellechea, Largo’s Interim Chief Executive Officer and Director; Ernest Cleave, Largo’s Chief Financial Officer; and Paul Vollant, Largo’s Chief Commercial Officer.

Following the 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. So with that, I’ll turn the call over to Daniel.

Daniel Tellechea: Thank you, Alex, and good day to everyone joining us today. Since taking over the role of Interim CEO of Largo in February, I have been committed to improving operating efficiencies as the Maracás Menchen Mine, including initiating cost reduction initiatives and conducting productivity assessments. During the first quarter, the Company produced 2,111 tons of V2O5 in accordance with this production guidance. And to our delight, we sold 2,849 tons of equivalent V2O5, which exceeded our quarterly sales guide for the first quarter of 2023. In addition, we produced a significant amount of high purity material in the first quarter, representing approximately half of the quarter’s production. While we are pleased with this performance, we continue to navigate the effects caused by the heavy rainfall in December, which not only caused clotting in the Campbell pit and impacted operations, but also delayed the Company in field drilling campaign necessary to develop a company short-term mine model planning for years 2023 and 2024.

Infield drilling is performing inside the Largo Campbell pit for further defined the ore body prior to mining. As a result of this process, a short-term mine model is developed which sets the stage for the ensuing year mining plant. In light of the heavy rains in late fourth quarter of 2022 and early first quarter of ’23, this process was postponed. And as a result, we have to adjust our annual ’23 production sales and cost guidance. An updated table referenced in the updated guidance on a quarterly basis is provided on the current slide. I would like to emphasize that returning to a more normalized production and cost scenario remains the top priority for all of us at Largo. And we work through this period of adjustment in our mining operation.

In my first update to shareholders last quarter, I made clear that, I have been hard tasked our team with identifying cost reduction initiatives during this period of sustained inflationary pressures, which have resulted in cost increases for our operations. I would like to discuss some of those initiatives on the call today. First, the cost of sodium carbonate, which is used in great quantities in operational process, has increased almost 270% since year 2021. As part of our production process, our team is exploring ways to reduce the amount of silica inside the kiln, which in turn will be reducing the amount of sodium carbonate required in our operational process. Second, by making certain changes and upgrade to our crushing process, including the installation of a new drive magnetic separator and a crushing circuit, we hope to reduce operational maintenance costs and provide more flexibility in the blending of different ores to stabilize the production of V2O5.

We expect to complete this installation by mid June of this year. And finally, we continue to analyze the productivity of certain processes, at the mine site and have identified some opportunities for cost reduction associated with the re-handling of the material on-site. Toward the third quarter of this year, we hope to begin seeing some of the benefits from these initiatives. Prior to hand the call over to Ernest, I would like to highlight a few catalysts expected during the year in additions to improving operational and cost performance at the mine site. During the first quarter, we continue to make progress and with the construction of our ilmenite concentration plant, construction is expected to be completed in the second quarter of 2023 with commissioning and wrap up following shortly thereafter.

On the clean energy front, installation of our 6.1 megawatt hour vanadium battery in Spain continue during the first quarter of this year with final provisional acceptance scheduled for the third quarter of this year. We have also completed all improvements to our manufacturing facility in Wilmington, Massachusetts this quarter, and we have begun the process of restarting a stock production to reach a capacity of 12.5 megawatts per annum by the end of the year with the goal of reaching 100 megawatts per annum by the end of 2025. Now, I will turn the call over to Ernest to provide an overview on our financial performance for the first quarter. Ernest?

Ernest Cleave: Thank you, Daniel. Thanks to those who have joined the call today. A brief overview of the Company’s financial performance for the first quarter is presented on the current slide. The Company’s revenues increased by 35% from $42.7 million in Q1 2022 to $57.4 million in Q1 2023, as a result of increase in quantity sold and improved realized pricing achieved during the current quarter. In Q1 2023, operating costs increase substantially by approximately 60% over Q1 2022. This is primarily due to increases in direct mining production costs, and these are particularly attributable to mining contractor costs and equipment rental costs. Additionally, a lack of production stability in the subsequent ramp up of operations following the previously discussed shutdown further negatively impact costs during the quarter.

As touched on earlier, the Company also experienced cost increases in critical consumables in the quarter, including sodium carbonate, as well as an increase in the consumption of ammonium sulfate when compared to Q1 of last year. Our Q1 2023 cash cost performance was in line with our annual cost guidance range with cash operating costs, excluding royalties being $5.15 per pound sold compared to $3.97 per pound sold in Q1 of last year. However, due to the reasons previously noted, we have extended the higher end of our cash cross guidance range to $5.65 per pound sold. That’s up from $5.25 previously. Due to the increases in operating costs during the quarter, we reported a net loss of 1.2 million for Q1 2023. I’ll provide some additional color on some of the other Q1 2023 costs, which includes a $1.6 million increase in other general and administrative expenses.

This is mainly due to an increase in depreciation from the Company’s software intangible asset as well as increased IT costs associated with the implementation of the Company’s ERP system. We also saw increased cost at LCE, which were primarily related to increased logistics, as well as travel costs arising from installation activities associated with our VCHARGE battery deployment in Spain. In Q1 2023, the Company’s share base payments decreased by $2.2 million, resulting in an expense recovery of $1.3 million. This is primarily due to reversals and share based payment expenditures on forfeited unvested stock options and RSUs as well as the reduced number of stock options in RSUs granted compared to Q1 of last year. The Company’s finance costs in Q1 were $1.4 million for the quarter and that’s up from $1.2 million as a result of increased debt as well as an initial financing fee on the Company’s new debt facilities.

Finally, the Company exited the quarter with approximately $62 million in cash and a debt of $65 million, and a net working capital surplus of $119 million. That concludes my remarks for today. I’ll now turn the call over to Paul.

Paul Vollant: Thank you, Ernest, and good to speak with everyone who has joined today. We exceeded our Q1 quarterly sales targets with 2,849 tons sold inclusive of 245 tons of purchased material. And despite the Company’s operational setbacks, during the quarter, we delivered on our commercial commitment. Following to Q1 2023, we had a great month of sales in April with 1,101 tons sold, including 78 tons of purchased material. However, as a result of the reasons mentioned earlier, we expect lower sales for the rest of the year. And we have adjusted our annual sales forecast for 2023 from 10,300 tons to 11,300 tons to 8,700 tons to 10,700 tons. This translates into adjustment to our quarterly guidance ranges, which are provided on the current slide.

The vanadium market was strong in Q1 and prices increased continuously from the start of the year until mid March, supported by strong demand in the aerospace and energy storage industry. The average price for V2O5 in Europe was $10.39 in Q1 2023, down 3% from $10.72 in Q1 2022. And vanadium prices in Europe averaged $39.46 in Q1 2023, down 15% the average of $46.17 seen in Q1 2022. However, Largo achieved a higher average price in Q1, compared to the same period last year, thanks to a larger portion of our sales going into high purity applications. Since March, vanadium prices fell sharply, erasing all gains since the start of the year. We attribute this forward to lower demand and worsening sentiment from the steel sector in China. Yet, we continue to be bullish on vanadium medium and long-term fundamentals, thanks to considerable expected demand growth in the energy storage sector with anticipated gigawatt hour of VRFB deployments in China in the near and medium-term future.

It’s interesting to note that according to Vanitec, the global vanadium producers association, VRFB is now the second largest demand driver for vanadium and grew by almost 170% between 2020 and 2022. I’ll stop there and turn it back over to Daniel.

Daniel Tellechea: Thanks, Paul. Since becoming interim CEO, I have been focused on improving overall performance at the Company through additional operational efficiencies. Executing of these initiatives an important part of our commitment to deliver safe, reliable operations and maintaining capital discipline, in order to preserve our status as one of the world’s largest locals by now young producers. Largo has an unparalleled binary on assets with a business model that we believe is unmatched in the industry. The opportunity to leverage these competitive differentiators is expected to drive value for our shareholders more in the both in the short- and the long-term. And with that, this concludes our prepared remarks. And now, we will be happy to respond to any questions from participants on the call. Thank you.

Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] First question comes from Heiko Ihle at H.C. Wainwright. Please go ahead.

Operator: Thank you. The next question comes from Andrew Wong at RBC Capital Markets. Please go ahead.

Operator: The next question comes from [Mike Hine] at Noble Capital Management. Please go ahead.

Operator: [Operator Instructions] Next question comes from Steve Silver at Argus. Please go ahead.

Operator: Thank you. There are no further questions. I’ll now turn the call back over to Alex Guthrie for closing comments.

Alex Guthrie: Thanks operator. And that concludes the question-and-answer session and our quarterly investor conference call. Have a great day. Take care.

Operator: Ladies and gentlemen, this concludes your conference for today. We thank you for participating and we ask that you please disconnect your lines.